LONDON, U.K., Sept. 7, 2004 (PRIMEZONE) -- Brit Insurance Holdings PLC, the UK general insurance group, today announces interim results for the six months ending 30 June 2004.
Highlights
- Profit before tax GBP52.5m (30 June 2003: GBP31.0m)
- Basic earnings per share of 3.88p (30 June 2003: 2.82p)
- Group combined ratio of 86.9% (30 June 2003: 87.0%)
- Technical account profit increased 92.4% to GBP80.8m (30
June 2003: GBP42.0m)
- Net unearned premium reserve increased by 44.7% to
GBP675.3m (31 December 2003: GBP466.7m).
- A second interim dividend payment of 2p per share payable
on 15 October 2004 to all shareholders on the register on
17 September 2004
- At 30 June 2004 the Group had net tangible assets totalling
GBP631.8/64.9p per share (31 December 2003 restated:
GBP627.6m/64.4p)
Results Six Months Six Months Year ended
ending 30 June ending 30 June 31 December
2004 2003 2003
GBPm GBPm GBPm
Gross
premiums
written 778.5 666.2 1,015.7
Net premiums
written 626.0 544.1 850.8
Gross
premiums earned 492.6 360.2 834.3
Net premiums
earned 412.5 286.4 671.4
Technical profit 80.8 42.0 100.3
Operating profit
based on long term 69.5 35.9 91.2
rate of investment
return
Basic earnings per
share 3.88p 2.82p 6.58p
Net assets 696.8 665.2* 697.5*
Net assets per share 71.5p 68.3p* 71.6p*
Group Combined ratio 86.9% 87.0% 88.5%
* Restated
Neil Eckert, Chief Executive Officer, said:
"The first half has produced a record set of results. We now have a tremendous team in place and a truly strong platform from which to trade. Recent catastrophe losses and industry reserve strengthening serve as a timely reminder of the need to maintain underwriting discipline. Excellent market conditions continue and we look forward to the future with confidence."
Interim Statement
Financial Highlights
- Profit before tax of GBP52.5m (30 June 2003: GBP31.0m). - Basic earnings per share of 3.88p (30 June 2003: 2.82p). - Group combined ratio of 86.9% (30 June 2003: 87.0%). - Increase of 16.9% in gross written premiums to GBP778.5m (30 June 2003: GBP666.2m) - Increase of 44.7% in the net unearned premium reserve to GBP675.3m since 31 December 2003. - Increase in net tangible assets to GBP631.8m/64.9p per share (31 December 2003 (restated): GBP627.6m/64.4p per share). - Capital reorganisation effective on 23 April 2004. - First interim dividend of 2p per share paid on 28 May 2004. - Second interim dividend of 2p per share payable on 15 October 2004.
Introduction
The first half of the year was marked by continuing premium growth and record results. Our Group combined ratio of 86.9% (30 June 2003: 87.0%) reflects the continuing quality of our underwriting portfolios during a period of further, but more modest, growth and maintains the trend of improvement in the Group's performance.
The Group's interim profit before tax was GBP52.5m (30 June 2003: GBP31.0m) and underwriting profit increased 92.2% to GBP80.8m (30 June 2003: GBP42.0m). The Group's net unearned premium reserve increased by 44.7% and now totals GBP675.3m (31 December 2003: GBP466.7m). This unearned premium represents a book of business written at excellent terms, principally during 2003 and 2004, the results of which have yet to be reflected in the profit and loss account. Our investment return, net of investment management fees, was GBP20.9m (30 June 2003: GBP21.2m). Basic earnings per share totalled 3.88p (30 June 2003: 2.82p).
We have remained true to our strategy of business growth into a strong insurance market. This has been underpinned by our strong balance sheet and insurer financial strength ratings of 'A' with stable outlook by A.M. Best and 'A' with positive outlook by Fitch, and by a further increase in public awareness of our company, our brand and the market presence of Brit Insurance Limited. Our cash and investments have increased by GBP260.0m since the year end and the unearned premium reserve continues to grow giving further prospects of increases in our bottom line profit.
At 30 June 2004 the Group had net tangible assets totalling GBP631.8m/64.9p per share (31 December 2003 (restated): GBP627.6m/64.4p per share) and bank borrowing of GBP15.0m (30 June 2003: GBP15.0m). We recently announced issuance of US$15.0m of subordinated 30 year debt. We will continue to pursue a capital strategy that puts us at the forefront in responding to new capital requirements. We remain committed to continue our policy of making distributions to shareholders by way of dividend equivalent to a minimum of 70% of post tax profit.
We were delighted to return to the dividend list with our initial dividend payment of 2p per share on 28 May 2004. We are also delighted to announce a second payment of 2p per share payable on 15 October 2004 to all shareholders on the register on 17 September 2004.
Trading conditions and underwriting
Our underwriting portfolio has developed in line with our stated goals. A key part of the strategy has been the development of the UK account and progress remains on time and on budget. As a result of the growth of our business, we have split our underwriting operations into three centres:
- The London Market Underwriting Centre led by Mike Sibthorpe
- The Reinsurance Underwriting Centre led by Richard Finn, and
- The UK Underwriting Centre led by Brent Escott
The insurance cycle is peaking at exceptionally healthy levels and whilst we are experiencing modest rate reductions in some classes, we are still experiencing rate rises in other classes of business and, in general, underwriting discipline continues to prevail. The development of insurance premium rates over the last five years in the classes of business we underwrite is shown in the table below. Rating movements significantly influence our decisions when allocating capital to the various classes of business underwritten.
Premium Index - year 2000 or commencement as base year
2000 2001 2002 2003 2004
(at 30 June 2004)
London
Market
Underwriting
Centre
Accident &
Financial
Division N/A 100 131 142 146
Aerospace
Division 100 158 202 237 264
Casualty
Division 100 122 207 288 310
Marine
Division 100 112 144 156 160
Property
Division 100 112 150 155 152
Reinsurance
Underwriting
Centre
Property
- USA and
Canada
Division 100 110 149 154 156
Property
- Inter
national
Division 151
Property
- Retro
cessional
Division 100 110 132 120 117
Marine
Division 100 115 171 179 183
Casualty
Division 100 115 182 215 229
Aviation
Division 100 100 167 159 151
UK Under
writing
Centre
Property
Division 100 104 123 132 129
Casualty
Division N/A N/A 100 130 130
Motor
Division 100 108 115 120 117
Liability
Division N/A 100 200 286 298
The indices are based on the underwriter's estimate of the rate movements experienced by their business. The indices are subjective as they are calculated using judgement to estimate the effect of changes in terms and conditions as well as changes in premium.
The London Market Underwriting Centre underwrites Brit's international and US business other than reinsurance. The business tends to be specialist and high margin but with more volatility than some other accounts. The division continues to thrive with high quality underwriters, high levels of service and a strong balance sheet also helping to develop the account.
The Reinsurance Underwriting Centre had a good first half year with premium income up and another recorded period of benign claims. We are establishing ourselves as a key player in this area. The ability to make a meaningful net line commitment by virtue of our balance sheet strength continues to attract brokers and customers and enables us to differentiate our offering through more than simple price competition.
