Half Yearly Report

RNS Number : 2306R

Randall & Quilter Inv Hldgs PLC

18 August 2010

 



Date:	18 August 2010
On behalf of:	Randall & Quilter Investment Holdings plc ("Randall & Quilter" or the "Group")
Embargoed until:	0700hrs

Randall & Quilter Investment Holdings plc

Interim results for the six months ended 30 June 2010

The Board of Randall & Quilter (AIM: RQIH), the specialist non-life insurance investor, service provider and underwriting manager, is pleased to announce a strong set of Group interim results for the six months ended 30 June 2010.

HIGHLIGHTS

Financial:

·      Total Group income up 52% at £16.1m (2009: £10.6m)

·      Profit before tax of £5.8m (2009: £1.2m)

·      Basic earnings per share of 6.9p (2009: (1.7p))

·      Return of cash through proposed new B share scheme equivalent to 2.9p per share (2009: 2.8p, paid in the form of an interim dividend)

·      Undiscounted net asset value per share of 145.9p (31 Dec 2009: 139.5p*)

·      Net assets of £80.3m (31 Dec 2009: £76.2m*)

·      Strong half year profits for the Insurance Services division of £3.6m (2009: £1.9m**)

·      Net insurance provisions released of £4.8m (2009: £2.7m)

·      Total Group net investment income of £4.6m (2009: £3.6m), an annualised return of 2.6%

* Following restatement of goodwill

** Excludes profits now reported on in the Captives division for comparative purposes

Business Developments:

·      Four acquisitions during the period:

o  JMD Specialist Insurance Services, the provider of premium collection, binding authority and broker reporting services to the Lloyd's market;

o  Callidus, a specialist provider of company secretarial and compliance services to the London insurance market;

o  La Licorne S.A the Group's first run-off company in France; and

o  John Heath, a provider of Audit & Inspection services focussed on active US coverholders to Lloyd's and London company market participants

·      New joint venture captive management company launched in the Nordic region with contracted clients

·      Imminent launch of the Group's delegated underwriting activities with the formation of a Canadian based MGA backed by third party capital in Lloyd's

·      A further broker run-off contract being finalised , increasing the legacy broking activities of the Group following the acquisition of R K Carvill's legacy portfolio last year

·      'In principle' approval from Lloyd's to act as 'turnkey' managing agent

·      Well progressed in the application process to form a new syndicate (in partnership with a major European insurer) to commence underwriting in time for the key January 1 renewals

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

"I am delighted that the Group delivered a strong pre-tax profit for the half year of £5.8m. This was in part attributable to a particularly good result from the Insurance Services division which delivered a pre-tax profit of £3.6m. As anticipated, the division benefited during the period from significant profit commission earned in respect of the management of syndicate 3330. All operating divisions however performed better or in line with expectations.

We look forward to the full year results with some confidence. We do not however expect the relatively strong investment performance in the first half to be repeated in the second half, given that interest rates and corporate bond spreads have moved to unexpectedly low levels. Any further profit commission in respect of syndicate 3330 in the remainder of the year is also likely to be significantly lower.

Beyond the current year, weak investment markets look set to continue to impact on the overall Group result but the service businesses are in good shape and these reliable profit streams (unaffected by investment returns) will enable the Group to maintain its stated distribution policy.

We remain optimistic that the development of our new underwriting management and 'live' servicing operations and our ability to find and execute value enhancing acquisitions will also provide further opportunities for growth in profitability."  

Enquiries:

Company:                                              Randall & Quilter Investment Holdings plc

Ken Randall                                                          Tel: [phone]        

Alan Quilter                                                          Tel: [phone]

Tom Booth                                                             Tel: [phone]

Nominated Advisor                             Numis Securities Limited

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

                Charlie Farquhar (Broker)                                 Tel: [phone]             

Joint Broker:                                         Shore Capital Stockbrokers Ltd

Dru Danford                                                         Tel: [phone]

Stephane Auton                                                    Tel: [phone]

Corporate & Financial PR:                  Redleaf Communications

Emma Kane                                                           Tel: [phone]

Alicia Jennings                                                     r&[e-mail]

Adam Leviton

The Chairman's Statement, Business Review and Highlights of Accounts are attached.  The full interim results for the six months ended 30 June 2010 will be sent to shareholders shortly and will be available on the Company's website at www.rqih.com.

Notes to Editors:

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

-     Insurance Investments;

-     Insurance Services;

-     Underwriting Management; and

-     Captives

 The Group currently has:

-   a portfolio of 9 insurance companies in run-off (from the UK, US and Europe) with net assets of £74m as at 30 June 2010;

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

-   a team of approximately 240 insurance professionals based in the UK, USA and Bermuda; and

-   'in principle' approval by Lloyd's of London to provide 'Turnkey' management services to syndicates.

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

Chairman's Statement and Business Review

For the six months ended 30 June 2010

Financial Results	6 months ended 30 June 2010	6 months ended 30 June 2009	Year ended 31 December 2009
		Restated	Restated
Group Results	£000	£000	£000
Operating profit	6,012	1,235	413
Profit on ordinary activities before income taxes	5,822	1,157	259
Profit/(loss) after tax	3,673	(952)	(171)
Total net assets	80,263	76,385	76,190

I am delighted that the Group delivered a strong pre-tax profit for the half year of £5.8m. This was in part attributable to a particularly good result from the Insurance Services division which as anticipated, benefited from significant profit commission earned in respect of the management of syndicate 3330. All operating divisions however performed better or in line with expectations. Central corporate costs of £2.5m were higher than previous periods primarily as a result of a one-off settlement to a former employee and legal costs in relation to ongoing litigation.

I am pleased to report that the recent restructuring initiatives in the Insurance Services division have begun to bear fruit and a small number of new client contracts have been secured during the period despite competitive pressures. Good progress has also been made in the expansion of our services in the active market. Following our acquisition of JMD Specialist Insurance Services in January, a number of new clients have signed up to our premium collection, binding authority and broker reporting services. The purchase of John Heath, with offices in Florida, Pennsylvania and Arizona and the acquisition in recent weeks of A M Associates, a Toronto based firm specialising in coverholder reviews further increases our offering and penetration of delegated underwriting reviews, a growing area of focus for many London based insurers, in part driven by business improvement initiatives from the Lloyd's Franchise Board.

The Investments division is performing in line with expectations. Net claims releases of £4.8m, largely from R&Q Re (US), helped generate a profit before tax of £4.8m overall despite modest investment income in the half year, reflecting subdued returns available on fixed income portfolios. We are also in the process of seeking regulatory approval for extraction of capital from two of our portfolios, where we have generated a significant surplus over solvency requirements through active claims management. Whilst unable to confirm the extent of the releases at this stage, I hope to make further announcements on our progress in this area in due course, which will give further proof of our ability to monetise the value held in the division.

The acquisition of La Licorne illustrates our progress in exploiting the significant opportunities that exist in Europe in the run up to Solvency II.  This acquisition was completed at a discount to net assets and this generated 'Goodwill on bargain purchase' of £0.9m during the period.

