TIDMHDU
RNS Number : 4422Y
Hardy Underwriting Bermuda Ld
01 March 2012
Date: 1 March 2012
On behalf of: Hardy Underwriting Bermuda Limited ("Hardy"
or "the Group")
Embargoed until: 0700hrs
Hardy Underwriting Bermuda Limited
-- Financial Results for the year ended 31 December 2011
Hardy Underwriting Bermuda Limited (LSE: HDU), the specialist
insurer and reinsurer, today announces its final results for the
year ended 31 December 2011. The key points are:
FINANCIAL
-- Gross premiums written of GBP268.4m (2010: GBP279.4m)
-- Net tangible assets of 183.5p per share (2010: 270.0p per share)
-- Loss before tax of GBP42.1m (2010: profit before tax of GBP10.0m)
-- Combined ratio of 120.9% (2010: 94.7%)
-- Post tax loss on equity of 22.6% (2010: return of 6.3%)
-- Basic loss per share of 67.5p (2010: earnings of 18.6p)
-- No final dividend. Dividend per share for the year of 4.4p (2010: 14.6p)
OPERATIONAL
-- Strategic review on track
-- Excellent performance of non-catastophe exposed lines of business
-- Appointment of Paul Dawson to develop a new energy account from 2012
Commenting on the Group's results, David Mann, Chairman of Hardy
Underwriting Bermuda Limited, said:
"The Board has concluded that, in the light of the impact of the
catastrophe losses on the Group's financial resources and of the
ongoing strategic review, it would not be appropriate to pay a
final dividend.
"2010 and 2011 have been challenging years for Hardy and we have
learnt a great deal from the experience. As a consequence, we
believe that the underwriting portfolio is in fundamentally better
shape than it has ever been. The strategic review is proceeding and
we remain focused on achieving the best possible outcome for all
stakeholders."
For further enquiries, please contact:
Hardy Underwriting Bermuda Limited www.hardygroup.co.uk
Barbara Merry, Chief Executive Tel: (020) 7626 0382
Jamie MacDiarmid, Finance Director
Redleaf Polhill Ltd Tel: 020 7566 6708
Emma Kane/Adam Leviton/David Ison hardy@redleafpr.com
Chairman's and Chief Executive's Statement
This year has been dominated by an unprecedented series of
extreme natural catastrophe events, exceeding 2010 which was itself
extraordinary for frequency of large loss activity. A recent report
from Aon Benfield estimates that 253 separate events generated a
record total economic loss of US$435 billion in 2011 and insured
losses of US $107 billion, second only to 2005 when Hurricanes
Katrina, Rita and Wilma ravaged the US.
Since 2007, Hardy has focused its catastrophe exposed property
treaty business on international risks which, as we have said
before, makes our account atypical for Lloyd's. As a result,
Hardy's exposure to these international losses is not unexpected,
except as regards the frequency of the loss events. The scale of
these events has, inevitably, had a major impact on the performance
of Hardy in 2011 and, regrettably, the Group has incurred a
significant loss before tax of GBP42.1 million (2010: GBP10.0
million profit).
This result, however, should not undervalue the strong
underwriting performance of our attritional non-catastrophe exposed
classes which all contributed profits, albeit that for some lines
of business premium volumes were lower than forecast due to
disciplined underwriting in response to continued rating pressure.
The US property treaty account also benefited from another
relatively benign hurricane year.
The international loss events have been both dramatic and
particularly difficult to estimate at an early stage with the
necessary degree of accuracy. The Japanese earthquake and tsunami
caused significant loss of life and devastation to large parts of
the country outside the major cities. Loss estimates took a
considerable time to emerge and perhaps because the losses fell
more heavily on the cooperatives, rather than the non-life
companies, the early advices proved inadequate and had to be
revised upwards later in the year.
In New Zealand, the second and then third earthquakes proved
equally difficult for ceding companies to assess with the future of
the city of Christchurch itself being called into question at
times. Quake losses are, by their nature, more difficult to assess
than Atlantic wind events and again, in common with the whole
reinsurance market, loss advices to us have increased dramatically
during the course of the year.
The flooding in Thailand brought an unwelcome twist to the year.
Whilst our exposure to many of the areas that will be affected by
this event is small, we have participated on one particular
proportional treaty which has been extremely hard hit,
notwithstanding that Thailand was not generally considered to be
prone to catastrophe activity. As a result of the unprecedented
size and frequency of this event coming so soon after the other
2011 events, the Board concluded that it was necessary to conduct a
strategic review of the business covering both underwriting
strategy and capital.
From an underwriting strategy perspective, and specifically with
regard to international property treaty underwriting, we were in
any case reviewing our pricing methodology as we do on a regular
basis. The extent of catastrophe activity over the last 18 months
is extraordinary, but the scale of losses has highlighted the
rapidly increasing economic values in many regions. Significantly
higher premium levels are needed across the sector if the industry
is to cope with losses of this nature and we have implemented
changes to our rating scales designed to address this. We do not,
however, expect that higher pricing will be realisable overnight
and we therefore expect the account to contract as a result. We
have also reduced our maximum exposure limits and our line size as
well as imposing restrictions on terms and conditions. These
measures taken together have had a considerable effect on risk
assumption and the volatility of the underwriting portfolio has
been correspondingly dampened over the course of the second half of
2011 and into 2012.
As regards capital, in the months before the Thai floods, we had
already concluded that additional third party capital support
should be sought for syndicate 382 both to facilitate the growth of
the business and to migrate a further proportion of the catastrophe
exposure from the Group. Such arrangements also enhance the return
on equity for Hardy by way of fees and profit commissions. There
was considerable interest in supporting the syndicate in this way,
and we were delighted to welcome Tower Group with a 15.0% share of
the 2012 account. Furthermore, our existing partner, Arig, has
increased its participation from 7.5% to 10.0%.
It was clear during the many discussions we had with potential
third party investors that we could have obtained much greater
levels of support had we needed or desired it. It was also clear
that many of those we spoke to were interested in long-term
relationships and/or in acquiring some or all of the Hardy
business. Having announced the strategic review on 1 December 2011,
we received considerable interest in the Group, and a process was
initiated to determine how best to realise the potential in Hardy
for the benefit of shareholders and other stakeholders.
This review process is well under way and on track and
shareholders will be advised as to the Board's recommendations as
soon as possible.
Progress in 2011
Adrian Walker retired in the first half of the year, and Patrick
Gage took over the position of Director of Underwriting at the most
challenging time possible. In addition to dealing with the
catastrophe activity affecting the business, steps have been taken
to eliminate business lines that are too resource or capital
intensive and therefore not producing an adequate return, leaving
the focus very much on the development of the key market sectors
where Hardy already has specific expertise.
The underlying performance of the marine and aviation, specialty
lines and non-marine property business units has been profitable.
We have had to be cautious during the year's mostly soft market
conditions, but the teams have delivered good returns on income
written. Underwriting overall is, however, still highly competitive
with no apparent shortage of new capital ready to be deployed into
the industry in both the developed and developing economies.
There are, however, clear signs of improved rating, particularly
in the property classes of business and with a 2012 business plan
that has a strong bias towards these lines, we are well positioned
to exploit market opportunity.
The renewed focus on Hardy's existing market sectors builds on
Hardy's core philosophies. The overall portfolio continues to be
predominantly short tail, price driven and well diversified. Our
underwriting platforms in London, Bermuda, Bahrain, Singapore and
Guernsey all continue to enhance the distribution of the business
in support of our primary market sector focus.
The development of the energy account for 2012 is very much in
keeping with this focus, and we are therefore delighted that we
have been able to attract a very high calibre market leader to
develop an energy book with us, which we expect to deliver
excellent returns over the cycle whilst also enhancing the presence
of the marine team in general.
The Solvency II programme has continued to occupy a good deal of
resource and, despite much talk of delays in formal implementation
across Europe, we are pleased that the Lloyd's market has been keen
to move ahead in accordance with the original timetable. Hardy has
made good progress and is on track to demonstrate the necessary
systems, processes and controls around an appropriate internal
model. The work is also delivering practical benefits to the
business in that it pulls together all aspects of our risk and
solvency assessment activities. A lot of hard work has gone into
this project both by individuals dedicated to it and from almost
everyone across the Group. They are all to be congratulated on what
has been achieved so far as we go into the "business as usual"
phase of embedding some of the new or enhanced processes into
everyday practice.
The Board has concluded that, in the light of the impact of the
catastrophe losses on the Group's financial resources and of the
ongoing strategic review, it would not be appropriate to pay a
final dividend.
2010 and 2011 have been challenging years for Hardy and we have
learnt a great deal from the experience. As a consequence, we
believe that the underwriting portfolio is in fundamentally better
shape than it has ever been. The strategic review is proceeding and
we remain focused on achieving the best possible outcome for all
stakeholders.
Finally, we would like to thank the entire Hardy team for their
considerable effort and commitment in such difficult and unsettling
times.
Barbara J Merry DP Mann
Chief Executive Chairman
Business unit reviews
Marine and aviation
Head of business unit - Mervyn Sugden
Overview
The marine and aviation business unit embraces the traditional
focus of the Hardy business, with Mervyn Sugden, the business unit
manager, having underwritten for syndicate 382 since it was
established in 1975. The teams for both the marine and aviation
elements of the portfolio demonstrate lead underwriting capability
and a keen focus on profitability. Underwriting results have been
consistently strong, although premium volume has been a particular
challenge. Syndicate 382 was originally set up as an energy
syndicate so it is pleasing to see that we now have a very strong
energy team underwriting for 2012.
Energy
We have materially expanded our capability in the Energy class
for 2012 and beyond, having introduced a specialised team led by
Paul Dawson. Hardy will be primarily focused upon companies engaged
in upstream oil and gas operations worldwide. The Lloyd's and
London market is the dominant market for upstream energy insurance
and by accessing existing distribution we anticipate developing a
leading position in this class. Market conditions remain promising
with good growth in insurance demand consequent on strong
underlying commodity prices and increased levels of investment. A
number of high profile losses in the sector in recent years have
also highlighted the role that energy insurance can serve in
helping energy companies manage their risks. Although the energy
insurance class is complex and potentially volatile, we believe
that this is reflected in current rating conditions and opportunity
exists for strong cross-cycle results. Our energy team has
benefited from excellent support so far and is on track to deliver
a significant account in 2012.
Cargo & Specie
Volumes in the cargo market have been affected by the recession
in global economic activity, as well as by heavy pressure on rates.
We saw little evidence of hardening in 2011 but remain confident
for the short to medium term future, despite tough competition from
the US domestic market which tends to lack the rating discipline
seen at Lloyd's.
The specie book has seen less rating pressure than cargo in
2011, but poor economic conditions have coincided with some large
loss activity. For the short to medium term, we are confident that
general rating levels will be maintained and increased in poor
performing areas.
Marine hull
The marine market has been very challenging all year with
continuing downward pressure on rates and only very poorly
performing accounts receiving any significant pricing correction as
yet more capacity enters the global marine market. Coupled with
this difficult rating environment, ship owners have been suffering
from the ongoing effects of the global economic downturn with
reduced earnings and low valuations impacting premium levels.
Against this rather bleak background we are pleased to be able
to report that the marine portfolio has grown this year, with no
compromise of underwriting discipline. Our historic levels of
profitability have been retained with continuing emphasis on our
recognised areas of hull expertise and on strong claims management.
The liability account has also grown and we have diversified into
other marine classes with lower claims activity in which we have
traditionally been under-represented. Hardy's exposure to the
Concordia disaster is not considered to be material.
With the global economic outlook appearing just as gloomy for
2012 we will be continuing to develop the book in the same manner
and looking for opportunities that will complement the existing
portfolio.
Aviation
Market conditions in 2011 proved to be much more challenging
than we had initially anticipated. With the airline market having
suffered a number of years of losses, we approached 2011 with some
optimism regarding the rating environment. Unfortunately this
proved to be misplaced as many airlines achieved significant rate
reductions to offset the growth in exposures both in terms of fleet
values and passenger numbers. The relatively low financial cost of
the losses in 2011 leads us to believe that there is little chance
of a material rating improvement in the short term. Our involvement
in this market is consequently limited.
In the helicopter market, rates also continued to fall against a
background of a very active loss pattern. We are confident in our
strategy of writing for gross underwriting profit although this
does mean that our income is modest at this point in the
underwriting cycle.
