Interim results

RNS Number : 9801B
Randall & Quilter Inv Hldgs Ltd
14 October 2020
 

                                                                In terim results for the six months ended 30 June 2020

 

30% increase in Pre-Tax Operating Profit driven by strong growth across both business lines with the Group well positioned to capitalise on favourable market conditions

 

Randall & Quilter Investment Holdings Ltd. (AIM-RQIH), the non-life global specialty insurance company focusing on the Program Management and Legacy Insurance businesses, announces the Group's results for the six months ended 30 June 2020 ("H1 2020").

 

H1 2020 Highlights

 

Group

§ Pre-Tax Operating Profit increased 30% to £10.4m (H1 2019: £8.0m)

§ Profit Before Tax of £0.6m (H1 2019: £33.1m)

§ Proposed Interim Distribution per Share of 3.8p (H1 2019: 3.8p)

 

Program Management

§ Contracted Premium increased 95% to $925m (30 June 2019: $475m)

§ Economic Commissions Revenue grew 88% to $10.7m (H1 2019: $5.7m)

§ Economic EBITDA gain (loss) of $0.8m (H1 2019: $(0.3)m)

§ 10 new programs added, increasing total active programs to 36 at period end

 

Legacy

§ Net Reserves Acquired increased 81% to £267m (H1 2019: £148m)

§ Operating Return on Tangible Capital of 17.7% (H1 2019: 14.1%)

§ Operating Return on Tangible Equity of 23.3% (H1 2019: 16.4%)

§ Completed nine transactions across seven different jurisdictions

 

Balance Sheet

§ Cash and Investments increased 5% to £772m (YE 2019: £737m)

§ Net Asset Value per Share increased 3% to 151.5p (YE 2019: 147.2p)

 

Franchise and Platform

§ Raised $100m of new equity, strengthening our capital base and increasing our Group Solvency Ratio to 191%

§ Bolstered leadership with key hires: Deputy Executive Chairman, Group CFO and CEO of US Excess & Surplus Lines (E&S)

§ Expanded our footprint and capabilities including launching a US E&S carrier, establishing new branches in the UK and Italy to strengthen our Program Management offering, and securing licenses to write third-party Legacy business in Bermuda

§ Invested in a growing MGA, Tradesman Program Managers, LLC, securing Program Management fees and adding valuable investment

 

Summary Financial Performance (see Notes for definitions)

 

(£m, except where noted)

 

H1 2020

H1 2019

Change

Group Results

 

 

 

 

 

 

 

 

 

Pre-Tax Operating Profit

 

10.4

8.0

30.0%

Profit Before Tax

 

0.6

33.1

(98.2)%

Investment Portfolio Book Yield

 

1.8%

2.2%

(0.4)%

Earnings per Share

 

0.4p

19.2p

(18.8)p

Distribution per Share

 

3.8p

3.8p

0.0p

 

 

 

 

 

Business Segment Metrics

 

 

 

 

 

 

 

 

 

Program Management ($m)

 

 

 

 

Contracted Premium (period end)

 

924.9

475.2

94.6%

Gross Written Premium

 

247.2

173.4

42.6%

Economic Commission Income

 

10.7

5.7

87.7%

Economic EBITDA

 

0.8

(0.3)

NM

 

 

 

 

 

Legacy

 

 

 

 

Net Reserves Acquired

 

267.3

147.5

81.2%

Operating Return on Tangible Capital

 

17.7%

14.1%

3.6%

Operating Return on Tangible Equity

 

23.3%

16.4%

6.9%

 

 

 

 

 

 

 

30 Jun 2020

31 Dec 2019

Change

Balance Sheet Items

 

 

 

 

 

 

 

 

 

Cash and Investments

 

771.8

737.0

4.7%

Total Equity

 

394.7

288.3

36.9%

Net Asset Value per Share

 

151.5p

147.2p

2.9%

 

 

Commenting on the results for the year, Ken Randall, Alan Quilter and William Spiegel, said:

 

"Our first half 2020 financial results were impacted by Covid-19 due to the already announced reduction in total investment returns, delays in on-boarding new Program Management business and by a change in the mix of Legacy transactions, resulting in Profit Before Tax of £0.6 million. Nonetheless we continued to generate strong operating performance in both Program Management and Legacy translating into Group Pre-Tax Operating Profit of £10.4 million, a 30% increase compared with H1 2019. The Board expects that fiscal year 2020 results will be in line with market expectations.

 

Our Program Management business achieved meaningful growth and generated record results across all key metrics. Over the past 12 months we have expanded our MGA relationships by adding 10 new programs, bringing the total number of active programs to 36 at 30 June 2020. Our Contracted Premium, an indicator of future annual Gross Written Premium, increased by 95% year-over-year to $925 million. In the first half of 2020, Gross Written Premium grew by 43% to $247.2 million, and Economic Commission Income increased by 88% to $10.7 million. This strong revenue performance enabled us to generate positive Economic EBITDA of $0.8 million and a margin of 7.5% compared with a loss in H1 2019. As we grow Gross Written Premium, we are beginning to witness the benefits of scale in our profit margin. We continued to grow in H2 2020, so far adding four new programs, increasing our total number of programs to 40 and Contracted Premium to $1.1 billion. We also agreed to take a 35% interest in one of our existing MGA partners, Tradesman Program Managers LLC, which not only solidified our partnership but should prove to be a valuable investment for the Group.

 

Our Legacy business completed a record nine transactions in seven jurisdictions in H1 2020. From those nine deals we acquired Net Reserves of £267.3 million, an increase of 81% over H1 2019. Our mix of business in H1 2020 skewed towards larger reinsurance deals with counter-parties such as Renaissance Reinsurance, Allianz and Houston International Insurance Group, whereas our mix of business in H1 2019 was heavily influenced by the Global Re acquisition. We target returns of at least 15% in all Legacy transactions regardless of the accounting treatment of reinsurance and acquisitions. In H1 2020, we produced solid Operating Returns on Tangible Capital and Equity of 17.7% and 23.3%, respectively. Our growth has continued into the second half of the year with four additional transactions already signed and we have several other deals under exclusivity.

 

Our investment portfolio is comprised almost entirely of high-quality fixed-income investments. Only 3% of our portfolio is invested in below investment grade bonds, and the portfolio has a duration of 1.7 years. However, as a consequence of negative market reactions to the economic uncertainty that prevailed during the early months of the pandemic, we recognised £(7.1) million of net realised and unrealised Losses in H1 2020 compared with £8.8 million of gains in H1 2019. These losses in H1 2020 substantially reversed themselves in the second half of the year.

 

We are pleased to announce that the Board has recommended an interim distribution to shareholders of 3.8p per share in cash. We are proud of R&Q's consistent record of distributions to our shareholders.

 

In 2020 we have been active in continuing to build and develop our platform, bolstering our management team and expanding our footprint and capabilities. We recruited a Deputy Executive Chairman, a Group CFO and a CEO of US Excess & Surplus Lines. We also launched our US Excess & Surplus Lines company, set up new branches in the UK and Italy to strengthen our Program Management offering, and raised $100 million of equity for growth, including establishing these initiatives as well as for funding of Legacy transactions.

 

Despite unprecedented challenges introduced by Covid-19, we have had minimal disruptions to our operations. Importantly, we are excited by the opportunities available to us in the current market. Covid-19 and other market events have generated significant losses for the insurance industry, creating a "hardening" insurance environment and increasing the demand for our Legacy and Program Management solutions. We have a strong balance sheet, expertise, relationships and the track-record to capture the additional growth in front of us. However, as is our tradition, we will be patient and disciplined as we continue to grow our business."

 

A shareholders' presentation is available on our web site at: http://www.rqih.com/investors/shareholder-information/investor-presentations/

 

Enquiries to:

Randall & Quilter Investment Holdings Ltd.