The outlook for our investment activities overall remains encouraging. In particular, we are working on a number of opportunities in Lloyd's. Our current intention here is to partner with a range of third party capital providers to take advantage of some more significant sized deals and we are making good progress in this area. We hope to be able to provide updates on our progress here during the autumn, ahead of the new underwriting year.

The Captives division continues to perform satisfactorily and we continue to benefit from client defections arising from ongoing broker consolidation. I am pleased that the Nordic venture has launched successfully and we continue to examine other opportunities to increase the scale and geographical reach of our captive management operations.

The new underwriting management division is developing well. Work continues on the application to form a new syndicate in partnership with a major European insurer to commence underwriting in time for the key January 1 renewals. A pipeline for future Turnkey syndicates is also being developed. Following the announcement on 23 June regarding the establishment of a Canadian Managing General Agent (subject to Lloyd's approval), I am pleased to report that we are close to finalising capacity from the Lloyd's market to support the business, which should commence underwriting shortly. We are also examining further opportunities to form delegated underwriting businesses. Progress in this area is ahead of expectations.

The proposed return of cash to shareholders through a B share scheme provides a more flexible and efficient mechanism of returning capital to shareholders and is a logical step for a company such as Randall & Quilter, where we aim to release capital from our insurance investments as well as distributing regular profits from our services division. Shareholders will be able to elect to receive cash as either capital or income for tax purposes. We remain committed to maintaining a policy of increasing total distributions to shareholders by at least 5 percent per annum from the base of 7.0p per share in 2009.  Further details of the B share scheme are outlined in a circular posted to shareholders today.   

The outlook for the Group remains promising with a number of attractive insurance investment opportunities. Though in the face of persistently low interest rates, investment returns within our insurance companies inevitably remain depressed, the rest of the business is performing well. Although we do not expect to have the benefit of a significant further contribution from the syndicate 3330 management contract during the second half, our service businesses are in good health and growth is being assisted by our success in niche areas of the 'active' market and in broker legacy. We are also pursuing a number of interesting complementary acquisition opportunities in both run-off and 'live' servicing as well as in captive management. As a consequence, we look forward to the full year results with some confidence. After continued investment in the creation of the underwriting management division during 2010, we anticipate that 2011 will be something of a turning point as both the turnkey agency and delegated underwriting activities become operational but the full benefits are unlikely to emerge before 2012.

Insurance Investments Division

The insurance investment division performed well in the period, producing an overall profit of £4.8m (2009: £0.3m). Reserve releases of £4.8m mostly emanated from R&Q Re (US) and were slightly ahead of expectations.

La Licorne S.A was purchased below net asset value from MAAF Assurances in April 2010 for €3.2m, generating 'goodwill on bargain purchase', i.e. negative goodwill of £0.9m during the period.

Investment income was £4.6m (equivalent to an annualised return of 2.6%) helped in part by a further rally in the value of the step-up perpetuals. The outlook for the remainder of the year is however inevitably weak in the face of persistently low interest rates.

There was further activity in the reinsurance debt operations during the period including an acquisition of a $7.1m face value position from Syndicate 3330. We continue to achieve excellent returns in this niche business area and going forwards, our emphasis, wherever possible will be firmly weighted towards taking principal positions rather than simply managing third party positions.

At 30 June, 2010, the portfolio of acquired insurance companies under ownership was as follows:-

	Vendor	Country of Incorporation	Acquisition Date	NAV*  £m (as at 30/06/10)	NAV* £m (as at 31/12/09)
La Metropole SA ("La Met")	Travelers Group	Belgium	29 Nov 2000	0.2	0.2
Transport Insurance Company ("Transport")	American Financial Group	USA	30 Nov 2004	8.2	8.1
R&Q Reinsurance Company (UK) Limited ("R&Q Re (UK)")	Ace Group	UK	3 July 2006	4.0	4.2
R&Q Reinsurance Company (Belgium) ("R&Q Re (Belgium)")	Ace Group	Belgium	3 July 2006	2.4	2.6
R&Q Reinsurance Company ("R&Q Re (US)")	Ace Group	USA	3 July 2006	19.3	15.1
Chevanstell Limited ("Chevanstell")	Trygg Forsikring	UK	10 Nov 2006	27.8	28.2
R&Q Insurance (Guernsey) Limited ("R&Q Guernsey")	Deloitte LLP, Administrators for Woolworths Group plc	Guernsey	9 June 2009	1.4	1.6
Goldstreet Insurance Company ("Goldstreet")	Sequa Corporation & Columbia Insurance Company	US	16 Nov 2009	7.5	6.1
La Licorne S.A. ("La Licorne")	MAAF Assurances	France	23 April 2010	3.4
TOTAL				74.2	66.1

*IFRS basis for Group consolidation purposes

Investment Policy and Returns

Investment income of £4.6m in the period (2009: £3.5m) was a respectable outcome given that a significant portion of assets are invested in very liquid, short dated fixed income securities.

The total investments held in the US dollar fund managed by BNY Mellon stood at $252.6m as at 30 June 2010 and the return for the six month period was 1.6%. Average duration remains low at 1.8 years.

The total investments held in the mixed currency fund stood at £76.4m as at 30 June 2010, comprising of £32.2m and $66.3m. The returns for the period were 3.9% and 1.0% respectively with an aggregate return of 2.0%. Average duration is very low at 0.9 years.

The fixed income portfolio breakdowns by credit rating and asset class were as follows:-

Credit Rating:-

	USD Portfolio	Mixed Currency Portfolio
As at 30 June 2010		USD	GBP
Government & Govt Guaranteed Bonds	54.7%	16.1%	0.0%
AAA	5.8%	8.5%	5.0%
AA	12.6%	13.9%	22.2%
A	23.7%	23.5%	24.7%
BBB	3.1%	2.7%	25.9%
BB	0.1%	0.0%	19.5%*
P-1	0.0%	35.3%	2.7%
	100.0%	100.0%	100.0%

* Comprises the step-up perpetuals discussed in more detail below.

Asset Classes:

	USD Portfolio	Mixed Currency Portfolio
		USD	GBP
Government Bonds	54.2%	16.1%	0.0%
Corporates	21.4%	0.0%	0.0%
Financials	18.0%	36.5%	83.0%
Cash	5.2%	22.3%	2.7%
CDs	0.0%	13.1%	0.0%
Asset backed	1.2%	12.0%	14.3%
	100.0%	100.0%	100.0%

Credit quality and asset composition in the larger USD portfolio are broadly unchanged since year end; remaining excellent and highly conservative respectively. In the mixed currency portfolio, the USD assets are more liquid and conservatively positioned versus the year end whilst the Sterling part is broadly unchanged with returns benefiting from further write backs on the bank step-up perpetuals and their high running yield.

Overall returns in the first half of the year benefited from both rates moving a little lower and a modest tightening of credit spreads. Neither of these factors is anticipated to continue in the second half, resulting in a decline in expected returns.

As highlighted in our 2009 full year results statement, we are examining ways of diversifying our investment portfolio to achieve a better risk-reward ratio. Given that the timing of rate rises seem ever more distant, it is clear that the outlook for Treasuries and short duration, high quality traditional fixed income securities, in which the bulk of our assets will always be invested, remains poor. A controlled amount of diversification to boost returns thus remains on the Group's agenda but only if risk and return volatility are contained. 

