GOSHAWK INSURANCE HOLDINGS PLC
Interim Report 2008
CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT
Summary
The period under review has seen the realisation of all the work undertaken
since November 2005. Most significant by far has been the announcement on 20
June 2008 of the recommended offer for the company by Enstar Acquisitions
Limited ("Enstar"). Also significant has been the completion of a number of
commutations at a saving against carried reserves and confirmation that some of
the deferred payment for the sale of Goshawk Dedicated (No.2) Limited ("GD2")
is eligible for release from escrow to the company.
The offer by Enstar
The offer by Enstar valued each of the company's shares at 5.2p, or
approximately �45.7m for the issued share capital of the company, and
represented a 37% per annum internal rate of return for those who subscribed to
the 2006 rights issue at 3.0p per share. The offer became unconditional on 25
July 2008 when Enstar announced that they had acquired, agreed to acquire and
had acceptances of the offer of approximately 51.2% of the issued share
capital. At the time of the first closing of the offer on 4 August 2008, Enstar
had received acceptances for a total of 82.7%.and therefore had the right to
request the company to apply to de-list its shares which it did on 5 August
2008. The shares will no longer be publicly traded from 3 September 2008. The
offer closed on 19 August 2008 with the total acceptances of approximately
89.4%.
As directors we are very pleased with the outcome. At the end of 2005 we took
on a very vulnerable company and sought initially to stabilise the balance
sheet then realise any value within it. We believe that the sale vindicates
this approach and offers a realistic outcome for shareholders. A key plank to
achieving success has been the close working relationship we have had with our
key stakeholders, particularly our largest shareholder, the lending banks and
the board of Rosemont Re, and we would like to take this opportunity to thank
them all for their professional and patient support for our plan. Whilst it is
inevitable that companies do get into trouble from time to time we believe this
demonstrates how key stakeholders can work together to resolve a difficult
situation.
At Enstar's request on 11 August 2008 the company appointed three Enstar
directors and gave notice to the three non-Enstar directors. Accordingly this
is likely to be our last communication to shareholders and we would like to
thank them for the support they have given.
Review of the period
The group has declared a post tax profit of $7.3m for the period ended 30 June
2008 (2007: $1.7m) which equates to a profit per share of 1 c (2007: 0c). The
constituents of this profit are a $7.1 m profit at Rosemont Re and a $0.2m
profit within the rest of the group.
In the case of the $7.1 m profit at Rosemont Re the main contributor was
savings made against the reserves carried on a number of commuted contracts
resulting in a net release of $9.0m for net losses and loss adjustment
expenses. However, reducing cash balances and the large fall of US interest
rates has meant that other income has been exceeded by other expenses by $1.9m.
For the rest of the group the profit of $0.2m has stemmed from the recognition
of further income from the sale of GD2 of $3.8m offset by finance costs of
$0.8m and general and administrative expenses of $2.8m.
Net premiums earned have fallen by $0.9m from $1.7m to $0.8m due to a reduction
of gross premiums earned of $1.3m offset by a fall of reinsurance premiums
ceded of $0.4m. In both cases the movements represent small adjustments to
existing contracts.
Investment income for the period fell from $5.6m to $3.3m representing a fall
in the annualised yield from 5.2% on average cash balances of $216.4m to 3.3%
on average cash balances of $197.1 m. Having taken the decision to prioritise
liquidity over return and keep all fixed deposits at 90 days or less, this fall
is consistent with the fall of the average Federal Reserve rate from 5.25% for
the comparative period to 2.75% for the period under review.
Other income has risen from $1.5m to $3.8m entirely due to GD2. The movement is
a combination of further receipts into escrow along with a reduction of the
provision against non-recovery following confirmation that some of the escrow
balance is now eligible for release.
Net losses and loss adjustment expenses made a significant contribution with a
profit of $9.0m against $0.6m for the comparative period. The key factor has
been savings against the reserves carried on a number of contracts commuted in
the second quarter.
Despite the fall in gross premiums earned the net acquisition expenses have
increased from $0.5m to $1.6m. This is a result of the savings discussed above
as a result of which additional contingent profit commissions are due.
General and administrative expenses have increased from $6.7m to $7.4m and
would have fallen but for the $1.8m charge for the retention and incentive
award provision that did not apply for the comparative period. This award
allocates 15% of any value added since the rights issue to directors,
management and the key outsource provider and was first charged in the accounts
for the year ended 31 December 2007, when a provision of $0.6m was recognised.
Finance costs were similar to the prior period, but will increase for the
second half of the year as an additional rate of 12.5% interest applies on the
bank loans from 1 May 2008.
The result of the above has been to increase the net asset value at 30 June
2008 to $79.3m, or 9c per share, from $71.8m at 31 December 2007.
Arbitration
The issue discussed in the last published report remains outstanding. Last
year, Rosemont Re had to issue arbitration proceedings against one of its
reinsurers that had failed to settle $12.7m of billed losses recoverable, net
of related reinsurance premiums payable. Losses and loss adjustment expenses
recoverable include a further $1.6m of balances that will become due for
settlement giving a total at risk of $14.3m.
Management continues to believe that the reinsurer's position is without merit
and is aggressively pursuing the arbitration for full recovery of the amounts
due plus interest and costs. An adverse award from the arbitration would be
material to the group.