Ken Randall

William Spiegel

 

www.rqih.com

+44 (0)7831 145440

+001 917 826 5877

Numis Securities Limited (Nominated Adviser and Broker)

Stuart Skinner

Charles Farquhar

Shore Capital Stockbrokers Limited (Joint Broker)

Stephane Auton

James Thomas

+44 (0) 207260 1000

 

 

+44 (0)20 7408 4090

FTI Consulting

Edward Berry

Tom Blackwell

+44 (0)20 3727 1046

 

Notes

Pre-Tax Operating Profit for Group is a measure of how our core businesses performed adjusted for intangibles created in Legacy acquisitions and net realised and unrealised investment gains.

 

Cash and Investments exclude funds withheld and off-balance sheet trusts, for which we do not earn investment income.

 

Contracted Premium for Program Management is the Gross Premium that our existing distribution partners believe their programs will generate over a period of time. We expect a significant portion of Contracted Premium to become Gross Premium Written.

 

Economic Commission Revenue for Program Management represents the commission revenue from insurance policies already bound (written), regardless of the length of the underlying policy period (earned). We believe Economic Commission Revenue is a more appropriate measure of the revenue of the business during periods of high growth, due to a larger than normal gap between Gross Written and Gross Earned (IFRS) Premium.

 

Economic EBITDA for Program Management is equal to IFRS EBITDA plus unearned commission revenue and excludes net realised and unrealised investment gains.

 

Economic EBITDA Margin for Program Management is our profit margin on Economic Commissions.

 

Operating EBIT and Pre-Tax Operating Profit for Legacy are adjusted for intangibles created in acquisitions and net realised and unrealised investment gains.

 

Average Operating Tangible Capital for Legacy is based on the Group's economic capital models, excluding intangible assets created in acquisitions, net unrealised investment gains and the impact of FX.

 

Average Operating Tangible Equity for Legacy includes allocated debt.

 

Operating Return on Tangible Capital and Equity for Legacy have been annualised for interim reporting periods.

 

 

 

REPORT OF THE EXECUTIVE DIRECTORS

 

Financial Results

 

Our first half 2020 financial results were impacted by Covid-19 due to the already announced reduction in total investment returns, delays in on-boarding new Program Management business and by a change in the mix of Legacy transactions, which lowered Profit Before Tax. Nonetheless we continued to generate strong operating performance and positioned our platform for the growth opportunities available in the current "hard" insurance market. The Board expects that fiscal year 2020 results will be in line with market expectations.

 

Despite the impact of Covid-19 and the work from home environment, R&Q reported strong operating results across almost every metric we track in managing our business. We are witnessing increasing demand for our services as both of our businesses continue to become recognised as key components of the global insurance market. Legacy is an important element of capital management and Program Management is critical in facilitating the growth of independent insurance distribution. This demand has been enhanced by recent large insurance events and the decline in global interest rates.

 

The supportive underlying trends we are seeing for both businesses are reflected in the strong operating results reported by each for H1 2020. In Program Management, we recorded record numbers for Contracted Premium ($925 million), Gross Written Premium ($494 million annualised), Economic Commission Revenue ($21.4 million annualised) and Economic EBITDA ($0.8 million). In Legacy we closed a record number of transactions in a half year period (9) and acquired substantial net reserves (£267 million), producing strong Operating Returns on Tangible Capital (17.7%) and Equity (23.3%). The successful results in both Program Management and Legacy translated into strong Group Pre-Tax Operating Profit (£10.4 million), which grew by 30% compared with H1 2019. Our Profit Before Tax (£0.6 million) fell relative to H1 2019 reflecting Covid-related net realised and unrealised investment losses (which have since recovered) and a mix of Legacy deals in favour of reinsurance over acquisitions.  In H1 2020, we raised $100 million of equity to support our growth, including establishing our new UK and Italian branches as well as our US Excess & Surplus lines company and for funding of Legacy transactions.

 

Program Management

 

Our Program Management segment, which operates under the Accredited brand in the US, UK, and Europe, continued to grow rapidly in H1 2020. We started our Program Management business at the end of 2016 with two MGA relationships and as of the end of H1 2020, we had 36 active programs with $925 million in Contracted Premium. Our momentum has carried forward into H2 2020 as we signed up four new programs bringing our Contracted Premium to $1.1 billion.

 

The Program Management business allows us to leverage our licenses and relationships with MGAs and reinsurers to earn predictable, recurring fee-based revenue with high margins. On average, R&Q receives annual recurring commissions of approximately 5% of Gross Written Premium. Our results are beginning to show the benefits of scale, as we earned positive Economic EBITDA in H1 2020 and a 7.5% margin, compared with a loss in H1 2019. Gross Written Premium grew 43% to $247.2 million in H1 2020. In the first half of 2020, Covid-19 caused delays in implementing new programs and slowed the ramp of some existing programs. We believe these issues are abating as we move into the second half of the year.

 

Our Program Management business has several avenues of growth over the next few years. First, we have built-in growth from our existing programs as our Gross Written Premium ($494.4 million annualised) converges with our Contracted Premium ($1.1 billion), without any corresponding expenses. Second, we anticipate that the current "hard" insurance market will increase our existing Gross Written Premium as it re-prices higher on renewal, without any additional expenses. Third, we established a UK branch of our Maltese carrier enabling us to continue to underwrite and service our UK partners post Brexit. Fourth, in the summer of 2020 we opened a branch in Milan, Italy, enabling us to better address the needs of MGAs and other clients in that country. Finally, we formed a US Excess and Surplus (E&S) Lines company in the third quarter of 2020, expanding our addressable market. The E&S market is large and growing, producing annual premium of approximately $55 billion. To lead our efforts, we recently announced the hiring of Pat Rastiello as CEO of Accredited Specialty Insurance Company, our newly formed E&S carrier. Pat joins us from Aon and brings with him senior program experience and MGA relationships.

 

In the third quarter of 2020, we also announced we were deepening our financial and strategic partnership with one of our fast-growing US-based MGA partners, Tradesman Program Managers LLC. The transaction not only strengthens our Program Management relationship with Tradesman, but our 35% strategic stake in the business should prove to be a valuable investment. Tradesman reported EBITDA of $8.1 million in 2019, the basis on which the valuation was agreed, and has grown rapidly in H1 2020.

 

Legacy

 

Our Legacy business continues to thrive and grow. Legacy has been at the core of R&Q since its founding and we have completed over 100 transactions in 35 regulatory jurisdictions since 2009. We had a very strong H1 2020, concluding nine transactions in seven jurisdictions and acquiring Cash and Investments of £320.3 million and Net Reserves of £267.3 million. Our larger transactions in the first half of 2020 were reinsurance deals with blue chip insurance companies such as Allianz, Houston International Insurance Group and Renaissance Reinsurance, all of whom worked with us as part of their capital management strategies. While we had a busy first half, traditionally our legacy business is more active in the second half of the year. So far in H2 2020, we have signed four additional transactions totalling £8.1 million of Net Reserves and our current pipeline of deals is robust.

 

We remain keenly focused on pricing and risk and target returns of at least 15% in our Legacy transactions regardless of the accounting treatment of reinsurance and acquisitions. In the first half of 2020, we generated an Operating EBIT of £30.2 million and a Pre-Tax Operating Profit of £25.9 million, producing an Operating Return on Tangible Capital of 17.7% and Equity of 23.3%. When evaluating the performance of our Legacy business, we also focus on Operating Return on Tangible Capital and Equity over time. We are pleased that our five-year Operating Return on Tangible Capital and Equity are 16.3% and 21.4%, respectively, a testament to our disciplined approach to underwriting.

