TIDMALEA
RNS Number : 9502Q
Alea Group Holdings(Bermuda) Ltd
12 August 2010
Alea Group Holdings (Bermuda) Ltd
Interim results for the six months ended 30 June 2010
Alea announces interim results and provides an update on run-off
Financial Performance1,2
· Net asset value of $1.70 per share compared with $1.94 per share as at 31
December 2009 and $2.08 per share as at 30 June 2009.
· Net asset value, net of unrealised losses on non-agency US
mortgage-backed securities held at amortised cost of $1.15 per share compared
with $1.03 per share as at 31 December 2009 and $0.90 per share as at 30 June
2009.
· Loss after tax from continuing operations was $50.1 million (30 June
2009: loss after tax from continuing operations of $33.7 million).
· Loss after tax was $50.1 million (30 June 2009: loss after tax of $44.7
million) which on a per share3basis was a loss of $0.29 (30 June 2009: loss per
share of $0.26).
· Insurance contract liabilities of the continuing operations decreased by
8.2% from $788.2 million at 31 December 2009 to $723.2 million at 30 June 2010.
· Investment income was $14.8 million on average invested assets of $859.3
million (30 June 2009: $20.2 million on average invested assets of $930.0
million).
· The Group4 recognised an impairment of $50.6 million in respect of
certain non-agency US mortgage-backed securities (30 June 2009: $21.6 million).
· Adverse reserve development, net of reinsurance and excluding the impact
of commutations and discount in the six months ended 30 June 2010 was $3.7
million (30 June 2009: adverse reserve development of $10.9 million, net of
reinsurance and excluding the impact of commutations and discount).
· Other operating expenses for the six months ended 30 June 2010 were $14.3
million (30 June 2009: $15.7 million).
Significant Events and Directorate Changes
Jeffrey Rosenthal assumed the role of President and Chief Executive Officer
replacing Mark B. Cloutier effective 1 April 2010. As previously disclosed, Mr.
Cloutier tendered his resignation effective 31 March 2010 from the Board of
Directors and as Chief Executive Officer.
Effective 12 May 2010, Jeff Rosenthal and Mark Cloutier joined and were
appointed to the Board of Directors as an Executive Director and a Non-Executive
Director, respectively.
Dividend
The Company has not proposed an interim dividend for the 2010 financial year
(2009: $nil).
Notes
1. Except where specifically indicated, all income statement amounts and
their comparatives refer to continuing operations only.
2. Except where specifically indicated,all statements refer to the six
months ended 30 June 2010 or 30 June 2009.
3. Weighted average number of ordinary shares of 174.0 million on an
undiluted basis (30 June 2009: 173.9 million). Restricted stock units have been
excluded from the calculation of the weighted average number of ordinary shares
for the purposes of diluted earnings per share as their effects were
anti-dilutive
4. "Company" refers to Alea Group Holdings (Bermuda) Ltd only. "Group" or
"Alea" refers to Alea Group Holdings (Bermuda) Ltd and subsidiaries.
Financial information presented herein has been prepared in accordance with
International Financial Reporting Standards ("IFRS").
Your attention is drawn to the further information contained in the following
sections of this document. You should read the whole of this document and not
just rely on the information contained in this headline summary, which is
qualified in its entirety by the further information contained elsewhere in this
document.
For further information, please contact:
Jeffrey Rosenthal
+1 860 258 6700
Sheel Sawhney
+1 860 258 6524
Financial Dynamics
Robert Bailhache
Nick Henderson
+44 20 7269 7114
Past performance cannot be relied upon as a guide to future performance.
Certain statements made in this document that are not based on current or
historical facts are forward-looking in nature including, without limitation,
statements containing words "believes," "anticipates," "plans," "projects,"
"intends," "expects," "estimates," "predicts," and words of similar import. All
statements other than statements of historical facts including, without
limitation, those regarding the Group's financial position, business strategy,
plans and objectives of management for future operations (including development
plans and objectives) are forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
Group to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. In
particular, forecasting of reserves for future losses is based on historical
experience and future assumptions. As a result they are inherently subjective
and may fluctuate based on actual future experience and changes to current or
future trends in the legal, social or economic environment. Such forward-looking
statements are based on numerous assumptions regarding the Group's present and
future business strategies and the environment in which the Group will operate
in the future. These forward-looking statements speak only as at the date of
this document or other information concerned. Alea Group Holdings (Bermuda) Ltd
expressly disclaims any obligations or undertaking (other than reporting
obligations imposed on us in relation to our listing on the London Stock
Exchange) to disseminate any updates or revisions to any forward-looking
statements contained herein to reflect any changes in the Group's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based. References in this paragraph to the Group are
to Alea Group Holdings (Bermuda) Ltd and its subsidiaries from time to time.
RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge:
(a) the condensed set of financial statements has been prepared in accordance
with IAS 34 'Interim Financial Reporting' and gives a true and fair view of the
assets, liabilities, financial position and profit or loss of the undertakings
included in the consolidation as a whole as required by DTR 4.2.4 R;
(b) the interim management report includes a fair review of the information
required by DTR 4.2.7 R being an indication of important events during the first
six months of the financial year, and their impact on the condensed set of
financial statements and a description of the principal risks and uncertainties
for the remaining six months of the year; and
(c) the interim management report includes a fair review of the information
required by DTR 4.2.8 R, being related parties transactions that have taken
place in the first six months of the current financial year and that have
materially affected the financial position or performance of the Group during
that period and any changes in the related parties transactions described in the
last annual report that could have a material effect on the financial position
or performance of the Group in the first six months of the current financial
year.
By order of the Board
Jeffrey R. Rosenthal
CEO
11 August 2010
Carl E. Speck
CFO
11 August 2010
MANAGEMENT REPORT
CHIEF EXECUTIVE OFFICER'S REPORT
Our financial performance for the first half of the year, a net loss of $50.1
million, is disappointing, given the Group's considerable progress in continuing
its run-off strategy. The primary driver of the loss for the period is the
recognition of an impairment on our financial assets of $50.6 million. As a
result of the net loss, the net asset value of the Group declined to $296.0
million as at 30 June 2010, compared to $336.7 million at year-end 2009.
Our investment income for the period was $14.8 million, compared to $20.2
million at 30 June 2009. We continue to reduce our operating expenses and manage
our finance costs, both of which are tracking lower for the first six months of
2010 as compared to the same period in 2009. As we move through the second half
of the year, our focus will be on keeping operating expenses and finance costs
in line with our investment income.
While our investment performance for the first six months of the year has
created additional challenges for the Group, we continue to successfully execute
on our key deliverables while in run-off. Insurance contract liabilities
decreased by 8.2% to $723.2 million, down from $788.2 million at year-end 2009.
In addition, we completed a number of commutations on favorable economic terms
and continue to closely manage our direct insurance claims in the United States.
The Group strengthened its reserves relative to its life insurance portfolio for
the first half of the year by $3.6 million. During the period, we engaged a new
life actuary to perform a thorough analysis of our life reserves. In the second
half of the year, we plan to further audit and inspect our reinsurance policies
in this portfolio with the expectation of reducing further uncertainty in the
Group's life reserves.
Despite our investment setbacks for the first half of 2010, our team at Alea has
shown great commitment to pursuing our goals of reducing our insurance
liabilities at favorable pricing, preserving cash, further streamlining the
operation and developing strategies to better manage the Group's capital. I
thank them in that regard and also thank them for their assistance during my
transition over the past several months.
Jeffrey Rosenthal
Chief Executive Officer
11 August 2010
FINANCIAL REVIEW
Consolidated income statement
+----------+------------------------------+--+----------+--+--------+-+-----------+-+-------+----------+--------+
| | Six | Six months | Year ended |
| | months | ended | |
| | ended | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | 30 June | 30 June 2009 | 31 December 2009 |
| | 2010 | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | $'million | $'million | $'million |
| | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Gross premiums written | 5.4 | 10.7 | 17.5 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Revenue | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Premium revenue | 5.5 | 10.8 | 17.5 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Premium ceded to reinsurers | (0.1) | (0.1) | (0.3) |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Net insurance premium revenue | 5.4 | 10.7 | 17.2 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Fee income | - | - | 7.9 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Investment income | 14.8 | 20.2 | 37.0 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Net realised gains on financial assets | 1.9 | 4.7 | 5.2 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Impairment of financial assets | (50.6) | (21.6) | (30.5) |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Net realised losses on sale of renewal rights | - | - | (15.0) |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Total revenue | (28.5) | 14.0 | 21.8 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Expenses | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Insurance claims and loss adjustment expenses | 2.3 | 14.8 | 43.5 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Insurance claims and loss adjustment expenses paid to | 0.7 | 8.7 | 5.7 |
