Interim results 6 months ended 30 June 2015

RNS Number : 7391Z

Randall & Quilter Inv Hldgs Ltd

22 September 2015

 

Randall & Quilter Investment Holdings Ltd.

("R&Q" or the "Group")

Interim results for the 6 months ended 30 June 2015

The Board of Randall & Quilter (AIM:RQIH), the specialist non-life insurance investor, service provider and underwriting manager, announces the Group's interim results for the 6 months ended 30 June 2015.

Overview

In line with the guidance given in the 2014 full year results announcement, the Group produced a pre-tax loss during the first 6 months of 2015, primarily as a result of the reasons given at that time; namely delays in the completion of legacy transactions and the customary second half bias in our service operations. Whilst our core operations are performing satisfactorily, slower income development in the US healthcare and legacy broking units and weakness in investment markets are likely to lead to the full year result being below market expectations. The Board is proposing to maintain distributions for the period at 3.4p per share.

Key highlights:

-      Pre-tax loss of £4.5m (H1 14 (£0.3m)) - driven by delays in legacy acquisitions, restructuring and investment costs in US services and a lower investment return 

-      Positive movements in run-off portfolios with strong net reserve release of £4.3m (H1 14 (£2.3m))

-      Considerable progress post period end in the completion of run-off deals, having received change of control approval for the IC Insurance acquisition and having passed a significant milestone in the largest Part VII transfer the Group has embarked upon to date 

-      Successful completion of sale of R&Q Marine Services Limited ('RQMS') to Hiscox at a premium to its carried value 

-      Continued strong performance in the UK operations of the Insurance Services Division ("ISD"), particularly broker run-off and premium credit control services

-      Post period end, awarded a potential turnkey contract for a high profile new Syndicate launch in 2016, pending Lloyd's approval

-      Underwriting Management Division ("UMD") revenues increased to £12.1m (H1 14 £8.1m) - driven by acquisition of Accredited, S1991 growth and China Re contract

-      A satisfactory investment return of 1.1% on the Group's 'free' assets (H1 14 1.9%)

-      Balance sheet strengthened through Issue of €20m Tier 2 Capital in R&Q Insurance Malta

-      Proposed Distributions per share maintained at 3.4p (H1 14 - 3.4p)

Group performance

£000s	30 June 2015	30 June 2014	31 Dec 2014
Group results
Operating loss * (Group KPI)	(4,028)	(345)**	(799)**
Loss before tax	(4,525)	(648)**	(1,559)**
(Loss)/profit after tax	(3,629)	484	(2,746)
Earnings per share (basic) (Group KPI)	(4.7)p	(0.9)p	(6.3)p
Balance sheet information
Total gross assets	502,765	480,755	537,599
Total net insurance contract provisions	177,917	178,222	191,479
Shareholders' equity	83,196	95,297	86,296
Key statistics
Investment return on free assets	1.1%	1.9%	2.4%
Return on tangible equity	(5.5)%	0.6%	(3.2)%
Net tangible assets per share (Group KPI)	84.3p	109.4p	88.2p
Distribution per share (Group KPI)	3.4p	3.4p	8.4p

*Operating loss is defined as loss before income tax, finance costs and share of loss of associate

** The operating loss and loss before tax are stated before deducting exceptional costs relating to the acquisition of Accredited of £250k (in the six months to 30 June 2014) and £750k (in the year ended 31 December 2014).

Ken Randall Chairman and Chief Executive Officer commented: "Despite a first half loss, recent positive developments on large legacy transactions mean we have confidence in delivering a profitable outcome for the full year, which together with stronger expected cash generation to year end, enables us to maintain distributions per share for the period.

The Board is fully committed to improving the financial performance of the Group and has launched a review of the business aimed at simplifying the Group's business model to focus on core areas of profitable growth. The Group's prospects continue to be attractive in our traditional run-off and service core and we wish to capitalise fully on our success in these operations. Having been chosen as the potential turnkey provider for an exciting new syndicate launch would add important scale and profile to our Lloyd's managing agency."

Strategy and business model

The overall mission and purpose of the Group is to offer investors a stable cash profit stream from Insurance Services, balance sheet growth/capital extractions from Insurance Investments and growth prospects through a fee focused Underwriting Management business.

Our main strategic objectives are to:

·     acquire or reinsure run-off insurance companies and portfolios to produce attractive returns;

·     provide specialist insurance services to the live, run-off and captive markets;

·     grow our Lloyd's managing agency business; and

·     develop Accredited, our new US admitted carrier, with diversified sources of revenue, including fee-based income.

The Group has developed a strong reputation and good relationships in the global insurance market. The Group benefits from a highly skilled, entrepreneurial and experienced workforce. We use these attributes to source and manage attractive run-off opportunities and to offer expertise in niche insurance services and underwriting management. The aim is to grow tangible book value and increase cash distributions to shareholders.

Group performance

The Group produced an operating loss of £4.0m and a loss before tax of £4.5m during the first six months of 2015, compared with an operating loss of £0.3m and a pre-tax loss of £0.6m in the prior year period. Basic earnings per share were -4.7p, after factoring in a tax credit of £0.9m in the period (H1 2014: -0.9p). As outlined in our 2014 full year results announcement at the end of June, the primary reasons for the weak performance were a delay in the completion of legacy transactions and the customary second half bias in income in our service operations. In addition, the Group's first half year result was impacted by very weak investment markets during June and a lack of revenue in our US legacy broking operation which had been focused on a large loss portfolio transfer which, against expectations, was not executed.  

Favourable movements in the foreign exchange markets and an improvement in the pension deficit mitigated the fall in net tangible assets per share, now 84.3p (Dec 2014: 88.2p), which was otherwise impacted by the trading result during the period.

Distributions per share, subject to customary approvals have been maintained at 3.4p, payable to those shareholders on the register on 27 October 2015 on or around 16 November 2015.

Divisional overview

Insurance Investments

£000s	30 June 2015	30 June 2014
Live income	7,444	4,716
Run-off Income	4,057	16,677
Total income	11,501	21,393
Result of operating activities (live and run-off)	(3,274)	1,375
Key metrics
Net insurance claims released - run-off	4,303	2,344
Claims reserves acquired through portfolio transfers	-	(7,393)
Total net claims provisions released/(increased)	4,303	(5,049)
Goodwill on bargain purchase	-	2,837
Live Syndicates' contribution to operating profit	(814)	(1,001)
Increase in fair value of insolvent insurance debt portfolio	243	625
* Investment return on free assets	1.0%	2.0%

* Investment return % is calculated as net investment income over average total investments. Investment return is stated after fees of £303k and £294k in H1 2015 and H1 2014 respectively.

The Insurance Investment Division generated a first half loss of £3.3m in 2015, compared to a profit of £1.4m for the equivalent period in the prior year.

Overall the results were negatively impacted by the delay to the completion of legacy transactions during the period, compared to a contribution from goodwill on bargain purchase arising from three deals amounting to £2.8m and the Aegon retrospective reinsurance transaction which brought in a premium over reserves of just over £3m during the prior year period.

Despite the absence of legacy transactions in the first six months of 2015, there has been considerable progress in the core run-off acquisition activity during the third quarter, and we are pleased to report that contribution from this activity is now anticipated to exceed our original expectations for the year.  The impending introduction of Solvency II and other equivalent solvency regimes continues to produce opportunities.