The UK Underwriting Centre now has critical mass, a larger balance sheet and should this year underwrite in excess of GBP400.0m of income. We believe that this sector has characteristics that are attractive to Brit. It is necessary to supply a full product range combined with excellence in service, both areas of strength for Brit. The market place has premium income of some GBP20bn and there is great pressure on the principal providers to maintain good underwriting margins at a time when investment income is scarce. Business process, IT and service are a key thrust and we are committed to the broker market as our source of this business.
During the period, gross written premium was GBP778.5m (30 June 2003: GBP666.2m) an increase of 16.9% over the same period last year. Net earned premium totalled GBP412.5m (30 June 2003: GBP286.4m) an increase of 44.0%. Business written during the period is analysed below.
Business written -- during the period
Gross Written Premium Gross Written Premium
6 mths to 30 June 2004 6 mths to 30 June 2003
GBPm % GBPm %
London Market
Underwriting
Centre
Accident and
Financial
Division 107.8 13.9 55.6 8.3
Aerospace
Division 8.9 1.1 46.7 7.0
Casualty
Division 63.0 8.1 72.6 10.9
Marine
Division 62.4 8.0 57.8 8.7
Property
Division 86.7 11.2 89.0 13.3
Reinsurance
Underwriting
Centre
Property
Division 119.2 15.3 119.0 17.9
Marine
Division 10.0 1.3 5.6 0.8
Casualty
Division 43.0 5.5 40.8 6.1
Aviation
Division 14.0 1.8 6.5 1.0
Other 0.3 0.1 0.3 0.1
UK Underwriting
Centre
Property
Division 68.8 8.8 44.9 6.7
Casualty
Division 22.8 2.9 7.7 1.2
Motor
Division 51.2 6.6 60.0 9.0
Liability
Division 82.7 10.6 50.6 7.6
Other 37.7 4.8 9.1 1.4
Group
Totals 778.5 100.0 666.2 100.0
Reinsurance purchased by Brit
The Group's portfolio of risk, spread among many classes of business, provides the balance necessary to mitigate the need for per risk reinsurance. In order to compete effectively in certain classes, we will need to increase our gross line size where appropriate to benefit from economies that our size now brings to us. The Group will continue to purchase catastrophe reinsurance. The Group's overall expenditure on reinsurance as a percentage of gross written premiums is projected to drop on a full year basis from 16.2% in 2003 to 13.1% for 2004.
Our reinsurance counterparties are assessed on a continual basis and we have strict limits on the amount of exposure to any one reinsurer. As at 30 June 2004 our exposure to reinsurers following our own largest modelled event would be as shown below.
Exposure to Reinsurers -- by Rating
AAA 0.8% AA 30.2% A 43.6% Lloyd's (A rated) 18.6% BBB 1.2% Other 5.6%
Realistic disaster scenarios ("RDS")
We continue to monitor actively 19 types of RDS across the Group. The return periods used and the type of RDS events are continually assessed and have been slightly modified in 2004. The Group currently works to a return period of one in one hundred years for windstorm and one in two hundred years for earthquake. The table below shows current exposures (as at 1 July 2004).
RDS exposure -- as percentage of premium income
Gross Loss Net Loss
GBPm % GBPm %
US windstorm 214.9 21.1 57.1 5.6
California
earthquake 262.4 25.8 58.0 5.7
European
windstorm 228.6 22.5 61.9 6.1
Japanese
earthquake 226.0 22.3 55.6 5.5
Claims
Claims activity remained below average for the first six months of 2004. 2003 and prior years continue to develop within our reserve expectations and we have seen further modest releases from most of them. On the whole, policy terms and conditions and deductibles remained hard keeping the insurance market generally away from attritional type losses.
The Group budgets an amount for normal size catastrophe losses occurring during the year and we expect Hurricane Charley to be within the range of US$40.0m -- US$50.0m net, which is within the Group's budgeted level. The Group's final results remain, as usual, exposed to further events occurring in the second half of 2004 such as Hurricane Frances. Based on latest information, we expect our exposure to Frances will be materially less than that for Charley.
We are beginning to see benefits from the separation of the claims function from underwriting which was undertaken during 2003. In addition, we have been working extensively with Lloyd's on its claims strategy review. We believe this long overdue overhaul of London claims handling which initially is concentrating on claims leakage and minimum standards, coupled with timely reserve setting, will be another useful tool in reducing insurance market volatility.
Lloyd's, and the London Market in general, must be able to pay claims efficiently and in good time. This is particularly important in the subscription market. We believe that the changes earmarked will do much to keep the UK competitive in the worldwide insurance market.
A Brit claims and compliance team made a major tour of the US during the Spring to promote Brit's claims initiative and to introduce the requirements of the new FSA Prudential Source Book to our American clients. This was well received and further reinforced Brit's brand, with claims efficiency at the centre.
Claims Triangulation
The table shows a claims triangulation for the 2002, 2003 and 2004 underwriting years. The triangulation shows the claims position (paid and outstanding) for these years at different stages of development.
The triangles show the actual claim amounts expressed as a percentage of the estimated ultimate gross net premium for the year.
6 months 18 months 30 months Ultimate
GNP GBPm
2002 Gross Claims Paid 1.2% 14.1% 26.9% 486.3
Gross Outstanding 1.9% 13.3% 13.1%
Gross Incurred 3.1% 27.4% 40.0%
2003 Gross Claims Paid 0.7% 8.5% 780.0
Gross Outstanding 1.6% 11.3%
Gross Incurred 2.3% 19.8%
2004 Gross Claims Paid 0.4% 1,014.2
Gross Outstanding 1.9%
Gross Incurred 2.3%
Exchange Rates used: GBP1 = US$1.81 = CAD$2.43 = EUR euro1.49
Split of Account by Premium Income
%
2002 Short tail 48.5
Medium tail 24.6
Long tail 26.9
2003 Short tail 44.3
Medium tail 19.2
Long tail 36.5
2004 Short tail 46.6
Medium tail 17.5
Long tail 35.9
Investment
Our investment portfolios have performed in line with the benchmarks provided to the Investment Managers over the first six months of the year. Our return for the period, before interest payable and expenses, is GBP22.3m (30 June 2003: GBP22.6m). During the period the Group's policy has been to invest in high quality bonds and short-term cash and deposits. The equity portfolio which represents just under 11% has performed positively despite the FTSE 100 index falling 13 points over the period.
In order to simplify the asset allocation procedures a decision was taken to consolidate the fixed income mandates with Epic Asset Management Limited (EPAM) with effect from 1 March 2004. As a result EPAM manage 83.3% of the Group's overall investment portfolio of GBP1,608.4m as at 30 June 2004. The allocation of the Group's investments is shown in the table below. During the period the Group has benefited from the inflow of insurance premiums and the benign claims experience resulting in an increase of GBP260.0m in the overall investment portfolio.