Our involvement in both the satellite and aviation reinsurance
markets is by way of consortium participations, so we achieve
greater diversification. We believe in the long term that there is
scope for profitable growth in both areas although the overcapacity
that is particularly evident in the satellite market resulted in
the syndicate limiting its line to a modest level.
Non-marine property
Head of business unit - Tony Hepburn
Overview
This account comprises direct and facultative property,
including construction insurance of industrial and commercial risks
(heavy industry, general manufacturing, commercial property
portfolios), together with residential and small commercial risks.
Large risks, including the construction and engineering account,
are written on a worldwide basis. Residential and smaller risks
have been more focused on the UK and US, though some geographical
diversification is gradually being introduced.
2011 has been a difficult year for property insurers. The year
began in an environment of, at best, flat rates while insurers were
still suffering from the effects of a number of large catastrophe
events in 2010. This trend of an unusually high number of severe
natural catastrophes continued through 2011 resulting in the worst
ever year for insured natural catastrophe losses. Against this
backdrop our non-marine property business has generally performed
very well, producing profits and being in the top quartile of
performers within the Lloyd's market.
The direct and facultative account, which tends to cover the
larger industrial and commercial risks, has continued to grow in
both London and Bermuda. The natural catastrophe losses during 2011
have caused a number of our peers to change their underwriting
stance or, in some cases, withdraw from the class altogether. By
focusing on risks that we understand fully, and where we are able
to obtain price adequacy, our underwriting results have once again
been very good. The account is catastrophe exposed, but careful
risk selection has minimised the impact that recent activity might
otherwise have had.
The construction and engineering account has now been running
for two years and continues to develop in line with our
expectations. Coverage tends to be for a longer period than other
classes, matching the period of each construction project. The team
writes a worldwide account and combines underwriting and risk
management capability across the industry. We will build on this
expertise to develop the book further. This sector is traditionally
less cyclical than most and rating levels have been broadly
flat.
The direct property account developed as a predominantly UK book
covering small commercial and residential risks and was then
complemented by a US account for 2011. In the UK we have resisted
the temptation to grow too quickly during the soft market, but
through judicious selection of producing agents have gradually
increased volumes whilst maintaining profitability above the market
average. In the US the book has been successfully established
during 2011 and is expected to deliver good profits.
The impact of the heavy losses of the last two years has started
to have some beneficial effect on rating levels, especially in
natural catastrophe exposed classes. We are seeing good rate
increases across many parts of our non-marine portfolio and aim to
be able to take advantage of what we hope is the sustained
hardening that the market needs.
In the high value UK homeowners market rates did increase a
little at the beginning of 2011. We did not feel, however, that
these increases would provide us with a reasonable return on
capital over the long term and so we took the decision to cease
underwriting this business. The portfolio will now be run off and
we expect to have no material exposure by the end of 2012.
Property treaty
Head of business unit - David Carson
Overview
The property treaty (reinsurance) account generates the majority
of the catastrophe exposures underwritten by the Group. Business is
underwritten from London, Bermuda and Singapore. The account has
been atypical as compared to the average Lloyd's property treaty
catastrophe portfolio and focused on international business,
although recent changes have reduced this bias. The account is
protected by a blend of proportional and non-proportional
reinsurance.
In last year's annual report we commented that 2010 was a most
testing year, the worst since 1999 for international losses. 2011
was worse still and the impact this has had on the business as a
whole is deeply disappointing.
Global economic loss from natural catastrophe events in 2011 is
the highest on record although the insured loss, estimated at US
$107 billion, is less than 2005 when events were concentrated in
the US.
The major events of 2011 were: the Brisbane Floods in Australia
(January), the Lyttelton earthquake in Christchurch, NZ (February),
the Tohoku earthquake and tsunami in Japan (March), the tornadoes
in Alabama and Missouri (April and May), the Sumner earthquake in
Christchurch, NZ (June), Hurricane Irene in the Bahamas and the US
(August), and the extensive flooding in Thailand (July through to
November). Whilst our US portfolio emerged relatively unscathed in
2011, our larger International account was severely impacted.
Our portfolio is always reviewed in the light of losses, but the
scale of activity over the last two years has caused us to look
even more closely at our risk appetite and at how we write in the
international catastrophe sector in particular. Whilst rate
increases provide opportunities for "pay back" in selected
territories there is also a need to be more cautious. The level of
data in the international sector is generally lower than in the
more mature US markets. The combination of an increase in economic
values in those regions, and a higher incidence of activity from
non-modelled perils, means that more restricted wordings, and
significantly increased margin over benchmark price are required to
give confidence for sustained long-term profitability
In response we have re-calibrated our pricing matrices and are
continuing to improve the premium to exposure ratio for the whole
portfolio. Additionally we have decided to scale back our
international portfolio in 2012 by reducing line sizes and overall
exposure. Consequently our maximum loss limits, based on exceedence
probability for individual events and annually in the aggregate,
have been reduced significantly, and this is commented on further
in the Risk section of the report and accounts.
We are maintaining our US account at a similar level to that of
previous years, as we aim to return the overall property treaty
portfolio to profitability.
Catastrophe rates have hardened significantly in loss-affected
areas and more modestly elsewhere, with an average rate increase on
renewal business incepting at 1 January 2012 portfolio of 8.9%.
Our Bermuda office continues to develop well and its portfolio
of US business has produced good profits over the last two and a
half years. Importantly, the team has developed some solid
strategic relationships with both clients and brokers that bode
well for the future.
Hardy Asia's first full year of operation in Singapore has,
sadly, been blighted by the extraordinary flooding in Thailand.
Despite only having a handful of local treaties, significant losses
have been generated by this event, which is unparalleled in its
nature. Changes have been made to our ongoing underwriting strategy
as a result.
In September, following an extensive underwriting review, it was
decided to discontinue our Japanese Kyosai portfolio. The forecast
margins for the portfolio are considered to be insufficient to be
sustainable in the long term given the expense involved in managing
the book, and the strengthening of reserves that has been necessary
as we run off the portfolio has also had a detrimental impact on
the results of this business unit.
Lloyd's remains a strong and stable market and we continue to
see good, profitable growth potential. This does, however, need to
be managed in the context of our own capital base and the risk
appetite of both the group and the syndicate.
Specialty lines
Head of business unit - Adrian Daws
Overview
This business unit has grown significantly since 2007, providing
underwriting profit and diversification to the overall risk
profile. The rating environment continues to be challenging but the
business has produced a highly satisfactory underwriting profit in
2011.
Financial Institutions
Trading conditions have remained difficult throughout 2011 and
opportunities to grow the book have been limited. The market
continues to see claims activity resulting from the global
financial turmoil, while sovereign debt issues in the Eurozone
remain a concern. We have maintained our focus on the first party
fidelity element of the account, which is less volatile.
Reinsurance conditions for 2012 are likely to force a hardening in
market conditions for capacity programmes, although smaller/medium
sized business will remain competitive.
Accident and Health
This has become a more significant part of the business unit
with the continued development of a profitable coverholder
relationship, focusing on international risks. The account includes
general personal accident, sports, medical expense and a limited
book of personal accident catastrophe exposures. We have employed a
dedicated underwriter to oversee the facility and we expect further
growth in 2012.
We have participated in the Kidnap and Ransom class for a number
of years through facilities but commencing in 2011 we employed a
specialist team to underwrite a more significant account, mainly
through Hardy's new operation in Guernsey but also directly into
the syndicate. The class has traditionally delivered above average
returns to the Lloyd's market and we expect to grow the book
considerably as the demand for the product grows in an increasingly
uncertain world.
Terrorism
An increased renewal retention rate and significant new global
demand in the wake of the Arab Spring, offering niche opportunities
within our risk appetite, have contributed to profitable growth in
2011. We have expanded the team to ensure that we build on this
over the coming years, maintaining a balance between lead and
support capacity as well as in specialist and commodity products
and territories.
Political Risks
The global economy cooled significantly in 2011, particularly
since the summer events in Europe which further reduced economic
growth and increased uncertainty. The prospects for growth in the
East for 2012 are far better than in the West where there is
continued doubt over the future of the Euro. During 2011 the
syndicate was able to consolidate its position with its major
clients whilst successfully concluding several recovery projects
which had a positive impact on back year results. Our cautious
optimism for the year ahead is based on an anticipated reduction in
the dominance of the banking sector matched by increasing demand
from manufacturing and trading clients.
Special Risks and Schemes
In 2011 we decided to terminate our involvement in a facility
writing mobile phone insurance. Management of the distribution had
become increasingly complex and with the underperformance of one of
the key suppliers of business, it was clear that the line did not
fit into our strategy for the growth of the syndicate.
Financial review
Summary of results
2011 saw a series of large international catastrophes resulting
in significant market losses, most notably from earthquakes in
Japan and New Zealand and more recently floods in Thailand. The
Group's performance has been severely impacted by these events
resulting in a pre tax loss of GBP42.1 million.
2007 2008 2009 2010 2011
GBPm GBPm GBPm GBPm GBPm
Gross premiums written 147.5 172.8 242.0 279.4 268.4
------- ------- ------- ------- --------
Net insurance premium
revenue 108.6 120.8 176.6 192.7 190.5
Total underwriting
return 19.4 8.7 34.3 9.3 (39.5)
Investment income 6.2 7.8 5.6 2.9 4.8
Other income 0.6 0.2 0.3 0.1 0.4
Other charges (7.4) (10.6) (11.9) (11.1) (5.7)
Finance charges (2.0) (1.7) (1.6) (2.3) (2.4)
------- ------- ------- ------- --------
Profit/(loss) before
tax and foreign exchange 16.8 4.4 26.7 (1.1) (42.4)
Foreign exchange gain/(loss) 1.5 18.7 (6.6) 11.1 0.3
Profit/(loss) before
tax 18.3 23.1 20.1 10.0 (42.1)
------- ------- ------- ------- --------
Post tax return/(loss)
on equity 17.7% 22.9% 13.4% 6.3% (22.6)%
Basic earnings/(loss)
per share 38.4p 55.4p 36.8p 18.6p (67.5)p
Interim dividend per
share 3.3p 3.6p 4.0p 4.4p 4.4p
Final dividend per
share 7.7p 8.5p 9.3p 10.2p -
Return on equity is calculated as profit after tax expressed as
a percentage of opening net assets adjusted for the proceeds from
the placing and open offer with effect from 1 April 2009.
Underwriting performance
Premiums
Gross premiums written for the Group have reduced by 3.9% to
GBP268.4 million in 2011 from GBP279.4 million in 2010. The main
driver for this reduction is the introduction of third party
capital into the syndicate in 2011 on a limited tenure basis
reducing the Group's share of underwriting capacity from 100.0% to
92.5%. The remaining 7.5% share has been provided by Arab Insurance
Group ("Arig") with whom Hardy has a joint venture coverholder in
Bahrain. On a 100% basis the gross premiums written for the
syndicate increased by 3.5%. 2011 income was also affected by
withdrawal from lines of business that were not generating
satisfactory returns.
Premium rates for renewal business increased by 3.6% in 2011
across the business (2010: flat). Both catastrophe exposed classes,
property treaty and non-marine property business units experienced
rate increases of 7.8% and 4.6% respectively. Marine and aviation
saw a rate reduction of 0.7% as it continues to experience
challenging market conditions with downwards pressure on rates.
Specialty lines also saw a rate reduction of 0.9% in competitive
market conditions.
Reinsurance purchased
The Group's purchased reinsurance increased by 8.1% in 2011 from
GBP73.1 million to GBP78.9 million, following an increase of
catastrophe reinsurance protection in order to protect the Group's
aggregate exposures and manage risk levels.
Claims
The claims experience within the Group's catastrophe exposed
classes, property treaty and non-marine property, has been severely
impacted by the significant international catastrophes in 2011.
These losses have contributed 38.3% to the Group's combined ratio
of 120.9% in 2011. Excluding these losses, the underlying combined
ratio of 82.6% demonstrates strong performance in other classes,
most notable in the marine and aviation division which reported a
72.7% combined ratio against a backdrop of difficult market
conditions. Specialty lines had another robust year with a combined
ratio of 82.1%.
The Group has maintained its prudent reserving approach and
using the market information available, considers the reserves held
against the catastrophes in 2011 to be appropriate whilst being
mindful that there is uncertainty surrounding the estimation of
these catastrophes at this relatively early stage of
development.