The first half of 2015 saw positive movements in the run-off portfolios with higher reserve releases than the prior year period, especially in the European based run-off portfolios and the Bermuda based captives. Furthermore, the successful resolution of the Kelco arbitration, reported on in the full year results, removed uncertainty from the run-off syndicates and positively impacted Group cash flow.

RQLM's debt purchase activity and the live syndicate participations performed in-line with expectations. 

Investment income on the IID's 'free assets' of £1.6m (1.0%) was satisfactory, having regard to market conditions but considerably lower than the prior year period (£3.4m, 2.0%).

Insurance Services

£000s	30 June 2015	30 June 2014
Total revenue	16,790	15,395
-      Of which intercompany	6,477	6,891
-      Of which third party	10,313	8,504
Operating profit *	519	3,764
Operating profit margin **	3.1%	24.4%

*Operating profit is defined as profit before income tax and finance costs

**Operating profit margin is defined as operating profit divided by total income

Revenue in Insurance Services increased strongly in the third party segment against the prior year period, driven by growth in the UK broker and financial services run-off, premium credit control and binding authority management services. The overall result was however impacted by the restructuring costs incurred in US services, continued investment in the US Healthcare initiative and lack of revenue in the US legacy broking unit. The prior year period had also benefited from £2.8m of goodwill on bargain purchase associated with the acquisition of Oval's financial services run-off company.

Underwriting Management

£000s	30 June 2015	30 June 2014
Total revenue	12,141	8,400
Operating loss *	(507)	(699)
Operating loss margin **	(4.2)%	(8.3)%
Key metrics
Management fee revenue	6,446	5,929
MGA commission revenue	1,232	2,549
Profit commissions	274	(146)
Accredited
-      Profit before tax	474	N/A
-      Return on net tangible equity	7.3%	N/A

*Operating loss is defined as loss before income tax, finance costs and share of loss of associate

** Operating loss margin is defined as operating profit/(loss) divided by total income

Revenue rose strongly in the Underwriting Management division due to the acquisition of Accredited, the growth of Syndicate 1991 and the new China Re contract. Adjusting for the loss of commission income following the sale of RQMS in February 2015, the remaining two MGA businesses grew premium and commissions against the prior year. The profit arising from the sale of RQMS at a premium to book value was credited to the Group's 'Other Corporate' division. Accredited produced profits in line with expectations with all current income being generated from the bail book as the new business will only begin to flow in early 2016 once further state licenses have been granted.

Overall, the operating loss was modestly lower than the prior year period.  

Governance

We set high standards of corporate governance, with a structure designed to establish, implement and maintain the effective controls essential to the Group's long-term success. The role of the Board is to set the Group's strategic objectives, and to oversee and review management performance, ensuring the required resources are available for meeting those objectives. The Board met regularly through the year to debate and conduct these matters.

Our people

During the past six months, our staff has continued to make valuable contributions to the success of the Group and I emphasise my gratitude for this. We thank especially those people who have helped in our development but have left the Group as part of an ongoing cost management exercise.

Outlook

We continue to expect a materially better full year result in 2015 compared with 2014, subject to customary actuarial reviews. Despite a sizeable first half loss, recent positive developments on two large legacy transactions mean we have confidence in delivering a profitable outcome for the full year, which together with stronger expected cash generation to year end, has led to in the maintenance of distributions per share at 3.4p per share.

The results of the run-off companies, legacy acquisition activity, UK services and the Underwriting Management operations remain in line or ahead of earlier expectations for 2015. However, in spite of satisfactory performance in these core operations, the combined impact of considerably slower income development in US healthcare, a disappointing performance by our US legacy broking unit and prolonged weakness in investment markets are likely to lead to the full year result being below market expectations.

The Board is fully committed to improving the financial performance of the Group after the recent period of underperformance. We have therefore commenced a review aimed at simplifying the Group's business model to focus on areas of the business where we have a track record of delivering profitable growth or where we have strong prospects of doing so within a reasonable timeframe.

In those operations where short term income prospects have reduced but where we remain convinced of the ability to generate profitable growth and shareholder value over the longer term, we will consider ways in which we can reduce costs until market conditions improve. At all times, we will maintain the high levels of regulatory compliance, governance and service vital to success in the markets in which we operate. In certain areas of the business, gaining the required scale to deliver sufficiently attractive and sustainable operating margins may lead to strategic partnerships or disposals.

The Board believes that the prospects for the Group's core operations continue to be attractive. Its traditional run-off and service core look to have profitable opportunities for expansion and our success in these operations is evident. Meanwhile, being chosen as turnkey provider to a potential high profile syndicate start-up should, in the event of securing Lloyd's approval, give both added scale and profile to our managing agency.

Chairman.

Enquiries:

Company	Randall & Quilter Investment Holdings Ltd Tom Booth	Tel: [phone]
Nominated Advisor	Numis Securities Limited & Joint Broker Stuart Skinner (Nominated Advisor) Charlie Farquhar (Broker)	Tel: [phone] Tel: [phone]
Joint Broker	Shore Capital Stockbrokers Ltd Dru Danford Stephane Auton	Tel: [phone] Tel: [phone]
Financial PR:	FTI Ed Berry/Tom Blackwell	Tel: [phone]

Insurance Investments Division ("IID")

£000s	30 June 2015	30 June 2014
Live income	7,444	4,716
Run-off income	4,057	16,677
Total Income	11,501	21,393
Live operating loss	(814)	(1,002)
Run-off operating (loss)/profit	(2,460)	2,377
Operating (loss)/profit	(3,274)	1,375
Net claims releases/(increases)
Europe	2,897	1,658
US	368	693
Bermuda	716	-
Run-off Syndicates	322	(462)
Acquired through portfolio transfers	-	(7,400)
Total	4,303	(5,511)
Goodwill on bargain purchase
Europe	-	916
Bermuda	-	325
Other	-	1,596
Total	-	2,837
RQLM
Fair value of debt	12,665	10,597
Movement in fair value of debt	243	625
Investment return on free assets
Percentage*	1.0%	2.0%
Net investment income	1,618	3,375

* Investment return % is calculated as net investment income over average total investments. Investment return is stated after fees of £303k and £294k in H1 2015 and H1 2014 respectively.

The first six months to June 30, 2015 saw a reduction in total income and a fall in profitability, when compared to the equivalent period in 2014.

Income rose in the live segment as a direct result of the growth experienced in s1991, which has now begun to see premium levels rise. In the run-off segment, income dropped against the prior year period, primarily as a result of 2014 benefiting from a large retrospective premium associated with the reinsurance of Aegon's legacy non-life book as well as lower investment income.

Operating losses in the live segment narrowed slightly as higher premium income levels mitigated the expense drag. In the run-off segment, profitability was impacted by the lack of legacy transactions in the period as well as lower investment income.

Net Claims Releases

2015 saw stronger net reserve releases from the owned insurance portfolios in run-off than the prior year period. This was most notable in certain of the newly acquired portfolios in Malta as well as in R&Q Re UK, La Licorne and the Bermuda captives, where commutations delivered claims savings and lower than anticipated new claims activity brought down IBNR reserves. The run-off syndicates performed well with redundancy found in the smaller value claims' reserves. It was of course also pleasing to report a successful resolution to the long-standing dispute concerning the 'Kelco' life settlement claim in former Syndicate 102.

