NEWS RELEASE
30 July
2009
For immediate release
Novae Group plc
Interim results for the period ended 30 June 2009
Highlights
Novae Group plc ("Novae"), the specialist insurance group, today
announces its 2009 interim results. Highlights:
* Loss before tax and before foreign exchange movement on
non-monetary items: £2.1 million (H1 2008: profit of £16.8
million), after a charge of £26 million from aviation reinsurance
and credit insurance claims
* Loss before tax and after foreign exchange movement on
non-monetary items: £18.5 million (H1 2008: profit of £16.3
million)
* Combined ratio: 112.2% (H1 2008: 98.7%), 90.4% excluding aviation
and trade credit losses
* Gross written premium: £220.3 million (H1 2008: £186.0 million)
* Interim dividend per share: 3.0p (H1 2008: 2.5p)
* Net asset value per share: 389p (June 2008: 390p)
* Investment return: £10.9 million, equivalent to an annualised
return of 2.02% (H1 2008: £20.7 million)
* Realised gain from repurchase of 2017 bonds for cancellation:
£7.7 million (H1 2008: nil)
Matthew Fosh, Chief Executive, today said:
"An otherwise sound performance in the first half was hit principally
by an abnormal incidence of loss during the period in our aviation
reinsurance unit, including the Air France loss over the Atlantic.
There was also an increase in losses from our credit insurance unit
but, as a whole, our range of property and casualty classes has been
resilient in a market where rates overall are rising but only in a
piecemeal fashion.
That said, we saw a whole account rate increase of 8% during the
period. We will be accelerating the growth of premium income into
2010 and increasingly deploying the Group's surplus capital into an
improving rating environment. We will need to remain patient, but we
continue to be optimistic about the outlook for the remainder of this
year and beyond."
There will be a presentation to analysts at 09.00 a.m. today at
Citypoint, 9th floor, 1 Ropemaker Street, EC2Y 9HT.
For further information:
Matthew Fosh Novae Group plc 020 7903 7300
Nick Miles M:Communications 020 7153 1535
Introduction to Novae
Novae, which is based in London and listed on the London Stock
Exchange, is a risk-taking insurance business operating at Lloyd's
via Syndicate 2007 managed by Novae Syndicates Limited ("NSL") and
through Novae Insurance Company Limited ("NICL"), an FSA-regulated UK
insurance company. Novae has a diversified mix of business with
underwriters operating across four segments made up of 21 specialist
units.
Syndicate 2007 is rated A2 (Good) by Moody's; A (Excellent) by AM
Best; and LSA 3- by Standard & Poors within the context of its
overall A+ Lloyd's rating. NICL is rated A- (Excellent) by AM Best
and A- by Fitch. All these ratings have a stable outlook.
Interim results statement
Financial results
Novae's results in the first half of 2009 reflect in large part
catastrophe losses from the aviation reinsurance unit. There was also
an increase in recession-related losses from our credit insurance
unit, but in general our range of property and casualty classes
performed satisfactorily in a market where rates overall are still
responding only slowly and interest rates remain at all time lows.
Rates in the property reinsurance, energy and financial institutions
classes have firmed, reflecting actual or perceived market losses,
but more widely the rating environment is yet to respond to
circumstances which suggest losses to come.
Operating loss before foreign exchange loss on non-monetary items was
£5.1 million (H1 2008: profit of £23.1 million). Loss before tax and
foreign exchange loss on non-monetary items was £2.1 million (H1
2008: profit of £16.8 million).
The combined ratio in the first half, calculated at the ownership
level on an earned premium basis of £145.4 million, was 112.2% (H1
2008: 98.7%). This was made up of a claims ratio of 69.0% (H1 2008:
51.9%), based on net claims of £100.3 million, and an expense ratio
of 43.2% (H1 2008: 46.8%), based on acquisition and operating costs
of £62.9 million (excluding the foreign exchange loss on non-monetary
items). Excluding variable compensation, the running costs of the
Discontinued Units and central costs together totalling £8.8 million,
the expense ratio falls to 37.2% (H1 2008: 36.8%) based on operating
costs net of these items of £54.1 million.
Novae's investment assets made an important contribution in spite of
a much lower interest rate environment and continuing volatility.
Investment return in the period was £10.9 million, equivalent to an
annualised return on average invested assets over the six month
period of 2.02% (H1 2008: £20.7 million and 4.34% respectively).
First half financing credit was £3.0 million (H1 2008: £6.3 million
expense). This was made up of an underlying cost of £4.7 million,
more than offset by a realised gain of £7.7 million arising from the
buy in for cancellation of 2017 subordinated notes. Assuming no
material changes to the capital structure of the Group in the second
half, financing costs for the year as a whole are expected to be
around £1.0 million after taking credit for the gain on buying in
2017 subordinated notes for cancellation.
Net assets per share as at 30 June 2009 were 389.0p (30 June 2008:
389.6p). Net tangible assets per share were 374.6p (30 June 2008:
381.2p). Net tangible assets reflect the effects of purchasing the
remaining third party capacity rights of tenure on Syndicate 2007 in
January 2009. Unrecognised deferred tax assets represent an
additional 34.1p per share (30 June 2008: 23.6p).
Underwriting performance
Overall performance
Operating loss for the period was £5.1 million (H1 2008: profit of
£23.1 million).
The rating environment in the first half was mixed. In US-windstorm
related classes such as US property, property treaty and Gulf of
Mexico energy rates were up strongly. Rating has also begun to
improve for financial institutions business. Although rates have
generally stopped falling in most other areas, there is limited
evidence so far of a transition to an improved pricing environment.
Rate increases in the first half are consistent with the the Board's
expectation of a 5-10% increase overall for the year as whole.
Competition remains intense in many casualty classes as well as in UK
regional business. In spite of the gradual emergence of
recession-related losses and low investment returns, some insurers
appear to remain focussed on increasing market share rather than on
underwriting for profit. The Group has deliberately not written for
gross income in such circumstances.
Claims activity increased, reflecting the emergence of
recession-related claims in the credit and political risks unit and
catastrophe losses in the aviation reinsurance unit. Claims activity
elsewhere in the business was mixed with some units enjoying a benign
period and others seeing an increase in claims notifications.
The combined ratio for the period was 112.2% (H1 2008: 98.7%).
Catastrophe losses on the aviation reinsurance account contributed
13.3% to this; and recession-related losses in the credit and
political risks unit a further 8.5%. The underlying combined ratio in
the period was thus 90.4%, which the Board regards as a satisfactory
performance given the current rating and economic environment.
Specialty
Specialty remains the Group's largest segment, although its relative
contribution to gross written premium has fallen as the Group's
diversification has gathered pace. Gross written premiums in the
first half of 2009 were £71.9 million (H1 2008: £74.4 million),
reflecting both underwriting discipline and a second half bias for a
number of units within the segment.
The overall contribution to Group profit was substantially lower at
£3.1 million (H1 2008: £14.9 million), with much of that profit
coming from business underwritten by NICL. The Lloyd's business made
a small profit after absorbing significant losses from credit
insurance. CIFS, the UK trade credit business, returned a loss of
around £8 million and emerging market trade credit made a loss of
over £4 million. These losses, although disappointing, are within the
Group's loss tolerance in a severe recession.