The average duration of the bond portfolio at 30 June 2004 was 1.5 years (30 June 2003: 2.2 years). The average duration of bonds and cash was 1.1 years (30 June 2003: 1.2 years).
Allocation of Assets
30 June 2004 30 June 2003
GBPm GBPm
Equities
Lloyd's
investments 14.6 13.6
Managed
portfolios 128.3 51.7
Protected
funds 1.4 4.7
Other
investments 27.0 22.1
Associated
undertakings 1.4 0.2
Total
equities 172.7 92.3
Bonds 655.6 569.2
Cash and
deposits 780.1 575.6
Total cash and
investments 1,608.4 1,237.1
Distribution
We no longer own companies whose Profit & Loss Account is dependent on distribution or brokerage commission. We do however have a definite distribution strategy based on efficiency of business process and state of the art, customer-facing IT. In the reinsurance market, Ri3k has continued to make substantial progress as an internet based reinsurance hub. It is now a market leader enjoying relationships with both leading reinsurance companies and the leading global brokers and it is deriving significant revenue streams from key customers. It also has the potential to deliver efficiencies and significant cost savings on Brit's own reinsurance.
In the direct commercial insurance market, we are running IT initiatives to achieve online point of sale delivery to our brokers which are intended to deliver the benefits of straight through processing. These benefits should create scalability, a long term reduction in our expense ratio and improved customer service.
UK Offices
We have been successful in continuing to develop our presence in the UK. Significant progress has been made in the last six months and offices are now operational in Glasgow, Leeds, Birmingham and Bristol, with Manchester and a South East office in the pipeline. We have recruited 14 new underwriters in these regions and are delighted by the positive reception of our brokers. Each office will provide underwriting capability for core classes of UK business.
We have successfully implemented our new London Market and Reinsurance computer underwriting system on time and within budget. We look forward to the introduction of the Brit UK System ("BUKS") during the second half of 2004 which will bring a state of the art, web enabled straight-through underwriting and processing system to our new regional offices. This will provide an efficient trading environment and deliver quality service to brokers.
HR
People and intellectual property are the key assets in our business. We have a comprehensive programme involving appraisals, training and development and have started to introduce a rotational programme to avoid dependency in key areas. We have an innovative remuneration programme which aligns staff interests with those of shareholders and is also designed to secure continuity of employment for key personnel.
Board constitution
During the period, we have made additional non-executive board appointments. We consulted extensively with our major shareholders during the process and seek to adhere to best practice under the new combined code. Our Chairman and Senior Non-Executive Director have met with many of our major shareholders and we have carried out a rigorous board evaluation process. Non-Executive Directors have attended many business planning and strategy meetings in addition to board meetings and their attendance provides further reassurance of the robustness of our business process. Never before have our Non-Executive Directors engaged so closely with the business process.
Outlook
The Group has undergone rapid development at a time of highly favourable underwriting conditions and a relatively benign claims environment. We are now delivering on our promise to resume dividend payments and have continued to produce improving results. The Group is relatively new but our Board and senior executives have significant experience in the insurance and financial services sectors. We have "pitched our stall" as a conservative, well reserved and well managed business which we believe is well placed to thrive in current market conditions. We are always mindful that we are in a fortuity business and that we are in the middle of an active hurricane season so there is no room for complacency. However, with the publication of each set of results, we hope our shareholders are assured that we will continue to succeed in delivering our stated goals.
Clive Coates Neil Eckert
Chairman Group Chief
Executive Officer
Consolidated Profit and Loss Account
Technical Account -- General Business
for the six month period ended 30 June 2004
6 months ended 6 months ended 12 months ended
30 June 2004 30 June 2003 31 December 2003
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Notes
Earned
premiums,
net of
reinsurance:
Gross premiums
written 778,544 666,214 1,015,727
Outward
reinsurance
premiums (152,532) (122,076) (164,962)
Net premiums
written 626,012 544,138 850,765
Change in
the provision
for unearned
premiums (285,921) (305,991) (181,388)
Change in the
provision for
unearned
premiums,
reinsurers'
share 72,367 48,280 2,059
Net change
in the provision
for unearned
premiums (213,554) (257,711) (179,329)
Earned
premiums net
of reinsurance 412,458 286,427 671,436
Allocated
investment
return
transferred
from the
non-technical
account 33,705 19,585 43,985
Total
technical
income 446,163 306,012 715,421
Claims
incurred,
net of
reinsurance:
Claims paid:
Gross
amount (73,221) (104,312) (228,667)
Reinsurers'
share 17,101 30,983 89,490
Net claims
paid (56,120) (73,329) (139,177)
Change in
the provision
for claims:
Gross
amount (194,623) (91,492) (224,234)
Reinsurers'
share 8,769 (10,017) (37,039)
Net change
in the
provision
for claims (185,854) (101,509) (261,273)
Claims
incurred,
net of
reinsurance (241,974) (174,838) (400,450)
Change in
other technical
provisions - (1,492) (673)
Net operating
expenses (122,088) (84,991) (210,840)
Change in the
equalisation
provision (1,353) (2,684) (3,186)
Total technical
charges (365,415) (264,005) (615,149)
Balance
transferred to
the non-technical
account 1 80,748 42,007 100,272
Consolidated Profit and Loss Account
Non-Technical Account
for the six month period ended 30 June 2004
6 months ended 6 months ended 12 months ended
30 June 2004 30 June 2003 31 December 2003
(restated) (restated)
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Notes
Balance on
technical
account for
general 1 80,748 42,007 100,272
business
Net investment
return 2 18,600 18,836 42,708
Allocated
investment return
transferred to the (33,705) (19,585) (43,985)
technical account
for general business
Fees and other income 3 1,141 7,918 10,193
Other expenses (14,586) (18,320) (33,761)
Operating profit 52,198 30,856 75,427
Profit on
disposal of
subsidiary
undertakings - - 1,920
Share of
operating
profit in
associated 288 91 219
undertakings
Profit on
ordinary activities
before tax 52,486 30,947 77,566
Tax charge on
profit on ordinary
activities 4 (14,997) (9,371) (20,385)
Profit on
ordinary
activities
after tax 37,489 21,576 57,181
Equity minority
interests 58 309 312
Profit attributable
to members of the
parent 37,547 21,885 57,493
company
Dividends 5 (38,762) - -
Retained for
the period (1,215) 21,885 57,493
Operating profit
based on the
long-term rate 69,501 35,895 91,167
of investment return
Short-term
fluctuations in
investment return (17,303) (5,039) (15,740)
Operating profit 52,198 30,856 75,427
Basic earnings
per share
(pence per share) 6 3.88 p 2.82 p 6.58 p
Diluted earnings
per share
(pence per share) 6 3.80 p 2.81 p 6.50 p