Goodwill on bargain purchase

Whilst the Group experienced high transactional activity, no legacy transactions completed during the first half of 2015.  This was the main source of negative variance against the prior year result which benefitted from the acquisition of  three new entities producing goodwill on bargain purchase of £2.8m and the Aegon retrospective reinsurance, which delivered over £3m of accounting profit.

As has been already commented on, progress in Q3 has however been very pleasing with change of control approval having recently been received for the acquisition of IC Insurance, allowing completion, and the successful passing of the Court Sanction Hearing in relation to a large UK P&I club Part VII transfer to R&Q Insurance Malta, which after the customary three month policyholder notification period, should be completed before year end. A number of other smaller transactions are well advanced, some of which are likely to be signed imminently, subject to customary approvals in jurisdictions ranging from Liechtenstein, Ireland, Malta and Bermuda to the Cayman Islands. As previously advised, R&Q Malta continues to play an important part in our M&A strategy as an EEA run-off consolidation vehicle. R&Q Malta recently completed a successful Tier 2 (subordinated debt) capital raise. This resulted in additional capital of Euros 20 million, which will be used to support the Group's EEA based M&A activity and has provided additional statutory capital for R&Q Malta, further bolstering policyholder protection and solvency coverage.

Reduced servicing costs in some of the mature run-offs were offset by an increased number of group entities against the prior year period resulting in overall expenses being relatively unchanged against the year prior.

Insolvent insurance debt portfolio ('RQLM')

RQLM Limited is our subsidiary in Bermuda that is dedicated to acquiring insurance debt from insolvent estates. The results were in line with expectations as the portfolio continued to run-off to plan. The fair value of debt increased to £12.7m from £10.6m primarily due to the acquisition of a new debt position during the period with our joint venture partner, Phoenix Asset Management. We are also pleased to announce that we have recently received dividends on some existing debt positions, in line with plan, with others likely to follow prior to year-end.

Investments and investment income (including Funds at Lloyd's)

Asset Class	Share of Portfolio
	30 June 2015	31 December 2014	30 June 2014
ABS	0%	20%	30%
CLO	23%	24%	27%
Bonds/Treasuries	12%	11%	11%
Equity	7%	9%	8%
Funds	17%	14%	13%
Cash/Cash Equivalents	41%	22%	11%
	100%	100%	100%

Credit Rating	Share of Portfolio
	30 June 2015	31 December 2014	30 June 2014
Cash	41%	22%	7%
AAA	6%	10%	19%
AA	18%	18%	22%
A	10%	24%	26%
BBB	1%	2%	-
BB	8%	9%	11%
Unrated *	16%	15%	15%
Total	100%	100%	100%
* 'Unrated' includes cash held within our Funds at Lloyd's

Despite the difficult investment markets at the end of the period, the Group generated a satisfactory investment performance during the first half of 2015 with an average return of 1.0% on IID's 'free assets' of approximately £160.0m equivalent. The majority of the price declines in the latter part of the first half year occurred in the equity portfolio, though falls were mitigated by our high income, low beta bias. There were also losses from the sale of the ABS portfolio during June, which was done on value grounds and in part to fund claims payments in R&Q Re US. This decision has been vindicated by further weakness in this asset class in Q3. The high yield funds held up well given the manager's high cash position, hedging strategy and low credit spread duration. The CLO portfolio proved resilient given its relative value and lower tradability.

Other than the ABS realisations which resulted in higher cash allocations at the end of the period, the Group's asset allocations and credit ratings otherwise remained similar to the end of 2014.

During July, we appointed two new investment managers to manage all of our US and non-US assets respectively. The decision to pool our investments was taken to reduce management costs, improve flexibility, reporting and performance management. In particular, we felt that there would be less friction involved in changing asset allocations according to market conditions.

The low interest rate duration and structured credit focus continues though there have been significant reductions in the ABS portfolio, a cautious increase in duration and higher allocations to cash and corporate credit. The target total return remains at 2.5-3% but a lacklustre July and weak August have led to reduced expectations for the 2015 year.  

Outlook

Despite the investment income headwinds, the outlook for the division for the remainder of the year and beyond is positive with a higher than expected contribution from legacy acquisition activity and reserve releases for the full year. R&Q Malta is benefiting from its operational flexibility and now has additional capital to help execute its significant pipeline of opportunities. In Bermuda, the North American M&A team expects to close a number of new captive related acquisitions and novations, including some in new domiciles by year end. Consideration is also being given to redomiciling one of the Group's existing US entities to Rhode Island or establishing a new entity there to take advantage of new recently passed portfolio transfer legislation designed to offer US insurers finality legacy solutions, hitherto not available. The Group is also exploring securing a credit rating for one of its reinsurance carriers to further increase its transactional reach as well as offering loss portfolio solutions to self-insurers with legacy workers' compensation reserves.

The live syndicate results are running to plan, though still producing small losses. As income continues to grow, with record monthly premium levels now being achieved, expenses will be further mitigated and the bottom line result will improve. The loss ratio continues to be in line or ahead of plan.

We expect our associated Lloyd's capital requirements to fall significantly by the end of 2015 as early year capital loadings fall away and Syndicate 1991's track record as regards claims loss ratios is proven. Furthermore, the successful resolution of the Kelco dispute will reduce the capital required to support open year reserves and also remove the capital loading previously levied on this large outstanding claim.  

Insurance Services Division

£000s	30 June 2015	30 June 2014
Total income	16,790	15,395
-      Of which intercompany	6,476	6,891
-      Of which third party	10,314	8,504
Operating profit *	519	3,764
Operating profit margin **	3.1%	24.4%

*Operating profit is defined as profit before income tax and finance costs

**Operating profit margin is defined as operating profit divided by total income

Total income grew by approximately 9.0% in the Insurance Services Division. Operating profit however decreased, primarily due to the absence of the large amount of goodwill on bargain purchase which arose on the acquisition of Oval financial services in 2014.

Run-off services

£000s	30 June 2015	30 June 2014
Total income	10,268	9,704
Operating profit *	1,998	5,587
Operating profit margin **	19.5%	57.6%
Operating profit margin excluding goodwill on bargain purchase **	19.5%	40.1%

*Operating profit is defined as profit before income tax and finance costs

**Operating profit margin is defined as operating profit divided by total income

Run-off services continued to perform well during the first half of 2015 with income growth in the external segment more than mitigating reductions in internal income. We expanded the broker service contracts with a number of insurers in the period and whilst credit write backs continued, they were again lower than the prior year, reflecting a further improvement in the quality of income. Operating profit decreased due to the absence of goodwill on bargain purchase and the reduced contribution from maturing internal service contracts, which was group neutral as it reduced expenses in IID by the same amount. The operating margin of almost 20% remained strong. 