Best estimate reserves and margin
Hardy has a conservative approach to the estimation of
outstanding claims reserves and maintains reserves with a margin
above management's actuarial best estimate to account for the
inherent uncertainties implicit in writing large commercial
insurance and reinsurance risks. At any time there is a range of
possible outcomes at which claims could ultimately settle. As time
passes the uncertainty surrounding the likely claims settlement
reduces and the level of margin required to be held is reduced.
A review of the reserves is performed every quarter and involves
underwriters who provide detailed knowledge of their business and
the actuarial team who provide statistical analysis. We believe
this inclusive approach is the best way to ensure that insurance
risk is understood along with the quantum and volatility of claims
in each class of business. With this information the actuarial team
forms an updated view of best estimate reserves, and any required
adjustments are made to the margin within the held reserves.
Our objective is to maintain adequate reserve strength to allow
for the inherent uncertainty surrounding the estimate of ultimate
claims levels. Subject to business mix and the nature of claims
incurred in the year, the Group aims to hold a margin above
actuarial best estimate reserves within the range 7.5% to 12.5% of
best estimate reserves, which we consider to be prudent for a
predominantly short tail portfolio. As at 31 December 2011, the
Group estimates that the margin is within this range.
Due to our conservative reserving approach we were able to make
reserve releases from prior years of GBP9.7 million in 2011 (2010:
GBP18.6 million).
Year ended Year ended
31 December 31 December
2011 2010
GBPm GBPm
Marine and aviation 6.4 13.0
Specialty lines (2.5) 2.3
Non-marine property 3.6 (1.6)
Property treaty 2.2 4.9
Total release 9.7 18.6
------------ ------------
Expenses
Total expenses, which include expenses incurred in insurance
activities, other operating expenses and finance charges, increased
slightly to GBP91.1 million from GBP90.4 million in 2010. Expenses
incurred in insurance activities amounted to GBP83.0 million
compared to GBP77.0 million in 2010 and other operating expenses
incurred in the period totalled GBP5.7 million compared to GBP11.1
million in 2010.
Expenses incurred in insurance activities represent costs
relating to acquisition costs and administrative expenses.
Acquisition costs, which comprise of premium commissions paid to
insurance intermediaries for providing business and other
acquisition costs directly related to underwriting activities,
increased to GBP67.9 million from GBP64.9 million in 2010. The main
driver for this is due to the increase in premium income in lines
of business which have a higher commission rate. Administrative
costs increased to GBP15.1 million from GBP12.1 million in 2010
primarily driven by increased IT, Solvency II project costs and
other support costs.
Other operating expenses include corporate expenses, employee
incentives and other expenses not directly attached to
underwriting. These costs decreased to GBP5.7 million from GBP11.1
million in 2010 with the main driver being lower employee incentive
and other corporate costs incurred in the period. Finance charges,
relating to the Group's US $30m subordinated bond and US $65m
letter of credit facility have remained flat at GBP2.4 million.
Investment performance
Investment income for the year ended 31 December 2011 was GBP4.8
million, a return of 1.7% compared with GBP2.9 million or 0.9% in
2010.
The investment return for the period is set out below.
Year to 31 December Year to 31 December
2011 2010
Average Average
balance Return Return balance Return Return
GBPm GBPm % GBPm GBPm %
Fixed income 172.5 2.5 1.4% 200.9 2.1 1.0%
Cash and deposits 113.5 2.3 2.0% 108.6 0.8 0.7%
286.0 4.8 1.7% 309.5 2.9 0.9%
--------- ------- ------- ----------------- ----------------------- -------
The Group has maintained its conservative investment strategy
and continues to invest in short dated high quality fixed income
securities, money market instruments and deposits. Given this
strategy, the main element of risk in the portfolio is interest
rate volatility. This risk is managed through the use of short
duration benchmarks. The actual durations for the fixed income
portfolios were:
31 December 31 December
2011 2010
Years Years
Sterling 0.5 0.5
Euro 0.6 0.6
US dollar 1.5 1.6
Financial markets have continued to experience a great deal of
volatility, in particular due to the European sovereign debt
crisis. The Group has paid particular attention to this issue and
has no direct exposure to sovereign debt issued by Portugal, Italy,
Ireland, Greece or Spain, but may have indirect exposure through
Eurozone bank investments.
Summary balance sheet
2007 2008 2009 2010 2011
GBPm GBPm GBPm GBPm GBPm
Intangible assets 15.5 15.5 15.5 15.5 15.5
Financial investments
and cash 173.4 234.8 290.6 301.9 276.4
Reinsurance assets 40.0 59.2 68.0 105.2 191.7
Other assets 80.3 101.5 125.9 151.4 153.0
Total assets 309.2 411.0 500.0 574.0 636.6
------- ------- ------- ------- -------
Insurance liabilities 173.2 238.6 279.6 350.0 452.0
Subordinated debt 14.7 20.3 18.1 18.6 18.9
Other liabilities 36.1 50.4 50.2 52.1 58.2
Total liabilities 224.0 309.3 347.9 420.7 529.1
------- ------- ------- ------- -------
Total equity 85.2 101.7 152.1 153.3 107.5
------- ------- ------- ------- -------
Net assets per share 242.5p 289.5p 296.4p 300.0p 214.5p
Net tangible assets
per share 198.3p 245.4p 266.2p 270.0p 183.5p
Intangible assets
The Group completed the acquisition of the remaining third party
capacity on syndicate 382 during 2006. The total cost to acquire
the capacity was GBP15.5 million, representing an average cost of
5.2 pence per pound of the syndicate 382 capacity for the 2011 year
of account.
Financial investments and cash
Hardy is a short-tail insurance and reinsurance group and the
investment strategy adopted focuses on maintaining sufficient
liquidity for the prompt payment of claims in conjunction with
providing a steady income stream. As such, the investment portfolio
is liquid, of short duration and limits exposure by asset class,
credit quality and issuer. The application of this policy has meant
that, at the year end, all assets are held in fixed income
securities, money market investments and deposits.
The day to day management of the fixed income portfolio is
undertaken by two outsourced investment managers, Amundi (UK)
Limited and Threadneedle Investment Asset Management. The
performance of the managers and compliance with the Group's
investment guidelines is monitored by the Finance Committee.
The allocation over the main asset classes is set out below.
As at 31 Dec 2011 As at 31 Dec 2010
GBPm % GBPm %
Fixed income 147.4 53% 199.9 66%
Cash and deposits 129.0 47% 102.0 34%
276.4 100% 301.9 100%
========== ======== ============= =====
The fixed income portfolios are analysed by asset type and
credit rating below.
As at 31 December
2011 Holding Credit rating
GBPm % AAA AA A BBB
Government 48.0 33% 18% 15% - -
Government agency 9.8 7% 5% 2% - -
Supranationals 12.4 8% 8% - - -
Corporate 55.3 37% 1% 16% 14% 6%
Asset backed securities 21.9 15% 15% - - -
Fixed income securities 147.4 100% 47% 33% 14% 6%
======== ===== ==== ==== ==== ====
As at 31 December
2010 Holding Credit rating
GBPm % AAA AA A BBB
Government 97.1 49% 47% 2% - -
Government agency 17.4 9% 7% 2% - -
Supranationals 9.5 5% 5% - - -
Corporate 75.9 37% 12% 14% 9% 2%
Fixed income securities 199.9 100% 71% 18% 9% 2%
=========== ===== ==== ==== === ====
Reinsurance assets
Exposure to reinsurance credit risk may increase over time
because the Group's evolving catastrophe profile may require a
greater level of reinsurance buying than has historically been the
case. The management of this risk, through the selection of high
quality security and control over the reinsurance recovery process,
remains a key focus for the Group and is designed to ensure that
the residual risk to the balance sheet remains low.
31 December 2011 31 December
2010
GBPm GBPm
Reinsurers' share of:
Recoveries due on paid claims 28.5 7.2
Notified outstanding claims 82.2 52.2
Incurred but not reported
claims 51.5 19.4
Reinsurance unearned premium
reserve 29.5 26.4
Total reinsurance asset 191.7 105.2
----------------- ------------
The Group has a policy of buying reinsurance from entities with
a rating of A- or above. Where we deviate from that position
additional security may be provided in the form of a letter of
credit if deemed necessary. The credit taken for reinsurance
recoveries on notified outstanding and claims incurred but not
reported ("IBNR") represents 42.9% of the gross insurance
liabilities (2010: 33.2%). The Group has no material exposure to
bad debt.
The composition of the security supporting reinsurance
recoveries on paid and notified outstanding claims is analysed
below:
31 December 2011 31 December
2010
% %
Reinsurers rated by S&P:
AA 13 18
A 74 79
BBB 12 1
BB and lower 1 2
100 100
----------------- ------------
Capital management
The total underwriting capacity for syndicate 382 for the 2012
underwriting year is GBP330 million. The Group's share is 75.0% at
GBP247.5 million. The remaining capacity of GBP82.5 million has
been provided by two parties, Arig and Tower Group.
Arig provides 10% of capacity for syndicate 382 for the 2012
underwriting year via their own corporate member, Arig Capital
Limited.
Tower Group provides 15% capacity for syndicate 382 for the 2012
underwriting year via a quota share arrangement through a new
corporate member, Hardy I.C. Limited ("HICL"), which is wholly
owned by Hardy Underwriting Group Limited. Tower Group is one of
the 50 largest providers of property and casualty insurance
products and services in the US and provides personal and
commercial insurance for small to medium-sized businesses via a
network of retail and wholesale agents across the US.
The capital required to support the Group's share of
underwriting for the 2012 underwriting year is 54.8% on capacity of
GBP247.5 million (2011 underwriting year: 56.8% on capacity of
GBP277.5 million).
The following table sets out the composition of the assets
supporting the current capital requirement.
Year of account 2012 2011
GBPm GBPm
Capital requirement: 135.6 157.6
Satisfied by:
Investments 109.9 125.7
LOC 41.9 41.4
Solvency (deficits)/credits (15.8) 6.5
Total FAL provided 136.0 173.6
------- ------
In addition to the FAL provided, the Group has free funds of
GBP4.5 million as at 31 December 2011.
The Group's capital requirement has remained fairly stable
compared to 2011 relative to underwriting capacity. Whilst the
group has enough capital to support the 2012 underwriting year, the
participations of Tower Group and Arig enhance the overall level of
capital to support the growth in the syndicate's business.
The Group uses LOCs to support its regulatory capital
requirement. The current facility provides US $65.0 million for the
2012 underwriting year. The facility will require renewal in
advance of the 2013 underwriting year.
On 15 December 2010 the Group commenced a share buy-back
programme and, as of 31 December 2011, 1,677,766 shares had been
acquired at a range of between 261 pence and 275 pence per share.
These shares are held as treasury shares. This buy back programme
was suspended early in 2011.
Consolidated income statement For the year ended 31 December
2011
Year ended Year ended
31 December 31 December
Notes 2011 2010
GBP'000 GBP'000
Gross premiums written 5 268,446 279,419
Written premiums ceded to reinsurers 5 (78,938) (73,054)
------------ ------------
Net premiums written 189,508 206,365
Change in net provision for unearned
premiums 5 1,016 (13,648)
Net insurance premium revenue 190,524 192,717
Financial income 6 4,781 2,888
Other operating income 7 407 149
------------ ------------
Net income 195,712 195,754
Claims incurred 8 (289,678) (167,169)
Reinsurers' share of claims incurred 8 142,677 60,783
------------ ------------
Net claims incurred (147,001) (106,386)
Expenses incurred in insurance activities 9 (83,002) (76,996)
Foreign exchange gains 10 261 11,075
Other operating expenses 11 (5,728) (11,086)
Total operating expenses (235,470) (183,393)
Operating (loss)/profit (39,758) 12,361
Finance charges 13 (2,369) (2,343)
------------ ------------
(Loss)/profit before tax (42,127) 10,018
Comprises:
Underlying (loss)/profit (1) (43,325) 9,060
Notional adjustment for foreign exchange
movements on non-monetary items 10 1,198 958
------------------------------------------- ------- ------------ ------------
Income tax credit/(expense) 14 7,534 (467)
(Loss)/profit for the year (34,593) 9,551
------------ ------------
(Loss)/earnings per share (pence)
Basic 15 (67.5) 18.6
Diluted 15 (67.5) 17.9
All the operations relate to continuing activities during the
current and previous year.
(1) Underlying (loss)/profit comprises (loss)/profit before tax
with non-monetary items translated at closing foreign exchange
rates (see explanation in note 4 to the financial statements).