Outlook
Since the end of the period under review the bank loan has been refinanced by
Enstar with a member of the Enstar group. Other than the loan refinancing there
have been no material changes in the related party transactions described in
the last annual report.
There are a number of potential risks and uncertainties which would have a
material impact on performance over the remaining six months of the financial
year and would cause actual results to differ materially from expected and
historical results. The key risk is around reserving and details of this are
given in note 12. Further information on the principle long-term risks and
uncertainties are included in our latest annual report.
The plan prior to Enstar's offer was to implement a scheme of arrangement
whereby a formal process would be undertaken, supervised by the Court of
Bermuda, to fairly settle liabilities. This has been put on hold pending the
transfer to new management. Accordingly it is less certain than before when and
if any distributions may be made.
Rory Macnamara Michael Dawson
Chairman Chief executive
27 August 2008
RESPONSIBILITY STATEMENT OF THE DIRECTORS
FOR THE SIX MONTHS ENDED 30 JUNE 2008
We confirm that to the best of our knowledge:
* The condensed set of financial statements has been prepared in accordance
with IAS34 Interim Financial Reporting as adopted by the European Union;
*The interim report includes a fair review of the information required by:
a) DTR 4.2.7R 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; and
b) DTR 4.2.8R 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.
The board of directors represents those individuals responsible for the interim
report as listed below.
Rory Macnamara
Michael Dawson
Peter Dixon-Clarke
Stephen Aldous
Gareth Nokes
Alan Turner
Signed on behalf of the Board by
Peter Dixon-Clarke
Finance Director
27 August 2008
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTHS ENDED 30 JUNE 2008
Six months Six months Year ended
ended ended 31 December
30 June 30 June
2008 2007 2007
Unaudited Unaudited Audited
Notes $'000 $'000 $'000
Revenue 853 2,246 2,848
Gross premiums written
Change in unearned premiums reserve - - -
Gross premiums earned 853 2,246 2,848
Reinsurance premiums ceded (67) (509) (830)
Change in deferred premiums ceded - - -
Reinsurance premiums ceded (67) ( 509) (830)
Net premiums earned 786 1,737 2,018
Net investment income 3,254 5,579 11,854
Other income 5 3,750 1,537 5,084
Net foreign exchange gain 228 187 156
Total net revenues 8,018 9,040 19,112
Expenses 6 (9,010) (638) (6)
Net losses and loss adjustment expenses
Net acquisition expenses 1,596 473 1, 540
General and administrative expenses 7,354 6,679 12,618
Finance costs 754 844 1,371
Total expenses 694 7,358 15,523
Profit before tax 7,324 1,682 3,589
Income tax expense - - -
Net profit after tax arising from 7,324 1,682 3,589
continuing activities and attributable to
equity holders of the parent company
Earnings per share: basic and diluted - 9 1 - -
cents
Weighted average number of common shares 877,358,122 877,358,122 877,358,122
- basic and diluted
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT 30 JUNE 2008
Notes At 30 At 30 At 31
June June December
2008 2007 2007
Unaudited Unaudited Audited
$'000 $'000 $'000
Assets 28,199 75,491 44,386
Losses and loss adjustment expenses
recoverable
Reinsurance balances receivable 10,633 14,009 32,661
Other receivables 10 17,531 13,257 13,793
Accrued investment income 26 424 151
Prepaid expenses and other assets 154 1,279 179
Cash and cash equivalents 180,904 222,850 203,115
Total assets 237,447 327,310 294,285
Liabilities 110,858 223,451 166,811
Reserve for losses and loss adjustment
expenses
Reinsurance balances payable 23,821 8,624 32,326
Loans payable 11 16,001 18,760 16,107
Accounts payable and accrued liabilities 7,510 6,180 7,253
Total liabilities 158,190 257,015 222,497
Equity 28,922 28,922 28,922
Share capital
Share premium 307,489 307,489 307,489
Retained losses (257,154) (266,116) (264,623)
Equity 79,257 70,295 71,788
Total liabilities and equity 237,447 327,310 294,285
Net assets per share 9 8 8
M.G. Dawson Peter Dixon-Clarke
Chief executive Finance director
27 August 2008
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED 30 JUNE 2008
Six Six Year
months months ended
ended ended 31
30 June 30 June December
2008 2007 2007
Unaudited unaudited Audited
$'000 $'000 $'000
Share capital 28,922 28,922 28,922
Balance brought forward and carried forward
Share premium 307,489 307,489 307,489
Balance brought forward and carried forward
Retained losses (264,623) (268,813) (268,813)
Balance brought forward
Profit for the period 7,324 1,682 3,589
Currency translation differences recognised 145 1,015 601
directly in equity
Balance carried forward (257,154) (266,116) (264,623)
Total equity 79,257 70,295 71,788
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED) FOR THE SIX MONTHS ENDED
30 JUNE 2008
Six Six months Year ended
months ended 31 December
ended 30 June 2007
30 June 2007 Audited
2008
unaudited unaudited
$'000 $'000 $'000
Cash flows from operating activities 7,324 1,682 3,589
Net profit
Adjustments to reconcile net loss to cash 94 28 79
provided by operating activities:
Depreciation
Finance costs 754 844 1,371
Retention and incentive award provision 1,751 - 630
Other non-cash transactions 51 987 (109)
Changes in: 16,187 57,006 88,111
Losses and loss adjustment expenses
recoverable
Reinsurance balances receivable 22,028 (6,847) 23,025
Other receivables (3,738) 1,017 481
Accrued investment income 125 58 331
Prepaid expenses and other assets 25 (1,142) (42)