The financial institutions and professional indemnity units benefited
from reserve releases on prior years. Both professional indemnity and
management liability business have made significant contributions to
profit in respect of more recent years notwithstanding the extremely
competitive trading environment that has prevailed, reflecting strong
underwriting discipline.
Property
Gross written premium income on property business in the first half
was £59.2 million (H1 2008: £45.7 million), reflecting an increase in
scale, the benefits of rate increases and exchange rate movements.
Novae's property segment has continued to develop and diversify,
providing a better balance of direct and reinsurance business and of
US and non-US exposure.
The first half of 2009 saw the Property segment contribute a loss of
£1.6 million (H1 2008: profit of £8.1 million). Historically the
profit has had a second half bias in years characterised by a low
level of catastrophe loss and the performance in the first half this
year also reflects a cautious view of claims activity. Despite the
improving balance of the segment, experience in the US windstorm
season is likely to be a key factor in the outcome for the year.
Aviation & Marine
This segment has grown in significance in recent years, reflecting
both the formation of the energy unit and growth and diversification
of the marine units. Gross written premiums in the period were £51.5
million (H1 2008: £25.7 million), including a sizeable element on
loss-related reinstatement premium income from the aviation
reinsurance unit.
In the first half of 2009 the aviation reinsurance unit has suffered
from a particularly severe claims experience, with the largest single
impact being from the Air France loss. There were, however, a number
of other significant losses in both the first and second quarters.
Overall, net of reinsurance recoveries and reinstatement premiums,
aviation reinsurance losses were $29 million. This means that after
several years of very strong contribution to profits, the aviation
reinsurance unit will produce a significant loss in 2009. The
individual loss events that occurred in the period were in line with
the Group's risk appetite and loss tolerance.
While marine hull, energy and marine war business each made valuable
profits, the scale of the loss from aviation reinsurance is reflected
in the overall segment loss of £8.8 million. Both energy and marine
business have benefited from an improving rating environment. We
expect claims experience on aviation business in the first half of
2009 to stimulate pressure for significant rate hardening.
Liability
During the period this was the smallest of the four segments by gross
premium income. Generally the market has remained competitive and
Novae's underwriting posture has continued to reflect a disciplined
and circumspect approach. In the first half of 2009 gross written
premiums of this segment were £37.6 million (H1 2008: £39.8 million).
The profit from liability business was an extremely creditable £8.4
million, reflecting valuable contributions from both the Lloyd's
business and NICL. This included the emergence of extremely good
levels of profit from business transacted in the 2007 and 2008
underwriting years. In the Lloyd's business the marine liability unit
again produced a substantial level of profit while the non-marine
liability profit arose mainly in NICL.
Discontinued Units
The Discontinued Units are made up of liability reinsurance,
healthcare and third party liability written across Syndicates 1241
and 1007.
The 2002 and prior years of Syndicates 1241 and 1007 continue to run
off in line with expectations. The population of lead claims (in
relation to both Discontinued Units and other business) has fallen
further to 1,545 at 30 June 2009 (30 June 2008: 2,214; 31 December
2005: 6,117). This represents a reduction of 75% over the past three
and a half years. Over the same period the value of open lead claims
across these two syndicates had fallen by 41% to £224.4 million (30
June 2008: £228.2 million; 31 December 2005: £378.0 million).
As at 30 June 2009 the Discontinued Units accounted for £117.0
million of gross reserves and £26.6 million of reinsurance asset (30
June 2008: £127.1 million and £30.8 million respectively).
Investment performance
Investment return in the first half was £10.9 million, equivalent to
an annualised return on average invested assets of 2.02% (H1 2008:
£20.7 million and 4.34% respectively). As at 30 June 2009 investment
assets including cash were £1,011.1 million (30 June 2008: £951.5
million).
The Group's investment strategy remains focussed on capital
preservation and, subject to that constraint, the achievement of an
explicit total return each financial year. The investment guidelines
were revised during the first quarter of 2009 to permit a modestly
increased weighting in short duration investment grade bonds.
During the first half the Group reduced its exposure to pooled money
market funds and rotated into investment grade corporate bonds. This
is against a backdrop of very low returns from short duration UK and
US government bonds, typically under 1.0%.
Following asset/liability modelling carried out at the end of 2008,
neutral duration was re-set at 3.0 years.
The Group's targeted total return for the year to December 2009 is
2.0-2.5%.
Investment type 30 June 30 June
2009 2008
£m £m
Cash 289.2 326.6
Government bonds and bills 226.3 179.4
Corporate and supranational issuers 200.1 65.2
Certificates of deposit and floating rate notes 140.2 216.2
Lloyd's overseas deposits 79.5 64.7
Government agencies 75.8 48.0
Pooled money market funds - 39.2
Asset-backed securities - 12.2
Total 1,011.1 951.5
Investment assets can be further analysed by rating as follows:
S&P rating equivalent 30 June 30 June
2009 2008
£m £m
AAA rated 371.5 275.0
AA rated 102.3 21.4
A rated 25.7 8.0
BBB+ or better rated 2.4 -
Total bond portfolio 501.9 304.4
Other * 140.5 216.6
Cash 289.2 326.6
Total managed portfolios 931.6 847.6
Lloyd's overseas deposits 79.5 64.7
Pooled money market funds - 39.2
Total 1,011.1 951.5
* included within other investment assets is £140.2 million (30 June
2008: £216.2 million) of certificates of deposits and floating rate
notes together with £0.3 million (30 June 2008: £0.4 million) in
respect of a single legacy shareholding.
The average duration of the bond element of the managed portfolios is
currently 1.8 years (30 June 2008: 0.6 years). As at 30 June 2009
investment assets were held as to 52% in sterling, 34% in US dollars
and 14% in other currencies (30 June 2008: 56%, 33% and 11%
respectively).
Currency assets and liabilities
Novae is exposed to foreign currency risk. Its principal exposure is
to the US dollar, which accounts for approximately 50% of gross
written premiums. IFRS requires non-monetary items to be carried at
historical exchange rates rather than at closing rates (as for
monetary items). Non-monetary items comprise unearned premiums,
reinsurers' share of unearned premiums and deferred acquisition
costs.
During 2008 the US dollar appreciated against sterling, resulting in
a non-monetary gain of £12.9 million. The exchange rate was £1:$1.44
at 31 December 2008; this had moved to £1:$1.65 at 30 June 2009. As a
result, a non-monetary foreign currency loss of £16.4 million was
recorded in the period, reversing the gain recorded in 2008.
Interim dividend
The Board has declared an interim dividend of 3.0p per share (H1
2008: 2.5p). This will be paid on 5 October 2009 to shareholders on
the register on 11 September 2009.
Tax
The Group's tax credit in the first half was £8.0 million (H1 2008:
charge of £0.9 million), representing 43% of loss before tax (H1
2008: 6% of profit before tax).
The deferred tax asset held on the balance sheet at 30 June 2009 is
£29.5 million (30 June 2008: £22.4 million). A further £24.5 million
of deferred tax assets are not included on the balance sheet (30 June
2008: £16.9 million). These are worth 34.1p per share (30 June 2008:
23.6p per share).
