LONDON, March 2, 2004 (PRIMEZONE) -- Brit Insurance Holdings PLC, the UK general insurance group, today announces record final results for the year ended 31 December 2003.
Highlights
- Record Pre Tax Profits GBP77.6m : (2002 GBP10.0m)
- Operating profits up 561.4% to GBP75.4m : (2002 GBP11.4m)
- Gross written premiums for 2003 increased 53.3% to GBP1,015.7m : (2002 GBP662.7m)
- 2004 Gross written premium target GBP1.3bn
- Early interim dividend payment of 2p, subject to court, shareholder and stockholder approval
- Appointment of two new Non-Executive Directors
- Favourable market conditions continue to exist in key business areas with rates continuing to harden in casualty and stabilising elsewhere
- Further progress in key UK commercial insurance markets with premiums up by 138% to GBP309.4m
- Combined ratio: 88.5% for Brit's share
- Investment management team at associate EPL in which Brit has an economic interest of 47.6% continued to make significant progress. Funds under management increased to GBP1.4bn
Results Year ended Year ended
31 December 31 December
2003 2002
GBPm GBPm
Gross premiums written 1,015.7 662.7
Net premiums written 850.8 552.2
Gross premiums earned 834.3 444.3
Net premiums earned 671.4 325.3
Technical profit 100.3 52.0
Operating profit based on long
term rate of investment return 91.2 25.0
Basic earnings per share 6.58p 1.11p
Net assets 701.5 476.3
Net assets per share 72.0p 63.7p
Combined ratio - Brit share 88.5% 88.6%
Neil Eckert, Chief Executive Officer, said:
"We have made considerable progress in all key areas. We have produced record profits, set the wheels in motion for the early resumption of dividend payments and clearly defined our targets. We are establishing ourselves as a significant presence in our chosen markets, particularly in UK commercial insurance and look forward to the future with tremendous confidence."
2003 Results Conference Call - 2 March 2004 at 2.00 p.m. local time
To access the conference call, please use the appropriate telephone number from the list below:
UK Dial In 0845 245 5300
US Toll Free 1866 629 0055
Stnd Int Dial In Number +44 (0) 1452 569 339
Conference Code: Brit Insurance 2003 Year End
Results
Show Number: 151387
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BRIT INSURANCE HOLDINGS PLC
CHAIRMAN'S STATEMENT
2002 began the turn around in your company's fortunes after the disappointing results of 2001. 2003 has seen it develop into a very substantial and profitable player in the UK general insurance sector. The strategies which were put in place and the determination with which they were seen through, together with a favourable market, have combined to produce the best results your company has ever achieved and to place it in an excellent position for the future.
Pre-tax profits increased by GBP67.6m to GBP77.6m. Based on our forecast gross premium for 2004 of GBP1.3bn, we are projecting to write insurance business at a ratio of just over 2:1 of premium to net tangible assets. We believe this gives us a secure position from which the business can prosper in future years as the market has to respond to the higher levels of solvency expected by the regulators.
In October we announced a clarification of our dividend policy and reinforced our commitment to return cash to shareholders as soon as possible. On that note, I am pleased to tell you that it is our intention to apply to the High Court and to seek shareholders' and stockholders' permission to execute a capital restructuring programme to create a distributable surplus. This will enable us to resume dividend payment which we intend to do as early as is practical in 2004. Barring unforeseen circumstances and assuming successful completion of the capital restructuring, we expect this first payment to be 2p per share payable as an early interim dividend.
We are happy to announce the appointment of two new Non-Executive Directors following an extensive selection process.
They are Peter Hazell and Michael Smith.
Peter is currently Chairman of Argent Group plc and a Non-Executive Director of UK Coal plc. He was formerly UK Managing Partner at PriceWaterhouse Coopers. His appointment is effective 1 April 2004.
Michael was senior partner at the law firm of Titmuss Sainer Dechert where he headed their insurance practice. He currently works as a consultant for Randall & Quilter Investment Holdings Limited. His appointment is to take effect on 8 March 2004.
We are also delighted to announce the promotion of Dane Douetil to the role of Deputy CEO of the Group. His portfolio responsibilities are expanded to include HR, business process and IT.
Overall 2003 saw further improvement in rates over 2002 levels. Towards the end of 2003 and into 2004 some softening has started to occur, but not to the extent that we had anticipated.