Reserve for losses and loss adjustment (55,953) (50,101) (106,741)
expenses
Reinsurance balances payable (8,505) (8,017) (32,839)
Accounts payable and accrued liabilities (1,494) (4,015) (2,942)
Cash utilised by operating activities (21,351) (8,500) (25,056)
Cash flows from investing activities - 1 1
Sale of assets
Cash provided by investing activities - 1 1
Cash flows to financing activities (860) (2,986) (6,165)
Repayment of credit facilities
Cash used in financing activities (860) (2,986) (6,165)
Net cash outflow (22,211) (11,485) (31,220)
Cash and cash equivalents brought forward 203,115 234,335 234,335
Cash and cash equivalents carried forward 180,904 222,850 203,115
NOTES TO THE CONDENSED INTERIM STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2008
1 Going concern
GoshawK Insurance Holdings plc (the "company") has no trading income and so has
only the residual proceeds of the 2006 rights issue and the anticipated
receipts from GD2 to provide working capital. Other than in respect of its UK
subsidiaries, the company cannot expect to receive distributions from within
the group because the statutory solvency of Rosemont Re, its principal
subsidiary, has fallen below the minimum level required of it by its regulator,
the Bermuda Monetary Authority ("BMA"), and therefore it will require specific
consent before making any distributions. There can be no certainty that the BMA
would agree to such a distribution.
For the year ended 31 December 2007 the independent actuary produced a range of
reserves for Rosemont Re. For the period ended 30 June 2008 the group has
provided net reserves of $83m (2007: $122m) which remains within the range of
ultimate losses produced by the actuary for the year ended 31 December 2007.
The range is provided in an attempt to quantify some of the uncertainty in
estimating ultimate losses and does not present the bounds of all possible
outcomes. Indeed, it is possible that the final cost to settle claims may still
be more than available capital resources. Any increases in the expected
ultimate cost of Rosemont Re's claims will reduce the likelihood of the BMA
agreeing to any return of capital prior to full run-off of all its outstanding
liabilities.
Furthermore, under the terms of the facility agreement renegotiated with
lenders on 23 August 2006, Rosemont Re is required to maintain a minimum level
of net assets. An increase of no more than 11.7%, or $13m, of the gross
liabilities (2007: $5.8m) of Rosemont Re at 30 June 2008 would cause the group
to breach its covenant.
Additional interest on the bank loans is payable at a rate of 12.5% on the
average principal amount outstanding for the period from 1 May 2008 to 30 April
2009. This increase is placing additional strain on group resources. On 13
August 2008 the loans were refinanced on materially the same terms, but without
charging group assets to the lender and giving the borrower the right to extend
for two years to 30 April 2011, subject to an extension fee equal to 2% flat of
the amount of the loan that would remain outstanding on 30 April 2009. The new
lender is Courtenay Holdings Limited, a subsidiary of the Enstar group and the
loan is made without security over any of the assets with the Goshawk group.
Despite the uncertainty arising from the above matters, and having considered
the likelihood of success of the possible options available, including if
necessary the sale of Rosemont Re, the directors are satisfied that the group
is currently a going concern and that the preparation of these statements on
that basis is appropriate.
If the interim statements had not been prepared on a going concern basis, it
would have been necessary to write down the assets of the group to a
recoverable amount. It would also be necessary to accrue for winding up costs.
The financial statements do not include any such adjustments.
2 Accounting policies
2.1 Group and its operations
GoshawK Insurance Holdings plc ("the company"), a public limited company
incorporated and domiciled in the United Kingdom ("UK"), together with its
subsidiaries (collectively, "the group") transacted reinsurance business
through its Bermuda based subsidiary Rosemont Reinsurance Ltd. ("Rosemont Re").
Through Rosemont Re, the group provided catastrophe reinsurance of property and
marine risks worldwide. As a result of the 2005 hurricane losses to Rosemont
Re, its subsequent credit rating downgrade and its inability to raise
additional capital or find a buyer, Rosemont Re was placed into run-off in
October 2005.
2.2 Basis of preparation
The annual financial statements of Goshawk Insurance Holdings plc are prepared
in accordance with IFRSs as adopted by the European Union. The condensed set of
financial statements included in this half-yearly financial report has been
prepared in accordance with International Accounting Standards 34 `Interim
Financial Reporting', as adopted by the European Union. The same accounting
policies, presentation and methods of computation are followed in the condensed
set of financial statements as applied in the Group's latest annual audited
financial statements.
The information for the year ended 31 December 2007 does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The auditors' report on those accounts was not qualified but
contained emphases of matter in relation to the uncertainty of the going
concern status of the group and the uncertainty of the ultimate cost of its
loss and loss adjustment expenses and associated reinsurance recoveries. It did
not contain statements under section 237(2) or (3) of the Companies Act 1985.