Consolidated STATEMENT OF COMPREHENSIVE INCOME For the year
ended 31 December 2011
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
(Loss)/profit for the year (34,593) 9,551
Other comprehensive income - -
------------- ------------
Total comprehensive (loss)/income
recognised (34,593) 9,551
------------- ------------
Consolidated statement of financial position As at 31 December
2011
As at As at
31 December 31 December
Notes 2011 2010
GBP'000 GBP'000
Assets
Intangible assets 17 15,509 15,509
Property, plant and equipment 18 2,976 3,466
Reinsurance assets
- Reinsurers' share of outstanding
claims 27 133,645 71,595
- Reinsurers' share of unearned premium 27 29,452 26,417
Deferred acquisition costs 20 38,572 32,445
Trade and other receivables 21 134,735 112,515
Current income tax assets 2,443 6,354
Prepayments and accrued income 2,833 3,811
Financial investments 22 147,364 199,939
Cash and cash equivalents 23 129,077 101,939
Total assets 636,606 573,990
------------ ------------
Equity
Share capital 24 10,564 10,554
Contributed surplus 24 77,412 77,314
Other reserves 25 (2,182) 1,880
Retained earnings 21,714 63,551
Total equity 107,508 153,299
------------ ------------
Liabilities
Financial liabilities - subordinated
debt 26 18,876 18,617
Insurance liabilities
- Outstanding claims 27 311,899 215,431
- Unearned premium 27 140,054 134,511
Deferred income tax liabilities 28 1,567 7,683
Trade and other payables 29 56,702 44,449
Total liabilities 529,098 420,691
------------ ------------
Total equity and liabilities 636,606 573,990
------------ ------------
Net assets per share 30 GBP2.14 GBP3.00
Net tangible assets per share 30 GBP1.84 GBP2.70
The financial statements were approved on 1 March 2012 and
signed on behalf of the Board.
B Merry J MacDiarmid
Chief Executive Finance Director
Consolidated statement of changes in equity For the year ended
31 December 2011
Common Contributed Other Retained Total
Shares Surplus Reserves Earnings
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January
2011 10,554 77,314 1,880 63,551 153,299
Total comprehensive income
for the year
Loss recognised - - - (34,593) (34,593)
Transactions with owners,
recorded directly in
equity
Proceeds of shares issued
in relation to share
options exercised 24 10 98 - - 108
Share-based payments 25 - - 48 - 48
Employee Benefit Trust
holding 25 - - (1,501) - (1,501)
Purchase of treasury
shares 25 - - (2,609) - (2,609)
Dividends 16 - - - (7,244) (7,244)
Balance at 31 December
2011 10,564 77,412 (2,182) 21,714 107,508
-------- ------------ ---------- ---------- ---------
For the year ended 31 December 2010
Common Contributed Other Retained Total
Shares Surplus Reserves Earnings
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January
2010 10,464 77,295 3,357 60,975 152,091
Total comprehensive income
for the year
Profit recognised - - - 9,551 9,551
Transactions with owners,
recorded directly in
equity
Proceeds of shares issued
in relation to share
options exercised 24 90 19 - - 109
Share-based payments 25 - - 1,927 - 1,927
Employee Benefit Trust
holding 25 - - (1,429) - (1,429)
Purchase of treasury
shares 25 - - (1,975) - (1,975)
Dividends 16 - - - (6,975) (6,975)
Balance at 31 December
2010 10,554 77,314 1,880 63,551 153,299
-------- ------------ ---------- ---------- --------
Consolidated STATEMENT OF Cash flows For the year ended 31
December 2011
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
(Loss)/profit before tax (42,127) 10,018
Depreciation of property, plant and
equipment 1,338 1,065
Interest and equity dividend income (7,465) (6,093)
Net unrealised losses on investments 2 1,891
Foreign exchange gains (261) (11,075)
Share-based payments 48 1,927
Finance charges 2,369 2,343
Change in underwriting balances 24,169 19,972
Increase in debtors and prepayments 9,149 (2,679)
Decrease in creditors and accruals (8,034) (5,053)
Interest received 7,465 6,093
Income tax paid (5,680) (3,750)
------------ ------------
Net cash (utilised)/generated from
operating activities (19,027) 14,659
Cash flows from investing activities
Purchase of financial assets (218,992) (269,643)
Proceeds from sale of financial assets 269,066 261,321
Purchase of property, plant and equipment (848) (1,456)
------------ ------------
Cash generated/(used) in investing
activities 49,226 (9,778)
Cash flows from financing activities
Dividends paid (7,244) (6,975)
Cash received from issue of shares 108 109
Purchase of own shares including those
arising
on share buy-back programme (4,110) (3,404)
Finance charges (2,369) (2,343)
Net cash used in financing activities (13,615) (12,613)
Net increase/(decrease) in cash and
cash equivalents 16,584 (7,732)
Cash and cash equivalents at beginning
of year 101,939 98,254
Effect of exchange rate fluctuations
on cash and cash equivalents 10,554 11,417
------------ ------------
Cash and cash equivalents at end of
year 129,077 101,939
------------ ------------
Change in underwriting balances shows the movement in the
underwriting debtors and creditors in the relevant period.
Included within cash and cash equivalents held by the Group are
balances totalling GBP120.4 million (2010: GBP95.1 million) not
available for immediate use by the Group outside of the Lloyd's
syndicate within which they are held.
Notes to the consolidated financial statements
1 Summary of significant accounting policies
Hardy Underwriting Bermuda Limited is a company domiciled in
Bermuda. The financial statements of the Company for the
twelve-month period ended 31 December 2011 relate to the Company
and its subsidiaries (together referred to as the "Group"). The
financial information has been prepared in accordance with
Bermudian law.
The principal accounting policies applied in the presentation of
these financial statements are set out below. These accounting
policies have been consistently applied to all the years presented,
unless otherwise stated.
The financial statements are presented in pounds sterling,
rounded to the nearest thousand, unless otherwise stated.
a. Basis of preparation
Hardy Underwriting Bermuda Limited was incorporated under the
laws of Bermuda on 17 October 2007. With effect from 6 February
2008, under a scheme of arrangement involving a share exchange with
the members of Hardy Underwriting Group plc, the Company became the
new holding company of the Hardy group.
The financial information set out in this statement is extracted
from the Group's consolidated financial statements for the year
ended 31 December 2011. The auditors have reported on those 2011
financial statements which include comparative amounts for 2010.
Their report was unqualified, although an 'emphasis of matter'
paragraph has been included referring to the Company's exposure to
claims arising from the severe flooding in Thailand and their
potential impact on the terms of the 'letter of credit' facilities
which provide a part of its regulatory capital. As explained in
note 3 the group's actual loss may vary materially from the current
estimate and further information may cause the estimate to be
revised.
Statement of compliance
The group consolidated financial statements are prepared in
accordance with all of the International Financial Reporting
Standards ("IFRS"), as adopted by the European Union, which are
effective at 31 December 2011.
All new standards and interpretations released by International
Accounting Standards Boards (IASB) have been considered and of
these the following new and amended standards have been adopted by
the Group in the period. None of these amendments have had a
material impact on the transactions in the year or historic
transactions where retrospective application is required.
IFRS 7 (Amended) Financial instruments: Disclosures. The
amendments require an explicit statement that the interaction
between qualitative and quantitative disclosures better enables
users to evaluate an entity's exposure to risks arising from
financial instruments.
IAS 1 (Amended) Presentation of Financial Statements. IAS 1 is
amended to clarify that reconciliation from opening to closing
balances is required to be presented in the statement of changes in
equity for each component of equity. IAS 1 is also amended to allow
the analysis of the individual other comprehensive income line
items by component of equity to be presented in the notes.
The following standards are in issue but are only effective in
future accounting periods.
IAS 1: Amendment: Presentation of items of other comprehensive
income (effective 1 July 2012)
IAS 12: Amendment: Deferred tax: Recovery of underlying assets
(effective 1 January 2012)
IFRS 9: Financial Instruments (effective 1 January 2015)
IFRS 10: Consolidated financial statements (effective 1 January
2013)
IFRS 11: Joint arrangements (effective 1 January 2013)
IFRS 12: Disclosure of interests in other entities (effective 1
January 2013)
IFRS 13: Fair Value Measurement (effective 1 January 2013)
IAS 32: Amendment: Offsetting financial assets and financial
liabilities (effective 1 January 2014)
IFRS 7: Amendment: Offsetting financial assets and liabilities
(effective 1 January 2013)
The implications of these standards and interpretations are
under review.
Measurement convention
The consolidated financial statements are prepared on the
historical cost basis, as modified by the revaluation of financial
instruments at fair value through the income statement.
Estimates
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 which form the basis of making the
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates. The areas involving a high degree of
judgement or complexity, or areas where assumptions and estimates
are significant to the consolidated financial statements are
disclosed in note 2.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the year in which the estimate is revised if the revision affects
only that year, or in the year of the revision and future years if
the revision affects both current and future years.
b. Basis of consolidation
Subsidiary undertakings which are those entities in which the
Group, directly or indirectly, has the power to govern their
financial and operating policies so as to obtain benefits from
their activities. In assessing control, potential voting rights
that presently are exercisable or convertible are taken into
account. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control
commences until the date that control ceases.
Where the Group has joint control of an entity (joint ventures)
the consolidated financial statements incorporate the Group's share
of the results, assets and liabilities on a line by line basis. The
results of the joint venture are included in the Group results from
the date of acquisition until the date of disposal.
Intra-group transactions, balances and unrealised gains arising
from intra-group transactions are eliminated in preparing the
consolidated financial statements.
c. Foreign currency translation
The functional currency used in the financial statements is
sterling, being the currency of the primary economic environment of
the entities that make up the Group. The consolidated financial
statements are presented in pounds sterling, being the
presentational currency for the Group.
Transactions in US dollars, Canadian dollars, Japanese yen and
euros are translated into sterling at the average rates ruling
during the reporting period. Underwriting transactions denominated
in other foreign currencies are translated into sterling using the
exchange rates prevailing at the date of the transaction.
Monetary items are translated at rates of exchange ruling at the
balance sheet date. This creates a foreign exchange gain or loss
between the net assets translated at closing rates and the profit
for the period which is derived by reference to average rates. The
foreign exchange gain or loss is credited or charged to the income
statement.
Non-monetary assets and liabilities denominated in foreign
currencies, including unearned premiums and deferred acquisition
costs, are recorded in sterling at the rate prevailing at the time
of initial recognition and are not subsequently restated.
The following exchange rates were used to translate foreign
currency assets, liabilities, income and expenses into
sterling:
Average exchange rates 2011 2010
US dollar 1.60 1.55
Canadian dollar 1.59 1.59
Euro 1.15 1.17
Yen 127.88 135.52
Closing exchange rates 2011 2010
US dollar 1.55 1.57
Canadian dollar 1.58 1.56
Euro 1.20 1.17
Yen 119.57 126.98
d. Insurance contracts
Insurance contracts are those contracts that transfer
significant insurance risk at the inception of the contract.
Insurance risk is transferred when an insurer agrees to compensate
a policyholder if a specified uncertain future event adversely
affects the policyholder. Insurance risk is considered significant
if, and only if, an insured event could cause significant
additional benefits to be paid in any scenario, excluding scenarios
that lack commercial substance.
Insurance premium revenues
Insurance premium revenues comprise the proportion of premiums
written that are earned in the period.
Gross premiums written represent premiums due up to the balance
sheet date in respect of contracts incepting in the financial year
and are stated before the deduction of commissions but are after
the deduction of taxes, duties levied on premiums and other
deductions.
Premiums are earned over the period of risk under the policy.
The provision for unearned premiums represents the proportion of
gross premiums written which is estimated to relate to exposures in
subsequent financial periods.
Premiums ceded to reinsurers are accounted for in the same
accounting period as the related direct insurance or inwards
reinsurance business except in relation to excess of loss
contracts, where the premium is charged over the period of cover.
The provision for reinsurers' share of unearned premiums represents
that part of reinsurance premiums ceded which is estimated to be
earned in subsequent accounting periods.
Claims and reinsurers' share of claims
Claims incurred represent the cost of claims and claims handling
expenses paid during the financial year, together with the movement
in provisions for outstanding claims and future claims handling
provisions. Reinsurance recoveries are accounted for in the same
period as the incurred claims for the related business.