It is gratifying to see market discipline having an effect on maintaining a satisfactory trading environment and there are numerous contributing factors which continue to help promote this discipline. Investment returns no longer provide the opportunity or the encouragement to underwrite for growth at the expense of underwriting profitability. 2003 has shown that the prospect of reserve deterioration for the insurance market remains real, particularly where there is significant historic exposure to underrated casualty business. We do not believe we have any significant exposure relative to this market problem. Global insurance capital levels remain significantly below the peaks reached prior to the US terror attacks of 2001. We expect these factors, which encourage discipline, to continue through 2004.
We have made significant progress in our strategic aims for our business in the UK. Brit Insurance Limited (BIL), our UK insurance company, wrote GBP384.5m of gross premium during the period. This was an increase of 181.9% over the previous year. This growth was achieved as a result of the successful integration during the year of the Employers Liability/Public Liability team, the portfolios of business acquired from Gerling, Markel and Creechurch and the acquisition of PRI.
In line with our strategy of focussing on areas of our business which have the potential of providing the best returns we sold our direct sales operation, Peoples Choice which, following a review, did not fit the criteria required of a core element of our business.
2004 will see us continuing to grow in the UK marketplace as we further roll out our nationwide commercial initiative at a time which still offers excellent opportunities for Brit to add value by expanding its UK client base. Please be assured that this growth is not at the expense of quality and that I have full confidence in the underwriting discipline applied by management.
As Chairman I have been extremely fortunate to have had the support from employees at all levels who have carried out their tasks with diligence and vigour. The development of our business depends on everyone doing their best and I am determined to create an environment in which people are encouraged to succeed. I am pleased that all eligible staff are having the opportunity to share in our success through benefiting from the profit sharing scheme.
Also I appreciate the support and understanding shown by our shareholders with whom I am committed to continue a dialogue of frank and open views through our investor meetings and by any other means as opportunities arise.
I want to record my thanks to Jo Welman who is resigning from the main board of Brit at the AGM. Jo founded Brit with Neil Eckert in 1995. He has been a magnificent servant to the Group and when I took over from him in 2002, Brit was already emerging as a major player, a great achievement for Jo. He doesn't leave the Group; far from it, he continues to drive forward the investment management arm, Equity Investment Partners and Brit continues to get closer to this group.
Last but not least, I would like to thank my fellow Non-Executive Directors who give me immense support at all times. I appreciate the time they devote and the wealth of experience they bring to the Group.
Let us look forward to a successful 2004.
OPERATING REVIEW
Brit has continued to make good progress in 2003. We have experienced excellent underwriting conditions and a benign claims climate that, coupled with our accomplishment of several key objectives, helped to produce this record result. We significantly strengthened both our UK business and the capital of the Group. We consolidated our position within the FTSE 250 and are currently ranked within the UK's top 200 quoted companies by market capitalisation, bringing the company to the attention of a wider base of institutional investors.
Our underwriting operations have been refocused so that all decisions are made with a view to capital allocation between our FSA regulated insurance subsidiary or our Lloyd's syndicate which is capitalised exclusively by Brit. We continued to instil underwriting discipline across all classes of business to ensure that group targets are met while underwriters justify every pound of capital allocated. Systems are now in place to ensure that we are able to allocate and utilise capital efficiently to maximise returns. We have one of the strongest balance sheets of UK general insurers and continue to experience favourable market conditions in which we can grow our business.
The investment management company, The Equity Partnership Limited ("EPL"), in which we have an economic interest of 47.6% is treated as an associated undertaking. It has had another successful year with a profit before tax of GBP0.5m and funds under management have increased from GBP1.1bn to GBP1.5bn. During the period, we disposed of Peoples Choice (Europe) Limited ("Peoples Choice"), our personal lines distribution business.
Financial Performance
Brit has seen a strong financial performance in 2003. Operating profits rose to GBP75.4m from GBP11.4m in 2002, helped by the combination of improved underwriting conditions and a satisfactory investment management performance. Our underwriting performance is highlighted by record levels of earned premium income and an excellent combined ratio of 88.5%. Investment funds increased by 49.0% while our post tax return on equity for the year was 9.5%, up from 1.7% for 2002, an improvement but still with significant room for further growth.
Capital Reorganisation and Dividends
Whilst we remain one of the more strongly capitalised UK general insurance businesses, we are conscious that our investors require a return on their investment. We are delighted to announce, subject to the approval of the High Court, shareholders and stockholders, a proposed capital reorganisation that will enable us to declare a dividend much earlier than previously anticipated. We stated in October 2003 that it was our policy to pay a minimum dividend of 70% of annual post tax profit, subject to available distributable reserves. On completion of the proposed capital reorganisation, we will be in a position to commence these dividend payments.