Consolidated Statement of Total Recognised Gains and Losses
for the six month period ended 30 June 2004
6 months ended 6 months ended 12 months ended
30 June 2004 30 June 2003 31 December 2003
(restated) (restated)
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Notes
Profit
attributable
to members
of the parent
company 37,547 21,885 57,493
Prior
year
adjustment 11 110
Total gains
and losses
recognised
since the last 37,657
annual report
Consolidated Balance Sheet
as at 30 June 2004
As at As at As at
30 June 2004 30 June 2003 31 December 2003
(restated) (restated)
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Notes
Assets
Intangible
assets:
Syndicate
participations 1,369 3,196 2,236
Goodwill 63,682 76,175 67,732
7 65,051 79,371 69,968
Investments:
Financial
investments 8 1,342,719 1,015,495 1,164,122
Investments
in associated
undertakings 1,420 175 253
1,344,139 1,015,670 1,164,375
Reinsurers'
share of
technical
provisions:
Provisions
for unearned
premiums 145,972 111,955 103,072
Claims
outstanding 307,398 242,193 222,863
453,370 354,148 325,935
Debtors 9 697,476 577,950 435,198
Other assets:
Tangible assets 6,602 6,075 4,779
Cash at bank
and in hand 264,269 221,448 183,993
Other assets 23,856 11,451 15,069
294,727 238,974 203,841
Prepayments
and accrued
income:
Deferred
tax asset 2,803 29,239 18,922
Deferred
acquisition
costs 154,822 124,618 100,481
Other prepayments
and accrued income 14,252 23,648 11,409
171,877 177,505 130,812
Total assets 3,026,640 2,443,618 2,330,129
Consolidated Balance Sheet
as at 30 June 2004 (continued)
As at As at As at
30 June 2004 30 June 2003 31 December 2003
(restated) (restated)
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Notes
Liabilities
Capital and reserves:
Called up share capital 10 243,518 243,361 243,513
Shares to be issued 10 - 451 -
Share premium account 11 311,144 480,836 481,135
Own shares 11 (3,581) (837) (4,085)
Capital redemption
reserve 11 586 586 586
Profit and loss account 11 145,160 (59,233) (23,625)
Equity Shareholders'
funds 12 696,827 665,164 697,524
Equity minority
interests 9,688 (644) 9,398
Technical provisions:
Provision for
unearned premiums 821,261 668,826 569,764
Claims outstanding
- gross 1,197,582 820,303 852,340
Equalisation provision 7,022 5,167 5,670
Other technical provisions (5,149) (4,910) (5,254)
2,020,716 1,489,386 1,422,520
Provisions for other
risks and charges 598 906 801
Creditors : Amounts
falling due within one 13 239,607 218,669 127,026
year
Creditors : Amounts
falling due after more 14 51,975 58,747 58,872
than one year
Accruals and
deferred income 7,229 11,390 13,988
Total liabilities 3,026,640 2,443,618 2,330,129
Consolidated Cash Flow Statement
for the six month period ended 30 June 2004
6 months 6 months 12 months
ended ended ended
30 June 2004 30 June 2003 31 December 2003
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Notes
Net cash inflow
from operating
activities 15 (ii) 87,533 96,549 226,416
Returns on
investment and
servicing of finance:
Interest paid (2,340) (2,391) (4,600)
Taxation:
Corporation tax
recovered/(paid) 418 238 (973)
Capital expenditure:
Purchase of tangible
fixed assets (3,172) (700) (1,931)
Proceeds from
disposal of tangible
fixed assets 387 - 6
(2,785) (700) (1,925)
Acquisitions and
disposals:
Acquisition of
subsidiary
undertakings - 135,289 50,037
Disposal of
subsidiary undertakings - - 4,881
Acquisition of
own shares for
the Performance Share - - (3,559)
Plan
Investment
in associated
undertaking (341) - -
Loan to
associated
undertaking (652) - -
(993) 135,289 51,359
Equity dividends:
Equity dividends paid (19,381) - -
Financing:
Decrease in
bank loans - (6,962) (7,037)
Proceeds from
exercised share options 9 - -
Net proceeds from
issue of floating rate notes 7,984 - -
7,993 (6,962) (7,037)
Increase in cash in
the period 70,445 222,023 263,240
Cash flows were invested
as follows:
(Decrease)/increase
in cash holdings 15 (iii) (33,959) 39,500 41,819
Net portfolio
investments:
Deposits with
credit institutions,
fixed income
investments,
variable income
investments,
protected
funds and 15 (iii) 104,404 182,523 221,421
equities
Increase in cash
in the period 70,445 222,023 263,240
The consolidated cash flow statement excludes syndicate cash flows and cash held within Lloyd's premium trust funds on behalf of the Group's Lloyd's underwriting subsidiaries.
BASIS OF PREPARATION OF FINANCIAL STATEMENTS AND ACCOUNTING POLICIES
1 Principal accounting policies
The financial statements for the 6 months ended 30 June 2004 have not been audited, nor have the financial statements for the equivalent period in 2003. They comply with relevant accounting standards and apart from the changes in accounting policies referred to below have been prepared on a consistent basis using accounting policies set out in the 2003 Report and Accounts which have been filed with the Registrar of Companies. The interim financial statements do not constitute statutory accounts of the Group within the meaning of Section 240 of the Companies Act 1985.
The comparative figures provided for the 12 months ended 31 December 2003 are based on the Group statutory accounts, which have been delivered to the Registrar of Companies, after restatements required following the changes in accounting policies. The auditors have reported on those accounts and that report was unqualified and did not contain a statement under Section 237(2) of the Companies Act 1985.
The Urgent Issues Task Force (UITF) of the Accounting Standards Board issued UITF 37: Purchases and sales of own shares in October 2003 and UITF 38: Accounting for ESOP trusts in December 2003. UITF 37 requires that consideration paid for an entity's own shares should be deducted from equity rather than being shown as an asset on the balance sheet. UITF 38 requires that a similar treatment be made in respect of own shares held within an ESOP trust.
The financial effect of adopting these UITFs for the current period balance sheet has been to decrease net assets and shareholders' funds by GBP3,500,000. The balance sheets for 30 June 2003 and 31 December 2003 have been restated and the financial effect has been to decrease the comparative figures by GBP744,000 and GBP3,975,000 as at 30 June 2003 and 31 December 2003 respectively.
Where own shares held were previously impaired, these impairments have been reversed on adoption of the new UITFs. The financial effect has been to decrease profit by GBP29,000 in the current period. The comparative profit and loss accounts have been restated and the financial effect has been to decrease profit by GBP8,000 and increase profit by GBP9,000 for the periods ending 30 June 2003 and 31 December 2003 respectively. The effect on the current period balance sheet has been to increase the value of own shares by GBP81,000 while the comparative balance sheets have been restated to increase the value of own shares by GBP93,000 and GBP110,000 as at 30 June 2003 and 31 December 2003 respectively.
a) Basis of accounting and consolidation
The financial statements have been prepared in accordance with the historical cost convention, as modified by the revaluation of investments, and in accordance with Section 255 of, and Schedule 9A to, the Companies Act 1985, as amended by the Companies Act 1985 (Insurance Companies Accounts) Regulations 1993. The recommendations of the Statement of Recommended Practice on Accounting for Insurance Businesses issued by the Association of British Insurers in December 1998 ("the ABI SORP") have been adopted.