We therefore continue to explore the merits of making a small investment in LIBOR plus funds, with a focus on delivering an absolute rate of return irrespective of interest rates or traditional credit returns.

Moreover, whilst the short duration of our portfolio limits our exposure to capital losses when interest rates do finally rise, it seems prudent to explore ways in which we can increase our exposure to floating rate paper through the ABS market where spreads even on the highest rated securities remain attractive as a result of continued dislocation in the capital markets.

We are also considering increasing the flexibility of the investment guidelines given to our investment managers to allow them to exploit more easily the relative value between Treasuries and Corporates and different parts of the yield curve. All these measures are of course being considered within the confines of regulation and the conservative investment philosophy of the Group under which preservation of capital and liquidity remain key.

Reserving

The period saw a further aggregate net provisions release of £4.8m driven principally by a strong performance from R&Q Re (US).

The key issues in the main subsidiaries were as follows:-

R&Q Re (US)

Further analysis of the IBNR allocations has facilitated a modest reserve release in the company during the period.

Work continues on resolving certain litigated claims and the analysis of a number of large and mid-range claims, where we believe there may be further redundancy. We have also identified additional reinsurance recoveries on claims paid prior to acquisition, which we are seeking to monetise. 

We have taken legal advice regarding the ownership of such pre acquisition recoveries to confirm our view that such recoveries should be retained by R&Q Re (US).              

Chevanstell

Following the Part VII transfer of Arran to Chevanstell at the end of 2009 and the continued managing down of the company's liabilities, a significant surplus over regulatory capital requirements has been generated. An application has thus been submitted to the FSA for capital reduction, which we hope will materialise during the third quarter.

Whilst net provisions were essentially unchanged in the period, important progress has been made in the resolution of some potentially litigious claims.

As the run-off matures, greater focus is being given to commutations generally and a specific programme has been launched in respect of the large number of small value reinsurances protecting the former Arran accounts.

R&Q Re (UK)

Progress has been made since the Equitas commutation at the end of 2009 with some recovery of the third party costs expended in the dispute and positive developments in other commutation negotiations. A detailed review of the inwards ledger was also completed, leading to a release in respect of redundant balances, mostly attributable to closed or liquidated estates.

The period saw an overall net release of claims reserves in the company.

Further areas of work include identifying redundant IBNR in respect of residual US asbestos exposure and potential overdue refunds due to the company in respect of Piper Alpha.

Transport

Collection of reinsurance receivables continues with the Aerojet case still being by far the largest outstanding balance. This recovery has been fully written down in the consolidated financial statements. We have been advised of a status conference with the Appeal Court in September but no formal notice of a hearing date, which we are advised will be several months hence.

The net provisions remained in line with the year end and work has commenced at looking at the feasibility of transferring Transport into one of the other Group's US portfolios.

Remaining Insurance Companies

Our other insurance companies continue to run-off satisfactorily.

Claims and reinsurance information in respect of Goldstreet, acquired in December 2009 has now been transferred onto our systems and a review has begun of the remaining claim files following the wide ranging commutation agreed with one of the vendors at acquisition. We are also working on a potential capital extraction from this company given the very substantial surplus over regulatory requirements.

Claims continue to develop within expectations on R&Q Insurance (Guernsey) (formerly the Woolworths Captive) and open claims have been reduced by over a third since year end. We are also looking at reducing the claims funding requirements in the portfolio in line with the reserves reduction.

Commuting outwards proportional involvements continues at R&Q Re (Belgium). We have also taken the precaution of using part of a recently identified ledger release as a contingency against some long-standing contentious claims, which we are looking to resolve during the second half.

Finally, we are exploring ways in which we could transfer the remaining portfolio of La Metropole to another group company as part of a continuing consolidation exercise. 

Reinsurance Debt

As highlighted in the 2009 final results statement, this activity, now part of the insurance investments division is increasingly focused on the Group taking principal positions in the acquisition of reinsurance debt as opposed to providing a collection service for third parties. Having said that, we are pleased to report that the largest external contracts have been renewed recently and are still profitable for the Group.

Investments in this area have been highly successful but limited in value terms. The increasing opportunities which we referred to in our last results statement have not abated and we are progressing a number where the face value of debt is significant and the return profile attractive. We are exploring ways in which we might partner with others in some of the larger acquisitions but meanwhile remain active on our own account on the smaller end.

During the period, we are pleased to report that we increased the face value of debt to $20m from $12m at the year end through the acquisition of a position held by syndicate 3330.

In relation to one significant outstanding debt position we currently hold, we are anticipating a substantial additional recovery either before the year end or during the very early part of 2011. The cumulative amount of recoveries collected should then exceed the original acquisition cost with further expected recoveries to come.   

We continue to explore acquiring debts due from insolvent estates where we believe there will be significant eventual recoveries. Such acquisitions provide immediate solvency relief for US vendors.

Insurance Services Division

The services division performed strongly in the period with revenue of £15.0m and profit before tax of £3.6m. As expected, the result benefited from a substantial profit commission earned in respect of the management of syndicate 3330, following a claims release attributable to a recent market settlement related to World Trade Center airline liability policies. Whilst a further profit commission may materialise in the second half, this is expected to be significantly lower.

The first half out performance means that we look forward to the full year result with added confidence and remain well on course to restore and grow the division's profit in line with statements made in the 2009 results. The result also demonstrates the Group's ability to service its commitment to increase shareholder distributions by at least 5 per cent per annum through the profits generated by the division.

In the core run-off service operations, it is pleasing to report that the recent restructuring initiatives have begun to bear fruit with a small number of new client contracts during the period despite competitive pressures. Excluding intra divisional recharges, service revenue from Group owned companies amounted to £6.1m and services to third parties, £8.9m (2009: £6.9m and £4.7m respectively).

As the business continues to develop through acquisition and organically, the reliance on profits from the owned insurance company portfolio continues to reduce. Contingent fee arrangements in place for a number of contracts provide upside potential, as has been seen recently in the case of the management of syndicate 3330. 

The broker services operations continue to grow following the acquisition of Requiem (formerly R K Carvill) at the end of 2009. Negotiations are being finalised to transfer a further portfolio of broker legacy business to R&Q, further consolidating our position in broker run-off. Some small collection projects for new clients have also been won during the period and the pipeline looks promising.

The newly expanded live services offering of the Group performed well in the half year. A number of new clients were signed up to the delegated underwriting management, credit control and market reporting services of JMD Insurance Services, acquired by the Group in January this year.

The recent acquisition of John Heath with offices in Florida, Pennsylvania and Arizona and A M Associates in Canada, further increases our offering and market share of income from delegated underwriting reviews and significantly expands our client base in this area. We continue to look at other acquisition opportunities in delegated underwriting audits and inspections.  Following the acquisitions of JMD, John Heath and A M Associates we are working with clients to provide a high standard of service both in terms of breadth and quality and we look forward to extracting the efficiencies brought by scale as our operations expand further.