The key features of the proposals are as follows:
- A reduction of GBP170 million in the share premium account;
- This results in a corresponding increase in distributable reserves, turning the current negative balance of GBP66 million on parent company distributable reserves into a positive balance of GBP104 million;
- The positive balance will be utilised to manage dividends over time in accordance with the Group's published dividend policy and to overcome technical timing impediments in the distribution of profits from underwriting subsidiaries to the parent company;
- A technical adjustment to conversion price of the Company's 8.5% Convertible Unsecured Subordinated Loan Stock 2008 from 88p per ordinary share to 81p, to compensate stockholders for the effect of these proposals on their conversion rights;
- Suitable arrangements for sundry creditors of the parent company have been put in place; and
- High Court approval to be sought during April 2004.
Business Activity
During 2003 we have continued to build our FSA regulated insurance company, Brit Insurance Ltd ("BIL") faster than the Lloyd's Syndicate. Our aim is to achieve over half of the Group's underwriting in BIL by the end of 2004. All classes of business originally intended to be moved into BIL from the Syndicate have now made the transition.
Deciding which entity writes which class of business depends upon a combination of availability of licences, security and the rating that we can offer, clients' and brokers' preferences, efficiency of capital usage and levies imposed. Other considerations are maintaining an even spread of risk and volatility between the two entities and ensuring that the Group's catastrophe peak exposures are evenly spread. In summary, although there are some exceptions to the rule, BIL is used for our UK/European Direct business whilst our Lloyd's syndicate is used for our US and International business where we benefit from Lloyd's licences and global brand.
UK Initiative
During 2003 Brit made good progress towards its goal of building a strong franchise in the UK commercial sector. Premium income in the collective area of UK property, casualty and motor grew by 138% to GBP309.4m. Groundwork was laid in establishing our regional office network which we expect to complete by the end of this year. The network will be there to provide instant access for regional brokers through an automated business process, with point of sale policy delivery. The aim is to have around seven regional centres servicing the local broking community providing a full spectrum of coverage on a stand-alone or combined basis for commercial clients. Commoditised personal lines insurance remains a competitive market segment dominated by affinity brands, banks and supermarkets. Brit will limit its personal lines activities to niche, non-commoditised areas where competitive pressures remain lower.
The UK initiative was aided by the successful completion of the acquisition of renewal rights of the Markel motor book, complementing the similar deal done with Gerling in October 2002, alongside the acquisition of renewal rights of the Creechurch UK property business and its underwriting team.
We also acquired PRI Group plc ("PRI"), a recently listed UK company, who specialised in underwriting UK casualty business. This considerably helped build momentum for our UK initiative, but also enabled us to increase the paid up capital of BIL to GBP278.0m. We were disappointed not to retain more of PRI's underwriting team but with our expanded casualty team of over 30 people we have more than met our business targets.
In 2004 Brit will focus on developing its business process combined with strict underwriting controls for products that will be exclusively marketed through the broking community. We believe that the franchise vacated by companies such as Independent and The Underwriter, and the fallout from the amalgamation of the large general insurers in the UK has created a need for a new major force in this market. This has been confirmed again and again by the broking community. Our sponsorship of Surrey County Cricket Club and the Brit Insurance Oval will substantially raise our brand awareness, and supports our determination to meet this challenge.
Lloyd's Operation
Brit completed its strategic goal of not only owning 100% of its Lloyd's capacity but successfully closing and merging the four syndicates into one, Syndicate 2987. We exited from the Term Life business. This business required stand-alone capital, was sold through non-complementary distribution channels and was not meeting critical mass and size requirements. We also pulled out of the administration of the remaining syndicate supported exclusively by third party capital. This streamlining will greatly cut down on the administrative and regulatory burden, that was created by running nine different syndicates. We also exited from direct aviation business, as announced in August 2003, as a result of dissatisfaction with market terms and conditions.
Investment activities
We have continued our 34.1% holding in The Equity Partnership Limited ("EPL") which controls two FSA regulated investment managers, EPIC Asset Management Limited ("EPAM") and Epic Specialist Investments Limited ("ESI"). The Group treats the Epic Investment Partners group as an associated undertaking. The group had another successful year with a profit before tax of GBP0.5m. The returns from the fixed income portfolios were in line with their benchmarks in what was a very difficult year for bond markets. This growing performance track record is being translated into both significant third party mandates and a greater concentration of Brit's portfolios under the stewardship of EPL.
During the Autumn, ESI successfully raised GBP45.0m for two close-ended investment companies listed on AIM. One provides asset-backed finance for companies emerging from distressed situations and the other is an environmental fund. Additionally, ESI raised a further GBP55.3m for an open-ended investment company to invest in the UK equity market.