Items included in the financial statements of each of the group's entities are
measured in the currency of the primary economic environment in which that
entity operates (the "functional currency"). The consolidated financial
statements are stated in US Dollars, the functional and presentation currency,
and all values are rounded to the nearest thousand dollars ($'000), also stated
as `k' except when otherwise indicated.
3 Use of estimates, assumptions and judgements
The group makes estimates, assumptions and judgements that affect the reported
amounts of assets and liabilities. Estimates, assumptions and judgements are
continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable
under the circumstances. This applies particularly to reserving risk and is
covered in greater detail in note 12.
4 Segmental analysis
(a)Basis of segmentation
Business segments
The group's segments reflect the way the business is managed. Due to the size
of the losses at Rosemont Re in respect of catastrophes, these have been
separately analysed in the income statement within net losses and loss
adjustment expenses. All revenue and expenses are in respect of external
parties.
Geographical segments
The group has two geographical segments, being the UK and Bermuda. All of
Rosemont Re's management and decision making is undertaken in Bermuda and
almost all of the rest of the group's activity is undertaken in the UK. The
geographical segments are therefore consistent with the business segments, the
one exception being the finance costs which accrue to GoshawK Holdings
(Bermuda) Limited ("GHB") a Bermuda registered company and are presented
separately.
(b) Business segmental analysis Rosemont Re Other Total
Income statement for the six months ended 30 June
2008
$'000 $'000 $'000
Gross premiums written 853 - 853
Gross premiums earned 853 - 853
Net premiums earned 786 - 786
Other income 3,352 3,880 7,232
Total net revenues 4,138 3,880 8,018
Net losses and loss adjustment expenses (7,556) - (7,556)
- Catastrophes
- Other (1,454) - (1,454)
Finance costs - 754 754
Other expenses 6,072 2,878 8,950
Total expenses (2,938) 3,632 694
Net profit/(loss) before tax 7,076 248 7,324
(b) Business segmental analysis - continued Rosemont Re Other Total
Income statement for the six months ended 30 June $'000 $'000 $'000
2007
Gross premiums written 2,246 - 2,246
Gross premiums earned 2,246 - 2,246
Net premiums earned 1,737 - 1,737
Other income 5,331 1,972 7,303
Total net revenues 7,068 1,972 9,040
Net losses and loss adjustment expenses (1,500) - (1,500)
- Catastrophes
- Other 862 - 862
Finance costs - 844 844
Other expenses 5,754 1,398 7,152
Total expenses 5,116 2,242 7,358
Net profit/(loss) before tax 1,952 (270) 1,682
Income statement for the year ended 31 December Rosemont Other Total
2007 Re
$'000 $'000 $'000
Gross premiums written 2,848 - 2,848
Gross premiums earned 2,848 - 2,848
Net premiums earned 2,018 - 2,018
Other income 10,847 6,247 17,094
Total net revenues 12,865 6,247 19,112
Net losses and loss adjustment expenses 3,813 - 3,813
- Catastrophes
- Other (3,819) - (3,819)
Finance costs - 1,371 1,371
Other expenses 11,376 2,782 14,158
Total expenses 11,370 4,153 15,523
Net loss before tax 1,495 2,094 3,589
5 Other income Six months Six Year
months
ended ended 31
ended
30 June December
30 June
2008 2007
2007
$'000 $'000 $'000
Deferred income from sale of GD2 (see note 10) 3,750 208 3,830
War consortium commission - 1,329 1,233
Other - - 21
Total other income 3,750 1,537 5,084
6 Net losses and loss adjustment expenses Six months Six months Year ended
ended 30 ended 30 31
June June December
2008 2007 2007
$'000 $'000 $'000
Losses and loss adjustment expenses paid and 46,098 50,963 105,295
recovered
- Paid
- Recovered (15,231) (58,506) (86,377)
30,867 (7,543) 18,918
Movement in provisions (55,953) (49,994) (106,741)
- Losses and loss adjustment expenses
- Losses and loss adjustment expenses 16,187 57,006 88,111
recoverable
(39,766) 7,012 (18,630)
Effect of foreign exchange movement (111) (107) (294)
Total net losses and loss adjustment expenses (9,010) (638) (6)
7 General and administrative expenses Six months Six months Year ended
ended 30 ended 30 31 December
June June
2007
2008 2007
$'000 $'000 $'000
Legal and professional fees 1,257 936 2,265
Depreciation on equipment 94 28 79
Outsourced costs 1,989 2,671 4,835
Administrative expenses 782 1,450 1,421
Staff costs and other employee related 1,481 1,594 3,352
costs
Retention and incentive award provision 1,751 - 630
(see note 8)
Other - - 36
7,354 6,679 12,618
8 Retention and incentive award charge and provision Six months ended
30 June 2008 and at
30 June 2008
$'000
Net asset value at 30 June 2008 79,257
Net asset value at 31 December 2005 (28,685)
Funds invested 22 October 2006 (39,532)
Issue costs of funds invested 2,450
(65,767)
Add back charged in period to 30 June 2007 -
Add back charged in period to 31 December 2007 630
Add back charged in period to 30 June 2008 1,751
2,381
Increase in net asset value 15,871
15% of net asset value increase 2,381
At the time of the 2006 rights issue a bonus scheme was created to reward
directors, management and PRO Insurance Services Limited, the principle
outsource service provider, with an incentive based on the deemed value of the
group at the point of the rights issue. A provision was first made for this
scheme in the accounts for the year ended 31 December 2007 and discussed within
the remuneration report.