Live Services

£000s	30 June 2015	30 June 2014
Total income	6,522	5,691
-      Of which non-US	4,240	3,532
-      Of which US	2,282	2,159
Operating loss *	(1,479)	(1,823)
-      Of which non-US	(258)	(315)
-      Of which US	(1,221)	(1,508)
Operating profit margin **	(22.7)%	(32.0)%

*Operating profit is defined as profit before income tax and finance costs

**Operating profit margin is defined as operating profit divided by total income

The first half 2015 income and operating result in live services were impacted again by a weak result in the US, although the operating loss did improve compared to 2014. Overall, despite income increasing in 2015, there was only a marginal improvement in the operating loss due to increased operating expenses associated with the Healthcare initiative, restructuring costs in relation to the US third party service business (now focused on profitable accounting and consultancy contracts), and one-off costs associated with staff changes in the Norwegian captive management business.

The US Healthcare initiative has finally begun to produce income as the first workers' compensation opioid cases have now been referred by the Group to the University of California Hospitals. Additional staff has been added and further expenses incurred to ensure that marketing channels are optimized. Though there are early signs of good results from this additional investment, income for the remainder of the year is likely to remain very subdued; however we are encouraged by the potential for 2016. 

Our US legacy broking suffered from focusing on a large loss portfolio transfer which was not concluded, after considerable work by the team. Elsewhere, the UK credit control operations delivered further income and profit growth, whilst the non-US operating result was impacted by the Norwegian captive manager staff changes and weak performance in our Gibraltar and US captive/insurance management operations. There were subdued income levels in our MGA audit operations but these have an increasing H2 income bias and look set to perform well during the remainder of the year.

Outlook

The UK services operations on both the run-off and live services continue to perform in line or ahead of expectations with some exciting opportunities for further growth, particularly in premium credit control. The core US third party service business will have much improved performance in the second half after recent cost reductions and a natural income bias in the latter part of the year. The captive management business in Bermuda continues to deliver good margins whilst Norway looks set to have a much better second half year after one-off employment costs impacted the first half result. Achieving sufficient scale in the remaining captive operations remains challenging.

The US healthcare initiative is now producing income, although much delayed against original expectations. The range of potential revenue and profit outcomes remains considerable but we remain cautiously optimistic with 2016 likely to be a pivotal year. The legacy broking operation is relatively low cost and the pipeline of opportunities is encouraging but execution has proven difficult and slow. The disappointing level of income produced in the current year in both healthcare and legacy broking has impacted the overall Group result against earlier expectations. Given the early stage of development of the former and contingent nature of the latter's income, the Group will take a much more cautious approach to forecasting the contribution of these operations in the future, until operating performance becomes sufficiently predictable.      

Underwriting Management Division

£000s	30 June 2015	30 June 2014
Total income	12,141	8,400
-      Of which Accredited	3,874	-
Operating loss *	(507)	(699)
-      Of which Accredited	474	-
Operating loss margin **	(4.2)%	(8.3)%
Key metrics
Management fee revenue	6,446	5,929
MGA commission revenue	1,232	2,549
Profit commissions	274	(146)
Accredited
-      Profit before tax	474	N/A
-      Return on net tangible equity	7.3%	N/A

*Operating loss is defined as profit/(loss) before income tax, finance costs and share of loss of associate

** Operating loss margin is defined as operating loss divided by total revenue

The Underwriting Management Divisions has seen its income grow significantly, which is a result of the acquisition of Accredited in November 2014 and stronger syndicate management fees arising from the growth of Syndicate 1991 and the inception of the China Re contract.

Overall, the UMD operating loss was slightly lower than that generated in 2014. This was due to the income generated by Accredited being offset by the income lost from the disposal of R&Q Marine Services Limited to Hiscox. This disposal, which was completed in February 2015, generated a profit against carrying value, which has been credited to the 'Other Corporate' segment. The Board believed that the future growth of the business would be optimised under new ownership at Hiscox and that the value of this underwriting portfolio was greater to a large carrier, making a sale the most effective means of generating shareholder value. The remaining two MGA business units grew premiums and commission income against the prior year and are broadly tracking to plan despite challenging market conditions.

Last year we announced that we had been selected by XL Catlin to provide back office support for Syndicate 2088, which is managed by XL Catlin and backed by China Re. We continue to provide management and service support. We are also pleased to announce that we have recently been chosen as a potential turnkey provider to a 2016 start-up syndicate supported by a large international insurance group, subject to Lloyd's approval.

During the first half of 2015, we have been focusing on successfully integrating Accredited into the Group and developing its new expanded business plan. The company's existing bail book has generated a positive contribution to the Group's income and operating result, in line with expectations. We anticipate that its contribution will increase as our strategic initiatives take effect during the course of 2016 and beyond. We are in the process of expanding Accredited's licences nationwide and we are pleased to announce that we have now received approval to write six new major P&C lines in nearly 30 states. This will provide valuable new business flows to Syndicate 1991 and other authorised reinsurer markets, whilst generating a valuable source of commission income for the Group.

Condensed Consolidated Income Statement for the six months ended 30 June 2015

			Six months ended 30 June  2015		Six months   ended 30 June  2014		Year  ended 31 December  2014
			(unaudited)		(unaudited)		(audited)
	Note		£000		£000		£000
Gross premiums written			13,572		16,786		24,751
Reinsurers' share of gross premiums			257		(642)		(1,285)
Premiums written, net of reinsurance			13,829		16,144		23,466
Change in gross provision for unearned premiums			(1,826)		(1,479)		(3,996)
Change in provision for unearned premiums, reinsurers' share			(495)		487		738
Net change in provision for unearned premiums			(2,321)		(992)		(3,258)
Earned premiums net of reinsurance			11,508		15,152		20,208
Investment income	4		2,301		4,131		5,626
Other income			24,093		16,117		39,560
			26,394		20,248		45,186
Total income	3		37,902		35,400		65,394
Gross claims paid			(23,059)		(25,158)		(46,624)
Reinsurers' share of gross claims paid			7,081		12,436		26,475
Claims paid, net of reinsurance			(15,978)		(12,722)		(20,149)
Movement in gross technical provisions			23,529		15,534		8,705
Movement in reinsurers' share of technical provisions			(7,488)		(10,992)		172
Net change in provision for claims			16,041		4,542		8,877
Net insurance claims released/(incurred)			63		(8,180)		(11,272)
Operating expenses			(41,554)		(33,284)		(69,859)
Result of operating activities before goodwill on bargain purchase and impairment of intangible assets	3		(3,589)		(6,064)		(15,737)
Goodwill on bargain purchase			-		5,663		14,592
Impairment of intangible assets			(439)		(194)		(404)
Result of operating activities			(4,028)		(595)		(1,549)
Finance costs			(435)		(275)		(649)
Share of loss of associate			(62)		(28)		(111)
(Loss)/profit on ordinary activities before income taxes			(4,525)		(898)		(2,309)
Income tax credit/(charge)	5		896		1,382		(437)
(Loss)/profit for the period	3		(3,629)		484		(2,746)
Attributable to equity holders of the parent:-
Attributable to ordinary shareholders			(3,380)		(618)		(4,509)
Non-controlling interests			(249)		1,102		1,763
			(3,629)		484		(2,746)
Earnings per ordinary share for the profit attributable to the ordinary shareholders of the Company:-
Basic	7		(4.7p)		(0.9p)		(6.3p)
Diluted	7		(4.7p)		(0.9p)		(6.3p)