 

The current market environment is giving rise to attractive opportunities. The impact from Covid-19 and other insurance events have eroded the capital position of many insurance market participants, who are also facing challenged returns in their investment portfolios. At the same time, the prospect of hardening rates is increasing the demand for Legacy solutions that free up capital, which insurers can subsequently redeploy. These factors should increase the supply of Legacy opportunities, which is estimated at $800 billion globally.

 

We are uniquely positioned to capitalise on the increasing demand for Legacy solutions. At R&Q we possess a broad platform and offer a full range of solutions to clients. We have rated and fully licensed carriers in the US, UK and Europe, a Lloyd's platform, and have recently been approved to transact third party business in Bermuda. Importantly, we possess the expertise and track record to execute transactions across different types of structures and lines of business and our strong historical financial performance and recent equity raise provide us with the balance sheet and capital to pursue these very attractive opportunities.

 

Cash and Investments

 

Our cash and investment portfolio at 30 June 2020, excluding funds withheld and off-balance sheet trusts, was £772 million. We produced book yield of 1.8% in H1 2020, which was approximately 0.4% lower than our book yield in H1 2019, due to the impact of lower interest rates globally. The 2-Year US Treasury yield was 2.00% at 30 June 2019, and just 0.16% at 30 June 2020.

 

We maintain a conservative, liquid investment portfolio so that we can produce consistent cash flows to meet our liability obligations, while also earning a reasonable risk-adjusted return. At 30 June 2020, 94% of our investments were rated investment grade, and another 3% of our portfolio was invested in money market and bond funds that maintain high average ratings. After cash, which comprised 31% of our portfolio, our largest allocations were to corporate bonds (22%), government and municipal securities (21%) and asset-backed securities (19%). 83% of our portfolio was US Dollar-denominated, and our portfolio had an average duration of 1.7 years.

 

During H1 2020, financial markets witnessed heightened volatility arising out of Covid-19 concerns, and, despite the high quality and short duration nature of our portfolio, we were not immune from those impacts. Our investment portfolio incurred net realised and unrealised losses of £(7.1) million, and our total investment return, when including mark-to-market movements, was 0.3%. These losses have substantially reversed themselves in the second half of 2020.

 

Capital and Liquidity

 

As a result of our $100 million equity raise in H1 2020, we strengthened our balance sheet.  At 30 June 2020 we had total capital of £506 million, an increase of £74 million relative to 31 December 2019. Our capital resources are comprised of equity (78%), senior and subordinated debt (19%), and bank debt (3%). Since year-end 2019, we have reduced our adjusted debt to capital ratio from 30% to 20%.

 

Our Group Solvency ratio is very strong and increased from 177% at 31 December 2019 to 191% 30 June 2020. At 30 June 2020, we had holding company liquidity of £100 million, including the undrawn bank revolver capacity. Since 30 June 2020, we have utilised cash and capital to establish our new UK and Italian branches as well as our US Excess & Surplus lines company and to fund Legacy transactions.

 

Return of Capital

 

We are pleased to continue our long history of paying a return to our shareholders. The Board is recommending an interim distribution of 3.8p per share which will be payable in late November 2020. We are proud of R&Q's consistent record of distributions to our shareholders.

 

Leadership and Management

 

In our year-end 2019 note, we mentioned our plans to broaden and deepen our management team. We are pleased to report that we continue to recruit and attract exceptional talent. In addition to William Spiegel, who joined us as Executive Director and Deputy Group Chairman in January 2020, we recently added Tom Solomon as Group Chief Financial Officer and Pat Rastiello as CEO of Accredited Specialty. Tom and Pat arrived at R&Q after very successful careers at Bank of America and Aon, respectively.

 

While we continue to successfully operate our business through the pandemic, Covid-19 has changed the way we work and interact as a Group. Our employees across the globe have worked exceedingly hard to keep the business running, and to all of them we want to extend our heartfelt thanks for their hard work and dedication in what are clearly unique circumstances.

 

Outlook

 

We believe the current "hard" market conditions and secular market trends in both Legacy and Program Management are very supportive of our strategy. Program Management is poised to continue its rapid growth and convert future fees to profits, while Legacy continues to develop as a valued partner to mainstream insurers. We believe we are well positioned to take advantage of the opportunities in front of us to drive further profitable growth for the Group.

 

We are proud of what we have been able to achieve in the first half of 2020, and the value we have created for our shareholders and other stakeholders. We continue to be excited by the future of R&Q

 

 

Ken Randall, Alan Quilter, William Spiegel

 

 

 

Condensed Consolidated Income Statement for the six months ended 30 June 2020

 

 

 

 

Six months

ended 30 June 2020 

 

 

Six months

ended 30 June 2019

 

 

Year 

ended 31 December 2019 

 

 

 

(unaudited)

 

(unaudited)

 

(audited)

 

Note

 

£000 

 

£000 

 

£000 

 

 

 

 

 

 

 

restated

 

 

 

 

 

 

 

 

Gross premiums written

 

 

512,147 

 

226,062 

 

450,187 

Reinsurers' share of gross premiums

 

 

(193,796)

 

(138,262)

 

(285,033)

Premiums written, net of reinsurance

 

 

318,351 

 

87,800 

 

165,154 

Change in gross provision for unearned premiums

 

 

(39,065)

 

(55,755)

 

(94,315)

Change in provision for unearned premiums, reinsurers' share

 

47,619 

 

58,722 

 

103,687 

Net change in provision for unearned premiums

 

 

8,554 

 

 2,967

 

 9,372

Earned premiums net of reinsurance

 

 

326,905 

 

90,767 

 

174,526 

 

 

 

 

 

 

 

 

Investment income

5

 

2,179 

 

16,030 

 

21,993 

Program earned fee income

 

 

6,526 

 

3,728 

 

8,147 

Other income

 

 

2,833 

 

4,412 

 

6,780 

 

 

 

11,538 

 

24,170 

 

36,920 

 

 

 

 

 

 

 

 

Total income

3

 

338,443 

 

114,937 

 

211,446 

 

 

 

 

 

 

 

 

Gross claims paid

 

 

(92,850)

 

(88,207)

 

(183,438)

Reinsurers' share of gross claims paid

 

 

56,354 

 

58,165 

 

111,033 

Claims paid, net of reinsurance

 

 

(36,496)

 

(30,042)

 

(72,405)

Movement in gross technical provisions

 

 

(299,781)

 

(80,568)

 

(125,978)

Movement in reinsurers' share of technical provisions

 

60,789 

 

32,160 

 

  55,227

Net change in provision for claims

 

 

(238,992)

 

(48,408)

 

(70,751)

Net insurance claims incurred

 

 

(275,488)

 

(78,450)

 

(143,156)

 

 

 

 

 

 

 

 

Operating expenses

 

 

(58,694)

 

(40,872)

 

(86,798)

 

 

 

 

 

 

 

 

Result of operating activities before goodwill on bargain purchase and impairment of intangible assets

3

 

4,261 

 

(4,385)

 

(18,508)

 

Goodwill on bargain purchase

 

 

4,307 

 

42,858 

 

69,307 

Amortisation and impairment of intangible assets

 

 

(2,894)

 

(805)

 

(3,162)

Result of operating activities

 

 

5,674 

 

37,668 

 

47,637 

Finance costs

 

 

(5,093)

 

(4,581)

 

(9,537)

Profit from operations before income taxes

 

 

581 

 

33,087 

 

38,100 

Income tax charge

6

 

140 

 

 (487)

 

(1,280)

Profit for the period

3

 

721 

 

32,600 

 

36,820 

 

 

 

 

 

 

 

 

Attributable to equity holders of the parent:-

 

 

 

 

 

 

 

Attributable to ordinary shareholders

 

 

877 

 

  32,704 

 

37,298 

Non-controlling interests

 

 

(156)

 

(104)

 

(478) 

 

 

 

721 

 

32,600 

 

36,820 

 

 

 

 

 

 

 

 