The consolidated financial statements incorporate the financial statements of Brit Insurance Holdings PLC and all its subsidiaries made up to 30 June 2004. Associated undertakings are accounted for on the equity basis from the date the Directors deem that the Group exercises a significant influence over the company.
b) Recognition of insurance transactions
The Group's share of the technical results of syndicates managed by the Group are presented on an annual basis. The main accounting policies under the annual basis are set out below.
The Group's share of the technical results of syndicates not managed by the Group are excluded from the interim statement, as no information in respect of the six month periods to 30 June 2004 and 30 June 2003 is available from those syndicates.
The balance sheet includes the Group's share of assets and liabilities of the Lloyd's syndicates of which the Group's corporate member subsidiaries participated. For syndicates not managed by the Group, this information is only available at 31 December. Consequently, at 30 June 2004, for these syndicates, the amounts are based on assets and liabilities at 31 December 2003, and those at 30 June 2003, on assets and liabilities at 31 December 2002.
c) Premiums
Gross written premiums represent premiums on business incepting during the period together with adjustments to premiums written in previous accounting periods and estimates for pipeline premiums. All premiums are gross of commission payable to intermediaries.
Outwards reinsurance premiums are accounted for in the same accounting period as the premiums for the related inwards reinsurance business.
The provision for unearned premiums represents that part of gross premiums written and the reinsurers' share that is estimated to be earned after the balance sheet date.
d) Claims
Provision is made for claims incurred during the period, whether reported or not. Claims handling expenses are also included within claims incurred. A provision for unexpired risks is made when it is anticipated that unearned premiums will be insufficient to meet future claims and claims settlement expenses of business in force at the period end. No account is taken of future investment income. The provision is included within technical provisions in the balance sheet. In addition, provision for losses is made in respect of the open underwriting years for non managed syndicates.
e) Investment return
The investment return is accounted for in the non-technical account. An allocation is made from the non-technical account to the general business technical account to reflect the longer term investment return on funds supporting underwriting business. The longer term investment return is an estimate of the longer term investment return for the Brit Insurance Holdings PLC Group and the managed syndicates having regard to past performance, current trends and future expectations.
f) Other income
Other income includes fees due to the managing agent and the insurance intermediary and profit commission receivable. Profit commission is recognised on the same annual accounting basis as the related underwriting profits.
g) Expenses
All expenses are accounted for on an accruals basis. Profits arising in Marham Consortium Management Limited, which are due to a Brit managed syndicate, are charged as an expense to the Group.
Depreciation is calculated so as to write off the value of freehold buildings and cost of other tangible fixed assets over their estimated useful economic lives on a straight-line basis.
h) Intangible assets
Intangible assets include goodwill arising on the acquisition of companies or businesses and purchased syndicate capacity.
Goodwill is being written off over a period of ten years, its estimated useful economic life. Where, following a formal impairment review conducted in accordance with Financial Reporting Standard 11 "Impairment of Fixed Assets and Goodwill" ("FRS 11"), there has been, in the Directors' opinion, an impairment in the value of any goodwill being carried, this impairment is recognised in the profit and loss account.
Purchased capacity in respect of managed syndicates is amortised over three years from the date the underwriting results of those syndicates are first recognised in the technical account. Purchased capacity in respect of non-managed syndicates is amortised over three years commencing at the end of the third year from the start of the Group's first underwriting year of those syndicates.
i) Taxation
Current tax is provided at amounts expected to be paid using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
j) Deferred taxation
Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the asset, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit those earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.
k) Own shares
The consideration paid for the acquisition of own shares has been deducted from shareholders' funds in accordance with UITF 37: Purchase and sales of own shares and UITF 38: Accounting for ESOP Trusts.
In accordance with UITF 17 (revised 2003), where an award is made under an employee performance share plan, the difference between the fair value of the shares at the date of the award and any consideration paid for the shares is charged to the profit and loss account over the performance period.
Where own shares held were previously impaired, the impairments have been reversed on adoption of these new UITFs.
l) Foreign Currencies
Transactions in foreign currencies other than Sterling, United States dollars, Canadian dollars and Euros are translated at the rate of exchange ruling at the date the transaction is processed. Unless otherwise stated, transactions in United States dollars, Canadian dollars and Euros are translated at the average rates of exchange for the period. Assets and liabilities in currencies other than Sterling are translated at the rate of exchange ruling at the period end date. Exchange differences arising on translation are dealt with in the profit and loss account.
Foreign currency options are marked to market. Any gains or losses are recognised in the profit and loss account.
m) Pension benefits
The Group operates a defined benefit pension scheme with pension benefits funded over employees' periods of service. Contributions are based on the recommendation of the actuary following the valuation of the fund and are charged to the profit and loss account so as to spread the cost of the pension over the employees' working lives with the Group. This scheme closed to new members on 4 October 2001.
The Group also operates a range of defined contribution pension schemes. Contributions are charged to the profit and loss account in the period to which they relate.
n) Convertible unsecured subordinated loan stock 2008 ("CULS") and US dollar floating rate unsecured subordinated loan notes 2034("FRNS")
CULS and FRNS are initially stated at the amount of the net proceeds after deduction of issue costs. The carrying amount is increased by the finance cost in respect of the accounting period and reduced by payments made in the period. Finance costs are recognised in the profit and loss account over their term at a constant rate on the carrying value.
CULS are reported as a liability unless conversion actually occurs. No gain or loss is recognised on conversion
o) Performance Share Plans
Where shares are acquired in respect of the Group's performance share plans including free and matching shares acquired by the Brit Insurance Holdings PLC Employee Share Participation Trust, such shares are included in own shares at cost and are amortised against profits on a straight-line basis over the life of the scheme. Own shares are deducted in arriving at shareholders' funds.