The provision for claims outstanding comprises amounts set aside
for notified claims and IBNR on an undiscounted basis. The IBNR
amount is based on estimates calculated using statistical
techniques which are reviewed by external consulting actuaries. The
techniques generally use projections, based on past experience of
the development of claims over time, to form a view of the likely
ultimate claims to be experienced. In addition factors such as
knowledge of specific events and terms and conditions of policies
are taken into account. For more recent underwriting, consideration
is given to the variations in the business portfolio accepted and
the underlying terms and conditions. Where a high degree of
volatility arises from projections, estimates may be based on
rating, on other models of the business accepted and also on
assessments of underwriting conditions. The critical assumption
used when estimating claims provisions is that past experience is a
reasonable predictor of likely future claims development and that
the rating and other models used to analyse current business are a
fair reflection of the likely level of ultimate claims to be
incurred.
The reinsurers' share of provisions for claims is based on
calculated amounts for outstanding claims and projections for IBNR,
net of estimated irrecoverable amounts, having regard to the
reinsurance programme in place for the class of business, the
claims experience for the year and also the current security rating
of the reinsurance companies involved. Statistical techniques are
used to assist in making these estimates.
We seek to ensure that all claims incurred are adequately
provided for but material adjustments may be necessary in later
periods as a result of subsequent information and events. Any
adjustments to original provisions are made in the financial period
in which the need for a change in provision becomes apparent.
Liability adequacy test
At each reporting date an assessment is made to determine
whether recognised insurance liabilities are adequate. If that
assessment shows that the carrying amount of insurance liabilities
(less related acquisition costs) is inadequate in the light of
estimated future cash flows, the entire deficiency is recognised in
the income statement as an impairment of any associated deferred
acquisition costs and, where these are fully depleted, via the
provision for unexpired risks. The provision for unexpired risks is
calculated separately by reference to classes of business that are
managed together, after taking into account relevant investment
return.
e. Financial income
Financial income comprises interest income, dividend income and
fair value gains and losses on financial instruments through the
income statement. Fair value gains and losses include both those
realised on disposal of financial instruments and those unrealised,
representing the movement in the fair value of financial
instruments at fair value through the profit or loss held at the
reporting date. Dividend income is recognised when the
shareholder's right to receive the payment is established. Interest
income on financial assets is recognised on an accrual basis.
f. Other operating income
Other operating income includes the fees and profit commission
charged by the Group to third party members of syndicate 382. All
such income is accounted for in the accounting period in which the
service is rendered by reference to the stage of completion of the
specific transaction, assessed on the basis of the actual services
provided as a proportion of the total services to be provided.
g. Expenses incurred in insurance activities
Expenses incurred in insurance activities are recognised on an
accruals basis. These comprise the Group's share of syndicate
operating expenses, acquisition costs and the direct costs of
membership of Lloyd's and other expenses attributable to the
Group's underwriting activities.
Acquisition costs include brokerage and expenses incurred in
respect of insurance contracts written and incepting during the
financial period. They are allocated in accordance with the
earnings pattern of the premiums on the underlying business.
Deferred acquisition costs represent the proportion of acquisition
costs incurred in respect of unearned premiums at the balance sheet
date. Deferred acquisition costs are only deferred to the extent
that they are considered recoverable out of future revenues.
h. Other operating expenses
Other operating expenses are recognised on an accruals basis.
They comprise operating expenses such as remuneration, office and
administrative costs.
i. Leases
Costs in respect of operating leases are charged to the income
statement on a straight-line basis over the lease term.
j. Finance charges
Finance charges comprise interest payable on loans together with
fees and commissions charged for the utilisation of letters of
credit. Interest payable on loans is charged to the income
statement using the effective interest method. Fees paid for the
arrangement of debt and letter of credit facilities are charged to
the income statement on an amortised cost basis over the life of
the facility.
k. Taxation
The income tax expense comprises both current and deferred
tax.
The tax currently payable is based on taxable income for the
year. Taxable income differs from profits accounted for in the
income statement because it excludes items of income and
expenditure that are taxable or deductible in other periods or are
not subject to, or allowable for, taxation. The Group's liability
for current tax is calculated using tax rates applicable at the
balance sheet date.
Deferred tax is recognised using the balance sheet method,
providing for temporary differences between the tax bases of
dealing with assets and liabilities and their carrying amounts in
the consolidated financial statements. Deferred tax is not
recognised for temporary differences arising on the initial
recognition of an asset or a liability in a transaction, other than
a business combination, that at the time of the transaction affects
neither accounting nor taxable profit or loss. Deferred income tax
is determined using tax rates (and laws) that have been enacted or
substantively enacted by the balance sheet date and are expected to
apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it
is probable that future taxable profit will be available against
which the temporary differences can be utilised.
l. Dividend distribution
Dividends payable to the Group's shareholders are recognised as
a liability in the period in which the dividend is declared and
appropriately approved. Dividends are recognised in the statement
of changes in equity. Dividends declared after the balance sheet
date, but before the financial statements are authorised, are not
recognised but are disclosed in the notes to the financial
statements.
m. Employee benefits
(i) Pensions
Contributions to the Group's defined contribution pension scheme
are charged to the income statement when payable.
(ii) Share-based payments
The Group operates a number of employee and executive share
schemes. The details of these schemes can be found in the
Directors' Remuneration Report. Share options and share awards
granted are measured at fair value on the date of grant and are
expensed on a straight-line basis over the vesting period, with a
corresponding increase in equity. The amount recognised as an
expense is based on the Group's estimate of the number of shares
that will eventually vest.
The Group uses option pricing models to assess the fair value of
options granted to employees for all options issued after 7
November 2002. At each balance sheet date the Group re-assesses the
number of share options that are expected to vest. Any adjustments
are recognised through the income statement with a corresponding
adjustment to equity over the remaining vesting period.
The proceeds of any share options exercised, net of any directly
attributable transaction costs, are credited to share capital and
contributed surplus.
n. Intangible assets
Intangible assets comprise the costs of purchased syndicate
capacity. This capacity is considered to have an indefinite useful
life represented by participation rights to membership of syndicate
382, since it is deemed that the benefits from that capacity have
no foreseeable time limit. Purchased syndicate capacity is
capitalised at cost and is subsequently measured at cost less any
impairment. The Board has considered the future prospects of the
London insurance market and consequently believes that the
ownership of the capacity by the Group will provide economic
benefit over an indefinite number of future periods.
Purchased syndicate capacity is subject to an annual impairment
test. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount.
o. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and any impairment. Depreciation has been provided on
a straight-line basis to write off the cost of fixed assets, less
their residual values, over their estimated useful economic lives.
The rates used are as follows:
Office equipment 25%
Computer equipment 33%
Underwriting system 20%
p. Financial assets
Purchases and sales of financial assets are recognised on the
trade date, which is when the Group commits to purchase or sell the
asset. Financial assets are recognised initially at fair value and,
for instruments not at fair value through the income statement,
include any directly attributable transaction costs. Subsequent to
initial recognition, financial assets are measured as described
below.
Financial assets are de-recognised when contractual rights to
receive cash flows from the investment expire, or where the
investments, together with substantially all the risks and rewards
of ownership, have been transferred.
Investments
All investments have been designated at fair value through
profit or loss on initial recognition. This has been deemed the
most appropriate IAS 39 classification for these assets as this
reflects the fact that the investment portfolios are managed, and
their performance evaluated, on a fair value basis. Management
determines the designation of investments on initial recognition.
Investments are designated at fair value through the income
statement because the Group manages its investments on a fair value
basis in accordance with its documented risk management and
investment strategies.
Financial assets at fair value through the income statement are
measured at fair value, with fair value changes being recognised in
the income statement. The fair values of listed investments are
based on quoted bid prices at the close of business on the balance
sheet date.
Trade and other receivables
Trade and other receivables are initially recognised at fair
value and thereafter stated at amortised cost less impairment
losses.
Cash and cash equivalents
Cash and cash equivalents represent cash balances, money market
deposits lodged with banks and other short-term highly liquid
investments purchased within three months of maturity.
q. Impairment (non-financial assets)
The carrying amount of the Group's assets is reviewed at each
balance sheet date to determine whether there is any indication of
impairment. If any such indication exists, the carrying value is
reduced to the estimated recoverable amount by means of a charge to
the consolidated income statement.
An impairment loss is reversed if there is new information which
results in a change in the estimates used to determine the
recoverable amount, being the higher of fair value less selling
costs and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate which reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimate of future cash flows has not been adjusted.
An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation, if no impairment
loss had been recognised.
r. Subordinated debt
The long-term loan is recognised initially at fair value, net of
transaction costs incurred. The loan is subsequently stated at
amortised cost. Any difference between the initial carrying amount
and the redemption value is recognised in the income statement over
the period of the borrowings using the effective interest
method.
s. Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event, and it is probable that an outflow of economic benefits
will be required to settle the obligation.
t. Own shares
Investments in own shares are valued at their acquisition cost
and are deducted from shareholders' equity in the balance
sheet.
2 Critical accounting estimates and judgements in applying accounting policies
The Group makes estimates and assumptions that affect the
reported amounts of assets and liabilities during the financial
year. Estimates are based on historical experience and other
factors, including expectations of future events that are believed
to be reasonable under the circumstances. Estimates and judgements
in applying accounting policies are continually evaluated for
appropriateness.
Certain critical accounting estimates and judgements in applying
the Group's accounting policies are described below.
Gross written premiums include estimates for pipeline premiums,
together with adjustments to premiums written in prior accounting
periods.
The Group's estimates for reported and unreported losses and the
resulting provisions and related reinsurance recoverables are
continually monitored and formally reviewed quarterly and updated
based on the latest available information. Adjustments resulting
from this review are reflected in income. The process relies upon
the basic assumption that past experience, adjusted for the effect
of current developments and likely trends, is an appropriate basis
for predicting future events. Estimation of claims provisions is a
complex process, however, and significant uncertainty exists as to
the ultimate settlement of these liabilities.
Purchased syndicate capacity is considered to have an indefinite
useful economic life as it entitles the Group to participate on the
underwriting activities of syndicate 382 and the benefit from such
participation has no foreseeable time limit. The carrying value of
the intangible asset is reviewed annually for impairment, by
assessing the discounted cash flows arising from the asset.
Financial investments held by the Group at the reporting date
are shown at fair value and the methods and assumptions used by the
Group to arrive at these values are described in note 21.
The most critical estimate included within the Group's financial
position is the estimate for losses incurred but not reported. The
total estimate as at 31 December 2011 is GBP117.6 million (2010:
GBP62.5 million) and is included within total insurance liabilities
in the statement of financial position.
3 Thailand floods
The current estimate of ultimate claims arising from the severe
flooding in Thailand is:
GBPm
Gross claims 46.9
Reinsurance recoveries (27.1)
Net claims 19.8
This estimate is sensitive to the assumptions about the quantum
of the industry insured losses which remain substantially uncertain
due to the size, duration and complexity of the event. The Group's
actual loss may vary materially from the estimate due to inherent
difficulties in accessing accurate data, which is currently of a
preliminary nature and based on estimates from clients and
brokers.
The directors consider that the Thailand floods loss estimate is
the best that can be made on the basis of information currently
available. Further information may cause the estimate to be
revised. The cost or benefit of these adjustments will be reflected
in the financial statements for the period in which the adjustments
are made.
The Group holds a part of its regulatory capital supporting its
ongoing underwriting in the form of a Letter of Credit deposited at
Lloyd's. A significant deterioration in the loss estimate outlined
above could result in a breach of the covenants of this Letter of
Credit. This may potentially require the Group to seek agreement
from the providers of the Letter of Credit to amend those
covenants, to significantly change the amount and nature of
business it is able to underwrite or to raise additional
finance.
4 Segment information
The Group's operating segments consist of four segments which
recognise the different types of insurance risks underwritten.
Financial information is reported in this format to the Group
Board, being the chief operating decision maker as defined in IFRS
8.
The operating segments have been identified as follows:
-- marine and aviation, which underwrites a broad spectrum of
aviation and marine classes including general aviation, airlines,
space, cargo, jewellers block, other specie and marine hulls
-- specialty lines, which includes a diverse range of accounts
including financial institutions, terrorism, political risks and
accident and health insurance
-- non-marine property, which underwrites property risks on both
a direct insurance and facultative reinsurance basis
-- property treaty, which underwrites the reinsurance of
property risks on both a non-proportional and proportional
basis
Segmental results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. The operating segments do not cross-sell
business between each other and there is no individual policyholder
that comprises greater than 10% of the Group's total gross premiums
written.
Financial income, other operating income, other operating
expenses, finance costs and taxation are not allocated to business
segments as these items are determined by entity level factors and
do not relate directly to the performance of each operating
segment.