Earnings per ordinary share from operations: -

 

 

 

 

 

 

 

Basic

8

 

0.4p 

 

19.2p

 

20.3p 

Diluted

8

 

0.4p 

 

19.2p

 

20.3p 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2020

 

 

 

 

 

 

Six months ended 30 June 2020

 

Six months ended 30 June 2019

Year ended

31 December 2019

 

 

 

(unaudited)

 

(unaudited)

 

(audited)

 

 

 

£000

 

£000

 

£000

Other comprehensive income: -

 

 

 

 

 

 

restated

Items that will not be reclassified to profit or loss:

 

 

 

 

 

 

 

Pension scheme actuarial (losses)/gains

 

 

(886)

 

(1,131)

 

(1,698)

Deferred tax on pension scheme actuarial losses/(gains)

 

 

313 

 

 192 

 

  51

 

 

 

(573)

 

(939)

 

(1,647) 

Items that may be subsequently reclassified to profit or loss: -

 

 

 

 

 

 

Exchange gains/(losses) on consolidation

 

 

16,932 

 

1,997 

 

(8,147) 

Other comprehensive income

 

 

16,359 

 

1,058 

 

(9,794) 

 

 

 

 

 

 

 

 

Profit for the period

 

 

721 

 

 32,600 

 

36,820 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

17,080 

 

33,658 

 

27,026 

 

 

 

 

 

 

 

 

Attributable to: -

 

 

 

 

 

 

 

Equity holders of the parent

 

 

17,237 

 

33,769 

 

27,526 

Non-controlling interests

 

 

(157)

 

(111)

 

(500)

Total comprehensive income for the period

 

 

17,080 

 

33,658 

 

27,026 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2020

 

 

 

 

 

 

 

 

 

 

Attributable to equity holders of the Parent

 

 

Share 

 capital 

Share premium

Convertible debt

Treasury share reserve

Foreign currency translation reserve

Retained earnings

Total 

Non-controlling interests

Total 

 

 

£000 

£000 

£000 

£000 

£000 

£000 

£000 

£000 

£000 

Six months ended 30 June 2020

 

 

 

 

 

 

 

 

 

 

At beginning of period (restated)

 

3,918 

134,905 

1,148 

148,361 

288,332 

443 

288,775 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

877 

877 

(156)

721 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

Exchange gains/(losses) on consolidation

 

16,933 

16,933 

(1)

16,932 

Pension scheme actuarial losses

 

(886)

(886)

(886)

Deferred tax on pension scheme actuarial losses

 

313 

313 

313 

Total other comprehensive income for the period

 

16,933 

(573)

16,360 

(1)

16,359 

Total comprehensive income for the period

 

16,933 

304 

17,237 

(157)

17,080 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

Share based payments

 

8,738 

8,738 

8,738 

Issue of shares

 

342 

15,830 

16,172 

16,172 

Issue of convertible debt

 

64,417 

64,417 

64,417 

Purchase of own shares

 

(150)

(150)

(150)

Non-controlling interest in subsidiary acquired

 

(743)

(743)

At end of period

 

4,260 

159,473 

64,417 

(150)

18,081 

148,665 

394,746 

(457)

394,289 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Changes in Equity for the six months ended 30 June 2019

 

 

 

Attributable to equity holders of the parent

 

 

Share 

 capital 

Share premium

Foreign currency translation reserve

Retained earnings

Total 

Non-controlling interests

Total 

 

 

 

£000 

£000 

£000 

£000 

£000 

£000 

£000 

 

Six months ended 30 June 2019

 

 

 

 

 

 

 

 

 

At beginning of period

 

2,520 

51,135 

9,273 

112,710 

175,638 

349 

175,987 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

32,704 

32,704 

(104)

32,600 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

Exchange gains/(losses) on consolidation

 

2,004 

2,004 

(7)

1,997 

 

Pension scheme actuarial losses

 

(1,131)

(1,131)

(1,131)

 

Deferred tax on pension scheme actuarial losses

 

192 

192 

192 

 

Total other comprehensive income for the period

 

2,004 

(939)

1,065 

(7)

1,058 

 

Total comprehensive income for the period

 

2,004 

31,765 

33,769 

(111)

33,658 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

 

Share based payments

 

138 

138 

138 

 

Issue of shares

 

1,398 

102,047 

103,445 

103,445 

 

Issue of AB shares

 

10,971 

(10,971)

 

Cancellation of AB shares

 

(10,971)

(10,971)

(10,971)

 

At end of period

 

3,918 

142,349 

11,277 

144,475 

302,019 

238 

302,257 

 

 

 

 

 

 

 

 

 

 

 

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 2019 restated

 

 

 

 

 

Share 

 capital 

Share premium

Foreign currency translation reserve

Retained earnings

Total 

Non-controlling interests

Total 

 

 

£000 

£000 

£000 

£000 

£000 

£000 

£000 

Year ended 31 December 2019 (restated)

 

 

 

 

 

 

 

 

At beginning of year

 

2,520 

51,135 

9,273 

112,710 

175,638 

349 

175,987 

 

 

 

 

 

 

 

 

 

Profit for the year

 

37,298 

37,298 

(478)

36,820 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

Exchange losses on consolidation

 

(8,125)

(8,125)

(22)

(8,147)

Pension scheme actuarial losses

 

(1,698)

(1,698)

(1,698)

Deferred tax on pension scheme actuarial gains

 

  51

  51

  51

Total other comprehensive income for the year

 

(8,125)

(1,647)

(9,772)

(22)

(9,794)

Total comprehensive income for the year

 

(8,125)

35,651 

27,526 

(500)

27,026 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

Share based payments

 

138 

138 

138 

Issue of shares

 

1,398 

102,047 

103,445 

103,445 

Issue of AB & AC shares

 

18,415 

(18,415)

Cancellation of AB & AC shares

 

(18,415)

(18,415)

(18,415)

Non-controlling interest in subsidiary acquired

 

594 

594 

 

 

 

 

 

 

 

 

 

At end of year

 

3,918 

134,905 

1,148 

148,361 

288,332 

443

288,775 

 

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

 

 

Condensed Consolidated Statement of Financial Position as at 30 June 2020

Company number 47341

 

 

 

Note

 

30 June 

 2020 

 

30 June 

 2019 

31 December

 2019 

 

 

 

 

(unaudited)

 

(unaudited)

 

(audited)

 

 

 

 

£000 

 

£000 

 

£000 

 

Assets

 

 

 

 

 

 

restated

 

Intangible assets

 

 

46,785 

 

41,161 

 

46,082 

 

Property, plant and equipment

 

 

1,622 

 

905 

 

969 

 

Right of use assets

 

 

4,830 

 

2,690 

 

3,191 

 

Investment properties

 

 

1,480 

 

1,520 

 

1,480 

 

Financial instruments

 

 

614,018 

 

455,418 

 

579,467 

 

Reinsurers' share of insurance liabilities

7

 

592,950 

 

409,859 

 

471,412 

 

Current tax assets

 

 

1,084 

 

1,635 

 

4,008 

 

Deferred tax assets

 

 

4,200 

 

5,351 

 

1,988 

 

Insurance and other receivables

 

 

646,620 

 

370,222 

 

419,535 

 

Cash and cash equivalents

 

 

266,328 

 

273,497 

 

252,741 

 

Total assets

 

 

2,179,917 

 

1,562,258 

 

1,780,873 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Insurance contract provisions

7

 

1,401,856 

 

942,250 

 

1,072,208 

 

Financial liabilities

 

 

117,721 

 

107,859 

 

146,971 

 

Deferred tax liabilities

 

 

9,216 

 

7,645 

 

9,465 

 

Insurance and other payables

9

 

246,589 

 

195,111 

 

255,823 

 

Current tax liabilities

 

 

2,347 

 

452 

 