Capital
Novae's capital employed as at 30 June 2009 was £358.7 million, made
up as follows:
30 June 2009 30 June 2008
£m £m
Shareholders' funds 279.7 279.4
Less: intangible assets (10.4) (6.0)
Net tangible assets 269.3 273.4
2017 subordinated notes 68.9 97.8
2034 loan notes 20.5 19.4
2008 convertible bonds - 7.6
Capital employed 358.7 398.2
In April 2007 Novae issued £100.0 million (nominal value) of 2017
subordinated bonds. It had intended to use part of the net proceeds
of this issue to refinance its $36.0 million (nominal value) 2034
notes. The 2034 notes are priced at a weighted average margin over
LIBOR of 366 basis points. Following the reduction in $ LIBOR over
the last 12 months, the 2034 notes now have a lower running cost than
the 2017 subordinated notes, which carry a fixed coupon of 8.375% to
their first call date in 2012.
As a result, the Group has bought in a total of £30.0 million
(nominal value) of 2017 subordinated notes for cancellation at a
weighted average price of 63p per £1 nominal value. This has
resulted in a total realised pre-tax gain of £10.5 million. Of this,
£2.8 million was recognised in the year ended 31 December 2008 and
£7.7 million recognised in the period ended 30 June 2009. £70.0
million (nominal value) of 2017 subordinated notes remain in issue.
The Group's total debt at 30 June was £89.4 million, compared with
shareholders' funds of £279.7 million. This is equivalent to a
financial gearing level of 32.0%.
Capital is used to provide admissible assets for Novae's regulated
subsidiaries as well as working capital. Novae's Lloyd's corporate
member currently has a 2009 capital requirement of £223.7 million,
equivalent to 66% of its 2009 premium capacity of £340.0 million. Of
the Lloyd's corporate member's capital requirement, around £170
million underpins the ongoing business with the balance of some £50
million supporting the 2002 run-off year of Syndicates 1007 and
1241. Syndicate 2007's gross written premium in its regulatory
business plan (net of acquisition costs and at Lloyd's stipulated
exchange rates of $1.50:£1) is £291 million at the 100% level.
Expressing the Group's capital requirement excluding 2002 and prior
run-off of £170 million as a percentage of its share of gross income
of £275 million produces a solvency ratio of 62%.
For 2010, the Group is currently intending to pre-empt the capacity
of Syndicate 2007 by 25% to £450.0 million, reflecting continuing
recruitment of new teams and rate hardening in some areas where the
Group is active. The additional capital required to support this
level of pre-emption is currently expected to be relatively modest.
NICL's net assets at 31 December 2008 were £104.7 million, more than
double its stand-alone regulatory capital requirement. However, NICL
has to maintain minimum net worth to satisfy rating agency and
brokers' security requirements. In particular, rating agency models
impose a higher capital requirement in the start-up phase of an
insurance company's life than on a mature business of equal size.
This is likely to result in NICL remaining over-capitalised relative
to its premium base until the start-up phase has concluded in 2011.
On 18 March 2009 the Group's £20 million revolving credit facility
was extended until 31 December 2010. The facility remains undrawn.
Principal risks
The principal risks that face the Group are described in the risk
disclosure section in the 2008 annual report (pages 71 to 84),
together with the relevant section of the operating review (pages 26
to 27). There have been no significant changes to the principal risks
during the six months ended 30 June 2009.
Outlook
The first six months of 2009 represented a challenging period for the
Group. Although rates in property classes began to improve, liability
rates generally have yet to do so; investment returns on risk free
assets are at an all time low; recession-related claims led to losses
within the credit insurance unit; and one of Novae's two event-driven
reinsurance units, aviation reinsurance, suffered from a series of
major loss events. While the financial outcome is disappointing,
these events need to be seen in context.
The aviation reinsurance unit has made a major contribution to
Novae's profits over the past five years. It has the potential to
generate significant profits in the future as rates improve.
The credit and political risks unit is one of several specialist
areas in which Novae has a niche presence. Against the background of
perhaps the most severe and rapid recession since 1945 it should come
as no surprise the unit made a loss even if, as the anecdotal
evidence suggests, the unit's performance is favourable when compared
to its peers.
Novae's business mix more generally continues to be around two thirds
liability, one third property. In this context, the current interest
rate environment is clearly an obstacle to progress. Over the past 10
years the redemption yield on the short gilt has averaged 5.04%. As
at 30 June 2009, the redemption yield on the Treasury 2010 4.75% note
was 0.77%; it has since fallen to 0.67%. The fall in the return on
risk free assets, imposed by policymakers to support the banking
sector, has implications on the profitability of liability business.
These headwinds have obscured good progress on several other fronts.
New units established since 2006 have made a strong contribution to
performance and longer established units have continued to display
the quality of the underwriting expertise that they represent. Novae
is recruiting new talent to build upon its underwriting strengths and
further diversify the business.
It is also worth noting that the financial outcome in the six months
to 30 June 2009 follows a year in which the Group's strategy
delivered one of the best returns on equity in its sector. Novae's
ability to absorb exceptional losses and low investment returns in
the first half of the year, and still be able to grow the scale of
its business without recourse to additional capital, validates its
policy of diversification and controlled risk appetite.
The emergence of a more favourable rating environment continues to be
patchy. While financial institutions, property reinsurance and energy
classes are enjoying rating momentum, rates in other areas are
improving only reluctantly. This is despite a backdrop in the
insurance industry and in the wider economy which would imply upward
rating pressure. A contracting global economy is one factor
restraining rates. But if claims frequency does increase, replacement
capital and investment returns will not easily make up the
difference. Rate increases across the whole account of 5-10% for the
full year are expected for 2009, driven by classes already reporting
losses. But if the broader claims environment deteriorates, wider and
more sustained rating improvements are likely. We will be patient in
deploying capital, but will respond boldly as conditions dictate.