Audit and Inspection of delegated underwriting facilities is a good example of the type of niche service business the Group is targeting in its drive into the 'live' market. The focus is on expansion into service areas where the incumbent providers are not the insurers themselves, the market is highly fragmented and the services are most cost effectively provided through a third party (because for example, the potential beneficiaries are the multiple participants of the London subscription market). A positive outlook in the underlying market is also important. In the case of delegated underwriting reviews, the volume of business acquired through such facilities is both highly significant and growing. Furthermore, the management of such facilities is an increasing area of focus for insurers through performance management initiatives from Lloyd's itself and at individual client level.

The expansion of the service division into the 'live' market is anticipated to drive a significant amount of the Group's future organic growth. This is, in part, because 'active' or 'live' service business tends to have a natural growth profile, quite distinct from the gradual declines common to run-off contracts. Over time, this should reduce the reliance of the division on new business wins and further enhance the quality of earnings.

During the first half of 2010, the steps taken to reduce costs and improve efficiency have improved our ability to win new contracts in our core run-off operations despite continued competition. We continue to look at acquisition opportunities here too. Scale and market position remain important drivers of profit. As well as seeking bolt-on acquisitions to our extensive UK operations, the Group is keen to establish a presence in the US market for third party servicing to balance its existing operations focused mainly on the owned insurance company portfolio.  

Captives Division

The core operations of the division comprising R&Q Quest continue to perform well with revenue of £1.5m and profits of £0.4m in the six months ending 30 June 2010; an increase over the same period in 2009. Particularly pleasing is the fact that there were five new client wins during the period and no losses.  This is the result of further marketing initiatives and the fallout from ongoing broker consolidation.  The revenue benefit from this new business will begin to flow through in the second half and we look to the future with confidence.

The overall contribution from the division of £0.1m was impacted significantly in the period by start up costs associated with the Nordic venture of £0.3m, although 40% of these costs are unwound on consolidation through minority interests. Marketing has however been positive and we expect to see the benefits of having partnered with well connected local industry figures.  In Denmark, as well as having signed up a client, we are progressing an opportunity to assume a number of clients from an existing manager. We are also working on a number of opportunities in Sweden with two now at quotation stage.

Elsewhere, an application for a licence to manage captives in Delaware has been approved and additional licences in Washington DC and Vermont are subject only to signing up of clients.  We remain keen to establish onshore US capability in this area, given the ongoing sensitivity of offshore jurisdictions with a number of US corporates.

It is our firm belief that there is a gap in the market for a highly professional and well capitalised independent captive manager and we are well placed to assume that position.  Wide geographical coverage and scale are important and we continue to explore opportunities to expand our business both organically and through acquisitions in attractive jurisdictions.

Underwriting Division

The new underwriting management division is developing well.  Work continues on the application to form a new syndicate in partnership with a major European insurer and we hope to gain approval from the Lloyd's Franchise Board in late September.  Marketing of the syndicate and commencement of underwriting will then follow during late November and December, to take effect from the start of the 2011 underwriting year.  Capital provision has already been secured (in principle) to support the proposed syndicate stamp capacity, including a relatively modest amount from the Group itself, de-risking launch.

Consultancy fee income in respect of work on the proposed new syndicate commenced in March and generated a small amount of fee income in the period.  As expected, the division generated a loss of £0.3m due to the operating costs related to the highly qualified underwriting and operational staff brought on board during this establishment phase.

The amount of consultancy fee income is expected to increase significantly during the second half, providing a more meaningful offset against costs, particularly in the event that the syndicate gets approval to commence underwriting for 2011.  However, even with a successful outcome on the turnkey syndicate we currently expect a small loss for the year.

Once established, the syndicate will start generating underwriting management fees and an increasing amount of the divisional costs will be borne by the syndicate to which the resource is dedicated.  A pipeline for future Turnkey syndicates is also being developed and we hope to progress further opportunities during the course of 2011.

Following the AGM announcement regarding the establishment of a Canadian Managing General Agent (subject to Lloyd's approval), I am pleased to report that we are close to finalising capacity from the Lloyd's market to support this niche underwriting business and expect underwriting to commence imminently.  Randall & Quilter expects to generate fee income as well as potential profit commissions from this activity in much the same was as from the turnkey management operations and whilst we expect revenue to commence in the second half, this is expected only to broadly match costs with a more significant contribution in 2011 and in particular in 2012 in line with projected income increases in the Canadian MGA underwriting plan. R&Q does not currently intend to take any underwriting risk in respect of this delegated underwriting business and will act purely in an agency capacity.

Further opportunities to form and acquire delegated underwriting businesses are currently being examined with advanced progress in respect of a UK based facility underwritten by another major European insurer.  An initiative to hold direct discussions with Lloyd's Managing Agents to determine the type of coverholder business they would like to underwrite is also helping focus activity.

In addition to these activities, we continue to look at ways of expanding our access to sources of underwriting capital to support our managed underwriting ventures.   

Return of Cash via B Share Scheme

The Return of Value, the details of which are outlined in a circular posted to shareholders today, will give shareholders the option of receiving their payment as capital or income and provides a more flexible and efficient mechanism of returning capital. The payment of 2.9p per share is anticipated to be made through the scheme on 14 September to those shareholders on the register at 3 September.

The proposed return of cash to shareholders through a B share scheme is a logical step for a company such as Randall & Quilter, where we aim to release capital from our insurance investments as well as distributing regular profits from our services division.

The proposed Return of Value is in place of the interim dividend for the 2010 year but the Group may choose to make future returns of value in addition or instead of ordinary dividend payments, whilst maintaining its stated policy to grow total distributions to shareholders by at least 5% per annum from the base level of 7.0p per share in 2009.

Litigation

The dispute between R&Q USA (formerly Cavell US) and Seaton and Stonewall continues and we still expect to make a recovery of damages.

In March 2010 the Company received a substantial damages Counterclaim from Seaton and Stonewall against its US subsidiary, R&Q USA, and me personally in ongoing English proceedings.

R&Q USA and I have already established Seaton and Stonewall as liable for damages incurred in dealing with a similar claim when it was wrongly brought in the New York court in August 2007.

The allegations made in the Counterclaim by Seaton and Stonewall will be defended vigorously.  The nature of the allegations being made is similar in substance to those which Seaton & Stonewall tried to advance in the New York court. 

A Defence to the Counterclaim is due to be filed on 27 August 2010. We are working with our lawyers to finalise that Defence at the moment. After a review of a very large volume of documents covering the relevant period, our lawyers have found no documents to support the allegations being made. The Counterclaim also appears to them to ignore entirely the content of substantial reporting on the affairs of Seaton and Stonewall that their owners received from the Company Representative.

The Board believes the rationale for the making of these allegations by Seaton & Stonewall remains a desire to avoid the impact of a release given to the Company and me in a Settlement Agreement reached in early 2006. 

Seaton and Stonewall made substantially similar allegations before two US arbitration panels in parallel arbitration proceedings between Seaton, Stonewall and a Berkshire Hathaway subsidiary, National Indemnity Company.  Seaton and Stonewall were unsuccessful in both cases.

The Board believes that the Counterclaim is entirely without merit and simply represents a vexatious attempt to keep these allegations alive against R&Q USA and me.