294 

 

Pension scheme obligations

 

 

7,899 

 

6,684 

 

7,337 

 

Total liabilities

 

 

1,785,628 

 

1,260,001 

 

1,492,098 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Share capital

11

 

4,260 

 

3,918 

 

3,918 

 

Share premium

 

 

159,473 

 

142,349 

 

134,905 

 

Convertible debt

11

 

64,417 

 

 

 

Treasury share reserve

 

 

(150)

 

 

 

Foreign currency translation reserve

 

 

18,081 

 

11,277 

 

1,148 

 

Retained earnings

 

 

148,665 

 

144,475 

 

148,361 

 

Attributable to equity holders of the parent

 

 

394,746 

 

302,019 

 

288,332 

 

Non-controlling interests in subsidiary undertakings

 

 

(457)

 

238 

 

443 

 

Total equity

 

 

394,289 

 

302,257 

 

288,775 

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

 

2,179,917 

 

1,562,258 

 

1,780,873 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Condensed Consolidated Financial Statements were approved by the Board of Directors on 13 October 2020 and were signed on its behalf by: 

 

 

 

 

K E Randall  A K Quilter

 

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

 

 

Condensed Consolidated Cash Flow Statement as at 30 June 2020

 

 

 

 

Six months

ended

30 June 2020

 

Six months

ended

30 June 2019

 

Year ended

31 December

2019

 

 

(unaudited)

 

(unaudited)

 

(audited)

 

 

£000

 

£000

 

£000

Cash flows from operating activities

 

 

 

 

 

restated

Profit for the period

 

721 

 

32,600 

 

36,820 

Tax included in consolidated income statement

 

(140)

 

487 

 

1,280 

Finance costs

 

5,093 

 

4,581 

 

9,537 

Depreciation and impairments

 

928 

 

1,026 

 

2,242 

Share based payments

 

8,738 

 

138 

 

138 

Loss on divestment

 

 

 

Goodwill on bargain purchase

 

(4,307)

 

(42,858)

 

(71,332) 

Amortisation and impairment of intangible assets

 

2,894 

 

805 

 

3,162 

Fair value (gain)/loss on financial assets

 

6,739 

 

(8,855)

 

(6,602) 

Loss on revaluation of investment property

 

 

 

40 

Loss on disposal of property, plant & equipment

 

 

130 

 

89 

Contributions to pension scheme

 

(397)

 

(1,400)

 

(1,400) 

Loss/(profit) on net assets of pension schemes

 

73 

 

87 

 

173 

Increase in receivables

 

(228,408)

 

(115,650)

 

(145,830) 

(Increase)/decrease in deposits with ceding undertakings

 

(987)

 

765 

 

1,294 

(Decrease)/increase in payables

 

(9,224)

 

19,385 

 

74,245 

Increase/(decrease) in net insurance technical provisions

 

230,438 

 

45,441 

 

61,379 

Income tax paid

 

 

(2,330)

 

(2,330) 

Net cash from/(used in) operating activities

 

12,161 

 

(65,648)

 

(37,095) 

Cash flows to investing activities

 

 

 

 

 

 

Purchase of property, plant and equipment

 

(826)

 

(613)

 

(958) 

Proceeds from disposal of property, plant and equipment

 

 

 

Proceeds from disposal of investment property

 

 

361 

 

361 

Proceeds from disposal of intangible assets

 

 

1,936 

 

1,952 

Purchase of intangible assets

 

(10)

 

(102)

 

(143) 

Sale of financial assets

 

86,967 

 

139,515 

 

68,997 

Purchase of financial assets

 

(104,195)

 

(40,010)

 

(94,364) 

Acquisition of subsidiary undertaking (offset by cash acquired)

 

6,273 

 

(53,031)

 

(1,615) 

Payments to acquire minority interest

 

 

 

(221) 

Divestment (offset by cash disposed of)

 

(743)

 

 

Net cash from/(used in) investing activities

 

(12,534)

 

48,056 

 

(25,991) 

Net cash from financing activities

 

 

 

 

 

 

Repayment of borrowings

 

(44,138)

 

(33,466)

 

(34,966) 

New borrowing arrangements

 

7,000 

 

 

41,751 

Interest and other finance costs paid

 

(5,093)

 

(4,581)

 

(9,537) 

Cancellation of shares

 

 

(10,971)

 

(18,415) 

Receipts from issue of shares

 

16,172 

 

103,445 

 

103,445 

Receipts from issue of convertible debt

 

32,208 

 

 

Purchase of treasury shares

 

(150)

 

 

Net cash from financing activities

 

5,999 

 

54,427 

 

82,278 

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

5,626 

 

36,835 

 

19,192 

Cash and cash equivalents at beginning of period

 

252,741 

 

236,923 

 

236,923 

Foreign exchange movement on cash and cash equivalents

 

7,961 

 

(261)

 

(3,374) 

Cash and cash equivalents at end of period

 

266,328 

 

273,497 

 

252,741 

 

 

 

 

 

 

 

Share of Syndicates' cash restricted funds

 

17,388 

 

19,886 

 

15,320 

Other funds

 

248,940 

 

253,611 

 

237,421 

Cash and cash equivalents at end of period

 

266,328 

 

273,497 

 

252,741 

 

 

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 2020 and 2019 half years are unaudited but have been subject to review by the Group's auditors. 

 

These Condensed Consolidated Financial Statements have been restated for a prior year adjustment relating to the finalisation of the fair value review of the 2019 acquisition of Sandell Re, which was reported as provisional, and has been adjusted in accordance with IFRS 3.

 

The Condensed Consolidated Financial Statements have been prepared under the going concern basis of accounting. While there remain uncertainties as to its effect on the economy generally, in the last six months the impact of Covid-19 on the Group has clarified to a significant extent and the assumptions adopted at the time of the approval of the 2019 Annual Report have proved appropriate.  The Group's financial position and forecasts for 2020 and 2021 demonstrate that it has adequate cash resources to meet its liabilities as they fall due.

 

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 2019. There have been no amendments to accounting policies or new International Financial Reporting Standards adopted by the Group.

 

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: -

• Program - the Group delegates underwriting authority to MGAs to provide program capacity through its licensed platforms in the US and Europe

• Legacy - acquires legacy portfolios and insurance debt and provides capital support to the Group's managed Lloyd's Syndicates

• Other - primarily includes the holding company and other non- core subsidiaries which fall outside of the segments above

  

Segment result for the six months ended 30 June 2020 (unaudited)

 

  Program

Legacy

Other 

 Consolidation adjustments

Total

 

£000

£000

£000 

£000

£000

Earned premiums, net of reinsurance

5,338 

321,567 

326,905 

Net investment income

595 

4,822 

1,961 

(5,199)

2,179 

Program earned fee income

6,526 

6,526 

External other income

(119)

2,948 

2,833 

Internal other income

1,070 

13,049 

(14,119)

Total income

12,463 

327,340 

17,958 

(19,318)

338,443 

 

 

 

 

 

 

Claims paid, net of reinsurance

(2,946)

(33,475)

(75)

(36,496)

Net change in provision for claims

(1,786)

(237,281)

75 

(238,992)

Net insurance claims increased

(4,732)

(270,756)

-

(275,488)

Operating expenses

(9,181)

(36,009)

(27,623)

14,119 

(58,694)

Result of operating activities before goodwill on bargain purchase

(1,450)

20,575 

(9,665)

(5,199)

4,261 

Goodwill on bargain purchase

4,307 

-

4,307 

Amortisation and impairment of intangible assets

-

(2,850)

(44)

(2,894)

Result of operating activities

(1,450)

22,032 

(9,709)

(5,199)

5,674 

Finance costs

(159)

(4,312)

(5,821)

5,199 

(5,093)

Profit/(loss) on ordinary activities before income taxes

(1,609)

