Novae Group plc

          Return on capital targets and capital deployment

Novae Group plc ("Novae" or "the Group") today announces the outcome
of an appraisal of its return on capital targets, together with
related implications for its deployment of capital.

Highlights

The Board has

*          set an objective for a post-tax cross cycle return on
  equity of 13-15% assuming normal market experience

*          identified the current return on equity constraints within
  the Group

*          set out actions and timings to deal with those constraints
  and meet the Board's return targets

Objectives, actions and timing

The Board has set an objective that the Group should earn a post-tax
cross cycle return on equity of 13-15% assuming normal market
experience.  The Board has agreed a series of specific actions that
will be taken, starting immediately, to optimise Novae's returns.
These are:

*          Redeployment of the surplus capital within NICL. This will
  be achieved by:
o        renewing business currently underwritten by NICL into the
Group's Lloyd's business
o        NICL's in-force policies, subject to regulatory and court
approval, will either be transferred to the Group's Lloyd's business
or run-off. This business transfer process is expected to be
substantially complete during 2010
The restructuring is expected to release a substantial element of the
£60 million of surplus capital held by NICL, which will then be
available for deployment in underwriting elsewhere in the Group or
will be returned to shareholders. The Board has agreed that any
consequential return of capital will be announced before the end of
2010, subject inter alia to regulatory consent. Taken together these
steps would potentially improve post-tax returns by up to 3%

*          The Group has already announced an increase in its
  underwriting risk appetite as measured by its "Willingness To Lose"
  ("WTL").  WTL is the maximum exposure considered acceptable from
  specific, modelled events.  More recently, the Group has made
  progress in its continuing objective of reducing its reinsurance
  spend, as outlined in the 2008 annual report. This is consistent
  with a rise in risk appetite as capital constraints and
  inefficiencies are eased across the Group. The financial effects of
  a lower reinsurance spend relative to gross written premiums will
  be apparent in 2010 when, assuming normal loss experience, they are
  expected to improve post-tax returns by around 2%

*          Pre-tax savings in structural and organisational costs as
  a result of these measures of not less than £2 million (on an
  annualised basis), beginning in 2010.  The benefits of these
  measures are expected to add around 1% to post-tax returns by 2011

*          The continuing pursuit of a transactional solution under
  which a third party would assume financial responsibility for the
  run off of the 2002 and prior underwriting.  The Board has
  specifically not placed a timeline on such a transaction to avoid
  limiting its negotiating flexibility. This would potentially
  improve post-tax returns by up to 2%, subject to terms

The Board, following its review, is committed to delivering its
objective of enhancing return on equity for Novae's shareholders.
When taken together these measures offer potential improvements in
the Group's return on equity of up to 8%.

Background

In August 2001 Novae announced a reserving shortfall in its US
liability business. In 2003, following repeated reserve
deterioration, the current management team was appointed to stabilise
and rehabilitate the business.

In 2004 the Group reorganised its legacy US liability underwriting
into a dedicated run-off entity known as the Discontinued Business
Unit ("DBU").  An exceptional provision was established to absorb
possible further reserve deterioration from the DBU.

Since 2004, the DBU has run off within the provision and has achieved
its objective of allowing the performance of Novae's continuing
business to be assessed with less distortion from legacy
underwriting. However, the run-off of the 2002 and prior business
continues to require solvency capital. This is currently around £40
million, which inevitably acts as a drag on Novae's return on
equity.

By early 2006 Novae's legacy business was stabilising but, following
market losses from the 2005 US windstorm season, the Board concluded
that the Group at that time was too thinly capitalised to exploit the
prevailing market opportunities.  In addition, the Board believed
that the opportunities presented by UK SME business could best be
addressed by the formation of Novae Insurance Company Limited
("NICL"), a stand-alone FSA-regulated insurance company operating
outside the Lloyd's marketplace.