R&Q USA and I expect to make a recovery of the damages incurred as a result of the wrongly filed New York proceedings and a substantial proportion of the costs that will be incurred in defending the Counterclaim by Seaton & Stonewall in the English proceedings.

Market and Outlook

To report results which are ahead of market expectations and to provide a positive outlook for the remainder of the year is of course pleasing. Importantly, recent restructuring initiatives and acquisition activity have helped build a better diversified and efficient service business with less reliance on the owned insurance company portfolio.  Continued active management of the insurance investments not just with respect to claims but also capital provision through portfolio consolidation and capital extraction is also expected to produce positive results in the future.

The Group has also laid solid foundations in the Group's new operational areas; underwriting management and 'live' servicing. Investment in the former has been considerable during the past 18 months and has impacted the Group result.  2011 should represent a turning point and we look forward to providing further updates not only on our proposed turnkey syndicate but also on our delegated underwriting activities. The expansion into 'live' servicing is focused on niche, high margin services and our progress in the audit and inspection of coverholders is a good example of this. 

Previous reports have focused on the paucity of attractively priced insurance investment opportunities in an increasingly crowded marketplace.  There is no doubt that competition remains strong for larger portfolios, subject to a traditional tender process.  Our focus thus remains on smaller portfolios and less mature geographic areas where pricing is still attractive and negotiations can proceed quickly towards exclusivity.  Continental Europe remains interesting and we are well positioned to exploit the growth we anticipate in portfolios for sale.

It is perhaps testament to the successful diversification of our business that the continuation of strong competition for larger run-off portfolios is of less overall significance.  Not only is our investment activity diversified through the acquisition of reinsurance debt, where we are seeing a growing number of opportunities, but we are well positioned for the current resurgence of RITC activity in Lloyd's.  Our potential underwriting capacity is expanded significantly by our intention to deploy a variety of third party funds alongside our own.

Maintaining and growing revenue in the service businesses is also no longer reliant on portfolio acquisitions and the assumption of the associated run-off management contracts; a reflection of the growing active service business and development of other third party business, including captive management and broker run-off. 

Perhaps as a result of the recent diversification of our own business but also undoubtedly a result of the continuing move by corporates to shed non-core operations, the number of potentially attractive acquisition opportunities has increased markedly in recent months.  These range from small bolt-on acquisitions to larger, strategic opportunities.  We are well placed to seize any attractively priced opportunities through the recently expanded management team and our ongoing capital access through the RBS credit facility and group cash.

Subdued investment income is however a continuing headwind for the industry not just for the remainder of this year but for 2011 as well.  Randall & Quilter is certainly not immune and whilst we are looking at controlled ways to diversify our investment portfolios to generate additional return, the scope is limited.  The unexpected gains we have enjoyed this year from rising Treasuries, as rates have gone yet lower and from Corporates as spreads have continued to contract, cannot continue.  Meanwhile, running yields have dropped and the risk of suffering capital falls in the future has increased.  Expectations of picking up extra yield as we roll-over investments into a rising rate environment are also moving out ever further as monetary policy remains stubbornly loose.

We expect therefore that the overall Group result will be impacted through 2011 from weak investment returns before a return to more normalised markets in 2012.  The core service businesses are however in good shape and these reliable profit streams will enable the Group to maintain its stated distribution policy, unaffected by weak investment markets.  The new areas of underwriting management and 'live' servicing will also begin to provide a positive contribution next year with the potential for material upside in 2012 and beyond as these operations become fully operational. We remain optimistic that our ability to find and execute value enhancing acquisitions will also provide further opportunities for growth.

K E Randall

Chairman and Chief Executive Officer

17 August 2010

Condensed Consolidated Income Statement

For the six months ended 30 June 2010

			6 months 30 June 2010		6 months 30 June 2009		Year ended 31 December 2009
					Restated		Restated
	Note		£000		£000		£000
Gross premiums written			772		379		672
Reinsurers' share of gross premiums			(101)		(112)		(67)
Earned premium net of reinsurance			671		267		605
Net investment income	4		4,595		3,624		11,422
Other income			10,784		6,702		14,360
			15,379		10,326		25,782
Total income	3		16,050		10,593		26,387
Gross claims paid			(16,224)		(24,157)		(57,191)
Reinsurers' share of gross claims paid			11,517		13,780		31,032
Claims paid, net of reinsurance			(4,707)		(10,377)		(26,159)
Movement in gross technical provision			20,530		20,910		55,073
Movement in reinsurers' share of technical provisions			(11,009)		(7,791)		(27,282)
Net change in provision for claims			9,521		13,119		27,791
Net insurance claims released			4,814		2,742		1,632
Operating expenses			(15,748)		(12,417)		(27,785)
Result of operating activities before goodwill on bargain purchase and impairment of intangible assets	3		5,116		918		234
Goodwill on bargain purchase	13		896		382		360
Impairment of intangible assets			-		(65)		(181)
Result of operating activities			6,012		1,235		413
Finance costs			(190)		(78)		(154)
Profit on ordinary activities before income taxes			5,822		1,157		259
Income tax charge	5		(2,149)		(2,109)		(430)
Profit/(Loss) for the period	3		3,673		(952)		(171)
Attributable to equity holders of the parent
Attributable to ordinary shareholders			3,778		(952)		(171)
Non-controlling interests			(105)		-		-
			3,673		(952)		(171)
Earnings per ordinary share for the profit/(loss) attributable to the ordinary shareholders of the Company:-
Basic	7		6.9p		(1.7p)		(0.3p)
Diluted			6.7p		(1.7p)		(0.3p)

The attached notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statement of Financial Position

As at 30 June 2010

Company number 03671097

	Note		30 June 2010		30 June     2009	31 December 2009
					Restated		Restated
			£000		£000		£000
Assets
Intangible assets			23,613		18,303		19,514
Property, plant and equipment			379		345		414
Investment properties			995		1,035		1,085
Financial assets			258,697		227,032		246,951
Reinsurers' share of insurance liabilities	6		249,902		256,382		247,456
Current tax assets			787		94		1,513
Deferred tax asset			811		1,236		1,346
Insurance and other receivables			35,462		32,028		32,057
Cash and cash equivalents			42,642		68,346		46,809
Total assets			613,288		604,801		597,145
Liabilities
Insurance contract provisions	6		490,635		492,985		480,616
Financial liabilities			16,567		9,509		13,559
Deferred tax liabilities			916		1,545		1,084
Insurance and other payables	8		22,148		24,137		25,107
Current tax liabilities			1,164		240		589
Pension scheme obligations			1,595		--		-
Total liabilities			533,025		528,416		520,955
Equity
Share capital	10		1,118		1,118		1,118
Other reserves	11		17,215		15,889		15,923
Retained earnings			62,006		59,378		59,149
Attributable to equity holders of the parent			80,339		76,385		76,190
Non-controlling interests			(76)		-		-
Total equity			80,263		76,385		76,190
Total liabilities and equity			613,288		604,801		597,145

Approved by the Board on August 17, 2010.

K E Randall                                                                                          A K Quilter

The attached notes form an integral part of these condensed consolidated financial statements.