M K Fosh
Group Chief Executive
30 July 2009
Responsibility statement of the directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
* the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU
* the interim management report includes a fair review of the
information required by:
(a) section 4.2.7 of the Disclosure and Transparency
Rules, being an indication of important events
that have occurred during the first six months of
the financial year and their impact on the
condensed set of financial statements; and a
description of the principal risks and
uncertainties for the remaining six months of the
year
(b) section 4.2.8 of the Disclosure and Transparency
Rules, being related party transactions that have
taken place in the first six months of the
current financial year and that have materially
affected the financial position or performance of
the entity during that period; and any changes in
the related party transactions described in the
last annual report that could do so
By order of the Board
M J Turvey
Secretary
30 July 2009
Condensed consolidated statement of comprehensive income
for the six months ended 30 June 2009
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
Note £m £m £m
Gross premium revenue 4 199.9 162.7 345.7
Less premium ceded to 4 (54.5) (36.8) (87.3)
reinsurers
Net premium revenue 145.4 125.9 258.4
Investment income 5 10.9 20.7 50.0
Fees and commission income 1.8 0.8 1.8
Total revenue (net of premium 158.1 147.4 310.2
ceded to reinsurers)
Gross claims incurred (128.5) (79.0) (240.6)
Reinsurers' share of claims 28.2 13.6 73.7
incurred
Net claims incurred (100.3) (65.4) (166.9)
Policy acquisition costs (34.9) (29.8) (61.5)
Operating expenses 6 (44.4) (29.6) (32.0)
Operating (loss)/profit before (5.1) 23.1 36.9
currency (loss)/gain on non-
monetary items
Currency (loss)/gain on 7 (16.4) (0.5) 12.9
non-monetary
items
Operating (loss)/profit (21.5) 22.6 49.8
Financing credit/(costs) 8 3.0 (6.3) (9.6)
(Loss)/profit before income (18.5) 16.3 40.2
taxes
Income taxes 9 8.0 (0.9) (3.1)
(Loss)/profit for the period (10.5) 15.4 37.1
attributable to shareholders
(Losses)/earnings per share
Basic (losses)/earnings per 10 (14.6)p 21.4p 51.7p
share
Diluted (losses)/earnings per 10 (14.6)p 20.8p 50.2p
share
Condensed consolidated balance sheet
as at 30 June 2009
30 June 30 June 31 December
2009 2008 2008
Note £m £m £m
Assets
Intangible assets 10.4 6.0 6.5
Property, plant and 1.2 1.0 1.1
equipment
Deferred acquisition costs 37.6 33.7 31.1
Deferred tax assets 11 29.5 22.4 20.2
Financial assets 12 642.4 560.2 478.3
Reinsurance contracts 13 421.2 358.1 410.2
Insurance and other 184.6 201.0 184.4
receivables
Cash and cash equivalents 14 368.7 391.3 622.5
Total assets 1,695.6 1,573.7 1,754.3
Liabilities
Insurance contracts 15 (1,241.0) (1,098.0) (1,277.3)
Financial liabilities, due
within one year
- Convertible debt 16 - (7.6) -
Financial liabilities, due
after one year
- Loan notes 16 (20.5) (19.4) (21.3)
- Subordinated notes 16 (68.9) (97.8) (89.2)
Insurance and other payables, (83.2) (71.5) (66.0)
due
within one year
Insurance and other payables, (2.3) - -
due
after one year
Total liabilities (1,415.9) (1,294.3) (1,453.8)
Net assets 279.7 279.4 300.5
Shareholders' equity
Share capital 17 73.2 73.2 73.2
Share premium 67.1 67.1 67.1
Merger reserve 69.6 69.6 69.6
Retained earnings 69.8 (89.1) 90.6
Other reserves - 155.2 -
Equity component of - 3.4 -
convertible debt
Total shareholders' equity 279.7 279.4 300.5
Net asset value per share 10 389.0p 389.6p 420.0p
Net tangible asset value per 10 374.6p 381.2p 410.8p
share
These financial statements were approved by the Board of Directors on
30 July 2009
and were signed on its behalf by:
J P
Hastings-Bass
O R P Corbett
Chairman
Group Finance Director
Condensed consolidated statement of changes in equity
for the six months ended 30 June 2009
Share Share Merger Profit and Total
capital premium reserve loss account
account
£m £m £m £m £m
Loss for the period - - - (10.5) (10.5)
Increase in share-based
payment reserve - - - 0.4 0.4
Acquisition of treasury
shares, net of LTIP - - - (2.4) (2.4)
shares
vested
Dividends paid (note 18) - - - (8.3) (8.3)
Net decrease in equity - - - (20.8) (20.8)
As at 31 December 2008 73.2 67.1 69.6 90.6 300.5
As at 30 June 2009 73.2 67.1 69.6 69.8 279.7
for the six months ended 30 June 2008
Share Share Merger Other Profit Equity Total
capital premium reserve reserves and component
account loss of
account convertible
debt
£m £m £m £m £m £m £m
Profit for - - - - 15.4 - 15.4
the
period
Convertible
bond - - - - - (0.1) (0.1)
redemption
Increase in
share-based - - - - 0.1 - 0.1
payment
reserve
Acquisition
of - - - - (0.5) - (0.5)
treasury
shares, net
of
LTIP shares
vested
Dividends - - - - (5.4) - (5.4)
paid
(note 18)
Net
increase / - - - - 9.6 (0.1) 9.5
(decrease)
in
equity
As at 31
December 73.2 67.1 69.6 155.2 (98.7) 3.5 269.9
2007
As at 30
June 2008 73.2 67.1 69.6 155.2 (89.1) 3.4 279.4
for the year ended 31 December 2008
Share Share Merger Other Profit Equity Total
capital premium reserve reserves and component
account loss of
account convertible
bond
£m £m £m £m £m £m £m
Profit for the - - - - 37.1 - 37.1
period
Convertible
bond - - - - 3.4 (3.5) (0.1)
redemption
Increase in
share-based - - - - 1.6 - 1.6
payment
reserve
Acquisition of
treasury - - - - (0.8) - (0.8)
shares, net of
LTIP shares
vested
Reserves - - - (155.2) 155.2 - -
reorganisation
Dividends paid - - - - (7.2) - (7.2)
(note 18)
Net increase /
(decrease) in - - - (155.2) 189.3 (3.5) 30.6
equity
As at 31
December 73.2 67.1 69.6 155.2 (98.7) 3.5 269.9
2007
As at 31
December
2008 73.2 67.1 69.6 - (90.6) - 300.5
Condensed consolidated cash flow statement
for the six months ended 30 June 2009
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
£m £m £m
(Loss)/profit before tax (18.5) 16.3 40.2
Adjustments for non-cash items
and items
separately disclosed
- Foreign exchange on financial 79.6 (16.4) (77.7)
assets
- Financing (credit)/costs (3.0) 6.3 9.6
- Amortisation charge 0.6 0.4 1.0
- Investment income (10.9) (20.7) (50.0)
- Depreciation charge 0.4 0.4 1.1
- Employee equity incentives 2.6 3.1 4.7
Changes in operating assets and
liabilities
- Change in insurance contract (36.3) 23.9 203.2
liabilities
- Change in insurance 0.4 (5.5) (15.5)
receivables
- Change in other receivables 0.1 (20.1) 4.0
- Change in deferred (6.5) (4.9) (2.3)
acquisition costs
- Change in reinsurance (11.0) (17.2) (69.3)
contract assets
- Change in insurance and other 25.9 33.5 24.3
payables
- Change in market value of (0.8) 0.1 2.0
loan notes
- Change in market value of 8.0 (14.1) (18.9)
investments
- Other non-cash movements (3.2) (2.8) 0.1
Net cash from operating 27.4 (17.7) 56.5
activities
Cash flows from investing
activities
- Purchase of property, plant (0.5) (0.6) (1.4)
and equipment
- Purchase of intangible fixed (4.5) - (1.1)
assets
- Interest received 11.9 21.3 42.8
- Purchase of financial assets (927.6) (773.7) (1,088.0)
- Proceeds from sale of 716.6 812.8 1,218.6
financial assets
Net cash used in investing (204.1) 59.8 170.9
activities
Cash flows from financing
activities
- Acquisition of treasury (7.7) (3.5) (5.3)
shares
- Redemption of convertible - (2.9) (10.2)
debt
- Redemption of subordinated (13.0) - (6.0)
notes
- Interest paid (8.1) (9.6) (11.6)
- Dividends paid (8.3) (5.4) (7.2)
Net cash used in financing (37.1) (21.4) (40.3)
activities
Net (decrease)/increase in cash (213.8) 20.7 187.1
and cash
equivalents
Opening cash and cash equivalents 622.5 367.0 367.0
Effect of exchange rate changes (40.0) 3.6 68.4
on cash and cash
equivalents
Closing cash and cash equivalents 368.7 391.3 622.5
Notes to the interim financial information
1) Significant accounting policies
The unaudited interim financial statements, which do not comprise
annual accounts, have been prepared in accordance with IAS 34 Interim
Financial Reporting as adopted by the EU, and on the basis of the
accounting policies set out in the annual report of Novae Group plc
for the year ended 31 December 2008.