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Financial Position as at 30 June 2015

Company number 47341

	Note		30 June 2015		30 June 2014	31 December 2014
			(unaudited)		(unaudited)		(audited)
			£000		£000		£000
Assets
Intangible assets			22,673		16,819		23,090
Investments in associates			56		199		117
Property, plant and equipment			1,101		1,648		1,528
Investment properties			756		985		973
Financial assets			113,951		156,157		167,238
Reinsurers' share of insurance liabilities	6		160,176		146,084		171,404
Current tax assets			4,731		3,042		3,835
Deferred tax assets			8,883		6,838		7,861
Insurance and other receivables			112,923		98,549		114,783
Cash and cash equivalents			77,515		50,434		46,770
Total assets			502,765		480,755		537,599
Liabilities
Insurance contract provisions	6		338,093		324,306		362,883
Financial liabilities			25,271		19,834		28,636
Deferred tax liabilities			2,952		1,826		3,509
Insurance and other payables	8		36,955		29,094		38,997
Current tax liabilities			5,712		3,998		5,855
Pension scheme obligations			7,689		3,914		8,262
Total liabilities			416,672		382,972		448,142
Equity
Share capital			1,436		1,435		1,435
Other reserves			17,427		19,833		17,252
Retained earnings			64,333		74,029		67,609
Attributable to equity holders of the parent			83,196		95,297		86,296
Non-controlling interests			2,897		2,486		3,161
Total equity			86,093		97,783		89,457
Total liabilities and equity			502,765		480,755		537,599

The Condensed Consolidated Financial Statements were approved by the Board of Directors on 21 September 2015 and were signed on its behalf by: 

K E Randall                   T A Booth

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Cash Flow Statement for the six months ended 30 June 2015			Six months   ended 30 June  2015		Six months   ended 30 June  2014		Year ended 31 December 2014
			(unaudited)		(unaudited)		(audited)
			£000		£000		£000
Loss before income taxes			(4,525)		(898)		(2,309)
Finance costs			435		275		649
Depreciation			409		316		676
Share based payments			-		-		213
Share of losses of associates			62		28		111
Goodwill on bargain purchase			-		(5,663)		(14,592)
Profit on disposal of subsidiary			(6,514)		-		-
Amortisation of intangible assets			439		194		404
Fair value (gain)/loss on financial assets			9		(1,541)		(242)
(Gain)/loss on disposal of investment property			(23)		-		-
(Gain)/loss on net assets of pension schemes			(992)		145		217
Decrease/(Increase) in receivables			1,068		(2,902)		(23,079)
Decrease in deposits with ceding undertakings			183		911		975
(Decrease)/increase in payables			(1,286)		4,142		8,701
Decrease in net insurance technical provisions			(13,681)		(3,550)		(5,620)
			(24,416)		(8,543)		(33,896)
Sale of financial assets			54,358		15,327		22,901
Purchase of financial assets			(1,497)		(14,809)		(10,574)
Cash used in operations			28,445		(8,025)		(21,569)
Income taxes repaid			-		-		-
Net cash from/(used in) operating activities			28,445		(8,025)			(21,569)
Purchase of property, plant and equipment			(64)		(535)		(704)
Proceeds from sale of property, plant and equipment			78		-		-
Purchase of intangible assets			(223)		(40)		(264)
Acquisition of subsidiary undertaking (offset by cash acquired)			-		15,806		20,398
Proceeds from sale of subsidiary undertaking (net of cash disposed of)			6,563		-		-
Proceeds from sale of investment properties			223		-		-
Share of cash from reinsurance of syndicate			-		-		530
Net cash from investing activities			6,577		15,231		19,960
Repayment of borrowings			(4,831)		(1,134)		(19,328)
New borrowing arrangements			1,465		2,070		28,576
Equity dividends paid			-		(1,844)		(3,011)
Interest and other finance costs paid			(435)		(275)		(649)
Cancellation of shares			-		(1,745)		(3,015)
Purchase of treasury shares			-		-		(403)
Sale of treasury shares			-		-		53
Net cash (used in)/from financing activities			(3,801)		(2,928)		2,223
Net increase in cash and cash equivalents			31,221		4,278		614
Cash and cash equivalents at beginning of period			46,770		46,942		46,942
Foreign exchange movement on cash and cash equivalents			(476)		(786)		(786)
Cash and cash equivalents at end of period			77,515		50,434		46,770
Share of Syndicates' cash restricted funds			1,043		3,250		1,987
Unrestricted funds			76,472		47,184		44,783
Cash and cash equivalents at end of period			77,515		50,434		46,770

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements

Condensed Consolidated Statement of Comprehensive Income for the six months ended 30 June 2015

			Six months ended 30 June 2015		Six months ended 30 June 2014	Year ended 31 December  2014
			(unaudited)		(unaudited)		(audited)
			£000		£000		£000
Other comprehensive income:-
Items that will not be reclassified to profit or loss:
Pension scheme actuarial gains/(losses)			733		(838)		(5,027)
Deferred tax on pension scheme actuarial gains/(losses)			(147)		168		1,005
			586		(670)		(4,022)
Items that may be subsequently reclassified to profit or loss:-
Exchange (losses)/gains on consolidation			(305)		(457)		373
Other comprehensive income			281		(1,127)		(3,649)
(Loss)/profit for the period			(3,629)		484		(2,746)
Total comprehensive income for the period			(3,348)		(643)		(6,395)
Attributable to:-
Equity holders of the parent			(3,100)		(1,758)		(8,185)
Non-controlling interests			(248)		1,115		1,790
Total comprehensive income for the period			(3,348)		(643)		(6,395)

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Changes in Equity for the six months ended 30 June 2015

	Share capital	Share option costs		Share premium		Treasury shares	Retained profit	Total	Non-controlling interest	Total
	£'000	£'000		£'000		£'000	£'000	£'000	£'000	£'000
Six months ended 30 June 2015 (unaudited)
At beginning of period	1,435	64		17,363		(175)	67,609	86,296	3,161	89,457
Total comprehensive income for the period
Loss for the period	-	-		-		-	(3,380)	(3,380)	(249)	(3,629)
Other comprehensive income
Exchange gains on consolidation	-	-		-		-	(306)	(306)	1	(305)
Pension scheme actuarial gains	-	-		-		-	733	733	-	733
Deferred tax on pension scheme actuarial gains	-	-		-		-	(147)	(147)	-	(147)
Total other comprehensive income for the period	-	-		-		-	280	280	1	281
Total comprehensive income for the period	-	-		-		-	(3,100)	(3,100)	(248)	(3,348)
Transactions with owners
Non-controlling interest in subsidiary disposed	-	-		-		-	-	-	(16)	(16)
Treasury shares	1	-		-		175	(176)	-	-	-
At end of period	1,436	64		17,363		-	64,333	83,196	2,897	86,093
Condensed Consolidated Statement of Changes in Equity for the six months ended 30 June 2014
	Share capital	Share option costs		Share premium		Treasury shares	Retained profit	Total	Non-controlling interest	Total
	£'000	£'000		£'000		£'000	£'000	£'000	£'000	£'000
Six months ended 30 June 2014 (unaudited)
At beginning of period	1,435	84		23,392		(54)	75,787	100,644	1,371	102,015
Total comprehensive income for the period
(Loss)/profit for the period	-	-		-		-	(618)	(618)	1,102	484
Other comprehensive income
Exchange losses on consolidation	-	-		-		-	(470)	(470)	13	(457)
Pension scheme actuarial losses	-	-		-		-	(838)	(838)	-	(838)
Deferred tax on pension scheme actuarial losses	-	-		-		-	168	168	-	168
Total other comprehensive income for the period	-	-		-		-	(1,140)	(1,140)	13	(1,127)
Total comprehensive income for the period	-	-		-		-	(1,758)	(1,758)	1,115	(643)
Transactions with owners
Issue of P&Q shares	3,589	-		(3,589)		-	-	-	-	-
Cancellation of P Shares	(1,844)	-		-		-	1,844	-	-	-
Cancellation of Q shares	(1,745)	-		-		-	-	(1,745)	-	(1,745)
Dividends	-	-		-		-	(1,844)	(1,844)	-	(1,844)
At end of period	1,435	84		19,803		(54)	74,029	95,297	2,486	97,783