17,720 

(15,530)

581 

Income tax (charge)/credit

204 

(257)

193 

140 

Profit/(loss) for the period

(1,405)

17,463 

(15,337)

721 

Non-controlling interests

150 

-

156 

 

 

 

 

 

 

Attributable to shareholders of parent

(1,405)

17,613 

(15,331)

877 

 

 

 

 

 

 

Segment assets

415,042 

1,956,727 

146,052 

(337,904)

2,179,917

 

 

 

 

 

 

Segment liabilities

320,581 

1,421,569 

381,382 

(337,904)

1,785,628

         
 

 

Segment result for the six months ended 30 June 2019 (unaudited)

 

  Program

Legacy

Other 

 Consolidation adjustments

Total

 

£000

£000

£000 

£000

£000

Earned premiums, net of reinsurance

2,076 

88,443 

248 

90,767 

Net investment income

2,955 

15,031 

5,165 

(7,121) 

16,030 

Program earned fee income

3,728 

3,728 

External other income

1,009 

3,403 

4,412 

Internal other income

8,198 

15,001 

(23,199) 

Total income

8,759 

112,681 

23,817 

(30,320) 

114,937 

 

 

 

 

 

 

Claims paid, net of reinsurance

(873)

(29,100)

 (69)

(30,042)

Net change in provision for claims

(1,724)

(44,811)

(1,873) 

(48,408)

Net insurance claims increased

(2,597)

(73,911)

(1,942)

-

(78,450)

Operating expenses

(5,813)

(33,374)

(24,884)

23,199

(40,872)

Result of operating activities before goodwill on bargain purchase

349 

5,396

 (3,009)

(7,121)

(4,385)

Goodwill on bargain purchase

42,858 

-

42,858 

Amortisation and impairment of intangible assets

-

(752)

(53)

(805)

Result of operating activities

349

47,502 

(3,062) 

(7,121)

37,668 

Finance costs

-

(4,555)

  (7,147)

7,121 

(4,581)

Profit/(loss) on ordinary activities before income taxes

349

42,947

  (10,209)

33,087 

Income tax (charge)/credit

(590)

(2,389)

2,492 

(487)

Profit/(loss) for the period

(241)

40,558 

(7,717)

32,600 

Non-controlling interests

92 

397 

(385)

-

104 

 

 

 

 

 

 

Attributable to shareholders of parent

(149)

40,955 

(8,102)

32,704 

 

 

 

 

 

 

Segment assets

358,682 

1,400,663 

152,368 

(349,455)

1,562,258 

 

 

 

 

 

 

Segment liabilities

281,866 

918,313 

409,277 

(349,455)

1,260,001 

         

 

  

Segment result for the year ended 31 December 2019 (unaudited) restated

 

  Program

Legacy

Other 

 Consolidation adjustments

Total

 

£000

£000

£000 

£000

£000

Earned premiums, net of reinsurance

6,099 

168,427 

174,526 

Gross investment income

4,603 

22,699 

7,918 

(13,227) 

21,993 

Program earned fee income

8,147 

8,147 

External other income

58 

6,721 

6,780 

Internal other income

27,046 

(27,046) 

Total income

18,850 

191,184 

41,685 

(40,273) 

211,446 

 

 

 

 

 

 

Claims paid, net of reinsurance

(2,831)

(69,390)

(184) 

(72,405) 

Net change in provision for claims

(3,444)

(65,533)

(1,774) 

(70,751) 

Net insurance claims released/(increased)

(6,275)

(134,923)

(1,958)

-

(143,156)

Operating expenses

(14,472)

(58,548)

(40,824)

27,046

(86,798)

Result of operating activities before goodwill on bargain purchase

(1,897)

(2,287)

(1,097)

(13,227)

(18,508)

Goodwill on bargain purchase

69,307 

-

69,307 

Amortisation and impairment of intangible assets

-

(2,579)

(583)

(3,162) 

Result of operating activities

(1,897)

64,441 

(1,680) 

(13,227)

47,637 

Finance costs

(309)

(8,906)

(13,549)

13,227 

(9,537) 

Profit/(loss) on ordinary activities before income taxes

(2,206)

55,535 

(15,229)

38,100 

Income tax (charge)/credit

(353)

(10,734)

9,807 

(1,280) 

Profit/(loss) for the period

(2,559)

44,801

(5,422)

36,820 

Non-controlling interests

515 

(37)

-

478 

 

 

 

 

 

 

Attributable to shareholders of parent

(2,559)

45,316 

(5,459)

37,298 

 

 

 

 

 

 

Segment assets

412,130 

1,586,860 

93,420 

(311,537)

1,780,873

 

 

 

 

 

 

Segment liabilities

318,011 

1,094,584 

391,040 

(311,537)

1,492,098

         

 

 

Geographical analysis

As at 30 June 2020

 

 

 

 

 

UK 

North America

Europe 

Total 

 

 

£000 

 

£000 

 

£000 

 

£000 

Gross assets

 

511,207 

 

1,433,300 

 

573,314 

 

2,517,821 

Intercompany eliminations

 

(142,195)

 

(146,204)

 

(49,505)

 

(337,904)

Segment assets

 

369,012 

 

1,287,096 

 

523,809 

 

2,179,917 

 

 

 

 

 

 

 

 

 

Gross liabilities

 

342,214 

 

1,277,027 

 

504,291 

 

2,123,532 

Intercompany eliminations

 

(84,890)

 

(247,898)

 

(5,116)

 

(337,904)

Segment liabilities

 

257,324 

 

1,029,129 

 

499,175 

 

1,785,628 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

94,061 

 

207,833 

 

30,024 

 

331,918 

 

As at 30 June 2019

 

 

 

 

 

UK 

North America

Europe 

Total 

 

 

£000 

 

£000 

 

£000 

 

£000 

Gross assets

 

419,432 

 

1,088,721 

 

403,560 

 

1,911,713 

Intercompany eliminations

 

(137,630)

 

(154,256)

 

(57,569)

 

(349,455)

Segment assets

 

281,802 

 

934,465 

 

345,991 

 

1,562,258 

 

 

 

 

 

 

 

 

 

Gross liabilities

 

262,518 

 

1,011,173 

 

335,765 

 

1,609,456 

Intercompany eliminations

 

(72,073)

 

(271,026)

 

(6,356)

 

(349,455)

Segment liabilities

 

190,445 

 

740,147 

 

329,409 

 

1,260,001 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

16,533 

 

91,272 

 

3,404 

 

111,209 

 

As at 31 December 2019

 

 

 

 

 

UK 

North America

Europe 

Total 

 

 

£000 

 

£000 

 

£000 

 

£000 

Gross assets

 

460,617 

 

1,153,071 

 

478,722 

 

2,092,410 

Intercompany eliminations

 

(128,640)

 

(132,124)

 

(50,773)

 

(311,537)

Segment assets

 

331,977 

 

1,020,947 

 

427,949 

 

1,780,873 

 

 

 

 

 

 

 

 

 

Gross liabilities

 

293,176 

 

1,099,281 

 

411,178 

 

1,803,635 

Intercompany eliminations

 

(55,826)

 

(250,150)

 

(5,561)

 

(311,537)

Segment liabilities

 

237,350 

 

849,131 

 

405,617 

 

1,492,098 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

84,860 

 

101,989 

 

16,450 

 

203,299 

 

4.  Fair Value

 

The following table shows the fair values of financial assets using a valuation hierarchy; the fair value hierarchy has the following levels: -

Level 1 - Valuations based on quoted prices in active markets for identical instruments.  An active market is a market in which transactions for the instrument occur with sufficient frequency and volume on an ongoing basis such that quoted prices reflect prices at which an orderly transaction would take place between market participants at the measurement date.

Level 2 - Valuations based on quoted prices in markets that are not active or based on pricing models for which significant inputs can be corroborated by observable market data.