The consolidated financial statements include the results of Novae
Group plc and all its subsidiary undertakings made up to the same
accounting date.
The financial information contained in these interim results does not
constitute statutory accounts of Novae within the meaning of Section
435 of the Companies Act 2006. Statutory accounts for Novae Group plc
for the year ended 31 December 2008 have been delivered to the
Registrar of Companies. The auditors have reported on the accounts,
their report was unqualified and did not constitute a statement under
Section 237(2) or (3) of the Companies Act 1985.
Basis of preparation
The financial statements are presented in pounds sterling unless
otherwise stated. They have been prepared under the historical cost
convention, as modified by the revaluation of financial assets and
financial liabilities at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the
circumstances. The results of these factors allow judgements to be
made regarding the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates. Uncertainties exist where current valuations
are dependent on estimates of future results. This applies to the
share based payment charge, the deferred tax asset and financial
assets and liabilities held at fair value. The accounting policies
have been applied consistently to all periods presented in this
report.
The Group's greatest area of uncertainty relates to insurance
contract liabilities (see note 15).
The estimates and assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision only affects that
period, or in the period of the revision and future periods if the
revision affects both current and future periods.
Revised and new reporting standards
The Group has adopted the amendment to IAS 1 Presentation of
Financial Statements. This has resulted in the income statement being
renamed the statement of comprehensive income. No other revised
disclosures and measurements have been required as a result of new or
amended international standards and interpretations that the Group
had not previously chosen to adopt in preparing the financial
statements for the year ended 31 December 2008.
2) Segmental information
The Group's operating segments are organised into similar product and
service types. The Board is the Group's chief operating decision
maker. This is due to the Board being the ultimate decision maker for
future resource allocation to the Group's underwriting platforms.
Monthly management information is reported to the Board on a
segmental basis to aid its assessment of the Group's performance.
Segment results, assets and liabilities include items that can be
allocated on a reasonable basis. Unallocated items comprise insurance
working capital, central items and the deferred tax asset.
The Group comprises the following reportable operating segments:
(i) Specialty
Business included within the Specialty segment relates to financial
institutions, professional indemnity, management liability, fine art
& specie, special situations, bloodstock and credit, political risk &
terrorism.
(ii) Property
The Property segment consists of both direct and reinsurance business
transacted in the USA and internationally (including the UK).
(iii) Liability
This comprises a UK general liability account, both public and
employers' liability risks, international general liability, marine
liability business and a motor fleet account.
(iv) Aviation & Marine
This segment is dominated by aviation reinsurance and marine energy,
and also includes the specialist hull, cargo and marine war accounts.
(v) Discontinued Units
This segment is primarily made up of liability reinsurance (or
casualty treaty) accounts and also includes smaller healthcare and
third party liability units. The Group withdrew from these classes
prior to 2002 and they have subsequently been reported separately to
management. This does not represent a discontinued business analysis
for IFRS 5 purposes.
2a. Segmental information at the 100% level
This information is presented to include 100% of the syndicate
results. This is to avoid any distortion from the effects of change
in ownership of syndicates between underwriting years.
The segment results for the six months ended 30 June 2009 include:
Specialty Property Liability Aviation Discontinued Total
& Units
Marine
£m £m £m £m £m £m
Gross 75.3 62.4 39.3 54.6 0.2 231.8
written
premium
Gross 85.3 38.7 36.7 49.6 0.2 210.5
premium
revenue
Net premium 62.7 27.2 31.1 32.3 0.3 153.6
revenue
Net claims 41.0 18.4 13.0 34.1 (0.9) 105.6
incurred
Operating 22.0 12.2 11.2 8.8 0.3 54.5
expenses
(including
brokerage)
The segment results for the six months ended 30 June 2008 include:
Specialty Property Liability Aviation Discontinued Total
& Units
Marine
£m £m £m £m £m £m
Gross 77.6 48.6 41.7 27.3 0.4 195.6
written
premium
Gross 79.6 31.8 33.9 25.4 0.4 171.1
premium
revenue
Net premium 50.2 33.3 31.9 17.7 - 133.1
revenue
Net claims 29.9 10.8 18.5 7.8 4.1 71.1
incurred
Operating 20.9 9.9 10.8 6.2 0.2 48.0
expenses
(including
brokerage)
The segment results for the year ended 31 December 2008 include:
Specialty Property Liability Aviation Discontinued Total
& Units
Marine
£m £m £m £m £m £m
Gross 165.8 76.7 68.2 55.9 0.5 367.1
written
premium
Gross 166.9 76.6 62.8 57.7 0.5 364.5
premium
revenue
Net premium 124.0 56.2 51.0 41.2 (0.2) 272.2
revenue
Net claims 87.6 38.6 30.6 20.9 3.8 181.5
incurred
Operating 41.3 21.5 19.2 15.6 0.6 98.2
expenses
(including
brokerage)
b) Segmental information at the Novae ownership level
The segment results for the six months ended 30 June 2009 are as
follows:
Specialty Property Liability Aviation & Discontinued Total Unallocated Total
Marine Units reportable by segment
segments
£m £m £m £m £m £m £m £m
Gross written 71.9 59.2 37.6 51.5 0.1 220.3 - 220.3
premium
Gross premium 81.3 36.6 35.2 46.7 0.1 199.9 - 199.9
revenue
Net premium 59.3 25.7 29.8 30.4 0.2 145.4 - 145.4
revenue
Net claims (40.0) (17.1) (12.3) (32.1) 1.2 (100.3) - (100.3)
incurred
Investment 4.8 1.4 1.7 1.1 1.3 10.3 0.6 10.9
return
Fees and - - - - - - 1.8 1.8
commission
income