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Changes in Equity for the year ended 31 December 2014

	Share capital	Share option costs	Share premium		Treasury shares	Retained profit	Total	Non-controlling interest	Total
	£'000	£'000	£'000		£'000	£'000	£'000	£'000	£'000
Year ended 31 December 2014 (audited)
At beginning of year	1,435	84	23,392		(54)	75,787	100,644	1,371	102,015
Total comprehensive income for the year
Profit for the year	-	-	-		-	(4,509)	(4,509)	1,763	(2,746)
Other comprehensive income
Exchange gains on consolidation	-	-	-		-	346	346	27	373
Pension scheme actuarial losses	-	-	-		-	(5,027)	(5,027)	-	(5,027)
Deferred tax on pension scheme actuarial losses	-	‑	-		-	1,005	1,005	-	1,005
Total other comprehensive income for the year	-	-	-		-	(3,676)	(3,676)	27	(3,649)
Total comprehensive income for the year	-	-	-		-	(8,185)	(8,185)	1,790	(6,395)
Transactions with owners
Issue of P-S shares	6,029	-	(6,029)		-	-	-	-	-
Cancellation of P&R shares	(3,015)	-			-	-	(3,015)	-	(3,015)
Cancellation of Q&S shares	(3,014)	-	-		-	3,014	-	-	-
Treasury shares	-	(20)	-		(121)	4	(137)	-	(137)
Dividends	-	-	-		-	(3,011)	(3,011)	-	(3,011)
At end of year	1,435	64	17,363		(175)	67,609	86,296	3,161	89,457

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

1.         Basis of preparation

 The Condensed Consolidated 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 Consolidated Financial Statements for the 2015 and 2014 half years are unaudited, but have been subject to review by the Group's auditors. 

Certain insignificant changes have been made to prior year amounts to reclassify line items to conform with current year presentation.  There is no impact on the result for the period or total shareholders' equity. 

2.         Significant accounting policies

The accounting policies adopted in the preparation of the Condensed Consolidated Financial Statements are consistent with those followed in the preparation of the Group's Consolidated Financial Statements for the year ended 31 December 2014 other than as detailed below.  There have been no amendments to accounting policies.

New standards effective from 1 January 2015:-

IFRS 1 - First-time adoption of IFRS;

IFRS 3 - Business combinations;

IFRS 13 - Fair value measurements; and

IAS 40 - Investment property

The adoption of these standards has had no material impact on the Group's accounting policies.

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 (including captive management) to both internal and external clients in the insurance market

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

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

Segment result for the six months ended 30 June 2015 (unaudited)

	Insurance Investments			Insurance	Underwriting	Other	Consolidation
	Live	Run-off	Total	Services	Management	Corporate	adjustments	Total
	£000	£000	£000	£000	£000	£000	£000	£000
Earned premium, net of reinsurance	7,444	341	7,785	-	3,723	-	-	11,508
Net investment income	-	3,509	3,509	716	228	2,574	(4,726)	2,301
External income	-	26	26	10,313	7,218	6,536	-	24,093
Internal income	-	181	181	5,761	972	599	(7,513)	-
Total income	7,444	4,057	11,501	16,790	12,141	9,709	(12,239)	37,902
Claims paid, net of reinsurance	(2,114)	(13,857)	(15,971)	-	(7)	-	-	(15,978)
Net change in provision for claims	(2,035)	18,160	16,125	-	(84)	-	-	16,041
Net insurance claims (increased)/released	(4,149)	4,303	154	-	(91)	-	-	63
Operating expenses	(4,109)	(10,675)	(14,784)	(16,208)	(12,455)	(5,620)	7,513	(41,554)
Result of operating activities before goodwill on bargain purchase	(814)	(2,315)	(3,129)	582	(405)	4,089	(4,726)	(3,589)
Goodwill on bargain purchase	-	-	-	-	-	-	-	-
Amortisation and impairment of intangible assets	-	(145)	(145)	(63)	(102)	(129)	-	(439)
Result of operating activities	(814)	(2,460)	(3,274)	519	(507)	3,960	(4,726)	(4,028)
Finance costs	-	(694)	(694)	(843)	(267)	(3,357)	4,726	(435)
Share of loss of associate	-	-	-	-	(62)	-	-	(62)
(Loss)/profit on ordinary activities before income taxes	(814)	(3,154)	(3,968)	(324)	(836)	603	-	(4,525)
Income tax credit/(charge)	-	811	811	192	(175)	68	-	896
(Loss)/profit for the year	(814)	(2,343)	(3,157)	(132)	(1,011)	671	-	(3,629)
Non-controlling interests	-	-	-	48	201	-	-	249
Attributable to shareholders of parent	(814)	(2,343)	(3,157)	(84)	(810)	671	-	(3,380)
Segment assets	13,309	521,993	535,302	89,093	43,265	167,716	(332,611)	502,765
Segment liabilities	18,648	397,741	416,389	86,733	26,223	219,938	(332,611)	416,672

Segment result for the six months ended 30 June 2014 (unaudited)