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2010

			6 months  30 June  2010		6 months 30 June 2009		Year ended 31 December 2009
					Restated		Restated
			£000		£000		£000
Net cash (used in)/from operating activities			(2,632)		2,397		(21,345)
Proceeds from sale of property, plant & equipment			-		-		29
Purchase of property, plant and equipment			(31)		(136)		(327)
Proceeds from disposal of investment properties			-		-		303
Purchase of investment properties			-		-		(177)
Acquisition of subsidiary undertakings (net of cash acquired)			(4,887)		3,716		5,413
Cash injected by minority interest in subsidiary			25		-		-
Purchase of minority interest in subsidiary undertakings			-		-		(3,886)
Net cash (used in)/from investing activities			(4,893)		3,580		1,355
Repayment of borrowings			(777)		(289)		(562)
New borrowing arrangements			5,609		675		5,735
Equity dividends paid			(2,324)		(1,230)		(2,796)
Interest and other finance costs paid			(190)		(78)		(154)
Purchase of treasury shares			-		(319)		(389)
Net cash from/(used in) financing activities			2,318		(1,241)		1,834
Net (decrease)/increase in cash and cash equivalents			(5,207)		4,736		(18,156)
Cash and cash equivalents at beginning of period			46,809		68,189		68,189
Foreign exchange movement on cash and cash equivalents			1,040		(4,579)		(3,224)
Cash and cash equivalents at end of period			42,642		68,346		46,809

The attached notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2010

			6 months 30 June 2010		6 months 30 June 2009	Year ended 31 December  2009
					Restated		Restated
			£000		£000		£000
Recognised in the financial period:-
Exchange gains/(losses) on consolidation			2,826		(4,993)		(4,407)
Pension scheme actuarial losses			(1,679)		(50)		(92)
Deferred tax on pension scheme actuarial losses			470		14		26
Net expense recognised directly in equity			1,617		(5,029)		(4,473)
Profit/(loss) for the period			3,673		(952)		(171)
Total comprehensive income for the period			5,290		(5,981)		(4,644)
Attributable to:-
Equity holders of the parent			5,395		(5,981)		(4,644)
Non-controlling interests			(105)		-		-
Total recognised in the period			5,290		(5,981)		(4,644)

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2010

			6 months 30 June 2010		6 Months 30 June 2009	Year ended 31 December  2009
					Restated		Restated
			£000		£000		£000
Balance at 1 January			74,814		80,858		80,858
Prior year adjustment			1,376		3,057		3,057
Balance at 1 January (as restated)			76,190		83,915		83,915
Total comprehensive income for the period			5,290		(5,981)		(4,644)
Treasury shares			1,235		(319)		(389)
Dividends			(2,324)		(1,230)		(2,796)
Minority interest			29		-		-
Loss on treasury shares			(214)		-		-
Issue of options/(shares)			57		-		104
Balance period end			80,263		76,385		76,190

The attached notes are an integral part of these condensed consolidated financial statements.

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

1.         Basis of preparation

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

The consolidated interim financial information for the 2010 and 2009 half years are unaudited, but have been subject to review by the Company's auditors.  The financial information has been prepared in accordance with the accounting policies adopted for the year ended 31 December 2009.

The comparative figures for the 31 December 2009 are based upon the consolidated Group financial statements.  These accounts have been reported on by the Company's auditors and have been delivered to the Registrar of Companies on 23 July 2010.

Restatement

IAS 21 requires goodwill arising on the acquisition of overseas subsidiaries to be treated as the assets of those subsidiaries, this requires such goodwill to be retranslated at the rate of exchange prevailing at the reporting date.  During the period the Group has restated its comparatives in order to fully comply with the requirements of this standard.  The implications of this restatement are presented in the Condensed Consolidated Statement of Equity on page 16.

2.         Significant accounting policies

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

The same accounting policies, presentation and methods of computation are followed in these condensed financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 December 2009, except for the change in the group divisional structure, the 2009 interim and full year segmental results have been recalculated accordingly.

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

3.         Segmental information

The Group operates with following primary segments:-

·       Insurance Investments, which acquires legacy portfolios and reinsurance debt

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

·       Captives, which acquires and manages captive operations

·       Underwriting Management, which provides management and capital support to Lloyd's syndicates and other underwriting entities

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

Segment result for the six months ended 30 June 2010

Insurance Investments			Insurance services	Captives		Underwriting Management		Other    corporate			Consolidation adjustments		Total
	£000		£000		£000		£000		£000		£000		£000
Earned premium net of reinsurance	671		-		-		-		-		-		671
Net investment income	4,562		23		-		-		10		-		4,595
Other external income	323		8,940		1,459		62		-		-		10,784
Other internal income	-		6,062		-		-		-		(6,062)		-
Total income	5,556		15,025		1,459		62		10		(6,062)		16,050
Claims paid, net of reinsurance	(4,707)		-		-		-		-		-		(4,707)
Net change in provision for claims	9,521		-		-		-		-		-		9,521
Net insurance claims released	4,814		-		-		-		-		-		4,814
Operating expenses	(6,510)		(11,080)		(1,328)		(393)		(2,499)		6,062		(15,748)
Operating result before impairment of intangible assets	3,860		3,945		131		(331)		(2,489)		-		5,116
Goodwill on bargain purchase	896		-		-		-		-		-		896
Impairment of intangible assets	-		-		-		-		-		-		-
Result of operating activities	4,756		3,945		131		(331)		(2,489)		-		6,012
Finance costs	-		-		-		-		(190)		-		(190)
Management charges	-		(330)		-		-		330		-		‑
Profit/(loss) on ordinary activities before income taxes	4,756		3,615		131		(331)		(2,349)		-		5,822
Income tax (charge)/credit	(1,733)		(883)		-		-		467		-		(2,149)
Profit/(loss) for the period	3,023		2,732		131		(331)		(1,882)		-		3,673
Segment assets	598,233		30,110		5,877		-		17,728		(38,660)		613,288
Segment liabilities	508,476		20,419		521		331		41,862		(38,584)		533,025

Internal income includes fees payable by the insurance companies to the insurance service division in the period, which are contractually committed on an arms length basis.

Included within the other external income of £10.7m is £4.5m received from two clients which generates more than 10% of the total external income.