Policy (14.1) (7.6) (7.5) (5.7) - (34.9) - (34.9)
acquisition
costs
Operating (6.9) (4.0) (3.3) (2.5) (0.3) (17.0) (27.4) (44.4)
expenses
Operating 3.1 (1.6) 8.4 (8.8) 2.4 3.5 (25.0) (21.5)
profit
Financing - - - - - - 3.0 3.0
credit/(costs)
Profit/(loss) 3.1 (1.6) 8.4 (8.8) 2.4 3.5 (22.0) (18.5)
before tax
Income taxes - - - - - - 8.0 8.0
Profit/(loss) 3.1 (1.6) 8.4 (8.8) 2.4 3.5 (14.0) (10.5)
after tax
Included
within
operating
expenses are:
Depreciation (0.1) (0.1) (0.1) (0.1) - (0.4) - (0.4)
The segment results for the six months ended 30 June 2008 are as
follows:
Specialty Property Liability Aviation Discontinued Total Unallocated Total
& Marine Units reportable by segment
segments
£m £m £m £m £m £m £m £m
Gross written 74.4 45.7 39.8 25.7 0.4 186.0 - 186.0
premium
Gross premium 75.8 29.9 32.5 24.1 0.4 162.7 - 162.7
revenue
Net premium 56.7 24.3 27.4 17.4 0.1 125.9 - 125.9
revenue
Net claims (30.2) (10.1) (17.7) (7.5) 0.1 (65.4) - (65.4)
incurred
Investment 8.1 3.4 2.7 2.0 2.1 18.3 2.4 20.7
return
Fees and - - - - - - 0.8 0.8
commission
income
Policy (12.9) (6.3) (7.1) (3.9) - (30.2) 0.4 (29.8)
acquisition
costs
Operating (6.8) (3.2) (3.2) (1.9) (0.2) (15.3) (14.3) (29.6)
expenses
Operating 14.9 8.1 2.1 6.1 2.1 33.3 (10.7) 22.6
profit/(loss)
Financing - - - - - - (6.3) (6.3)
costs
Profit/(loss) 14.9 8.1 2.1 6.1 2.1 33.3 (17.0) 16.3
before tax
Income taxes - - - - - - (0.9) (0.9)
Profit/(loss) 14.9 8.1 2.1 6.1 2.1 33.3 (17.9) 15.4
after tax
Included
within
operating
expenses are:
Depreciation (0.1) (0.1) (0.1) (0.1) - (0.4) - (0.4)
The segment results for the year ended 31 December 2008 are as
follows:
Specialty Property Liability Aviation Discontinued Total Unallocated Total
& Marine Units reportable by segment
segments
£m £m £m £m £m £m £m £m
Gross written 158.6 72.0 65.3 52.5 0.6 349.0 - 349.0
premium
Gross premium 159.0 71.8 60.1 54.2 0.6 345.7 - 345.7
revenue
Net premium 118.4 52.4 48.8 38.9 (0.1) 258.4 - 258.4
revenue
Net claims (82.7) (36.0) (29.0) (19.9) 0.7 (166.9) - (166.9)
incurred
Investment 22.2 4.5 9.3 4.0 5.8 45.8 4.2 50.0
return
Fees and - - - - - - 1.8 1.8
commission
income
Policy (26.4) (13.7) (12.8) (9.3) - (62.2) 0.7 (61.5)
acquisition
costs
Operating (12.8) (6.4) (5.6) (5.3) (0.6) (30.7) (1.3) (32.0)
expenses
Operating 18.7 0.8 10.7 8.4 5.8 44.4 5.4 49.8
profit
Financing - - - - - - (9.6) (9.6)
costs
Profit/(loss) 18.7 0.8 10.7 8.4 5.8 44.4 (4.2) 40.2
before tax
Income taxes - - - - - - (3.1) (3.1)
Profit/(loss) 18.7 0.8 10.7 8.4 5.8 44.4 (7.3) 37.1
after tax
Included
within
operating
expenses are:
Depreciation (0.5) (0.1) (0.3) (0.1) (0.1) (1.1) - (1.1)
c) Segmental balance sheet analysis
Relevant balance sheet captions are deemed to be attributable to the
business segments as follows (investment assets comprise financial
assets, cash and cash equivalents):
As at Aviation Discontinued Total Unallocated
30 June 2009 Specialty Property Liability & Units reportable by segment Total
Marine segments
£m £m £m £m £m £m £m £m
Reinsurers' 227.0 20.0 29.7 62.6 26.6 365.9 - 365.9
share of
claims
outstanding
Investment 467.8 116.7 170.1 99.5 115.4 969.5 41.6 1,011.1
assets
Other assets - - - - - - 318.6 318.6
Total assets 694.8 136.7 199.8 162.1 142.0 1,335.4 360.2 1,695.6
Gross 572.2 60.6 161.4 129.2 117.0 1,040.4 - 1,040.4
provision for
claims
outstanding
Other - - - - - - 375.5 375.5
liabilities
Shareholders' - - - - - - 279.7 279.7
funds
Total 572.2 60.6 161.4 129.2 117.0 1,040.4 655.2 1,695.6
liabilities
As at Aviation Discontinued Total Unallocated
30 June 2008 Specialty Property Liability & Units reportable by segment Total
Marine segments
£m £m £m £m £m £m £m £m
Reinsurers' 214.3 10.9 24.2 29.7 30.8 309.9 - 309.9
share of
claims
outstanding
Investment 386.4 145.8 129.3 90.5 92.2 844.2 107.3 951.5
assets
Other assets - - - - - - 312.3 312.3
Total assets 600.7 156.7 153.5 120.2 123.0 1,154.1 419.6 1,573.7
Gross 506.0 44.7 155.1 82.7 127.1 915.6 - 915.6
provision for
claims
outstanding
Other - - - - - - 378.7 378.7
liabilities
Shareholders' - - - - - - 279.4 279.4
funds
Total 506.0 44.7 155.1 82.7 127.1 915.6 658.1 1,573.7
liabilities
As at Aviation Discontinued Total Unallocated
31 December Specialty Property Liability & Units reportable by segment Total
2008 Marine segments
£m £m £m £m £m £m £m £m
Reinsurers' 250.9 20.9 30.0 48.1 31.2 381.1 - 381.1
share of
claims
outstanding
Investment 515.1 90.2 213.5 88.2 112.9 1,019.9 80.9 1,100.8
assets
Other assets - - - - - - 272.4 272.4
Total assets 766.0 111.1 243.5 136.3 144.1 1,401.0 353.3 1,754.3
Gross 611.2 68.7 173.2 111.0 144.3 1,108.4 - 1,108.4
provision for
claims
outstanding
Other - - - - - - 345.4 345.4
liabilities
Shareholders' - - - - - - 300.5 300.5
funds
Total 611.2 68.7 173.2 111.0 144.3 1,108.4 645.9 1,754.3
liabilities
As at 30 June 2009 the Group's share of the aggregate gross assets
and liabilities of the 2002 open year of Syndicates 1007 and 1241 was
£357.6 million (30 June 2008: £393.4 million, 31 December 2008:
£452.4 million).
3) Seasonality of interim operations
Within a financial year, the Group's underwriting income is not
recognised on a straight line basis. This is due to a number of
factors.
Gross written premium is recognised on the inception of an insurance
contract. For many classes of business these have historically been
weighted towards the first half of the year.
Certain of the Group's underwriting units (primarily property
reinsurance and energy) are exposed to major risk events, such as US
windstorms. The US hurricane season runs from May to November, which
means that the Group may experience large losses in the second half
of the year. Conversely, in years without a major event, the loss
ratio is likely to be lower in the second half.
Premium revenue is earned separately for each insurance contract in
line with the risk exposure profile. This means that for catastrophe
exposed contracts, the majority of income is recognised in the second
half of the year.
Movements in foreign exchange rates also affect seasonality. This
effect is accentuated as the Group's catastrophe exposed units
primarily transact business in US dollars.