Notes to the Financial Statements
1. Segmental information
(i) Technical account
Period ended 30 June 2004 (unaudited)
Syndicate Insurance Total
participations companies GBP'000
GBP'000 GBP'000
Gross premiums written 376,328 402,216 778,544
Net premiums written 306,486 319,526 626,012
Net premiums earned 232,910 179,548 412,458
Net investment return
on technical funds 21,203 12,502 33,705
and underwriting capital
at the long-term rate
Net claims incurred (127,278) (114,696) (241,974)
Changes in other
technical provisions, - - -
net of reinsurance
Net operating expenses (74,352) (47,736) (122,088)
Change in equalisation
provision - (1,353) (1,353)
Technical profit 52,483 28,265 80,748
Claims ratio (%) 54.6 63.9 58.7
Expense ratio (%) 32.2 24.4 28.2
Combined ratio (%) 86.8 88.3 86.9
Period ended 30 June 2003 (unaudited)
Syndicate Insurance Total
participations companies GBP'000
GBP'000 GBP'000
Gross premiums written 540,932 125,282 666,214
Net premiums written 445,461 98,677 544,138
Net premiums earned 226,350 60,077 286,427
Net investment return
on technical funds 15,602 3,983 19,585
and underwriting capital
at the long-term rate
Net claims incurred (141,997) (32,841) (174,838)
Changes in other
technical provisions, - (1,492) (1,492)
net of reinsurance
Net operating expenses (71,459) (13,532) (84,991)
Change in equalisation
provision - (2,684) (2,684)
Technical profit 28,496 13,511 42,007
Claims ratio (%) 62.7 57.1 61.6
Expense ratio (%) 25.2 26.1 25.4
Combined ratio (%) 87.9 83.2 87.0
(i) Technical account (continued)
Year ended 31 December 2003 (audited)
Syndicate Insurance Total
participations Companies GBP'000
GBP'000 GBP'000
Gross premiums written 610,942 404,785 1,015,727
Net premiums written 495,348 355,417 850,765
Net premiums earned 431,406 240,030 671,436
Net investment return on
technical funds 32,080 11,905 43,985
and underwriting capital
at the long-term rate
Net claims incurred (250,573) (149,877) (400,450)
Changes in other
technical provisions, - (673) (673)
net of reinsurance
Net operating expenses (149,374) (61,466) (210,840)
Change in equalisation
provision - (3,186) (3,186)
Technical profit 63,539 36,733 100,272
Claims ratio (%) 58.1 62.7 59.7
Expense ratio (%) 33.4 22.3 28.8
Combined ratio (%) 91.5 85.0 88.5
(ii) Corporate
6 months ended 30 June 2004 (unaudited)
Underwriting Underwriting Peoples Ri3K
(Lloyd's) (companies) Choice Limited
GBP'000 GBP'000 (Europe) GBP'000
Limited Other Total
GBP'000 GBP'000 GBP'000
Technical
result
at the
long-term
rate 52,483 28,265 - - - 80,748
of return
Other
investment
return (12) 2,614 - 8 1,928 4,538
Interest
payable - - - - (2,340) (2,340)
Fees and
commissions 563 - - 455 - 1,018
Other income 6 - - - 117 123
Other expenses 202 475 - (2,189) (8,156) (9,668)
53,242 31,354 - (1,726) (8,451) 74,419
Amortisation
of goodwill
and (867) - - - (4,051) (4,918)
syndicate
participations
Operating
profit/(loss)
based on
long-term rate
of investment
return 52,375 31,354 - (1,726)(12,502) 69,501
Short-term
fluctuations
in
investment (12,404) (4,899) - - - (17,303)
return
Operating
profit/
(loss) 39,971 26,455 - (1,726)(12,502) 52,198
Share of
operating
profit in - - - - 288 288
associated
undertakings
Profit/
(loss)
before
taxation 39,971 26,455 - (1,726)(12,214) 52,486
Net
assets/
(liabi
lities) 306,336 396,342 - 8,678(14,529) 696,827
Net
tangible
assets/
(liabi
lities) 294,373 350,837 - 1,713 15,147 631,776
(ii) Corporate (continued)
6 months ended 30 June 2003 (restated) (unaudited)
Underwriting Underwriting Peoples Ri3K
(Lloyd's) (companies) Choice Limited
GBP'000 GBP'000 (Europe) GBP'000
Limited Other Total
GBP'000 GBP'000 GBP'000
Technical
result
at the
long-term
rate
of return 28,496 13,511 - - - 42,007
Other
investment
return (660) 3,951 52 6 3,332 6,681
Interest
payable - - (560) (4) (1,827) (2,391)
Fees and
commissions 2,090 - 5,282 2 - 7,374
Other income (9) 112 490 - (49) 544
Other expenses 199 (11) (8,280) (1,937) (4,955) (14,984)
30,116 17,563 (3,016) (1,933) (3,499) 39,231
Amortisation
of goodwill
and (1,187) (43) (131) - (1,975) (3,336)
syndicate
participations
Operating
profit/
(loss)
based on
long-term
rate of
investment
return 28,929 17,520 (3,147) (1,933) (5,474) 35,895
Short-term
fluctuations
in
investment (2,838) (2,201) - - - (5,039)
return
Operating
profit/
(loss) 26,091 15,319 (3,147) (1,933) (5,474) 30,856
Share of
operating
profit in - - - - 91 91
associated
undertakings
Profit/
(loss) before
taxation 26,091 15,319 (3,147) (1,933) (5,383) 30,947
Net assets 256,402 362,246 6,153 9,477 30,886 665,164
Net tangible
assets 240,528 310,905 2,007 1,467 30,886 585,793
(ii) Corporate (continued)
Year ended 31 December 2003 (restated) (audited)
Underwriting Underwriting Peoples Ri3K
(Lloyd's) (companies) Choice Limited
GBP'000 GBP'000 (Europe) GBP'000
Limited Other Total
GBP'000 GBP'000 GBP'000
Technical
result at
the long
-term rate
of return 63,539 36,733 - - - 100,272
Other
investment
return (766) 10,878 61 9 8,878 19,060
Interest
payable (68) - (704) (5) (3,820) (4,597)
Fees and
commissions 2,271 - 6,251 131 - 8,653
Other
income 56 90 1,257 - 137 1,540
Other
expenses - - (10,453) (3,989) (10,912) (25,354)
65,032 47,701 (3,588) (3,854) (5,717) 99,574
Amortisation
of goodwill
and (1,919) - (153) - (6,335) (8,407)
syndicate
participations
Operating
profit/(loss)
based on
long-term
rate of
investment
return 63,113 47,701 (3,741) (3,854)(12,052) 91,167
Short-term
fluctuations
in investment
return (7,614) (8,126) - - - (15,740)
Operating
profit/
(loss) 55,499 39,575 (3,741) (3,854)(12,052) 75,427
Profit on
disposal of
subsidiary
undertakings - - - - 1,920 1,920
Share of
operating
profit in
associated - - - - 219 219
undertakings
Profit/
(loss) before
taxation 55,499 39,575 (3,741) (3,854) (9,913) 77,566
Net assets 293,959 382,234 - 8,492 12,839 697,524
Net tangible
assets 280,086 334,169 - 1,116 12,185 627,556
2. Investment return
(i) Investment return - the total investment return comprises:
6 months ended 6 months ended 12 months ended
30 June 2004 30 June 2003 31 December 2003
(restated) (restated)
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Investment return on
Funds at Lloyd's
and other
corporate funds:
Investment income 8,004 9,709 20,638
Realised losses on
investments (3,089) (1,528) (6,244)
Unrealised gains
on investments 3,990 4,108 15,282
Investment
management expenses (408) (784) (1,692)
Interest payable on
bank loans (423) (473) (764)
Interest payable on
convertible
unsecured loan stock (1,917) (1,918) (3,836)
6,157 9,114 23,384
Investment return on syndicate funds:
Investment income 7,973 5,954 13,562
Realised losses on
investments (1,537) (1,636) (6,128)
Unrealised losses on
investments (3,756) - -
Investment management
expenses (451) (330) (1,289)
2,229 3,988 6,145
Investment return on insurance company funds:
Investment income 13,835 6,282 17,908
Realised losses on
investments (1,651) (80) (2,339)
Unrealised losses on
investments (1,503) (194) (1,786)
Investment management
expenses (467) (274) (604)
10,214 5,734 13,179
Total investment return
Investment income 29,812 21,945 52,108
Realised losses on
investments (6,277) (3,244) (14,711)
Unrealised (losses)/
gains on
investments (1,269) 3,914 13,496
Investment
management expenses (1,326) (1,388) (3,585)
Interest payable on
bank loans (423) (473) (764)
Interest payable on
convertible
unsecured loan stock (1,917) (1,918) (3,836)
18,600 18,836 42,708
(ii) Investment return - the long-term investment return
The transfer to the technical account represents the estimated long-term rate of return applied to the Group's share of investment assets supporting the insurance business of the insurance companies and Lloyd's syndicates, together with Funds at Lloyd's. The long-term rates of return are based on the historical asset performance, current and prospective bond yields and the estimated risk premium for holding equity investments. For the investment assets of the insurance companies and the Funds at Lloyd's, separate rates have been established and applied to the average bond and equity components of the underwriting investment assets.