Since the period end, on 25 July 2008, the offer by Enstar of 5.2p for each of
the company's issued shares became unconditional. At that date the average rate
of exchange for GB� into US$ for the previous five days of trading was 1.9946,
valuing the offer at $91,234k. As 15% of $25,467k (being $91,234k less
$65,767k) is $3,820k, an additional charge of $1,439k for the second half of
the year ending 31 December 2008 is likely to be made. The $3,820K liability is
payable in GB� converted at the rate of 1.9946.
9 Basic and diluted earnings per share
Basic earnings per share amounts are calculated by dividing the net profit for
the period attributable to ordinary shareholders of the group by the weighted
average number of ordinary shares outstanding at the period end. The basic and
diluted earnings per share have been presented as being the same because the
warrants outstanding until 23 January 2008 were significantly below their
exercise price for both the current and prior periods and therefore would not
have been dilutive.
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2008 2007 2007
$'000 $'000 $'000
Basic and diluted earnings per share
Net profit after tax 7,324 1,682 3,589
Brought forward gross of EBT 879,620,395 879,620,395 879,620,395
Less held within EBT (2,262,273) (2,262,273) (2,262,273)
Carried forward net of EBT 877,358,122 877,358,122 877,358,122
Weighted average common shares 877,358,122 877,358,122 877,358,122
outstanding
Basic and diluted net profit per 1 - -
share - cents
10 Other receivables
At 30 June At 30 June At 31 December
2008 2007 2007
$'000 $'000 $'000
Sale of GD2 17,454 10,081 13,704
War consortium commission - 2,663 -
Other 77 513 89
17,531 13,257 13,793
Under the terms of the sale of GD2, all but �750k of the consideration was
deferred until the benefit of the transaction could be utilised by the
purchasers. As such benefit was expected to accrue in instalments over a period
of at least two years, it was agreed that as the purchasers utilised the
benefit so they would deposit a pre-agreed percentage of that benefit into
escrow.
The money cannot be released to the company from the escrow account until the
benefit to the purchasers has become unconditional. Technically the first
tranche of the two, or more, tranches could have been received in the first
quarter of 2008 and the second tranche in the first quarter of 2009 but the
first release is still outstanding at the time of this report, though receipt
is expected in September 2008.
At 30 June 2008 the receipts into escrow, after adjusting for the time value of
money based on when the asset is expected to be received along with the related
interest being earned on the balances, due to the company totalled $21,687k
(2007: $18,727k) against which a provision of $4,233k (2007: $5,023k) is
carried. The provision aims to reflect the risk of non-recovery and the costs
associated with making a recovery.
The other receivable arises through Goshawk Dedicated Limited, a 100% UK
subsidiary, that underwrote on a corporate name on syndicate 1101 which is now
in run-off and still has an open year.
11 Loans payable At 30 June At 30 At 31
June December
2008
2007 2007
$'000 $'000 $'000
Amounts repayable in: 16,001 - -
Less than one year
In more than one year but not more than two - 18,760 16,107
years
Total loans payable 16,001 18,760 16,107
On 1 January 2002 a letter of credit for �20m was provided by Barclays Bank
plc, in favour of Lloyd's in respect of the subsidiary companies of the company
underwriting as corporate members. The letter of credit was secured by a charge
over a �5m cash deposit, by a guarantee and a debenture from the company, and
all subsidiary companies with the exception of Rosemont Re and GoshawK Security
Insurance Limited, in respect of all the obligations of the group to the bank
relating to of the LOC. The guarantee was amended to restrict the liability of
GoshawK Syndicate Management Limited, a wholly owned subsidiary company, to
Barclays Bank plc to �50,000 under this and the Term Loan Facility described
below.
On 24 December 2002 Barclays Bank plc made available to the company a
syndicated term loan facility for $40m. The facility was secured by a guarantee
and a debenture over the company and all subsidiary companies, with the
exception of Rosemont Re and GoshawK Security Insurance Limited, in respect of
all the obligations of the company in respect of the facility. On 2 April 2003
Credit Lyonnais SA (now Calyon) joined the syndicate and made available a
further $25m. Two scheduled principal repayments on the term facility of $13m
were made in December 2003 and December 2004 but not the repayment scheduled
for December 2005 and therefore the $39m balance was consequently in default.
On 19 December 2003, following syndicate 102 being placed into run-off on 30
October 2003, the group reached agreement with Barclays Bank and Calyon to
restructure the letter of credit facility, whereby, in the event of a drawdown,
the obligation would be met through the conversion of the letter of credit into
a loan repayable in two equal annual instalments in 2008 and 2009. The group
made full provision against drawings by Lloyd's on the letters of credit at 31
December 2003.