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

3.         Segmental information (continued)

Segment result for the six months ended 30 June 2009

Insurance Investments			Insurance services	Captives		Underwriting Management		Other    corporate			Consolidation adjustments		Total
	£000		£000		£000		£000		£000		£000		£000
Earned premium net of reinsurance	267		-		-		-		-		-		267
Net investment income	3,530		34		-		-		60		-		3,624
Other external income	506		4,743		1,453		-		-		-		6,702
Other internal income	-		6,930		-		-		-		(6,930)		-
Total income	4,303		11,707		1,453		-		60		(6,930)		10,593
Claims paid, net of reinsurance	(10,377)		-		-		-		-		-		(10,377)
Net change in provision for claims	13,119		-		-		-		-		-		13,119
Net insurance claims released	2,742		-		-		-		-		-		2,742
Operating expenses	(7,112)		(9,641)		(1,107)		-		(1,487)		6,930		(12,417)
Operating result before impairment of intangible assets	(67)		2,066		346		-		(1,427)		-		918
Goodwill on bargain purchase	382		-		-		-		-		-		382
Impairment of intangible assets	-		-		-		-		(65)		-		(65)
Result of operating activities	315		2,066		346		-		(1,492)		-		1,235
Finance costs	-		-		-		-		(78)		-		(78)
Management charges	-		(188)		-		-		188		-		-
Profit/(loss) on ordinary activities before income taxes	315		1,878		346		-		(1,382)		-		1,157
Income tax (charge)/credit	(2,126)		22		-		-		(5)		-		(2,109)
Profit/(loss) for the period	(1,811)		1,900		346		-		(1,387)		-		(952)
Segment assets	593,302		20,272		5,186		-		30,185		(44,144)		604,801
Segment liabilities	519,310		13,908		234		-		18,925		(23,961)		528,416

Internal income includes fees payable by the insurance companies to the insurance service division in the period, which are contractually committed on an arms length basis.

Included within the other external income of £6.7m is £3.1m in aggregate received from three clients, each of which generate more than 10% of the total external income.

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

3.         Segmental information (continued)

             Segment result for the year ended 31 December 2009

Insurance Investments			Insurance services	Captives		Underwriting Management		Other   corporate			Consolidation adjustments		Total
	£000		£000		£000		£000		£000		£000		£000
Earned premium net of reinsurance	605		-		-		-		-		-		605
Net investment income	11,172		79		-		-		171		-		11,422
Other external income	1,177		10,494		2,689		-		-		-		14,360
Other internal income	-		12,734		-		-		-		(12,734)		-
Total income	12,954		23,307		2,689		-		171		(12,734)		26,387
Claims paid, net of reinsurance	(26,159)		-		-		-		-		-		(26,159)
Net change in provision for claims	27,791		-		-		-		-		-		27,791
Net insurance claims released	1,632		-		-		-		-		-		1,632
Operating expenses	(13,647)		(20,636)		(1,984)		-		(4,252)		12,734		(27,785)
Operating result before impairment of intangible assets	939		2,671		705		-		(4,081)		-		234
Goodwill on bargain purchase	360		-		-		-		-		-		360
Impairment of intangible assets	(14)		(167)		-		-		-		-		(181)
Result of operating activities	1,285		2,504		705		-		(4,081)		-		413
Finance costs	-		-		-		-		(154)		-		(154)
Management charges	-		(336)		-		-		336		-		-
Profit/(loss) on ordinary activities before income taxes	1,285		2,168		705		-		(3,899)		-		259
Income tax (charge)/credit	(543)		115		-		-		(2)		-		(430)
Profit/(loss) for the period	742		2,283		705		-		(3,901)		-		(171)
Segment assets	588,648		21,147		5,212		-		41,267		(59,129)		597,145
Segment liabilities	508,002		16,258		177		-		31,063		(34,545)		520,955

Internal income includes fees payable by the insurance companies to the insurance service division in the period, which are contractually committed on an arms length basis.

Included within the other external income of £14.4m is £4.9m in aggregate received from two clients, each of which generate more than 10% of the total external income.

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

3.         Segmental information (continued)

Geographical analysis

As at 30 June 2010
	UK		United  States & Bermuda		Europe		Total
		£000		£000		£000		£000
Gross assets		198,475		425,307		28,166		651,948
Intercompany eliminations		(32,196)		(1,461)		(5,003)		(38,660)
Segment assets		166,279		423,846		23,163		613,288
Gross liabilities		157,201		387,716		26,692		571,609
Intercompany eliminations		(25,163)		(12,144)		(1,277)		(38,584)
Segment liabilities		132,038		375,572		25,415		533,025
Segmental income		11,634		4,193		223		16,050

As at 30 June 2009
	UK		United  States & Bermuda		Europe		Total
		£000		£000		£000		£000
Gross assets		217,790		410,633		20,522		648,945
Intercompany eliminations		(43,322)		(816)		(6)		(44,144)
Segment assets		174,468		409,817		20,516		604,801
Gross liabilities		166,377		368,292		17,708		552,377
Intercompany eliminations		(18,363)		(4,281)		(1,317)		(23,961)
Segment liabilities		148,014		364,011		16,391		528,416
Segmental income		5,613		4,727		253		10,593

As at 31 December 2009
	UK		United  States & Bermuda		Europe		Total
		£000		£000		£000		£000
Gross assets		209,461		426,982		19,831		656,274
Intercompany eliminations		(53,251)		(872)		(5,006)		(59,129)
Segment assets		156,210		426,110		14,825		597,145
Gross liabilities		157,074		380,905		17,521		555,500
Intercompany eliminations		(22,099)		(11,048)		(1,398)		(34,545)
Segment liabilities		134,975		369,857		16,123		520,955
Segmental income		17,102		8,961		324		26,387

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

3.         Segmental information (continued)

Other information

As at 30 June 2010
Insurance Investments			Insurance services	Captives		Underwriting		Other    corporate			Eliminations		Total
	£000		£000		£000		£000		£000		£000		£000
Capital expenditure	-		31		-		-		-		-		31
Depreciation	2		93		2		-		-		-		97

As at 30 June 2009
Insurance Investments			Insurance services	Captives		Underwriting		Other     corporate			Eliminations		Total
	£000		£000		£000		£000		£000		£000		£000
Capital expenditure	9		127		-		-		-		-		136
Depreciation	9		69		-		-		-		-		78

As at 31 December 2009
Insurance Investments			Insurance services	Captives		Underwriting		Other    corporate			Eliminations		Total
	£000		£000		£000		£000		£000		£000		£000
Capital expenditure	1		326		-		-		-		-		327
Depreciation	14		162		5		-		-		-		181

4.         Investment return

		6 months  30 June  2010		6 months  30 June  2009	Year ended  31 December  2009
		£000		£000		£000
Cash and cash equivalents interest income		4,403		5,598		10,452
Realised gains on investments		731		1,058		1,834
Unrealised losses on investments		(188)		(2,815)		(351)
Investment management expenses		(351)		(217)		(513)
		4,595		3,624		11,422

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

5.         Income tax

		6 months  30 June  2010		6 months  30 June  2009	Year ended  31 December  2009
		£000		£000		£000
Current tax		(1,338)		(1,342)		(99)
Deferred tax		(811)		(767)		(331)
		(2,149)		(2,109)		(430)

The current tax charge largely results from profits arising where the Group is in part unable to obtain tax relief through brought forward losses or group relief.