For the syndicate investments, a single weighted rate has been applied to all categories of investment.
30 June 30 June 31 December
2004 2003 2003
(unaudited) (unaudited) (audited)
% % %
The long-term rates of
return used were:
Insurance companies
and Funds at Lloyd's
Equities - capital
return 5.0 5.0 5.0
Equities -
income 2.0 2.0 2.0
Bonds and
cash 5.0 5.0 5.0
Syndicate
investments 5.0 5.0 5.0
3. Fees and other income
6 months ended
30 June 2004 6 months ended 12 months ended
(unaudited) 30 June 2003 31 December 2003
GBP'000 (unaudited) (audited)
GBP'000 GBP'000
Fees and commissions 1,018 7,374 8,653
Income from syndicates
(use of assets) - 1 -
Other income 123 543 1,540
1,141 7,918 10,193
4. Taxation
(i) Analysis of charge in period
6 months ended 6 months ended 12 months ended
30 June 2004 30 June 2003 31 December 2003
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Current taxation:
Adjustments in
respect of prior
years 1,236 (184) (145)
Overseas tax - - (250)
Share of associates' tax (114) (31) (82)
1,122 (215) (477)
Deferred taxation:
Origination and reversal
of timing differences (16,119) (9,156) (19,908)
Tax charge on profit
on ordinary activities (14,997) (9,371) (20,385)
(ii) Factors affecting tax charge for the period
The major factors affecting the tax charge for the period are permanent differences, use of prior period underwriting losses, tax recoveries from prior periods which were not previously recognised and equity realised and unrealised losses where the Group holds more than 10% of the equity.
(iii) Factors that may affect future tax charges
The future tax charge for the Group is dependent on the ability of the Group to utilise tax losses as they become available.
5. Dividends
6 months ended 6 months ended 12 months ended
30 June 2004 30 June 2003 31 December 2003
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Ordinary dividends
First interim
2004 paid -
2.0p per share
(2003 - nil) 19,381 - -
Second interim
2004 (payable 15
October 2004)
- 2.0p per share 19,381 - -
(2003 - nil)
38,762 - -
6. Earnings per share
The calculations of the basic and diluted earnings per share are based on the following figures :
6 months ended 6 months ended 12 months ended
30 June 2004 30 June 2003 31 December 2003
(restated) (restated)
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Profit attributable
to members of the
parent company 37,547 21,885 57,493
Dilutive post tax
effect on profits:
Convertible unsecured
subordinated loan stock 1,342 1,342 2,685
Diluted profit
attributable to members
of the parent company 38,889 23,227 60,178
30 June 2004 30 June 2003 31 December 2003
(unaudited) (unaudited) (audited)
Number Number Number
Basic weighted
average number
of shares 967,978,153 775,352,078 874,056,697
Dilutive
potential
ordinary shares:
Convertible
unsecured
subordinated
loan stock 52,975,417 51,276,534 51,276,076
Employee share
options 1,531,993 725,505 698,381
Diluted weighted
average number
of shares 1,022,485,563 827,354,117 926,031,154
In accordance with Financial Reporting Standard 14 "Earnings per share", convertible unsecured subordinated loan stock and employee share options are only treated as dilutive when their conversion to ordinary shares would decrease net profit per share or increase net loss from continuing operations.
7. Intangible assets (unaudited)
Syndicate Goodwill Total
participations GBP'000 GBP'000
GBP'000
Cost:
At 1 January
2004 9,025 80,408 89,433
Additions - - -
At 30 June 2004 9,025 80,408 89,433
Amortisation:
At 1 January 2004 6,789 12,676 19,465
Charge for the period 867 4,050 4,917
At 30 June 2004 7,656 16,726 24,382
Net book value:
At 30 June 2004 1,369 63,682 65,051
At 30 June 2003 3,196 76,175 79,371
At 31 December 2003 2,236 67,732 69,968
8. Financial Investments
30 June 2004 30 June 2003 31 December 2003
(restated)
(unaudited) (unaudited) (audited)
Market Cost Market Cost Market Cost
value value value
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Shares
and
other
variable
-yield
securities
and units
in unit
trusts :
Listed 218,414 219,922 150,351 171,466 225,124 230,546
Unlisted 2,555 8,883 5,118 10,440 1,115 7,440
Debt
securities
and
other
fixed
income
securi
ties :
Listed 657,369 667,842 623,379 628,510 685,920 710,404
Certifi
cates
of
Deposit 271,456 270,840 140,458 140,324 125,960 125,677
Parti
cipation
in
investment
pools 100,443 100,444 34,269 34,269 65,956 68,661
Deposits
with
credit
instit
utions 92,482 92,482 60,147 60,147 60,047 60,047
Other - - 1,773 1,773 - -
1,342,719 1,360,413 1,015,495 1,046,929 1,164,122 1,202,775
Amounts have been reallocated from listed shares and other variable yield securities to listed debt securities and other fixed income securities in respect of the 30 June 2003 comparatives. These amount to a market value of GBP201,399,000 and a cost of GBP200,526,000.
9. Debtors
Amounts due within one year
30 June 30 June
2004 2003 31 December
(unaudited) (unaudited) 2003
GBP'000 GBP'000 (audited)
GBP'000
Trade debtors 4,130 7,216 6,078
Arising out of
direct insurance
operations 215,496 124,192 147,917
Arising out of
reinsurance
operations 442,596 423,893 255,305
Amounts owed
by managed
syndicates 376 3,923 1,347
Tax recoverable 1,045 - 227
Other debtors 7,256 3,405 6,177
Share of syndicates'
other debtor
balances 26,577 15,321 18,147
697,476 577,950 435,198
10. Share capital
30 June 31 December
2004 30 June 2003
(unaudited) 2003 (audited)
Number (unaudited) Number
Number
(i) Number of
ordinary shares
of 25p each,
allotted, issued
and fully paid:
Opening balance 974,053,647 747,466,314 747,466,314
Number of shares
issued during
the period 16,724 225,977,474 226,587,333
Closing balance 974,070,371 973,443,788 974,053,647
(ii) Shares to be issued at a value of 74p each:
Opening
balance - - -
Number of
shares to
be issued - 609,410 -
Closing balance - 609,410 -
On 10 June 2004 the Company issued 6,724 ordinary shares in relation to the conversion of loan stock.