On 6 August 2004, following a cash call by syndicate 102, the funds at Lloyd's
held under a covenant and charge by GoshawK Insurance Holdings plc to support
the underwriting of its corporate member subsidiaries were released in their
entirety to Lloyd's in settlement of the cash call. In addition the �20m letter
of credit facility was also drawn down by Lloyd's. The borrowing in respect of
the letter of credit was �15m, the balance of �5m having been collateralised
from the company's resources. Borrowings under the letter of credit were to be
repaid by not later than the end of 2009.
On 30 January 2006, following an application to the BMA, �15m was released by
Rosemont Re as a return of capital to repay the amount owing under the LOC
drawdown described above.
On 27 October 2006, following receipt of the funds from the rights issue
undertaken in 2006, �0.8m and $24.7m was repaid in fulfilment of one of the
conditions precedent contained within the renegotiated loan facility of 23
August 2006. Since then a number of repayments have been made following
receipts deemed `surplus cash' under the renegotiated loan agreement and these
are set out in the table below.
The loans are repayable on 30 April 2009. The group is required to make early
repayment at the end of each relevant year of any excess cash, being the amount
(if any) for each financial year by which forecast expenditure exceeds actual
and anticipated expenditure. The interest payable on the loans is payable at a
rate of 2% above the relevant London Inter-Bank Offered Rate. Additional
interest has become payable at a rate of 12.5% on the average principal amount
outstanding for the period from 1 May 2008 to 30 April 2009.
Following completion of the work by the independent actuary on the position at
31 December 2006, it became possible that Rosemont Re might breach the covenant
relating to its minimum level of net assets. After renegotiation, the covenant
was amended on 16 April 2007.
On 13 August 2008 the loans were refinanced by Courtenay Holdings Limited, a
company within the Enstar group, on materially the same terms other than the
ability by the borrower to extend the loan to 30 April 2011 and the agreement
to lend without taking security over any of the group's assets.
The narrative above can be summarised as At 30 June At 30 June
follows: 2008 2008
�'000 �'000
August 2004 � LOC facility drawn down 20,000
August 2004 � collateral drawn down (5,000)
January 2006 capital sum repaid (15,000)
October 2006 accrued interest 808
October 2006 repayment made to fulfil condition (808)
of renegotiated loan
Converted to US$ at period end rates - -
December 2002 $ term loan facility agreed with 40,000
Barclays
April 2003 Calyon join syndicate 25,000
December 2003 first scheduled repayment made (13,000)
December 2004 second schedule repayment made (13,000)
January 2006 working capital loan 1,000
August 2006 repayment (1,904)
October 2006 repayment made to fulfil condition (23,200)
of renegotiated loan
Accrued interest at 31 December 2006 6,065
Position at 31 December 2006 20,901
January 2007 repayment (789)
April 2007 repayment (2,197)
July 2007 repayment (784)
October 2007 repayment (2,395)
Additional accrued interest at 31 December 2007 1,371
Position at 31 December 2007 16,107
January 2008 repayment (860)
Additional accrued interest at 30 June 2008 754
Total loan payable 16,001
12 Reserving risk
The estimate of ultimate liabilities requires significant judgment and when
suitable the group commissions a report from an independent actuary. A report
has not been commissioned for the position at 30 June 2008, as the report at 31
December 2007 was still deemed sufficient. The following outlines the nature of
the significant judgments involved in establishing such estimates and certain
industry and company specific factors that further add to the complexity and
subjectivity of the reserving process:
i. The group's independent actuary projects current values for paid and
reported losses to their ultimate value using a number of alternative actuarial
methods that reflect historical paid and reported loss development experience
and, for some methods, an expectation of underwriting profitability independent
of actual loss experience. Rosemont Re was only in operation for 4 years and so
has very limited historical paid and reported loss development to serve as a
reliable basis for estimating ultimate losses. As such, the independent actuary
has to rely on industry loss experience for each line of business which may or
may not be fully representative of the business written by Rosemont Re.
Further, each estimation method may result in a materially different projection
of ultimate losses compared to another estimation method. The weights assigned
to each estimation method are judgmentally determined by the independent
actuary and will vary over time. Greater weight will be placed on Rosemont Re's
historical paid and reported loss experience in the future as that data becomes
more mature and reliable for making projections;
ii. Losses and loss adjustment expenses arising from Rosemont Re's catastrophe
exposures, in particular hurricanes Katrina, Rita and Wilma, are inherently
difficult to estimate because of the severity of the events, their relatively
recent occurrence and because, to a certain extent, the magnitude of such
events is unprecedented;
iii. Uncertainty in the catastrophe related reserve estimates is increased by
recent litigation in connection with hurricane Katrina. Such litigation relates
primarily to the interpretation of flood exclusion language in underlying
policies that cover property damage, although we are aware that there may be
other claims for bad faith, etc. So far, the awards have generally confirmed
the reliance on such exclusions, however, the courts have differentiated
between flood caused by the storm itself and "man made" flood as a result of
the poor construction of levees that failed to withstand the storm surge.