During 2003 the Epic Investment Partners group's two investment management companies have increased funds under management from GBP1.1bn to GBP1.5bn.
Ri3k
The period also saw considerable progress for Ri3k, our electronic reinsurance platform. Its membership of cedants, brokers and reinsurers now exceeds 100, including some of the most highly regarded names in the industry. Adoption is at times frustratingly slow, but the management team have worked very hard and we remain supportive.
Underwriting Rating Levels
Market conditions remained good during 2003 as can be seen from the table of rate movements below. This was particularly true in the casualty arena which continued to harden at a pace. Ongoing uncertainty over prior liabilities, future awards and investment performance will, we believe, result in casualty rates continuing to harden through 2004.
We were pleasantly surprised by the robustness of the reinsurance market during the 2004 renewal season and although we expect this to come under some pressure during the remainder of 2004 we believe that market discipline will stay. Whilst there is some overcapacity in this area, rates are high by historic comparison and we are optimistic for 2004.
Premium Index (Year 2000 as base year)
2000 2001 2002 2003
Accident & Financial N/A 100 131 142
Airlines 100 250 225 209
General Aviation 100 174 261 312
Space 100 125 173 207
Casualty 100 122 207 288
Marine 100 112 144 156
International
Property 100 112 150 155
UK Property 100 104 123 132
Reinsurance 100 111 153 161
Motor 100 108 115 120
EL/PL N/A 100 200 285
Airlines/Aviation movements shown up to July 2003 The rate movements above are based on internal assessment of business written by the Group and are therefore subjective.
Reinsurance
The reinsurance spend, as a percentage of gross premium income, decreased from 21.2% in 2002 to 16.2% in 2003. This principally reflects our continued strategy of reducing reliance on reinsurance though some rate reductions have also been achieved.
Brit Group Realistic Disaster Scenario exposure as a percentage of premium income*
Gross Loss Gross Loss Net Loss Net Loss
GBPm GBPm
US Windstorm 196.97 23.17% 78.86 9.28%
California Quake 237.75 27.97% 84.46 9.94%
European Windstorm 203.75 23.97% 85.75 10.09%
Japanese Quake 194.65 22.90% 71.74 8.44%
As at 1 October 2003
*Based on Gross Net Premium income of GBP850m
The RDS (Realistic Disaster Scenario) exercise is undertaken every quarter to enable the Group to monitor potential exposure to catastrophic events and to ensure that the Group's risk appetite is not breached.
The above events are based on windstorms with a return period of 1 in 100 and earthquakes with a return period of 1 in 200. Where it is possible, losses are estimated on a probabilistic basis using Risklink, a proprietary catastrophe risk modelling software product produced by Risk Management Solutions (RMS).
Capital Allocation
Brit is proud of its dynamic capital allocation process for underwriting. The head of each line of business is required to submit a detailed business plan which includes:
- Targeted rates of return based on individual Risk Based Capital ratios
- Their own contribution to group Realistic Disaster Scenarios, and
- Pricing assumptions that are independently verified by group actuaries and then monitored on an ongoing basis to assess projections versus outcome.
This creates a process where, on a weekly basis, capital is awarded to, or surrendered by, various classes depending upon their return potential. There is also a constant and active peer review process.
This process has been tested during 2003 at a significant level. As a result of our concerns over airline risk, not only regarding rates, but more importantly the structure of the risk, we withdrew from that class during the year and were able to re-allocate the capital in areas where we believe the rewards are greater.
Business mix
Gross written premium Gross written premium
2003 2004 Forecast
GBPm % GBPm %
Accident &
Financial 114 11 162 12
Aerospace 61 6 56 4
Casualty 114 11 138 10
Marine 80 8 126 9
Property 97 10 162 12
Reinsurance 225 22 283 21
UK/commercial
lines 309 30 438 32
Other 16 2 0 0
1,016 100 1,365 100
Premium Income by Geographical Area
2004 UW Year 2003 UW Year
(Forecast)
UK 41% 36%
Europe 8% 8%
USA 30% 30%
Rest of the World 21% 25%
US Terror Attacks
The net loss reserved by the Group as at 31 December 2003 in respect of the US Terror Attacks was US$130.0m (2002: US$132.0m), which has not materially changed during the year.
The overall loss to Brit Insurance Limited and the combined Brit Syndicates (inclusive of third party participators) was US$377.7m gross and US$176.1m net. The 2001 Syndicate years have closed into Syndicate 2987 with effect from 31 December 2003. This closure will not increase the net loss in respect of Brit's retained share at that date. Future reporting will be based upon the total position as grossed up by the 2001 closure.