6.     Technical provisions

Gross		6 months  30 June   2010		6 months  30 June  2009	Year ended  31 December  2009
		£000		£000		£000
Claims outstanding at 1 January		480,616		571,190		571,190
Claims paid		(16,224)		(24,157)		(57,191)
Increase arising from acquisition of subsidiary		7,195		6,639		8,765
(Release)/Strengthening of reserves		(4,306)		3,247		2,118
Net exchange differences		23,354		(63,934)		(44,266)
As at period end		490,635		492,985		480,616

Reinsurance		6 months  30 June  2010		6 months  30 June  2009	Year ended  31 December  2009
		£000		£000		£000
Reinsurers share of claims outstanding at 1 January		247,456		297,650		297,650
Reinsurers share of gross claims paid		(11,517)		(13,780)		(31,032)
Increase arising from acquisition of subsidiary		219		-		155
Strengthening of reserves		508		5,986		3,749
Net exchange differences		13,236		(33,474)		(23,066)
As at period end		249,902		256,382		247,456
Net		6 months  30 June  2010		6 months  30 June  2009	Year ended  31 December  2009
		£000		£000		£000
Net claims outstanding at 1 January		233,160		273,540		273,540
Net claims paid		(4,707)		(10,377)		(26,159)
Increase arising from acquisition of subsidiary		6,976		6,639		8,610
Release of reserves		(4,814)		(2,739)		(1,631)
Net exchange differences		10,118		(30,460)		(21,200)
As at period end		240,733		236,603		233,160

Significant uncertainty exists as to the likely outcome of any particular claim and the ultimate costs of completing the run off of the Group's insurance operations.

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

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

7.     Earnings per share

		6 months  30 June  2010		6 months  30 June  2009	Year ended  31 December  2009
		£000		£000		£000
Profit/(loss) for the period attributable to Ordinary shareholders		3,778		(952)		(171)
		No. 000's		No. 000's		No. 000's
Weighted average number of Ordinary shares		55,056		55,892		54,761
Effect of dilutive share options		1,570		1,078		1,115
Weighted average number of Ordinary shares for the purposes of diluted earnings per share		56,626		56,970		55,876
Basic earnings per share		6.9p		(1.7p)		(0.3p)
Diluted earning per share		6.7p		(1.7p)		(0.3p)

8.     Insurance and other payables

		6 months   30 June   2010		6 months 30 June 2009	Year ended 31 December 2009
		£000		£000		£000
Structured liabilities		388,939		354,621		368,012
Structured settlements		(388,939)		(354,621)		(368,102)
		-		-		-
Other creditors		22,148		24,137		25,107
		22,148		24,137		25,107

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

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

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

In respect of the Quest group, the assets, liabilities of the segregated cells and the profits and losses of each cell are not available for use by Quest, nor the Group, and as such these balances are not included in the consolidated balance sheet.  The amounts held on behalf of the segregated cells as at 30 June 2010 amount to £40,029,000 (31 December 2009 £38,686,000).

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

9.     Borrowings

The group has in place a £30m revolving multicurrency facility with The Royal Bank of Scotland.  Of this facility, £14,864,000 was drawn as at 30 June 2010 (31 December 2009: £9,523,000).

10.  Issued share capital

Issued share capital as at 30 June 2010 amounted to £1,118,260 (31 December 2009: £1,118,260).

11.  Other Reserves

		6 months 30 June 2010		6 months  30 June  2009	Year ended 31 December 2009
		£000		£000		£000
Shares to be issued		311		150		254
Share premium		17,255		17,255		17,255
Treasury share reserve		(351)		(1,516)		(1,586)
		17,215		15,889		15,923

Shares to be issued		6 months 30 June 2010		6 months 30 June 2009	Year ended 31 December 2009
		£000		£000		£000
Balance at 1 January		254		150		150
Issue of option/(shares)		57		-		104
Balance period end		311		150		254

Share Premium		6 months  30 June  2010		6 months 30 June 2009	Year ended 31 December 2009
		£000		£000		£000
Balance at 1 January		17,255		17,255		17,255
Balance period end		17,255		17,255		17,255

Treasury share reserve		6 months  30 June  2010		6 months 30 June 2009	Year ended  31 December 2009
		£000		£000		£000
Balance at 1 January		(1,586)		(1,197)		(1,197)
Reissue/(Purchase) treasury shares		1,235		(319)		(389)
Balance period end		(351)		(1,516)		(1,586)

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

12.  Contingencies and commitments

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

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

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

13.  Business Combinations

On 20 January 2010 the Group purchased the entire issued share capital of JMD Specialist Insurance Group Services Limited a company incorporated in England.

The acquisition has been accounted for using the acquisition method of accounting.  After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of net assets acquired was £80,000.  Goodwill of £1,932,000 arose.  The reasoning behind this acquisition is detailed in the Chairman's statement.

The following table shows the fair value of assets and liabilities included in the consolidated financial statements at the date of acquisition.

						Fair value
						£000
	Tangible assets					11
	Other debtors					375
	Cash					48
	Loan					(100)
	Other creditors					(254)
	Net assets acquired					80
	Satisfied by
	Issue of shares					(699)
	Acquisition cost paid					(1,313)
	Goodwill					(1,932)

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

13.  Business Combinations (continued)

On 29 March 2010 the Group purchased the entire issued share capital of Callidus Group Limited a company incorporated in England.

The acquisition has been accounted for using the acquisition method of accounting.  After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of net assets acquired was £160,000.  Goodwill of £772,000 arose.  The reasoning behind this acquisition is detailed in the Chairman's statement.

The following table shows the fair value of assets and liabilities included in the consolidated financial statements at the date of acquisition.

						Fair value
						£000
	Tangible assets					12
	Other debtors					78
	Cash					250
	Other creditors					(180)
	Net assets acquired					160
	Satisfied by
	Issue of shares					(322)
	Acquisition cost paid					(610)
	Goodwill					(772)

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

13.  Business Combinations (continued)

On 22 April 2010 the Group purchased the entire issued share capital of La Licorne Compagnie de Reassurances SA a company incorporated in France.

The acquisition has been accounted for using the acquisition method of accounting.  After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of net assets acquired was £3,672,000.  Goodwill on a bargain purchase of £896,000 arose.  The reasoning behind this acquisition is detailed in the Chairman's statement.

The following table shows the fair value of assets and liabilities included in the consolidated financial statements at the date of acquisition.

						Fair value
						£000
	Investments					11,038
	Other debtors					634
	Technical provisions					(6,976)
	Other creditors					(1,024)
	Net assets acquired					3,672
	Satisfied by
	Acquisition costs paid					(2,776)
	Goodwill on bargain purchase					896

Notes to the Interim Financial Statements

For the six months ended 30 June 2010

13.  Business Combinations (continued)

On 29 June 2010 the Group purchased the entire issued share capital of John Heath & Company Inc a company incorporated in the US.

The acquisition has been accounted for using the acquisition method of accounting.  After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of net assets acquired was £101,000.  Goodwill of £397,000 arose.  The reasoning behind this acquisition is detailed in the Chairman's statement.

The following table shows the fair value of assets and liabilities included in the consolidated financial statements at the date of acquisition.

						Fair value
						£000
	Tangible assets					2
	Other debtors					200
	Cash					12
	Bank loan					(113)
	Net assets acquired					101
	Satisfied by
	Acquisition costs paid					(498)
	Goodwill					(397)

14.  Post balance sheet events

On 11 August 2010 the Group purchased the entire issued share capital of A. M. Associates Insurance Services Limited a company incorporated in Canada.  The fair values of the assets acquired have been provisionally estimated as CAN $200,000 which would derive a value of goodwill of CAN $550,000

 

END

 

 

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