Further, the courts have often put the onus on the insurers to prove the
allocation of loss pertaining to wind vs flood. There is a further litigation
pending and, of course, all cases are subject to appeal. At this stage, it is
too early for Rosemont Re to determine the potential impact on its current
reserve for losses and loss adjustment expenses. The potential impact on
Rosemont Re's catastrophe reserve estimates is exacerbated by the fact that
substantially all of its reinsurance protection is exhausted;
iv. While the reserving process is difficult and subjective for insurance
companies, the inherent uncertainties of estimating such reserves are even
greater for reinsurers such as Rosemont Re due primarily to (a) the additional
lag in reporting loss information by the insurance company to their brokers and
onto the reinsurers (and possibly by those reinsurers to their own reinsurers);
(b) the necessary reliance on the ceding companies for information regarding
reported claims; (c) differing reserving practices among ceding companies; and
(d) the diversity of loss reporting and payment patterns among different types
of reinsurance contracts or lines of business;
v. Our long-tail lines of business include excess workers' compensation and
occupational accident risks and viatical exposures where specific losses may
not be reported for a considerable period of time and the final settlement of
the loss may take even longer, in some cases in excess of 20 years after the
loss event;
vi. Inherent in the estimates of ultimate losses are expected trends in claim
severity and frequency and other factors which could vary significantly as
claims are settled. Our long-tail business lines have extended loss settlement
periods and so additional facts regarding claims will become known and
circumstances may change throughout such period; for example, changing
government regulations, newly identified toxins, newly reported claims, new
theories of liability, new contract interpretations and other factors could
significantly affect future loss emergence and the ultimate costs of settling
claims;
vii. Rosemont Re is engaged in several ongoing disputes with ceding companies
in the normal course of business. Rosemont Re continues to reserve for losses
and loss adjustment expenses on all disputed contracts without regard to the
possibility of a favourable outcome. However, the uncertainty surrounding such
estimates is increased by the fact that Rosemont Re may not have received
current loss information from the ceding company during the period of the
dispute and may not have had the opportunity to audit or otherwise review the
reliability of such reported information.
The group recognises reinsurance recoveries when the associated loss is
incurred. Rosemont Re has recorded amounts recoverable from reinsurers of
$28.2m (2007: $44.4m) at 30 June 2008. Such amounts are calculated in a manner
consistent with the underlying liabilities. Rosemont Re remains liable to the
extent that the reinsurance companies fail to meet their obligations and so
allowances are established for amounts deemed uncollectible. Rosemont Re
regularly evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk to minimise its exposure to significant losses
from reinsurer insolvencies.
While the group has recorded its current `best estimate' of its liabilities for
unpaid losses and loss adjustment expenses, it is reasonably possible that
these estimated liabilities may increase or decrease in the future and that the
increase or decrease may be material to the results of operations and the
solvency position of Rosemont Re. Adjustments to the amounts of the provisions
are recorded in the year in which they are determined.
Having reviewed all the lines of business, the independent actuary provides a
best estimate, on which the group bases its reserves, of the likely ultimate
cost of the portfolio. The group considers a `best estimate' to be one that has
an equal likelihood of developing a redundancy or deficiency as the loss
experience matures. The independent actuary also develops a range of estimated
ultimate losses as well as a best estimate for each program or line of business
and selects a low estimate and a high estimate for the total book of business
after allowing for potential diversification effects across various lines of
business. In the case of Rosemont Re the most recent exercise was based on the
position as at 31 December 2007 and at that point the resulting low and high
estimates were $25m below and $18m above the group net reserves at 31 December
2007 of $122m (2007: $141 m). The range of estimated liabilities is provided in
an attempt to quantify some of the uncertainty in estimating ultimate losses
and does not present the bounds of all possible outcomes.
In respect of the US hurricanes at 31 December 2007, each 1% of deterioration
in the group reserves was expected to cost the group about $0.9m (2007: $1.7m)
on a gross basis and because the reinsurance in place is largely eroded by the
current reserves, any future deterioration is likely to result in a direct
reduction of group net asset value as though gross equated to net.
There are further reserves established for the legacy issues underwritten prior
to 1 January 2004 including a number of material contracts such as reinsurances
of SCPIE, Harco (primarily bail bonds), Everest Re (a qualifying quota-share
reinsurance of the prior managed Syndicate 102) and RMG (workers compensation).
The biggest of these is the Southern California Physicians Insurance Exchange
("SCPIE") which had sought to portfolio transfer their non-core writings to
another carrier. Whilst careful analysis has been undertaken to assess the
likely level of loss ultimately sustained, any of these legacy issues have the
potential for further deterioration. A 10% deterioration in the other reserves
set at 31 December 2007 would result in additional losses of $7.3m. There is no
certainty that any deterioration would be limited to this level or that only a
single contract would be found to be deficient in reserves.