At 31 December 2003, gross paid claims accounted for 55.3% of the gross ultimate and the incurred position was 85.9% of the gross ultimate. The Group's gross IBNR (incurred but not reported) was therefore 14.1% of the gross ultimate.
Employees
We maintain our belief in the importance of the people we employ and have increased our investment in our people strategy both financially and culturally. The training programme is well supported and our graduate development programme commenced in the third quarter 2003. The feedback both from the graduates and the business is positive. We are in the process of forging links with Birmingham University through its business school where we are sponsoring a Lecturer to develop an Insurance and Risk Management module for their MBA courses. By this means we will help to raise the profile of Insurance as a career of choice for quality graduates. We will also take the opportunity to utilise the research skills of the University to assist in product development.
Building the Brit Brand
During 2002 we consolidated the many diverse Group companies under the single identity of 'Brit Insurance' by embracing one common design, typography and culture. This has since been rolled out across signage, literature, websites and other communications. The next step was to build the new Brit brand in two stages. Firstly, raising the Group's profile, followed by brand awareness with the rate of progress and budget applied to accord with Brit's commercial development, growth and distribution evolution.
In two further planned steps, Brit has chosen to reinforce and develop brand image through its association with a duo of sport sponsorship properties, each chosen to match Brit values, stature, success, dynamism and responsibility. A strong presence is being created leveraging established press and television channels. Sporting excellence offers many promotional platforms to reinforce Brit's values and to communicate brand and product messages. Sport offers pro-am opportunities to engage our distributors and customers to build goodwill and partnership.
In 2003, Brit entered into a successful association with the "Brit Super Series Squash Finals". This globally televised event is an ideal fit, as it is the only professional sporting event held within the Square Mile of the City of London. In February 2004, as part of Brit's expanding distribution ambitions, we have extended our sponsorship activities to embrace the now re-named "Brit Insurance Oval", the world's oldest and most famous cricket venue. The sponsorship includes Surrey County Cricket Club. This association will extend brand awareness from our London centre both nationally and internationally.
Investor Relations and Governance
The Company's investor relations team organises regular meetings with major investors and stakeholders and disseminates information through various media. A programme of meetings is initiated after the release of final and interim results, or any other significant announcement. The investor relations section on the Company's website, www.britinsurance.com displays press releases, shareholder presentations and the terms of reference for the audit, nomination and remuneration committees as soon as permitted. Shareholders are encouraged to contact the Company directly with questions or concerns and, subject to price sensitivity, the investor relations team seeks to provide an efficient and timely response.
In addition, as recommended by the Higgs Report, the Chairman and Senior Independent Non-Executive Director held a series of meetings with significant shareholders during 2003.
Current and Future Strategy
Brit has changed from its beginnings as a portfolio of insurance investments into a focused insurance group. The early strategy of acquisition and consolidation has developed into one of organic growth and quality improvement. Any future acquisitions will have to fulfil key criteria, including the avoidance, where possible, of reserve risk, which we have always held to be a fundamental requirement. Our underwriting strategy continues to evolve and we have focussed our account in those areas where we believe that we can generate the most attractive long term return on capital. Our key growth area is commercial insurance business in UK and international markets.
We will maintain a presence in certain niche classes of personal lines in order to service the broker community but we will not chase rates down at the expense of an underwriting return and we expect this business area to be a diminishing part of the account in the short to medium term.
At the other end of the underwriting spectrum, we believe certain "big ticket" classes of business are attractive to new capital, increasing competition, as there are low barriers to entry. Brit withdrew from Direct Aviation, a good example of a missed opportunity for insurers to reassess the scope of coverage and not just raise premiums on a short term basis.
We will maintain our significant reinsurance presence at about 21% of the overall group premium. We have critical mass, expertise and a quality of security that gives confidence that we will generate good returns.
The balance of the account is therefore the UK and International commercial insurance market. In our view, this market is underpopulated. There is broker demand for a new strong participant in this sector.
After a difficult five years, there is enormous pressure on insurers in this class to produce profitable underwriting results without reliance on investment income. As a result, in our view, there will be less downward pressure on rates and widening of terms than we expect to see in other classes and we believe this backdrop will give us the opportunity to continue to expand on a profitable basis.
Our target Gross Written Premium Income for 2004 is GBP1.3bn. With our increasing market and brand presence, we would expect continued, but more modest growth.
This leads us to an upbeat assessment of future prospects.
This information is provided by RNS
The company news service from the London Stock Exchange