On 21 June 2004 the Company issued 10,000 ordinary shares in relation to exercised share options.
11. Reserves
Share Investment in Capital Profit and
premium own shares redemption loss Total
account reserve account (unaud
(unaudited) (unaudited) (unaudited)(unaudited) ited)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance
at 1
January 2004
as 481,135 - 586 (23,735) 457,986
previously
reported
Prior
year
adjustment - (4,085) - 110 (3,975)
Balance
at 1
January
2004 as 481,135 (4,085) 586 (23,625) 454,011
restated
Issue of
shares 9 - - - 9
Addition
of own
shares - (452) - - (452)
Amortisation
of own
shares - 775 - - 775
Disposal
of own
shares - 181 - - 181
Capital
reorganisation (170,000) - - 170,000 -
Profit
for
the period - - - 37,547 37,547
Dividends
paid and
proposed - - - (38,762) (38,762)
Balance
at 30
June 2004 311,144 (3,581) 586 145,160 453,309
Following an application to the High Court, the Company has been permitted to make a transfer from the share premium account to the profit and loss account of GBP170,000,000. This capital reorganisation became effective on 23 April 2004.
Brit Insurance Holdings PLC had distributable reserves of GBP58,841,000 at 30 June 2004 (30 June 2003: negative GBP34,801,000) (31 December 2003: negative GBP65,587,000).
Full details of the prior year adjustment are set out in the principal accounting policies.
12. Reconciliation of Equity Shareholders' funds
30 June 30 June 31 December
2004 2003 2003
(restated) (restated)
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Total recognised
gains for the period 37,547 21,885 57,493
Dividends paid and proposed(38,762) - -
Issue of shares 14 167,223 167,674
Movement in own shares 504 475 (2,773)
Shares to be issued - 451 -
Total movements during
the period (697) 190,034 222,394
Opening shareholders' funds
as previously 701,499 476,341 476,341
reported
Prior year
adjustment (3,975) (1,211) (1,211)
Opening shareholders'
funds as restated 697,524 475,130 475,130
Closing shareholders'
funds as restated 696,827 665,164 697,524
13. Creditors : Amounts falling due within one year
30 June 30 June 31 December
2004 2003 2003
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Bank loans and
overdrafts 15,000 75 -
Trade creditors 10,458 76,588 58,473
Arising out of direct
insurance operations 21,524 29,042 23,969
Arising out of reinsurance
operations 163,479 150,790 71,862
Amounts due to managed
syndicates - 731 -
Proposed dividend 19,381 - -
UK Corporation tax - 241 -
Other taxes and social
security costs 480 2,361 1,639
Other creditors 4,828 1,696 5,110
Share of syndicates'
other creditor balances 4,457 (42,855) (34,027)
239,607 218,669 127,026
14. Creditors : Amounts falling due after more than one year
30 June 30 June 31 December
2004 2003 2003
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Bank borrowings - 15,000 15,000
Convertible unsecured
subordinated loan
stock 2008 43,991 43,747 43,872
US dollar floating
rate unsecured subordinated
loan notes 2034 7,984 - -
51,975 58,747 58,872
The conversion rate of the convertible unsecured subordinated loan stock of 113.64 ordinary shares for every GBP100 nominal of loan stock converted has been adjusted with effect from 23 April 2004 to 123.46 ordinary shares for every GBP100 nominal of loan stock converted. This follows the reduction of the Company's share premium account.
On 28 June 2004, $15,000,000 of US dollar floating rate unsecured subordinated loan notes were issued providing net proceeds of GBP7,983,770 after the deduction of issue costs of GBP303,523. These issue costs are amortised over the period up to the earliest redemption date being 15 August 2009. These loan notes attract interest at US Libor plus 3.5%.
15. Consolidated cash flow statement notes
(i) Scope of consolidated cash flow statement
The consolidated cash flow statement excludes syndicate cash flows and cash held within Lloyd's premium trust funds on behalf of some of the Group's underwriting subsidiaries.
(ii) Reconciliation of operating profit to net cash inflow from operating activities
6 months ended 6 months ended 12 months ended
30 June 2004 30 June 2003 31 December 2003
(restated) (restated)
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Profit before
tax on
ordinary
activities 52,486 30,947 77,566
(Profit)/loss on
sale of fixed
assets (187) - 844
Profit on
disposal of
subsidiary
undertakings - - (1,920)
Depreciation of
fixed assets and
exchange
adjustments 1,149 1,052 2,179
Amortisation of
goodwill 4,051 2,375 6,488
Amortisation of
loan stock
issue costs 124 125 250
Charges in respect
of employee
share schemes 323 - 221
Amortisation of
syndicate
capacity 867 959 1,919
(Increase)/
decrease in
debtors (238,148) 17,422 (72,837)
Increase/
(decrease) in
creditors 4,941 (5,274) (13,303)
Increase in
provisions 256,273 49,850 223,395
Realised and
unrealised
investment
losses/(gains) 3,602 (3,207) (2,767)
Share of result
of associated
undertakings (288) (91) (219)
Interest
payable 2,340 2,391 4,600
Net cash
inflow from
operating
activities 87,533 96,549 226,416
(iii) Movement in cash and portfolio investments
At Cash Changes to Other At
1 January flow market value changes 30 June
2004 GBP'000 and currencies GBP'000 2004
GBP'000 GBP'000 GBP'000
Cash at
bank
and in
hand 75,845 (33,959) - - 41,886
Deposits
with
credit
institu
tions 60,047 32,435 - - 92,482
Total
cash 135,892 (1,524) - - 134,368
Fixed
income
invest
ments 600,437 83,394 (7,817) - 676,014
Variable
income
invest
ments 70,920 (20,537) 74 - 50,457
Protected
funds 1,383 - 18 - 1,401
Equities 144,748 9,112 4,123 348 158,331
Total
portfolio
invest
ments 817,488 71,969 (3,602) 348 886,203
Total
cash
and
portfolio
invest
ments 953,380 70,445 (3,602) 348 1,020,571
Banks
borrowings(15,000) - - - (15,000)
Total
cash
and
portfolio
investments,
net
of
debt 938,380 70,445 (3,602) 348 1,005,571
Independent review report to Brit Insurance Holdings PLC
Introduction
We have been instructed by the company to review the financial information for the 6 months ended 30 June 2004 which comprises the consolidated profit and loss account, the consolidated statement of total recognised gains and losses, consolidated balance sheet, consolidated cash flow statement, the basis of preparation of financial statements and accounting policies and the related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4 'Review of Interim Financial Information' issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2004.
Mazars LLP
Chartered Accountants and Registered Auditors
24 Bevis Marks
London EC3A 7NR
6 September 2004
N.B. A recording of the analyst meeting held this morning will be available on the website later on today.
This information is provided by RNS
The company news service from the London Stock Exchange