Information regarding the Group's operating segments is
presented below.
Year ended 31 December 2011
Marine Specialty Non-marine Property Total Effects Other Total
and lines property treaty operating of foreign foreign
aviation segments exchange exchange
on
non-monetary
items
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gross premiums
written 57,049 41,024 77,549 92,824 268,446 - - 268,446
---------- ---------- ----------- ---------- ----------- --------------- ---------- ----------
Net insurance
premium
revenue 50,517 36,420 46,207 57,404 190,548 (24) - 190,524
Net claims
incurred (18,390) (14,234) (23,906) (90,471) (147,001) - - (147,001)
Expenses
incurred
in insurance
activities (18,317) (15,654) (20,333) (29,021) (83,325) 323 - (83,002)
---------- ---------- ----------- ---------- ----------- --------------- ---------- ----------
Total
operating
expenses (36,707) (29,888) (44,239) (119,492) (230,326) 323 - (230,003)
Underwriting
return before
foreign
exchange 13,810 6,532 1,968 (62,088) (39,778) 299 - (39,479)
---------- ---------- ----------- ----------
Foreign exchange
gains - 899 (638) 261
----------- --------------- ---------- ----------
Underwriting
return after
foreign
exchange (39,778) 1,198 (638) (39,218)
----------- --------------- ---------- ----------
Financial
income 4,781
Other
operating
income 407
Other
operating
expenses (5,728)
----------
Operating
loss (39,758)
Finance
charges (2,369)
----------
Loss before tax (42,127)
Taxation
credit 7,534
----------
Loss after tax (34,593)
==========
Claims ratio
(%) 36.4% 39.1% 51.7% 157.6% 77.2%
Expense ratio
(%) 36.3% 43.0% 44.0% 50.6% 43.8%
---------- ---------- ----------- ---------- -----------
Combined ratio
(%) 72.7% 82.1% 95.7% 208.2% 120.9%
---------- ---------- ----------- ---------- -----------
The claims ratio is net claims incurred as a percentage of net
insurance premium revenue.
The expense ratio is expenses incurred in insurance activities
(excluding other operating expenses) as a percentage of net
insurance premium revenue.
The combined ratio is the sum of the claims ratio and expense
ratio.
Year ended 31 December 2010
Marine Specialty Non-marine Property Total Effects Other Total
and lines property treaty operating of foreign foreign
aviation segments exchange exchange
on
non-monetary
items
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gross premiums
written 54,539 52,287 66,230 106,363 279,419 - - 279,419
---------- ---------- ----------- --------- ----------- --------------- ---------- ----------
Net insurance
premium
revenue 48,545 52,250 42,168 51,039 194,002 (1,285) - 192,717
Net claims
incurred (13,059) (17,236) (17,755) (58,336) (106,386) - - (106,386)
Expenses
incurred
in insurance
activities (17,290) (19,693) (16,970) (23,384) (77,337) 341 - (76,996)
---------- ---------- ----------- --------- ----------- --------------- ---------- ----------
Total operating
expenses (30,349) (36,929) (34,725) (81,720) (183,723) 341 - (183,382)
Underwriting
return before
foreign
exchange 18,196 15,321 7,443 (30,681) 10,279 (944) - 9,335
---------- ---------- ----------- ---------
Foreign
exchange
gains - 1,902 9,173 11,075
----------- --------------- ---------- ----------
Underwriting
return after
foreign
exchange 10,279 958 9,173 20,410
----------- --------------- ---------- ----------
Financial
income 2,888
Other operating
income 149
Other operating
expenses (11,086)
----------
Operating
profit 12,361
Finance charges (2,343)
----------
Profit before
tax 10,018
Taxation charge (467)
----------
Profit after
tax 9,551
==========
Claims ratio
(%) 26.9% 33.0% 42.1% 114.3% 54.8%
Expense ratio
(%) 35.6% 37.7% 40.3% 45.8% 39.9%
---------- ---------- ----------- --------- -----------
Combined ratio
(%) 62.5% 70.7% 82.4% 160.1% 94.7%
---------- ---------- ----------- --------- -----------
The segment assets and liabilities as at 31 December 2011 are as
follows:
Marine and Specialty Non-marine Property Total
aviation lines property treaty
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Assets attributable
to business segments 107,904 102,838 120,643 163,252 494,637
Other group assets 141,969
Total assets 636,606
--------
Liabilities attributable
to business segments 79,762 79,341 107,715 237,377 504,195
Other group liabilities 24,903
Total liabilities 529,098
--------
The segment assets and liabilities as at 31 December 2010 are as
follows:
Marine Specialty Non-marine Property Total
and aviation lines property treaty
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Assets attributable to
business segments 108,313 104,666 93,048 136,955 442,982
Other group assets 131,008
Total assets 573,990
--------
Liabilities attributable
to business segments 88,183 82,185 75,655 140,561 386,584
Other group liabilities 34,107
Total liabilities 420,691
--------
Geographical segments
The situs of the risk is analysed as follows:
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
UK 34,394 29,613
Other EC member states 31,470 17,814
United States of America 120,737 23,506
Worldwide 81,845 208,486
Gross premiums written 268,446 279,419
----------------- ----------------
The "Worldwide" category does not have any significant concentration
in any geographic region.
5 Net insurance premium revenue
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Gross premiums written 268,446 279,419
Change in gross unearned premiums provision (2,019) (21,694)
------------ ------------
Gross earned premiums 266,427 257,725
Premiums ceded to reinsurers (78,938) (73,054)
Change in ceded unearned premiums provision 3,035 8,046
------------ ------------
Ceded earned premiums (75,903) (65,008)
Net insurance premium revenue 190,524 192,717
------------ ------------
6 Financial income
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Interest on financial investments at
fair value through income statement 7,465 6,093
Realised losses on financial investments
at fair value through income statement (2,438) (1,952)
Net unrealised fair value losses on
financial investments at fair value
through income statement (2) (1,003)
Investment manager fees (244) (250)
------------ ------------
4,781 2,888
------------ ------------
7 Other operating income
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Other income 407 149
------------ ------------
Other income comprises third party share of managing agent fees
and profit commissions.
8 Net claims incurred
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Claims paid 198,108 121,593
Movement in insurance liabilities (note
27) 91,570 45,576
------------ ------------
Gross claims incurred 289,678 167,169
Reinsurers' share of claims paid (83,686) (36,022)
Reinsurers' share of movement in insurance
liabilities (note 27) (58,991) (24,761)
------------ ------------
Reinsurers' share of claims incurred (142,677) (60,783)
Net claims paid 114,422 85,571
Net movement in insurance liabilities 32,579 20,815
------------ ------------
Net claims incurred 147,001 106,386
------------ ------------
The current period has benefited from a release of claims
reserves established in previous reporting periods. This
reassessment of claims reserves has contributed to the profit
recognised in the period by GBP9.7 million (2010: GBP18.6 million)
due to the development of claims being more favourable than
previously estimated. The release is analysed by business segments,
as follows:
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Marine and aviation 6,362 13,004
Specialty lines (2,457) 2,298
Non-marine property 3,563 (1,602)
Property treaty 2,243 4,857
Total release 9,711 18,557
------------ ------------
9 Expenses incurred in insurance activities
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Commission expenses payable 59,587 58,552
Other acquisition costs 10,923 9,235
Change in deferred acquisition
costs (2,603) (2,901)
------------ ------------
Total acquisition costs 67,907 64,886
Administrative expenses 15,095 12,110
Expenses incurred in insurance
activities 83,002 76,996
------------ ------------
10 Foreign exchange movements
Foreign exchange gains and losses result from the translation of
the monetary items in the statement of financial position to
closing rates and the income statement to average exchange
rates.
Net unearned premium ("UEP") and deferred acquisition costs
("DAC") are treated as non-monetary items in accordance with IAS 21
which requires that non-monetary items remain at historical rates.
As a result a foreign exchange mismatch arises caused by these
non-monetary items translated at historic rates and the resulting
monetary items retranslated at the end of each period. The impact
of this mismatch is shown in the table below.
Year ended Year ended
31 December 31 December
2011 2010
Foreign exchange gains arising from: GBP'000 GBP'000
Translation of monetary items in the
statement of financial position and
income statement (638) 9,173
Gain representing the non-retranslation
of non-monetary items in the statement
of financial position 1,198 958
(Loss)/gain representing the non-retranslation
of non-monetary items in the income
statement (299) 944
261 11,075
------------ ------------
Year ended Year ended
31 December 31 December
2011 2010
Effects of foreign exchange on non-monetary GBP'000 GBP'000
items:
UEP and DAC items at historic rates 72,029 75,649
UEP and DAC items at closing rates 73,650 76,072
------------ ------------
Valuation difference in closing balance
sheet 1,621 423
Valuation difference in opening balance
sheet (423) 535
1,198 958
------------ ------------
11 Operating expenses
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Other operating expenses 5,728 11,086
------------ ------------
There are no expenses included within other operating expenses
that relate to profit related remuneration of staff and directors
employed in the underwriting function (2010: GBP919,371).
Acquisition and administrative expenses are included in the calculation
of the Group's combined ratio. Other operating expenses are not
included in the combined ratio as these are determined by entity
level factors and not allocated to business segments.
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Fees payable to the Group's auditor
for the audit of the Group's financial
statements 45 61
Fees payable to the Group's auditor
for other services:
Audit of financial statements of
subsidiaries 263 183
Tax services 100 72
Further assurance services:
Actuarial services 80 -
All other services 41 12
------------ ------------
529 328
------------ ------------
All the amounts shown above were paid to KPMG with the exception
of GBP14,750 (2010: GBP14,000) which was paid to Mazars.
12 Employee benefit expense
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
The aggregate director and staff expense
for the group was:
Wages and salaries 10,910 9,399
Pension costs 2,111 1,790
Social security costs 1,537 1,494
Other costs 425 303
Share-based payments 48 1,927
15,031 14,913
------------ ------------
Average number of employees employed
by the Group during the year 121 106
13 Finance charges
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Letter of credit charges 1,663 1,610
Subordinated debt interest 706 733
------------ ------------
2,369 2,343
------------ ------------
14 Income tax expense
The Company and its subsidiaries are subject to tax laws enacted
in the jurisdictions in which they are incorporated and domiciled.
The principal subsidiaries of the Company and the country in
which they are incorporated are listed in note 35.
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Current tax expense
Current period 4,660 1,618
Adjustments for prior years (6,078) 1,126
Deferred tax (see note 28)
Current period (5,820) (1,908)
Impact of tax rate change (296) (369)
(7,534) 467
------------------------------------------- ------------- --------------
Reconciliation of effective tax rate:
(Loss)/profit before income tax (42,127) 10,018
Tax calculated at the standard rate - -
of corporation tax in Bermuda of 0%
Effect of permanent differences (1,209) (356)
Effect of temporary differences 49 66
Prior period adjustments (6,078) 1,126
Impact of UK corporation tax rate change (296) (369)
------------------------------------------- ------------- --------------
(7,534) 467
------------------------------------------- ------------- --------------
15 (Loss)/earnings per share
Basic
Basic loss or earnings per share is calculated by dividing the
loss or profit after tax by the weighted average number of ordinary
shares in issue during the year, excluding ordinary shares purchased
by the Group and held as treasury shares.
Year ended Year ended
31 December 31 December
2011 2010
(Loss)/profit for the year (GBP'000) (34,593) 9,551
------------- -------------
Number of Number of
shares shares
Thousands Thousands
Issued shares at 1 January 52,768 52,318
Effect of own shares held (1,572) (1,253)
Effect of shares issued in year 37 363
------------- -------------
Weighted average number of ordinary
shares in issue during year 51,233 51,428
------------- -------------
Basic (loss)/earnings per share (pence
per share) (67.5)p 18.6p
Diluted
Diluted loss or earnings per share is calculated by adjusting
the weighted average number of ordinary shares outstanding to
assume conversion of all dilutive potential ordinary shares.
The Company has two categories of dilutive potential ordinary
shares being share options and rewards of shares under the group
share schemes. For share options, a calculation is made to determine
the number of shares that could have been acquired at fair value
(determined as the average annual market price of the Company's
shares) based on the monetary value of the subscription rights
attached to outstanding share options. The number of shares calculated
as above is compared with the number of shares that would have
been issued assuming the exercise of the options. Diluted earnings
per share are calculated using the same losses or profits for
the year as for basic loss or earnings per share.