This seasonality can be demonstrated by reviewing Novae's key
metrics:
Gross written premium Claims ratio Net premium revenue
H1 H2 Total H1 H2 Total H1 H2 Total
£m £m £m % % % £m £m £m
2005 129.2 115.1 244.3 35.3 93.2 69.4 111.4 159.2 270.6
2006 146.6 134.6 281.2 53.0 39.0 46.3 114.8 106.0 220.8
2007 173.3 159.7 333.0 47.7 58.3 53.7 96.8 124.2 221.0
2008 186.0 163.0 349.0 51.9 76.6 64.6 125.9 132.5 258.4
4) Premium revenue
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
£m £m £m
Gross written premium 220.3 186.0 349.0
Change in the gross provision for (20.4) (23.3) (3.3)
unearned premiums
Gross premium revenue 199.9 162.7 345.7
Outward reinsurance premiums (78.2) (59.2) (90.8)
Change in reinsurers' share of 23.7 22.4 3.5
provision for unearned premiums
Premium ceded to reinsurers (54.5) (36.8) (87.3)
Net premium revenue 145.4 125.9 258.4
5) Investment income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
£m £m £m
Interest income on fair value 11.5 21.7 44.1
through
profit and loss assets
Net fair value (losses)/gains (0.3) (0.7) 6.5
Investment management expenses (0.3) (0.3) (0.6)
10.9 20.7 50.0
6) Operating expenses
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
£m £m £m
Underwriting expenses 17.0 15.2 30.7
Distribution company expenses 1.3 - -
Central expenses 7.2 12.4 23.6
Foreign exchange losses/(gains) 18.9 2.0 (22.3)
(see
note 7)
44.4 29.6 32.0
The increase in other income and consequent increase in distribution
company expenses are due to changes made on certain underwriting
classes whereby the distribution company now charges commission to
the Group's syndicate and incurs the associated expenses.
7) Foreign exchange
The net foreign exchange gains and losses for the period comprise the
following amounts:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
£m £m £m
Foreign exchange (losses)/gains (2.5) (1.5) 9.4
(excluding non-monetary items)
Foreign exchange (losses)/gains (16.4) (0.5) 12.9
on non-monetary items
Net foreign exchange (18.9) (2.0) 22.3
(losses)/gains
Foreign exchange movements are included within operating expenses
(see note 6). Foreign exchange movements on non-monetary items are
highlighted on the face of the statement of comprehensive income.
Principal exchange rates applied are as follows:
Six months ended Six months ended Year ended
30 June 2009 30 June 2008 31 December 2008
Period Period Period Period Year Year
average end average end average end
US dollar 1.50 1.65 1.98 1.99 1.85 1.44
Euro 1.12 1.17 1.29 1.26 1.26 1.03
Canadian dollar 1.80 1.91 1.99 2.02 1.96 1.77
8) Financing (credit)/costs
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
£m £m £m
Cost of 2017 subordinated notes 3.8 4.4 8.8
Cost of 2034 loan notes 0.7 0.9 1.8
Other financing 0.2 0.1 0.2
Cost of 2008 convertible bond - 0.5 0.8
Reinsurer letter of credit cost - 0.4 0.8
4.7 6.3 12.4
Less: gain on purchase and (7.7) - (2.8)
cancellation of 2017 subordinated
notes (see note 16(d))
(3.0) 6.3 9.6
9) Income taxes
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
£m £m £m
Current tax expense:
Current period 1.3 - -
Adjustments for prior years - - -
Total current tax 1.3 - -
Deferred tax (see note 11):
Effect of tax losses utilised (9.3) 0.9 3.1
Total income tax (credit)/expense (8.0) 0.9 3.1
Reconciliation of effective tax
rate:
(Loss)/profit before income taxes (18.5) 16.3 40.2
Income tax at the standard UK (5.2) 4.7 11.5
corporation
tax rate (28%) (June 2008: 29%;
December 2008: 28.5%)
Effect of disallowable (10.2) (0.6) (2.1)
expenditure/timing
differences
Effect of tax losses de- 7.4 (3.2) (6.3)
recognised/(recognised)
(8.0) 0.9 3.1
The future tax charge is dependent on the Group's ability to utilise
past tax losses.
10) Losses/earnings, net assets and net tangible assets per share
Basic losses per share
The calculation of losses per share of 14.6p (June 2008: earnings of
21.4p; December 2008: earnings of 51.7p) is based on a loss
attributable to equity shareholders of the parent company of £10.5
million (June 2008: profit of £15.4 million; December 2008: profit of
£37.1 million) and on 71.9 million shares (June 2008: 71.9 million
shares; December 2008: 71.7 million shares), being the weighted
average number of shares in issue (excluding shares held by the
Employee Benefit Trust which are earmarked for the Group's Long Term
Incentive Plan ("LTIP") and deferred bonuses payable in shares)
during the period ended 30 June 2009.
Diluted losses per share
Diluted losses per share are calculated adjusting the weighted
average number of shares outstanding to assume conversion of all
potentially dilutive shares. Novae Group has two sources of
potentially dilutive shares: share options and LTIP awards/deferred
bonuses payable in shares. For share options, a calculation is made
to determine the number of shares that could have been acquired at
fair value (determined at the average annual market share price)
based on the monetary value of the subscription rights attached to
outstanding share options. For LTIP awards and deferred bonuses
payable in shares, the number of potential shares is calculated with
reference to the current date as though it were the vesting date,
excluding shares held by the Employee Benefit Trust earmarked for
these awards.
For the six months ended 30 June 2009 and the year ended 31 December
2008, share options are not considered to have any dilutive effect as
the average market share price during these periods did not exceed
the exercise price.
Six months Six months Year
ended ended ended
30 June 2009 30 June 31 December
2008 2008
£m £m £m
(Loss)/profit used to determine (10.5) 15.4 37.1
diluted
earnings per share
Weighted average number of shares 71.9 71.9 71.7
in
issue (millions) excluding
treasury shares
Adjustments for:
- share options (millions) - - -
- LTIPs and deferred bonuses 2.0 2.2 2.1
payable in
shares (millions)
Weighted average number of shares 73.9 74.1 73.8
for
diluted earnings per share
Diluted (losses)/earnings per (14.6)p 20.8p 50.2p
share (pence per share)
The dilutive impact on shares is excluded when it decreases the loss
per share in accordance with IAS 33 Earnings per share.
Net assets and net tangible assets per share
Net assets and net tangible assets per share are calculated on the
number of shares in issue (excluding shares held by the Employee
Benefit Trust which are earmarked for the Group's LTIPs and deferred
bonuses payable in shares) at 30 June 2009.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
£m £m £m
Net assets 279.7 279.4 300.5
Intangible assets (10.4) (6.0) (6.5)
Net tangible assets 269.3 273.4 294.0
Number of shares in issue 71.9 71.7 71.5
(millions) excluding treasury
shares
Net asset value per share 389.0p 389.6p 420.0p
Net tangible asset value per share 374.6p 381.2p 410.8p
11) Deferred tax
30 June 30 June 31 December
2009 2008 2008
£m £m £m
Recognised deferred tax assets
Temporary differences 2.4 1.5 2.1
Underwriting profits earned and taxed in (3.7) (22.8) (27.4)
future periods
Unutilised tax losses 30.8 43.7 45.5
29.5 22.4 20.2
Unrecognised deferred tax assets
Trading losses - 28% (2008: 28%) of gross 24.5 16.9 17.1
unrecognised losses
Deferred tax assets amounting to £24.5 million have not been
recognised in respect of losses because of the uncertainty that
future taxable profit will be available against which the Group can
utilise the benefits therefrom in the foreseeable future. Future
projected utilisation of the asset has been measured by reference to
the Group's relevant projected profit.
The Group also has accumulated gross capital losses of £45.8 million.
No asset has been recognised in respect of these losses.
12) Financial assets
30 June 30 June 31 December
2009 2008 2008
£m £m £m
Fixed interest securities 642.1 559.8 477.9
Equities 0.3 0.4 0.4
642.4 560.2 478.3
Financial assets comprise:
Syndicate 293.2 254.5 216.8
Corporate 349.2 305.7 261.5
642.4 560.2 478.3
All financial assets are listed and they are all held at fair value
through profit or loss.