Level 3 - Valuations based on inputs that are unobservable or for which there is limited activity against which to measure fair value.

 

 

 

 

 

 

 

 

 

 

June 2020

 

Level 1

£000

 

Level 2

£000 

 

Level 3
£000

 

Total
£000

 

 

 

 

 

 

 

 

 

Government and government agencies

 

159,020

 

624

 

-

 

159,644

Corporate bonds

 

287,117

 

87,356

 

-

 

374,473

Equities

 

5,752

 

-

 

-

 

5,752

Investment funds

 

-

 

53,658

 

-

 

53,658

Purchased reinsurance receivables

 

-

 

-

 

5,076

 

5,076

Total financial assets measured at fair value

 

451,889

 

141,638

 

5,076

 

598,603

 

 

 

 

 

 

 

 

 

 

June 2019

 

Level 1

£000

 

Level 2

£000 

 

Level 3
£000

 

Total
£000

 

 

 

 

 

 

 

 

 

Government and government agencies

 

  -

 

80,705

 

-

 

80,705

Corporate bonds

 

-

 

243,799

 

-

 

243,799

Equities

 

15,760

 

-

 

-

 

15,760

Investment funds

 

108,722

 

-

 

-

 

108,722

Purchased reinsurance receivables

 

-

 

-

 

8,003

 

8,003

Total financial assets measured at fair value

 

124,482

 

324,504

 

8,003

 

456,989

 

 

 

 

 

 

 

 

 

 

December 2019

 

Level 1

£000

 

Level 2

£000 

 

Level 3
£000

 

Total
£000

 

 

 

 

 

 

 

 

 

Government and government agencies

 

180,970

 

7,060

 

-

 

188,030

Corporate bonds

 

342,538

 

2,758

 

-

 

345,296

Equities

 

10,991

 

-

 

-

 

10,991

Investment funds

 

-

 

15,646

 

-

 

15,646

Purchased reinsurance receivables

 

-

 

-

 

5,969

 

5,969

Total financial assets measured at fair value

 

534,499

 

25,464

 

5,969

 

565,932

 

The following table shows the movement on Level 3 assets measured at fair value: -

 

June 

2020 

June 

2019 

December

2019 

 

£000 

£000 

£000 

 

 

 

 

Opening balance

5,969 

 3,393 

3,393 

Total net gains recognised in the Consolidated Income Statement

351 

1,178 

(93) 

Acquisitions

3,374 

3,528 

Disposals

(1,537)

(692) 

Exchange adjustments

293 

58 

(167) 

Closing balance

5,076 

8,003 

  5,969 

 

Level 3 investments (purchased reinsurance receivables) have been valued using detailed models outlining the anticipated timing and amounts of future receipts. During 2019 the Group purchased an outstanding interest in similar reinsurance receivables of £3,374k.  Short term delays in the anticipated receipt of these investments are not likely to have a material impact on their valuation.

5.  Investment income

 

 

 

Six months ended

30 June 2020 

 

Six months ended

30 June 2019 

Year ended 

31 December

2019 

 

 

£000 

 

£000 

 

£000 

 

 

 

 

 

 

 

Interest income

 

9,218 

 

7,175 

 

15,391

Realised gains/(losses) on investments

 

(576)

 

2,514 

 

4,581

Unrealised gains/(losses) on investments

 

(6,463)

 

6,341 

 

2,021

 

 

2,179 

 

16,030 

 

21,993

 

6.  Income tax

 

 

 

Six months ended

30 June 2020

 

Six months

ended
30 June 2019

Year ended

31 December 2019 

 

 

£000 

 

£000 

 

£000 

 

 

 

 

 

 

 

Tax credit/(charge)

 

140 

 

(487) 

 

(1,280) 

 

The tax charge in the Condensed Consolidated Income Statement is calculated on an effective tax rate method.

 

 

7.  Insurance contract provisions and reinsurance balances

 

 

 

 

Six months 

ended 

 30 June 

 2020 

 

Six months

 ended

30 June

  2019 

Gross

 

£000 

 

£000 

 

£000 

 

Insurance contract provisions at 1 January

 

1,072,208 

 

699,078 

 

699,078 

Claims paid

 

(92,850)

 

(88,207)

 

(183,438) 

Increase/(decrease) in provisions arising from acquisition and disposal of subsidiary undertakings and syndicate participations

 

(35,578)

 

 

106,649 

 

 

174,551 

Increase in provisions arising from acquisition of reinsurance portfolios

 

260,767 

 

 

71,519 

 

 

  132,234

Increase in claims provisions

 

131,864 

 

97,256 

 

177,182 

Increase in unearned premium reserve

 

39,065 

 

55,755 

 

94,315 

Net exchange differences

 

26,380 

 

200 

 

(21,714) 

As at period end

 

1,401,856 

 

942,250 

 

1,072,208 

 

 

 

 

Six months

  ended

 30 June

  2020 

 

Six months

  ended

 30 June

  2019 

Year

ended 

31 December

  2019 

Reinsurance

 

£000 

 

£000 

 

£000 

 

Reinsurers' share of insurance contract provisions at 1 January

 

 

471,412 

 

 

300,357 

 

 

300,357 

Proceeds from commutations and reinsurers' share of gross claims paid

 

 

(56,354)

 

(58,165)

 

 

(111,033) 

Increase/(decrease) in provisions arising from acquisition and disposal of subsidiary undertakings and syndicate participations

 

 

(1,404)

 

 

18,644 

 

 

18,644 

Increase in provisions arising from acquisition of reinsurance portfolios

 

 

 

 

 

 

Increase in claims provisions

 

117,143 

 

90,325 

 

166,260 

Increase in unearned premium reserve

 

47,619 

 

58,722 

 

103,687 

Net exchange differences

 

14,534 

 

(24)

 

(6,503) 

As at period end

 

592,950 

 

409,859 

 

471,412 

 

 

 

 

 

 

 

 

 

Six months

  ended

 30 June

  2020 

 

Six months

  ended

 30 June

  2019 

Year

 ended 

31 December

  2019 

 

Net

 

£000 

 

£000 

 

£000 

 

 

Net claims outstanding at 1 January

 

600,796 

 

398,721 

 

398,721 

 

Net claims paid and proceeds from commutations

 

(36,496)

 

(30,042)

 

(72,405) 

 

Increase/(decrease) in provisions arising from acquisition of subsidiary undertakings and syndicate participations

 

 

(34,174)

 

 

88,005 

 

 

155,907 

 

Increase/(decrease) in provisions arising from acquisition of reinsurance portfolios

 

 

260,767 

 

 

71,519 

 

 

132,234 

 

Increase in claims provisions

 

14,722 

 

6,931 

 

10,922 

 

Decrease in unearned premium reserve

 

(8,554)

 

(2,967)

 

(9,372) 

 

Net exchange differences

 

11,845 

 

224 

 

(15,211) 

 

As at period end

 

808,906 

 

532,391 

 

600,796 

 

 

 

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 claim and the ultimate costs of completing the run off of the Group's owned insurance operations.

The Group owns several 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 reinsurance 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 in the aggregate for all costs of running off the business of the insurance entities to the extent that the provision exceeds the estimated future investment return expected to be earned by those entities deemed to be in run-off.  When assessing the amount of any provision to be made, the future investment income and claims handling and all other costs of all the insurance company subsidiaries' and syndicates businesses in run-off are considered in aggregate.  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 Incurred but Not Reported 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.