Year ended Year ended
31 December 31 December
2011 2010
Thousands Thousands
Weighted average number of ordinary
shares in issue during year 51,233 51,428
Adjusted for share options and share
schemes 656 1,807
------------- -------------
Weighted average number of ordinary
shares for diluted earnings per share 51,889 53,235
------------- -------------
Diluted (loss)/earnings per share (pence
per share)* (67.5)p 17.9p
* The dilutive impact on shares is excluded when it decreases
the loss per share in accordance with IAS 33 Earning per share.
16 Dividends per share
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Interim dividend for year ended 31 2,184 -
December 2011 of 4.4p per share
Final dividend for the year ended 31 5,060 -
December 2010 of 10.2p per share
Interim dividend for year ended 31
December 2010 of 4.4p per share - 2,247
Second interim dividend for the year
ended 31 December 2009 of 9.3p per
share - 4,728
7,244 6,975
------------- ------------
In view of the impact of the catastrophe losses on the Group's
financial resources and the ongoing strategic review process,
the Board has decided it would no be appropriate to pay a final
dividend.
17 Intangible assets
Intangible assets comprise purchased capacity on syndicate 382.
This capacity is considered to have an indefinite useful economic
life.
18 Property, plant and equipment
Office Computer Total
equipment equipment
GBP'000 GBP'000 GBP'000
Cost
As at 1 January 2010 1,635 3,693 5,328
Additions 168 1,288 1,456
As at 31 December
2010 1,803 4,981 6,784
Additions 203 645 848
As at 31 December
2011 2,006 5,626 7,632
----------- ----------- --------
Depreciation
As at 1 January 2010 331 1,922 2,253
Charge for the year 413 652 1,065
As at 31 December
2010 744 2,574 3,318
Charge for the year 456 882 1,338
As at 31 December
2011 1,200 3,456 4,656
----------- ----------- --------
Carrying amounts
At 31 December 2010 1,059 2,407 3,466
At 31 December 2011 806 2,170 2,976
19 Reinsurance assets
As at As at
31 December 31 December
2011 2010
GBP'000 GBP'000
Reinsurers' share of unearned premium 29,452 26,417
Reinsurers' share of outstanding claims 136,338 73,532
Impairment provision (2,693) (1,937)
------------ ------------
Reinsurance assets (note 27) 163,097 98,012
------------ ------------
Amounts due from reinsurers in respect of claims already paid
by the Group are included in trade and other receivables.
20 Deferred acquisition costs
As at As at
31 December 31 December
2011 2010
GBP'000 GBP'000
As at 1 January 32,445 29,544
Acquisition costs deferred in the year 32,640 30,954
Amortisation charged to income (30,037) (28,053)
Reclassification with UEP 3,524 -
------------ ------------
As at 31 December 38,572 32,445
------------ ------------
Amounts have been transferred between UEP and DAC to reclassify
the asset and liability which had previously been offset.
21 Trade and other receivables
As at As at
31 December 31 December
2011 2010
GBP'000 GBP'000
Receivables arising from direct insurance
operations due from agents, brokers
and intermediaries 49,576 33,004
Receivables arising from reinsurance
operations due from agents, brokers
and intermediaries 55,062 71,402
Reinsurance recoveries due from reinsurers 27,773 7,203
Other receivables 2,324 906
------------ ------------
134,735 112,515
------------ ------------
Amounts due from reinsurers are stated after a provision for
impairment of receivables from reinsurers of GBP0.7 million (2010:
GBP0.3 million). All trade and other receivables are due within
twelve months of the balance sheet date.
22 Financial investments
As at As at
31 December 31 December
2011 2010
GBP'000 GBP'000
Financial assets at fair value through
the income statement
Designated upon initial recognition 147,364 199,939
------------ ------------
Financial assets at fair value through
the income statement
Debt and other fixed income securities 147,364 199,939
------------ ------------
The Group has designated all investments at fair value through
the income statement.
Hardy Re Limited ("HRe"), Hardy Underwriting Limited ("HU") and
Hardy Names Limited ("HN") are wholly owned subsidiaries of Hardy
Underwriting Bermuda Limited. They have entered into Lloyd's
Deposit Trust Deeds under the terms of which they have deposited
funds (cash and investments) with Lloyd's, as security in respect
of their underwriting business at Lloyd's. At 31 December 2011
the total deposited under the Trust Deeds, including cash, amounted
to GBP109.9 million (2010: GBP125.7 million) and the relevant
investments together with income thereon represent the maximum
contingent liability under the Trust Deeds. HRe, HU and HN may,
however, incur further liabilities pursuant to their underwriting
activities at Lloyd's which would need to be met from their other
assets.
In addition, on behalf of HU, the Company has deposited letters
of credit with Lloyd's totalling US $65.0 million (2010: US $65.0
million). These letters of credit have been issued by Lloyds
TSB Bank and Barclays Bank and are secured on the assets of the
Group. The facility supports underwriting on the 2012 year of
account.
Included in investments held by the Group are balances totalling
GBP38.7 million (2010: GBP75.1 million) which are not available
to the Group because they are held within syndicate premium trust
funds to meet related insurance liabilities.
Total investments for the year ended 31 December 2011 have decreased
by GBP52.6 million (2010: increased by GBP7.6 million) and a
breakdown of the movement is shown below:
2011 2010
GBP'000 GBP'000
As at 1 January 199,939 192,365
Exchange differences on monetary assets (2,499) 17,388
Additions 218,992 212,672
Sales and redemptions (269,066) (220,595)
Fair value unrealised gains and losses (2) (1,891)
------------ -----------
As at 31 December 147,364 199,939
------------ -----------
Fair value measurement
The table below summarises the fair value hierarchy for the
group in accordance with revised IFRS 7 - Financial Instruments:
Disclosures. The levels of the fair value hierarchy are defined as
follows:
Level 1 - fair values measured using quoted prices in active
markets for identical instruments. An active market is a market in
which transactions for the instrument occur with sufficient
frequency and volume on an ongoing basis such that quoted prices
reflect prices at which an orderly transaction would take place
between market participants at the measurement date.
Level 2 - fair values measured using directly or indirectly
observable inputs or other similar valuation techniques for which
all significant inputs are based on observable market data.
Level 3 - fair values measured using valuation techniques for
which significant inputs are not based on market observable
data.
The group measures the fair value of its financial assets based
on prices provided by investment managers who obtain market data
from independent pricing services. The pricing services used by the
investment manager obtain actual transaction prices for holdings
that have quoted prices in active markets. For those securities
that are not actively traded, the pricing services use common
market valuation pricing models. Observable inputs used in common
market valuation pricing models include, but are not limited to,
broker quotes, credit ratings, interest rates and yield curves,
prepayment speeds, default rates and other such inputs that are
available from market sources.
Included within Level 1 of the hierarchy are Government bonds
and Treasury bills, which are measured using quoted prices.
Level 2 of the hierarchy includes Government agencies,
Supranationals and Corporate securities. The fair values of these
assets are based on prices obtained from both investment managers
and investment custodians as discussed above. The Group records the
unadjusted price provided and validates the price through a number
of methods, including a comparison of the prices provided by the
investment manager with the investment custodian and the valuation
used by external parties to derive fair value.
There have not been material movements of instruments between
levels in the period.
As at 31 December 2011
Level 1 Level Level Total
2 3
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets:
Debt and fixed income 19,567 127,797 - 147,364
As at 31 December 2010
Level 1 Level Level Total
2 3
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets:
Debt and fixed income 39,012 160,927 - 199,939
23 Cash and cash equivalents
As at As at
31 December 31 December
2011 2010
GBP'000 GBP'000
Short-term bank deposits 123,309 85,367
Deposits with credit institutions 5,768 16,572
-------------- --------------
129,077 101,939
-------------- --------------
Included in cash and cash equivalents held by the Group are balances
totalling GBP120.4 million (2010: GBP95.1 million) which are
not available to the Group because they are held within syndicate
premium trust funds to meet related insurance liabilities.
24 Common shares and contributed surplus
Number Common Contributed
of shares shares surplus
Thousands GBP'000 GBP'000
As at 1 January 2010 52,318 10,464 77,295
Issues in relation
to share options exercised 450 90 19
As at 31 December 2010 52,768 10,554 77,314
Issues in relation
to share options exercised 51 10 98
As at 31 December 2011 52,819 10,564 77,412
------------ --------- ------------
The total authorised number of common shares is 75.0 million
(2010: 75.0 million), with a par value of 20 pence per share.
All issued shares are fully paid.
25 Other reserves
Own Shares Merger Other Treasury Share-based Total
Reserve Reserve Shares Payments
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 January
2010 (2,287) 2,441 75 - 3,128 3,357
Share-based payments
(note 31) - - - - 1,927 1,927
Employee Benefit
Trust holding (1,429) - - - - (1,429)
Purchase of own
shares held in Treasury - - - (1,975) - (1,975)
As at 31 December
2010 (3,716) 2,441 75 (1,975) 5,055 1,880
Share-based payments
(note 31) - - - - 48 48
Employee Benefit
Trust holding (1,501) - - - - (1,501)
Purchase of own
shares held in Treasury - - - (2,609) - (2,609)
As at 31 December
2011 (5,217) 2,441 75 (4,584) 5,103 (2,182)
---------
On 15 December 2010 the Group commenced a Share buy-back programme,
under which the company intended to purchase up to 2,700,000 shares.
To date the Group has acquired 1,677,766 shares which are held as
Treasury shares. These shares were acquired at a range of between
261p and 275p. The share buy-back programme was suspended early
in 2011.
The merger reserve relates to the merger of Hardy Underwriting Group
Plc "HUG" with HU on formation of the Group in 1996.
Other reserves were created following the capitalisation of reserves
in HUA during 1998.
26 Financial liabilities - subordinated debt
As at As at
31 December 31 December
2011 2010
GBP'000 GBP'000
Subordinated debt 18,876 18,617
-------------------- --------------------
The Group issued a US $30.0 million subordinated bond on 19 September
2006. The bond bears a variable interest rate set at three month
US dollar LIBOR plus 3.3%. The bond must be redeemed by no later
than 15 September 2036 at the principal plus any accrued interest.
The Group has the option to redeem all or some of the bond at
any time on or after 15 December 2011. The subordinated debt
is carried at amortised cost. As the debt is held in US dollars
the movement in the exchange rate has meant that when re-valued
to the reporting currency the subordinated debt is held on the
balance sheet at a higher value than the previous reporting period.
No further capital has been added to the loan.
27 Insurance liabilities and reinsurance assets
As at As at
31 December 31 December
2011 2010
GBP'000 GBP'000
Gross
Claims reported 190,741 148,302
Loss adjustment expenses 3,540 4,599
Claims incurred but not reported 117,618 62,530
Unearned premiums 140,054 134,511
-------------- -------------
Total gross insurance liabilities 451,953 349,942
-------------- -------------
Recoverable from reinsurers
Claims reported 82,195 52,196
Claims incurred but not reported 51,450 19,399
Unearned premiums 29,452 26,417
-------------- -------------
Total reinsurers' share of insurance
liabilities 163,097 98,012
-------------- -------------
Net
Claims reported 108,546 96,106
Loss adjustment expenses 3,540 4,599
Claims incurred but not reported 66,168 43,131
Unearned premiums 110,602 108,094
-------------- -------------
Total net insurance liabilities 288,856 251,930
-------------- -------------
The gross liabilities for claims reported, loss adjustment expenses
and claims incurred but not reported are net of expected recoveries
from salvage and subrogation. The amounts for salvage and subrogation
at the end of 2011 and 2010 are not material.