As a result, in March 2006, Novae announced a rights issue to finance
the capitalisation of NICL, which commenced trading on 1 July.  From
a Group perspective, the capitalisation of NICL also allowed Novae to
move forward with a significantly more robust consolidated balance
sheet.

Rating and investment environment

The operating environment is largely determined by a combination of
insurance pricing, interest rates and the rating agency and
regulatory background.

Since the 2006 rights issue the pricing environment for liability
business, an important part of Novae's business mix, has weakened.
The rating environment softened in each of 2007 and 2008 and, despite
concerns about rate adequacy and historically unprecedented low
interest rates, pricing in many areas has not improved materially
during 2009.  Across the market recession-related claims on business
written in 2007 and 2008 have not yet fully emerged, further reducing
to date the market's need to react and price such business
realistically.

Under these circumstances, consistent with its disciplined policy of
avoiding writing for income if the terms are unattractive and margins
inadequate, the Group has taken a deliberate policy that NICL should
leave capital undeployed during the last three years.  This has
preserved capital but has exerted a consequential drag on the Group's
return on equity.

As a result of this underwriting philosophy, NICL's shareholders'
funds of £105.4 million (as at 30 June 2009, unaudited) are
significantly greater than its 2009 regulatory capital requirement of
some £40 million. NICL therefore has over £60 million of capital not
directly deployed in underwriting on behalf of the Group.

NICL's ability to grow premium income is further constrained by the
need to satisfy rating agency capital requirements.  In the period
since NICL's formation rating agencies have become more demanding in
their credit assessment process.  In particular, and of disadvantage
to NICL, rating agency models can have the effect of discouraging
rapid organic premium growth in the early stages of an insurance
company's life. Furthermore, adding established books of business
into a young insurance company can have the effect of extending the
period of capital loading that otherwise applies for the first five
years of operation.

Operating within a weak rating environment, with low interest rates,
and against a more challenging rating agency background, NICL's
ability to generate an appropriate return in the early years of its
life has been especially constrained.

Elements of the capital restructuring

Given the recent market and rating background described above, and
conscious of the constraints imposed by non-productive capital in
both the Lloyd's business and in NICL, the Board has been focussed on
the objective of improving return on equity (defined as profit after
tax divided by shareholders' funds).  In summary, there are various
reasons why Novae's return on equity has lagged that of its listed
peer group:

*          Unproductive capital is trapped in the Lloyd's business;
  around £40 million is required to support the run off of the 2002
  and prior underwriting

*          £60 million of capital remains undeployed in NICL,
  reflecting unattractive rating for much of the last three years
  and, more recently, rating agency constraints on growing premium
  income as opportunities arise

*          As a result, over 35% of the Group's shareholders' funds
  (of £279.7 million as at 30 June 2009) are constrained from being
  deployed productively

*          With this degree of capital constraint, the Group's
  overall risk appetite is compelled to be lower, in case short-term
  losses should further impair capital flexibility.  This in turn
  drives up the Group's reinsurance spend, further restricting
  potential return

The Group's average annual post-tax return on equity over the period
between 1 January 2006 and 30 June 2009 has been approximately 8%.
Over the same period the members of its listed peer group, excluding
businesses with a high exposure to property catastrophe business,
have generated average annual post-tax returns on equity of around
14%. The formation of Novae Re earlier this year began the process of
better deploying the Group's capital, but structural change is
required in order fully to combat the differential.

Disclaimer

The financial information contained in this statement is based on
unaudited management information.  Certain statements made herein are
forward-looking. They are based on current expectations and are
subject to a number of risks and uncertainties that could cause
actual events, results or outcomes to differ materially from any
expected future events, results or outcomes referred to in these
forward-looking statements.

For further information:

Matthew Fosh      -   Novae Group plc           020 7903 7300
Nick Miles             -   M:Communications      020 7920 2330

A meeting will be held at 11.00am on Monday, 7 December at the
Group's offices at 71, Fenchurch Street, EC3M 4HH to provide sell
side analysts with a strategy and trading update.

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