 

 

8.    Earnings per share

 

 

 

Six months

ended 30 June 2020

 

Six months

  ended 30 June 2019 

Year ended 

31 December 

2019 

 

 

 

 

 

 

 

 

 

No. 000's 

 

No. 000's 

 

No. 000's 

 

Weighted average number of Ordinary shares

 

200,354

 

170,266

 

183,453

Effect of dilutive share options

 

4,473

 

-

 

-

Weighted average number of Ordinary shares for the purposes

of diluted earnings per share

 

204,827

 

170,266

 

183,453

 

 

 

 

 

 

 

 

 

 

 

 

£000 

 

£000 

 

£000 

Earnings per share for profit from operations

Profit for the period attributable to Ordinary shareholders

877 

 

32,704 

 

37,298

 

 

 

 

 

 

 

Basic earnings per share

 

0.4p

 

19.2p

 

20.3p 

Diluted earnings per share

 

0.4p

 

19.2p

 

20.3p 

 

 

 

 

 

 

 

 

 

9.  Insurance and other payables

 

 

 

Six months ended 30 June 2020 

 

Six months ended 30 June 2019 

Year ended

31 December 2019 

 

 

£000 

 

£000 

 

£000 

 

 

 

 

 

 

 

Structured liabilities

 

427,861 

 

406,830 

 

400,910 

Structured settlements

 

(427,861)

 

(406,830)

 

(400,910)

 

 

 

 

Other creditors

 

246,589 

 

195,111 

 

255,823 

 

 

 

 

 

 

 

 

 

246,589 

 

195,111 

 

255,823 

 

 

 

 

 

 

 

 

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. Before their acquisition by the Group, two Group subsidiaries paid for annuities from third party life insurance companies for the benefit of certain claimants. The life companies will settle the liability directly with the claimants and no cash will flow through the Group. These annuities have been shown as reducing the subsidiaries' potential 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. Depending on the original terms of settlement in each case, the relevant subsidiary may carry a degree of credit risk in the unlikely event that the life insurance company defaults on its obligations to pay the annuity amounts. In the event that any of these life insurance companies become unable to meet their obligations to those annuitants in part or in full, and if no other arrangements are established, any remaining liability may fall upon the respective subsidiaries. The Directors believe that, having regard to the quality of the security of the life insurance companies together with the reinsurance available to the relevant subsidiaries, the possibility of a material liability arising in this way is very unlikely.

 

10.  Borrowings

The total amounts owed to credit institutions at 30 June 2020 was £111,668k (31 December 2019: £142,693k).

 

The Group has issued the following debt:

 

Issuer

Principal

Rate

Maturity

Randall & Quilter Investment Holdings Ltd.

$70,000k

6.35% above USD LIBOR

2028

Accredited Insurance (Europe) Limited

€20,000k

6.7% above EURIBOR

2025

Accredited Insurance (Europe) Limited

€5,000k

6.7% above EURIBOR

2027

R&Q Re (Bermuda) Limited

$20,000k

7.75% above USD LIBOR

2023

 

11.  Issued share capital

Issued share capital as at 30 June 2020 amounted to £4,260k (31 December 2019: £3,918k).

 

During the period, the Group issued 11,902,318 ordinary shares at £1.35 per share.

 

During the period, a Group subsidiary issued 47,609,270 $0.01 convertible preference shares for cash consideration of $80,000k. These preference shares are convertible into ordinary share capital of the Company upon certain regulatory conditions being met. The convertible preference share are entirely accounted for within equity in accordance with IAS 32 as the conversion to ordinary share capital is at a fixed amount.

 

In the period, the Group commenced a share repurchase programme and purchased 111,525 of its ordinary shares for total consideration of £150k. These ordinary shares are held in treasury.

 

 

12.  Guarantees and Indemnities in the Ordinary Course of Business

The Group has given various customary warranties and indemnities in connection with the disposals of R&Q Managing Agency and various Insurance service entities.

 

The Group also gives various guarantees in the ordinary course of business.

 

 

13.  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.  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.

 

14.  Business combinations

The Group made four business combinations during the first six months of 2020, all of which involved legacy transactions and have been accounted for using the acquisition method of accounting.

Legacy entities and businesses

The following table shows the fair value of assets and liabilities included in the Condensed Consolidated Financial Statements at the date of acquisition of the legacy businesses:

 

Intangible assets

Other receivables

Cash & Investments

Other payables

Technical provisions

Tax & deferred tax

Net assets acquired

Consideration

Gross Deal Contribution

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

Vigneron

103

-

1,479

-

(1,041)

-

541

-

541

Anglo French

1,304

-

5,670

-

(5,670)

-

1,304

-

1,304

ICIICL

103

-

9,705

-

(2,342)

-

7,466

5,213

2,253

Citadel

4

3

1,042

(64)

(33)

(2)

950

741

209

 

1,514

3

17,896

(64)

(9,086)

(2)

10,261

5,954

4,307

           

 

In all instances, goodwill on bargain purchase was recorded on the transactions.  Goodwill on bargain purchase arises when the consideration is less than the fair value of the net assets acquired.  It is calculated after the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition.

M&A transactions can arise as legacy business can give rise to onerous capital and reporting obligations for insurers, even though they no longer actively participate in such business.

In order to disclose the impact on the Group as if the legacy entities had been owned for the whole year, assumptions would have to be made about the Group's ability to manage efficiently the run-off of the legacy liabilities prior to the acquisition.  As a result, and in accordance with IAS 8, the Directors believe it is not practicable to disclose revenue and profit before tax as if the entities had been owned for the whole period.

Where significant uncertainties arise in the quantification of the liabilities, the Directors have estimated the fair value based on the currently available information and on assumptions which they believe to be reasonable. 

The Group completed the following business combination during 2020:

 

Vigneron

On 22 January 2020, the Group completed the acquisition of the entire issued ordinary shares of Vigneron Insurance Company Inc ("Vigneron"), a Montana, USA domiciled captive insurance company. Vigneron provided workers' compensation, auto and general liability coverage to affiliates from 2004 to 2018.

 

Anglo French

Effective 5 March 2020, the Group completed the Part VII transfer of policies underwritten by Anglo French Insurance Company Limited on or prior to 31 December 1969 to R&Q Gamma Company Limited.

 

ICIICL

On 9 April 2020, the Group completed the acquisition of the entire issued share capital of ICI Insurance Company Limited ("ICIICL"), a Cayman domiciled captive insurance company. ICIICL's remaining liabilities relate to general liability and workers' compensation claims arising from policies written from 1974 to 2009.

 

Citadel

On 16th June 2020, the Group completed the acquisition of the entire issued ordinary shares of Citadel Assurance Company ("Citadel"), a Vermont, USA domiciled captive insurance company. Citadel provided workers' compensation, auto and general liability coverage from 2002 to 2015.

 

15.  Related party transactions

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

 

 

Six months ended 

30 June 2020 

Six months ended

30 June 2019 

Year ended

31 December 2019 

 

 

  £000 

£000 

£000 

 

K E Randall and family

728 

1,222

 

A K Quilter and family

204 

328

 

W Spiegel

-

 

 

16.  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 2020 

 

Six months ended 30 June 2019 

Year ended

31 December 2019 

 

 

£000 

 

£000 

 

£000 

Average

 

 

 

 

 

 

US dollar

 

1.26 

 

1.29 

 

1.28

Euro

 

1.14 

 

1.14 

 

1.14

 

 

 

 

 

 

 

Spot

 

 

 

 

 

 

US dollar

 

1.24 

 

1.27 

 

1.31

Euro

 

1.11 

 

1.12 

 

1.17

 

 

 

 

 

 

 

 

17.  Events after the reporting date

On 15 July 2020, the Group announced the admission of 9,676,495 new ordinary shares to trading on AIM. This was in accordance with a Bonus Share Issue approved at the Company's Annual General Meeting held on 9th July 2020.

 

On 10 September 2020, the Group announced the completion of the combination of its wholly owned subsidiary, Sandell Re Ltd, with Tradesman Program Managers, LLC, in return for a 35% interest in the combined entity.

 

 

 

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