Movement in outstanding claims reserves
Gross Reinsurance Net
GBP'000 GBP'000 GBP'000
Claims reported 107,628 (33,772) 73,856
Loss adjustment expenses 4,001 - 4,001
Claims incurred but not reported 55,108 (11,983) 43,125
-------- ------------ --------
Total as at 1 January 2010 166,737 (45,755) 120,982
Increase in year 45,576 (24,761) 20,815
Net exchange adjustments 3,118 (1,079) 2,039
-------- ------------ --------
Total as at 31 December 2010 215,431 (71,595) 143,836
-------- ------------ --------
Claims reported 148,302 (52,196) 96,106
Loss adjustment expenses 4,599 - 4,599
Claims incurred but not reported 62,530 (19,399) 43,131
-------- ------------ --------
Total as at 31 December 2010 215,431 (71,595) 143,836
Increase in year 91,570 (58,991) 32,579
Net exchange adjustments 4,898 (3,059) 1,839
-------- ------------ --------
Total as at 31 December 2011 311,899 (133,645) 178,254
-------- ------------ --------
Claims reported 190,741 (82,195) 108,546
Loss adjustment expenses 3,540 - 3,540
Claims incurred but not reported 117,618 (51,450) 66,168
-------- ------------ --------
Total as at 31 December 2011 311,899 (133,645) 178,254
-------- ------------ --------
Movement in provision for unearned premiums
Gross Reinsurance Net
GBP'000 GBP'000 GBP'000
As at 1 January 2010 112,817 (18,371) 94,446
Movement during 2010 21,694 (8,046) 13,648
As at 31 December 2010 134,511 (26,417) 108,094
Movement during 2011 2,019 (3,035) (1,016)
Reclassification from DAC 3,524 - 3,524
As at 31 December 2011 140,054 (29,452) 110,602
-------- ------------ --------
Amounts have been transferred between UEP and DAC to reclassify
the asset and liability which had previously been offset.
28 Deferred income tax liability
2011 2010
GBP'000 GBP'000
Net deferred tax liability
Deferred tax assets (2,221) (444)
Deferred tax liabilities 3,788 8,127
Total deferred tax liability 1,567 7,683
------------ ------------
The above liability is calculated using the tax rate of 25% expected
on crystallisation of the asset or liability.
Deferred tax assets and deferred tax liabilities relating to
the same tax authority are presented net on the Group's statement
of financial position.
(a) Group deferred tax assets analysed by
balance sheet headings
2010 Income Statement 2011
charge/
(credit)
GBP'000 GBP'000 GBP'000
At 31 December
Trade and other payables (411) (95) (506)
Temporary differences on:
- Recognition of underwriting
losses - (1,515) (1,515)
- Property, plant and equipment - (27) (27)
Other items (33) (140) (173)
Total deferred tax assets (444) (1,777) (2,221)
-------- ------------------- ---------
(b) Group deferred tax liabilities analysed
by balance sheet headings
At 31 December
Temporary differences on:
- Recognition of underwriting
profits 6,076 (4,149) 1,927
- Intangible assets - Syndicate
capacity 1,849 12 1,861
- Property, plant and equipment 202 (202) -
Total deferred tax liabilities 8,127 (4,339) 3,788
--------- --------------- ---------
Net deferred tax liability 7,683 (6,116) 1,567
--------- --------------- ---------
On 23 March 2011 the Government announced its intention to
reduce the UK corporation tax rate from 28% to 23% over a period of
four years from 1 April 2011. The first of these rate reductions to
26% was enacted on 29 March 2011 and became effective on 1 April
2011. The second of the rate reductions, to 25%, was enacted on 19
July 2011 and will become effective as of 1 April 2012.
Under IAS 12, rate changes can only be reflected in deferred tax
assets or liabilities if they are substantially enacted or enacted
by the balance sheet date. Therefore only these two rate reductions
have been reflected in the deferred tax balance at 31 December
2011.
The effect of the announced further 2% rate reduction will
reduce the Company's future current tax charge and reduce the
Company's deferred tax assets and liabilities accordingly. It is
anticipated that the net impact on the deferred tax balance will
not be material.
A deferred tax asset, amounting to GBP0.8 million, has not been
recognised in respect of losses in HUG because of the uncertainty
whether future taxable profits will be available against which
these losses can be utilised. This is because HUG is an
intermediate holding company within the group, and as such as no
taxable income.
29 Trade and other payables
As at As at
31 December 31 December
2011 2010
GBP'000 GBP'000
Arising out of direct insurance operations 9,722 7,086
Arising out of reinsurance operations 40,975 29,439
Other creditors 6,005 7,924
56,702 44,449
------------ ------------
All trade and other payables are due within twelve months of
the balance sheet date.
Trade and other payables are initially recognised at fair value
and subsequently measured at amortised cost.
30 Net assets per share
Net assets and net tangible assets per share are calculated based
on the number of ordinary shares in issue at the year end, excluding
ordinary shares purchased by the Group and held as treasury shares.
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Net assets 107,508 153,299
Intangible assets (15,509) (15,509)
------------- -------------
Net tangible assets 91,999 137,790
------------- -------------
Issued shares at 31 December (number
of shares '000s) 52,819 52,768
Effect of own shares held (number of
shares '000s) (2,685) (1,744)
Issued shares after adjustment (number
of shares '000s) 50,134 51,024
------------- -------------
Net assets per share GBP2.14 GBP3.00
Net tangible assets per share GBP1.84 GBP2.70
31 Share-based payments
During the year ended 31 December 2011, the Group had a number
of long-term employee incentive schemes which are classified
as equity settled share-based payments.
The compensation cost recognised in the income statement under
IFRS2, Share-based payments, is as follows:
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Approved and unapproved share option (7) -
schemes
Deferred annual bonus scheme awards 5 727
SAYE options scheme 23 20
Performance share plan 27 1,180
-------------- -----------------
48 1,927
-------------- -----------------
Deferred annual bonus scheme
The DAB scheme was approved by shareholders in June 2005 and
first launched in March 2006. Awards of deferred shares and matching
shares are made under the scheme. Awards will be satisfied by
the transfer of shares from the Group's Employee Benefit Trust,
which may acquire shares for this purpose by buying shares in
the market. The Trustees have waived their entitlement to dividends
on any shares acquired.
Awards of deferred shares are granted equivalent to the value
of the annual bonus deferred divided by the share price on the
date of grant. Under the scheme all employees have the opportunity
to defer up to 30% of their annual bonus. During the vesting
period each participant is entitled to instruct the Trustee to
vote on the deferred shares held on his or her behalf and is
entitled to receive dividends, or dividend equivalent payments,
which are paid in respect of deferred share awards.
Up to one matching share is awarded for every deferred share.
Matching shares will vest partly or in full on the third anniversary
of the date of grant to the extent that certain performance conditions
are met. The performance conditions are described in full in
the Directors' Remuneration Report. Matching shares do not receive
the right to vote or receive dividends during the vesting period.
The fair value of the matching share awards is measured as the
market share price, adjusted to take into account the terms and
conditions on which the shares are granted. The fair value of
the matching share awards granted during the year was GBP334,075
(2010: GBP662,818).
Save as you earn share option scheme
The SAYE scheme was approved by shareholders in June 2005 and
first launched in May 2006.
Under the scheme all employees have the opportunity to participate
in a three year savings plan. Participants can save up to GBP250
per month, which is used to purchase shares at a predetermined
discounted fixed option price. For all scheme years to date,
the discount was 10% off the market value of the Group's shares
on the launch date.
The fair value of the options granted under the scheme is estimated
using the Black-Scholes option-pricing model. The fair value
of the options granted during the year was GBP27,769 (2010:
GBP12,048).
The significant inputs into the Black-Scholes model are as
follows:
Share options granted on 30 April 30 April 30 April
2009 2010 2011
Number of options issued 78,948 27,413 47,238
Share price at the date of grant GBP2.92 GBP2.65 GBP2.83
Exercise price GBP2.46 GBP2.50 GBP2.53
Standard deviation of expected
share price returns 27% 32% 38%
Option life 3 years 3 years 3 years
Annual risk free interest rate 1.70% 1.77% 1.79%
Dividend yield 3.70% 3.70% 3.70%
Performance share plan ("PSP")
The PSP scheme was approved by shareholders in May 2007 and
first launched later that month.
Under the scheme some senior employees receive awards of free
shares, which will vest after three years subject to performance
conditions and continued employment.
The performance measure is split into two separate and equal
parts: one part having a NTA value condition and the other having a
TSR condition.
For the NTA condition full vesting will only occur at NTA per
share growth of 45% above RPI over three years. No vesting will
occur below a 15% growth level, with a pro-rata vesting between
these points. The NTA per share is adjusted to add back dividends
paid in the performance period.
For the TSR condition, performance is measured over three years
against a comparator group of other insurance companies. Full
vesting will occur on achievement of upper quartile performance. No
vesting will occur at median performance, with pro-rata vesting
between upper quartile and median performance.
The fair value of the awards granted under the scheme has been
estimated using appropriate valuation methodologies. With respect
to the NTA condition the fair value has been calculated using
assumptions about the likelihood of meeting the performance
criteria based on the directors' expectations in light of the
Group's business model and market conditions.
The fair value of the awards under the TSR condition has been
estimated using a Monte-Carlo simulation model, which calculates a
fair value based on a large number of randomly generated
simulations of the Company's share price.
The fair value of the awards granted during the year was
GBP1,443,383 (2010: GBP1,378,513).
The significant inputs into the valuation model are as
follows:
Awards granted 26 March 2009 7 April 2010 7 April 2011
on
NTA condition TSR condition NTA condition TSR condition NTA condition TSR condition
Number of awards
granted 279,484 279,484 313,299 313,299 328,042 328,042
Share price at GBP2.71 GBP2.71 GBP2.80 GBP2.80 GBP2.82 GBP2.82
the date of grant
Volatility of
expected share
price returns
- company N/A 27% N/A 32% N/A 38%
Volatility of
expected share
price returns
- comparator
group N/A 38% N/A 34% N/A 31%
Correlation with
comparator group N/A 16% N/A 13% N/A 12%
Expected life 3 years 3 years 3 years 3 years 3 years 3 years
Annual risk free
interest rate N/A 1.70% N/A 1.77% N/A 1.79%
Options
The number and weighted average exercise price of share options
are as follows:
Weighted Weighted
average exercise Number average exercise Number
price of options price of options
31 December 31 December
2011 2010
GBP GBP
Outstanding at the beginning
of the year GBP2.13 113,379 GBP2.13 118,099
Lapsed/forfeited during
the year GBP1.98 (48,920) GBP2.33 (4,720)
------------------- ------------ ------------------ ------------
Outstanding and exercisable
at the end of the year GBP2.23 64,459 GBP2.13 113,379
------------------- ------------ ------------------ ------------
The options outstanding at 31 December 2011 have a weighted
average exercise price of GBP2.23 and a remaining contractual life
up to March 2014.
32 Commitments
The Group leases office premises under operating leases. None of
the leases includes contingent rentals. The future aggregate
minimum lease payments under operating leases are as follows:
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Less than one year 347 262
Between one and five years 1,241 1,166
1,588 1,428
------------ ------------
During the year ended 31 December 2011, GBP0.6 million was
recognised as an expense in the income statement in respect of
operating leases (2010: GBP0.3 million).
33 Contingencies
The managed syndicates are subject to the New Central Fund
annual subscription, which is an annual fee calculated on gross
premiums written by the syndicates. This fee was 0.5% for 2010,
2011 and 2012. In addition to this fee, the Council of Lloyd's has
the discretion to call a further contribution of up to 3.0% of the
syndicate's managed capacity if required.
34 Related parties
Directors of the Company and their immediate relatives control
4.41% (2010: 5.61%) of the voting shares of the Company. This
includes the shares held in the Hardy EBT. The Company considers
that the directors are the key management personnel of the Company
in the context of the IAS 24 definition.
In addition to salaries, the Group also provides non-cash
benefits to directors and executive officers, and contributes to a
post-employment defined contribution pension plan on their behalf.
Directors participated in the Group's share option schemes. Full
details of all the elements of remuneration payable to the
directors are contained in the Directors' Remuneration Report. No
other transactions took place between the Company and key
management personnel.
35 Principal subsidiary companies of Hardy Underwriting Bermuda Limited
The Company owns 100% of the ordinary share capital in the
following subsidiaries.
Hardy Underwriting Group Plc* UK holding company
Hardy Re Limited* Bermudian reinsurance
company
Hardy Bermuda Limited* Bermudian managing general
agent
Hardy Underwriting Limited UK corporate member of
Lloyd's
Hardy Names Limited UK corporate member of
Lloyd's
Hardy IC Limited UK corporate member of
Lloyd's
Hardy (Underwriting Agencies) Limited UK managing agent
Hardy Insurance Services Limited UK service company
Hardy Underwriting Asia Pte Ltd Singaporean service company
Hardy Guernsey Limited* Guernsey insurance company
* held directly
The Company also owns 50% of the ordinary share capital in HAIM,
a joint venture with Arig. HAIM, which was established in 2009 and
is based in Bahrain, focuses on construction, property and onshore
energy. Primarily HAIM writes business from the Middle East and
North African regions but also considers business from other parts
of Asia and Africa. Both Hardy and Arig have equal representation
on the board of directors of HAIM.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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