13) Reinsurance contracts
30 June 30 June 31 December
2009 2008 2008
£m £m £m
Reinsurance contracts 421.2 358.1 410.2
Less: reinsurers' share of provisions for (55.3) (48.2) (29.1)
unearned premium
Reinsurers' share of claims outstanding 365.9 309.9 381.1
Less: reinsurers' share of provision for (97.4) (64.2) (83.5)
losses incurred but not reported ("IBNR")
Balance 268.5 245.7 297.6
Being:
Recoveries on claims notified not yet due 272.4 249.5 301.8
Provision for bad debt (3.9) (3.8) (4.2)
Net recoveries on claims notified not yet 268.5 245.7 297.6
due
14) Cash and cash equivalents
30 June 30 June 31 December
2009 2008 2008
£m £m £m
Cash 289.2 326.6 546.1
Overseas deposits 79.5 64.7 76.4
368.7 391.3 622.5
Of the total cash and cash equivalents £291.0 million (June 2008:
£266.3 million; December 2008: £444.8 million) is held by the
syndicates in Premium Trust Funds to meet policyholder liabilities
and £1.8 million (June 2008: £3.5 million; December 2008: £3.0
million) is held by Novae's service company subsidiary on behalf of
policyholders.
No cash and cash equivalents are held in segregated accounts as
security for bank cash collateralised letters of credit (June 2008
and December 2008: £20.0 million).
15) Insurance contract liabilities
30 June
2009
£m £m £m
Gross Reinsurance Net
Unearned premiums 200.6 55.3 145.3
IBNR 345.2 97.4 247.8
Notified claims 695.2 268.5 426.7
Total insurance liabilities 1,241.0 421.2 819.8
30 June
2008
£m £m £m
Gross Reinsurance Net
Unearned premiums 182.4 48.2 134.2
IBNR 290.8 64.2 226.6
Notified claims 624.8 245.7 379.1
Total insurance liabilities 1,098.0 358.1 739.9
31 December
2008
£m £m £m
Gross Reinsurance Net
Unearned premiums 168.9 29.1 139.8
IBNR 333.1 83.5 249.6
Notified claims 775.3 297.6 477.7
Total insurance liabilities 1,277.3 410.2 867.1
16) Financial liabilities
(a) Convertible debt
Novae Holdings Limited issued 500,000 7% £100 convertible bonds at a
nominal value of £50.0 million on 15 December 2003. On 18 May 2006
the liability due on these bonds was transferred to Novae Group plc.
On 7 November 2007 Novae Group plc announced its intention to acquire
the convertible bonds for cancellation. At the maturity date £46.0
million (30 June 2008: £42.2 million) had been bought at par value
plus accrued interest and cancelled. The remaining £4.0 million
matured on 15 December 2008. The bonds could have been converted into
shares at the holder's option at the rate of one ordinary share per
556.6p (nominal value) of convertible debt at any time until 9
December 2008. No bonds were converted.
(b) Loan notes
During 2004 the Group issued $36.0 million of 30 year floating rate
notes and floating rate subordinated notes in three tranches. The
notes constitute direct and unsecured obligations of the issuer. The
notes are listed on the Irish Stock Exchange. The earliest redemption
dates are 15 August 2009 ($26 million) and 19 November 2009 ($10
million).
(c) Revolving credit facility
Novae Group has available a revolving credit facility from one of its
banks of £20.0 million, none of which was drawn at 30 June 2009 (June
2008 and December 2008: none).
(d) Subordinated notes
1,000,000 fixed/floating rate subordinated notes at a nominal value
of £100.0 million were issued on 27 April 2007. The notes are listed
on the London Stock Exchange. The notes are callable at par on 27
April 2012 and bear an initial interest rate of 8.375% per annum.
Following the call date the interest rate resets at a step up of 313
basis points above the original three month sterling LIBOR equivalent
spread until the notes fall due on 27 April 2017.
At 30 June 2009 £30.0 million (June 2008: nil; December 2008: £9.0
million) (nominal value) had been bought at market value of £19.0
million plus accrued interest and cancelled (June 2008: nil; December
2008: £6.0 million). The resulting gain during the six months ended
30 June 2009 of £7.7 million (stated after unamortised issue costs
and discount of £0.3 million) has been deducted from finance costs
(year ended 31 December 2008: gain of £2.8 million stated after costs
and discount of £0.2 million).
17) Share capital
Ordinary shares Preference shares
of £1 of £1
Number £ Number £
Authorised
31 December 2008 and 30 349,950,000 349,950,000 50,000 50,000
June 2009
Issued and fully paid
31 December 2008 and 30 73,221,346 73,221,346 - -
June 2009
18) Dividends per share
Six months Six months Year
ended ended ended
30 June 30 June 31December
2009 2008 2008
£m £m £m
Interim dividend for the year ended - - 1.8
31 December 2008 of
2.5p per share
Final dividend for the year ended 31 - 5.4 5.4
December 2007 of 7.5p per share
Special dividend of 4.0p per share 2.9 - -
Final dividend for the year ended 31 5.4 - -
December 2008 of 7.5p per share
8.3 5.4 7.2
A final dividend of 7.5p per ordinary share and a special dividend of
4.0p per ordinary share were paid on 7 May 2009. An interim dividend
of 3.0p (2008: 2.5p) per ordinary share is payable on 5 October 2009
to shareholders registered on 11 September 2009. This interim report
does not provide for the interim dividend as a liability.
19) 2005 LTIP - vesting conditions
The 2005 LTIP was approved by shareholders on 12 January 2006. Under
the 2005 LTIP awards were made in January 2006 ("Initial Awards") and
January 2007 ("Second Year Awards"). Under the terms of the 2005
LTIP, progress towards vesting must be reported in each annual and
interim report.
As disclosed in the 2008 annual report, all awards under the 2005
LTIP have met their vesting conditions. The Initial Awards were
released in March 2009 and the Second Year Awards will be released in
March 2010 (their respective third anniversaries).
Independent review report to Novae Group plc
Introduction
We have been engaged by the Company to review the condensed set of
financial statements in the half-yearly financial report for the six
months ended 30 June 2009 which comprises a condensed consolidated
statement of comprehensive income, condensed consolidated balance
sheet, condensed consolidated statement of changes in equity,
condensed consolidated cash flow statement and the related
explanatory notes. We have read the other information contained in
the half-yearly financial report and considered whether it contains
any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the Company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the Disclosure and Transparency Rules ("the DTR") of
the UK's Financial Services Authority ("the UK FSA"). Our review has
been undertaken so that we might state to the Company those matters
we are required to state to it in this 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 reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the half-yearly financial report in accordance with the DTR
of the UK FSA.
As disclosed, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the EU. The condensed
set of financial statements included in this half-yearly financial
report has been prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the
condensed set of financial statements in the half-yearly financial
report based on our review.
Scope of review
We conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity issued
by the Auditing Practices Board for use in the UK. A review of
interim financial information consists of making enquiries, primarily
of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us
to believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2009 is
not prepared, in all material respects, in accordance with IAS 34 as
adopted by the EU and the DTR of the UK FSA.
Rees Aronson
For and behalf of KPMG Audit Plc
Chartered Accountants
8 Salisbury Square
London
EC4Y 8BB
30 July 2009
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