	Insurance Investments			Insurance	Underwriting	Other	Consolidation
	Live	Run-off	Total	Services	Management	Corporate	adjustments	Total
	£000	£000	£000	£000	£000	£000	£000	£000
Earned premium, net of reinsurance	4,706	10,446	15,152	-	-	-	-	15,152
Net investment income	10	5,218	5,228	451	114	1,239	(2,901)	4,131
External income	-	632	632	8,498	6,987	-	-	16,117
Internal income	-	381	381	6,446	1,299	683	(8,809)	-
Total income	4,716	16,677	21,393	15,395	8,400	1,922	(11,710)	35,400
Claims paid, net of reinsurance	(1,002)	(11,720)	(12,722)	-	-	-	-	(12,722)
Net change in provision for claims	(1,667)	6,209	4,542	-	-	-	-	4,542
Net insurance claims increased	(2,669)	(5,511)	(8,180)	-	-	-	-	(8,180)
Operating expenses	(3,049)	(11,520)	(14,569)	(14,426)	(9,042)	(4,056)	8,809	(33,284)
Result of operating activities before goodwill on bargain purchase	(1,002)	(354)	(1,356)	969	(642)	(2,134)	(2,901)	(6,064)
Goodwill on bargain purchase	-	2,837	2,837	2,826	-	-	-	5,663
Amortisation and impairment of intangible assets	-	(106)	(106)	(31)	(57)	-	-	(194)
Result of operating activities	(1,002)	2,377	1,375	3,764	(699)	(2,134)	(2,901)	(595)
Finance costs	-	(1,005)	(1,005)	(740)	(229)	(1,202)	2,901	(275)
Share of loss of associate	-	-	-	-	(28)	-	-	(28)
(Loss)/profit on ordinary activities before income taxes	(1,002)	1,372	370	3,024	(956)	(3,336)	-	(898)
Income tax (charge)/credit	-	1,148	1,148	108	38	88	-	1,382
(Loss)/profit for the year	(1,002)	2,520	1,518	3,132	(918)	(3,248)	-	484
Non-controlling interests	-	(776)	(776)	(198)	(128)	-	-	(1,102)
Attributable to shareholders of parent	(1,002)	1,744	742	2,934	(1,046)	(3,248)	-	(618)
Segment assets	13,514	517,136	530,650	82,174	15,233	68,261	(215,563)	480,755
Segment liabilities	17,116	397,590	414,706	76,897	18,702	88,230	(215,563)	382,972

Segment result for the year ended 31 December 2014 (audited)

	Insurance Investments			Insurance	Underwriting	Other	Consolidation
	Live	Run-off	Total	Services	Management	Corporate	adjustments	Total
	£000	£000	£000	£000	£000	£000	£000	£000
Earned premium, net of reinsurance	10,079	9,333	19,412	-	796	-	-	20,208
Net investment income	14	6,158	6,172	954	263	5,702	(7,465)	5,626
External income	-	2,198	2,198	21,506	15,856	-	-	39,560
Internal income	-	776	776	14,439	3,246	1,391	(19,852)	-
Total income	10,093	18,465	28,558	36,899	20,161	7,093	(27,317)	65,394
Claims paid, net of reinsurance	(2,458)	(17,691)	(20,149)	-	-	-	-	(20,149)
Net change in provision for claims	(3,781)	12,658	8,877	-	-	-	-	8,877
Net insurance claims increased	(6,239)	(5,033)	(11,272)	-	-	-	-	(11,272)
Operating expenses	(6,420)	(23,656)	(30,076)	(31,983)	(19,723)	(7,929)	19,852	(69,859)
Result of operating activities before goodwill on bargain purchase	(2,566)	(10,224)	(12,790)	4,916	438	(836)	(7,465)	(15,737)
Goodwill on bargain purchase	-	8,609	8,609	3,485	2,498	-	-	14,592
Amortisation and impairment of intangible assets	-	(208)	(208)	(80)	(116)	-	-	(404)
Result of operating activities	(2,566)	(1,823)	(4,389)	8,321	2,820	(836)	(7,465)	(1,549)
Finance costs	-	(1,737)	(1,737)	(1,441)	(472)	(4,464)	7,465	(649)
Share of loss of associate	-	-	-	-	(111)	-	-	(111)
(Loss)/profit on ordinary activities before income taxes	(2,566)	(3,560)	(6,126)	6,880	2,237	(5,300)	-	(2,309)
Income tax (charge)/credit	-	1,050	1,050	(985)	(85)	1,698	(2,115)	(437)
(Loss)/profit for the year	(2,566)	(2,510)	(5,076)	5,895	2,152	(3,602)	(2,115)	(2,746)
Non-controlling interests	-	(1,615)	(1,615)	(2)	(146)	-	-	(1,763)
Attributable to shareholders of parent	(2,566)	(4,125)	(6,691)	5,893	2,006	(3,602)	(2,115)	(4,509)
Segment assets	15,347	548,984	564,331	79,671	25,071	183,954	(315,428)	537,599
Segment liabilities	20,546	419,900	440,446	78,774	24,749	219,601	(315,428)	448,142

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.

Geographical analysis

As at 30 June 2015
	UK		North America		Europe		Total
		£000		£000		£000		£000
Gross assets		274,706		449,798		110,872		835,376
Intercompany eliminations		(188,323)		(82,291)		(61,997)		(332,611)
Segment assets		86,383		367,507		48,875		502,765
Gross liabilities		267,208		431,531		50,544		749,283
Intercompany eliminations		(207,421)		(122,018)		(3,172)		(332,611)
Segment liabilities		59,787		309,513		47,372		416,672
Segmental income		27,513		9,268		1,121		37,902

As at 30 June 2014
	UK		North America		Europe		Total
		£000		£000		£000		£000
Gross assets		263,692		321,046		111,580		696,318
Intercompany eliminations		(135,797)		(20,756)		(59,010)		(215,563)
Segment assets		127,895		300,290		52,570		480,755
Gross liabilities		235,392		313,628		49,515		598,535
Intercompany eliminations		(140,803)		(74,093)		(667)		(215,563)
Segment liabilities		94,589		239,535		48,848		382,972
Segmental income		18,760		5,085		11,555		35,400

As at 31 December 2014
	UK		North America		Europe		Total
		£000		£000		£000		£000
Gross assets		284,240		454,693		114,094		853,027
Intercompany eliminations		(178,458)		(77,821)		(59,149)		(315,428)
Segment assets		105,782		376,872		54,945		537,599
Gross liabilities		276,727		431,724		55,119		763,570
Intercompany eliminations		(200,807)		(112,679)		(1,942)		(315,428)
Segment liabilities		75,920		319,045		53,177		448,142
Segmental income		41,961		10,899		12,534		65,394

4.         Investment income

		Six months ended 30 June 2015		Six months ended 30 June 2014	Year ended  31 December 2014
		£000		£000		£000
Interest income		2,297		2,590		5,384
Realised gains on investments		277		757		1,246
Unrealised (losses)/gains on investments		(273)		784		(1,004)
		2,301		4,131		5,626

5.         Income tax

		Six months ended 30 June 2015		Six months ended 30 June 2014	Year ended 31 December 2014
		£000		£000		£000
Tax (credit)/charge		(896)		(1,382)		437

6.     Insurance contract provisions and reinsurance balances

a)     Claims provisions Gross		Six months  ended    30 June   2015		Six months   ended 30 June   2014	Year ended  31 December   2014
		£000		£000		£000
Claims outstanding at  1 January		354,412		319,546		319,546
Claims paid		(23,059)		(25,158)		(46,624)
Increase arising from acquisition of subsidiary and RITC of Syndicates		-		6,856		28,082
(Release)/strengthening of reserves		(470)		9,624		37,918
Net exchange differences		(2,720)		7,736		15,490
As at period end		328,163		318,604		354,412