Risk factors relating to the US hurricanes within the catastrophe reserves
The group adopts the following risk factors in analysing its exposures:
a) due to the complex nature of the claims expected to arise as a result of the
US hurricanes there can be no certainty as to the ultimate liabilities and
losses which will result to the group. It may be a number of years before the
precise nature and scale of the claims will be known;
b) the assumptions used may ultimately prove to be incorrect and/or the
methodology may prove to be inappropriate;
c) the full extent of business interruption losses which will be paid under
direct property policies remains uncertain;
d) the process of establishing estimates of losses emanating from inwards
reinsurance business is more subjective than establishing estimates of losses
from direct insurance business. This is because (particularly in the period
immediately following the loss) less reliance can be placed upon loss
information which is received via reinsured companies than upon information
received directly from insureds;
e) allowance has been made in the estimation of losses for the late reporting
of losses which has been caused, in the case of Hurricane Katrina, by the
inability of insureds to return promptly to their properties, and in the case
of Hurricane Rita, by the unavailability of offshore loss adjusters. It will be
some time before losses are more fully reported and it is possible that the
full effect of the delayed reporting has not been taken into account in the
group's current estimates;
f) it is possible that further legal action may be pursued either by
individuals or on a class action basis or by various state authorities in an
attempt to render the intention and effect of flood exclusions in insurance
policies covering properties affected by the US Hurricanes null and void.
Should such action be successful then this would be likely to have an adverse
impact on the amount of the net loss currently estimated; and
g) in calculating the net loss, consideration has been given to the ability and
willingness of reinsurers to pay the recoveries which will fall due from them
in respect of the US hurricanes, and to whether the establishment of any
provision for potential bad debt is therefore appropriate. The failure of any
reinsurer to pay recoveries over and above any such bad debt provision could
have an adverse impact on the group's result and net asset value.
13 Post balance sheet events
(a) On 22 July 2008 Roger Canham resigned from the board of the company.
(b) On 25 July 2008 Enstar Acquisitions Limited announced that they had
acquired, agreed to acquire and had acceptances of the offer of approximately
51.2% of the issued share capital of the company.
(c) On 31 July 2008 both the company and Rosemont Re gave three months notice
to PRO Insurance Services Limited of their intention to terminate the existing
contracts to provide outsourced services.
(d) On 5 August 2008 Enstar announced that it had acquired, agreed to acquire
or received acceptances over 82.71 % of the company's shares and therefore had
the right to request the company to apply to de-list its shares which it did on
5 August 2008. The delisting/cancellation date will be 3 September 2008.
(e)On 11 August 2008 Gareth Nokes, Alan Turner and Stephen Aldous became
directors of the company.
(f) On 11 August 2008 the company issued three month notices of termination as
contractor or employees to Rory Macnamara, Michael Dawson and Peter
Dixon-Clarke in accordance with their service or employment contracts.
(g)On 13 August 2008 the loans outstanding with the lending banks were
refinanced by a loan from Courtenay Holdings Limited, a company within the
Enstar group. The new loan is on materially the same terms as the former, but
without charging group assets to the lenders and giving the option by the
borrower to extend the expiry date to 30 April 2011, provided the company
notifies the lender and pays an extension fee equal to 2% flat of the amount of
the loan that would remain outstanding on 30 April 2009.
(h) On 13 August 2008, following the refinancing of the loan by Enstar, �1,404k
of the retention and incentive award bonus (see note 8) became payable to the
directors of Rosemont Re and the company. The remaining element, of �511 k, is
expected to become payable to PRO Insurance Solutions following termination of
their contract on 31 October 2008.
INDEPENDENT REVIEW REPORT TO GOSHAWK INSURANCE HOLDINGS PLC
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the interim report for the six months ended 30 June 2008 which
comprises the income statement, the balance sheet, the statement of changes in
equity, the cash flow statement and related notes 1 to 13. We have read the
other information contained in the interim 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 International
Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our
work has been undertaken so that we might state to the company those matters we
are required to state to them in an independent review report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The interim report is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the interim report in
accordance with the Disclosure and Transparency Rules of the United Kingdoms'
Financial Services Authority.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this interim report has been
prepared in accordance with International Accounting Standard 34, "Interim
Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the interim 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 United Kingdom. A review of interim financial
information consists of making inquiries, 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 interim report
for the six months ended 30 June 2008 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
Emphasis of matter - Loss and loss adjustment expenses
Without qualifying our opinion, we draw attention to the disclosures made in
note 10 to the condensed set of financial information concerning the
significant level of uncertainty relating to the reserves for losses and loss
adjustment expenses in respect of the US hurricanes. The net reserve for losses
and loss adjustment expenses and the anticipated reinsurance recoveries on
those losses. The ultimate net liability of the loss and loss adjustment
expense reserve, currently estimated as $83m, will vary as a result of
subsequent information and events and these may result in significant
adjustments to the amounts provided. It is not possible for us to quantify the
potential effects of such adjustments.
Emphasis of matter - Going concern
Without qualifying our opinion, we draw attention to the disclosures made in
note 1 to the condensed set of financial information concerning the ability of
the group to continue as a going concern. In note 1 the directors have
described the restrictions surrounding the group's working capital and the fact
that the successful completion of any planned mitigating actions is uncertain.
These conditions indicate the existence of a material uncertainty which may
cast significant doubt about the group's ability to continue as a going
concern. The condensed set of financial information does not include the
adjustments that would result if the group was unable to continue as a going
concern.
Deloitte & Touche LLP
Chartered accountants and registered auditor London, United Kingdom
27 August 2008
END
Goshawk Insurance (LSE:GOS)
과거 데이터 주식 차트
부터 5월(5) 2024 으로 6월(6) 2024
Goshawk Insurance (LSE:GOS)
과거 데이터 주식 차트
부터 6월(6) 2023 으로 6월(6) 2024