Reinsurance		Six months   ended  30 June   2015		Six months   ended  30 June   2014	Year ended  31 December   2014
		£000		£000		£000
Reinsurers' share of claims outstanding at 1 January		170,211		157,413		157,413
Reinsurers' share of gross claims paid		(7,081)		(12,436)		(26,475)
Increase arising from acquisition of subsidiary and RITC of Syndicates		-		-		3,932
(Release)/strengthening of reserves		(407)		1,443		26,647
Net exchange differences		(3,256)		(1,043)		8,694
As at period end		159,467		145,377		170,211
Net		Six months   ended  30 June   2015		Six months   ended  30 June   2014	Year  ended  31 December   2014
		£000		£000		£000
Net claims outstanding at 1 January		184,201		162,133		162,133
Net claims paid		(15,978)		(12,722)		(20,149)
Increase arising from acquisition of subsidiary and RITC of Syndicates		-		6,856		24,150
(Release)/strengthening of reserves		(63)		8,181		11,271
Net exchange differences		536		8,779		6,796
As at period end		168,696		173,227		184,201

The assumptions used in the estimation of claims 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 advisers 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 Condensed 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.  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.

b)    Unearned premium Gross		Six months  ended    30 June   2015		Six months   ended 30 June   2014	Year ended  31 December   2014
		£000		£000		£000
Gross unearned premium at  1 January		8,471		4,402		4,402
Movement in reserves		1,826		1,478		3,996
Net exchange differences		(367)		(178)		73
As at period end		9,930		5,702		8,471

Reinsurance		Six months   ended  30 June   2015		Six months   ended  30 June   2014	Year ended  31 December   2014
		£000		£000		£000
Reinsurers' share of unearned premium at 1 January		1,193		269		269
Movement in reserves		(495)		487		738
Net exchange differences		11		(49)		186
As at period end		709		707		1,193
Net		Six months   ended  30 June   2015		Six months   ended  30 June   2014	Year  ended  31 December   2014
		£000		£000		£000
Net unearned premium at 1 January		7,278		4,133		4,133
Movement in reserves		2,321		991		3,258
Net exchange differences		(378)		(129)		(113)
As at period end		9,221		4,995		7,278

7.     Earnings per share

		Six months ended 30 June 2015		Six months   ended 30 June 2014	Year ended  31 December  2014
		£000		£000		£000
Loss for the period attributable to Ordinary shareholders		(3,380)		(618)		(4,509)
		No. 000's		No. 000's		No. 000's
Weighted average number of Ordinary shares		71,678		71,708		71,680
Effect of dilutive share options		-		-		-
Weighted average number of Ordinary shares for the purposes of diluted earnings per share		71,678		71,708		71,680
Basic earnings per share		(4.7p)		(0.9p)		(6.3p)
Diluted earnings per share		(4.7p)		(0.9p)		(6.3p)

Potentially issuable securities that would result in a loss per share if issued are not considered to have a dilution effect.  In 2015, due to the loss incurred, no potentially issuable securities are considered dilutive.  As a result, there is no difference between basic and diluted earnings per share.

8.     Insurance and other payables

		Six months ended 30 June 2015		Six months ended 30 June 2014	Year ended 31 December 2014
		£000		£000		£000
Structured liabilities		345,635		356,188		347,848
Structured settlements		(345,635)		(356,188)		(347,848)
		-		-		-
Other creditors		36,955		29,094		38,997
		36,955		29,094		38,997

Structured Settlements

No new structured settlement arrangements have been entered into during the period.  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 not owned by the Group and the profits and losses of each cell not owned by the Group are not available for use by Quest, nor the Group, and as such these balances are not included in the Condensed Consolidated Statement of Financial Position.  The amounts held on behalf of the segregated cells as at 30 June 2015 amounted to £29,251k (31 December 2014: £40,018k).

Insurance broking fiduciary funds

The Group holds insurance broking fiduciary funds, which are used to pay premiums to underwriters and settle claims to policyholders. As these are not available for use by the Group, they are not included in the Condensed Consolidated Statement of Financial Position.  The amounts held as at 30 June 2015 amounted to £21,070k (31 December 2014: £22,994k).

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 2015 is £20,027k (31 December 2014: £24,879k).

As at 30 June 2015, a technical breach occurred in the financial covenants required under the Group's banking facilities.  It was reported to the bank and the bank waived the breach.  However, because the waiver was received after the period end date, IAS 10 requires that all interest accrued and outstanding utilisations are disclosed as immediately due and payable on demand.

10.  Issued share capital

Issued share capital as at 30 June 2015 amounted to £1,435,969 (31 December 2014: £1,435,524).

11.  Contingencies and commitments

In connection with certain acquisitions the terms are subject to potential amendment which could give rise to an additional payment of £8,654k (31 December 2014: £8,700k).

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.  Divestment

On 27 February 2015, the Group completed the sale of its 75% ownership of R&Q Marine Services Limited to Hiscox.  The agreed cash consideration was £6,750k, of which £5,063k was for the share owned by the Group.  Contingent consideration of up to £2,500k, of which £1,875k is for the share owned by the Group, is receivable in February 2016 depending on the performance of the divested business.  The Group's best estimate of contingent consideration receivable is £1,500k, which is recorded in insurance and other payables in the Condensed Consolidated Statement of Financial Position as at 30 June 2015.

The following table shows the Group's portion of the impact of the divestment:-

	£000
Consideration received	5,063
Contingent consideration	1,500
Total consideration received	6,563
Net assets divested	(49)
	6,514
Fees on divestment	(1,251)
Gain on divestment	5,263

14.  Related party transactions

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

	Six months ended 30 June 2015	Six months ended 30 June 2014	Year ended 31 December 2014
	£	£000	£000
K E Randall and family	-	921	1,547
A K Quilter and family	-	212	357
T A Booth	-	33	60
M G Smith	-	1	2

During the period the Group recharged expenses totalling £5,438k to Lloyd's Syndicates 1991 and 3330 which are managed by the Group (2014: £4,814k to Lloyd's Syndicates 102, 1897, 1991 and 3330).

15.  Foreign exchange rates

The Group used the following exchange rates to translate foreign currency assets, liabilities, income and expenses into Sterling, being the Group's presentational currency:

		Six months ended 30 June 2015		Six months ended 30 June 2014	Year ended 31 December 2014
		£000		£000		£000
Average
US dollar		1.52		1.67		1.65
Euro		1.36		1.22		1.24
Spot
US dollar		1.57		1.70		1.56
Euro		1.40		1.25		1.27

16.  Events after the reporting date

Acquisition

As reported in the Group's 2014 Consolidated Financial Statements, on 25 May 2015, the Group signed an agreement to acquire, subject to change of control approval from the Prudential Regulation Authority and Financial Conduct Authority, the entire issued share capital of IC Insurance Limited from its indirect owners, AstraZeneca UK Limited and Imperial Chemical Industries Limited.  All change of control approvals were received by 21 September 2015, and the acquisition is anticipated to be completed by the 25 September 2015.  These Condensed Consolidated Financial Statements do not include any financial impact arising from this acquisition.

The following table shows an estimate of the fair value of assets and liabilities as at the date of acquisition:

	IC Insurance
	£000
Intangible assets	166
Other receivables	232
Cash & Investments	24,277
Other payables	(35)
Technical provisions	(1,856)
Deferred tax	(518)
Net assets/(liabilities) to be acquired	22,266
Consideration payable	17,000
Goodwill on bargain purchase	(5,266)

Subordinated debt

On 1 September 2015, a subsidiary of the Group, R&Q Insurance (Malta) Limited, issued €20 million floating rate subordinated notes due for redemption on 5 October 2025. 

 

END

 

 

IR SEWESFFISEDU