| reinsurers | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Net insurance claims | 3.0 | 23.5 | 49.2 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Acquisition costs | 0.8 | 3.6 | 4.1 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Other operating expenses | 14.3 | 15.7 | 27.1 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Restructuring costs | 0.2 | 0.1 | 0.2 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Total expenses | 18.3 | 42.9 | 80.6 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Results of operating activities | (46.8) | (28.9) | (58.8) |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Finance costs | (3.3) | (5.1) | (9.3) |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Loss before income tax | (50.1) | (34.0) | (68.1) |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Income tax credit | - | 0.3 | 0.6 |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| Loss for the period from continuing operations | (50.1) | (33.7) | (67.5) |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | | | | |
+----------+------------------------------+----------------+----------+-------------+---------------------------+
| Discontinued operations | | | |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | | | | |
+----------+------------------------------+----------------+----------+-------------+---------------------------+
| Loss for the period from discontinued operations | - | (11.0) | (10.7) |
+----------------------------------------------------------+--------+---------------+---------------------------+
| | | | | | |
+----------+------------------------------+----------------+----------+-------------+---------------------------+
| Loss for the period | (50.1) | (44.7) | (78.2) |
+-------------------------------------------------------+-----------+---------------+---------------------------+
| | | |
| Earnings per share for losses attributable to the equity shareholders of the Company | | |
| during the period: | | |
+-------------------------------------------------------------------------------------------+----------+--------+
| | (0.29) | (0.26) | (0.45) |
| Basic in respect of loss for the period | | | |
| ($) | | | |
+--------------------------------------------+----------------------+-------------+-----------------------------+
| Diluted in respect of loss for the period | (0.29) | (0.26) | (0.45) |
| ($) | | | |
+--------------------------------------------+----------------------+-------------+-----------------------------+
| | | | | | | | | | | | |
+----------+------------------------------+--+----------+--+--------+-+-----------+-+-------+----------+--------+
Consolidated balance sheet
+---------------------------+--------+------------+------------+------------+
| | | As at | As at | As at |
+---------------------------+--------+------------+------------+------------+
| | | 30 June | 30 June | 31 |
| | | 2010 | 2009 | December |
| | | | | 2009 |
+---------------------------+--------+------------+------------+------------+
| | | $'million | $'million | $'million |
+---------------------------+--------+------------+------------+------------+
| | | | | |
+---------------------------+--------+------------+------------+------------+
| ASSETS | | | | |
+---------------------------+--------+------------+------------+------------+
| Property, plant and | | 1.7 | 2.8 | 2.0 |
| equipment | | | | |
+---------------------------+--------+------------+------------+------------+
| Intangible assets | | 8.5 | 8.5 | 8.5 |
+---------------------------+--------+------------+------------+------------+
| Deferred acquisition | | 0.8 | 1.3 | 1.1 |
| costs | | | | |
+---------------------------+--------+------------+------------+------------+
| Assets of a disposal | | - | 421.9 | - |
| group classified as held | | | | |
| for sale Financial assets | | | | |
+---------------------------+--------+------------+------------+------------+
| Equity securities | | | | |
+---------------------------+--------+------------+------------+------------+
| - available for sale | | 0.1 | 0.1 | 0.1 |
+---------------------------+--------+------------+------------+------------+
| Debt securities | | | | |
+---------------------------+--------+------------+------------+------------+
| - available for sale | | 400.8 | 379.0 | 323.7 |
+---------------------------+--------+------------+------------+------------+
| Loans and receivables, including | 441.2 | 541.0 | 501.3 |
| insurance receivables | | | |
+------------------------------------+------------+------------+------------+
| Derivative financial | | - | - | 0.1 |
| instruments | | | | |
+---------------------------+--------+------------+------------+------------+
| Reinsurance contracts | | 333.0 | 296.3 | 332.7 |
+---------------------------+--------+------------+------------+------------+
| Cash and cash equivalents | | 41.3 | 80.0 | 166.1 |
+---------------------------+--------+------------+------------+------------+
| | | | | |
+---------------------------+--------+------------+------------+------------+
| Total assets | | 1,227.4 | 1,730.9 | 1,335.6 |
+---------------------------+--------+------------+------------+------------+
| | | | | |
+---------------------------+--------+------------+------------+------------+
| LIABILITIES | | | | |
+---------------------------+--------+------------+------------+------------+
| Insurance contracts | | 723.2 | 780.6 | 788.2 |
+---------------------------+--------+------------+------------+------------+
| Borrowings | | 123.4 | 119.4 | 121.4 |
+---------------------------+--------+------------+------------+------------+
| Liabilities of a disposal | | - | 343.0 | - |
| group classified as held | | | | |
| for sale | | | | |
+---------------------------+--------+------------+------------+------------+
| Derivative financial | | - | - | 0.1 |
| instruments | | | | |
+---------------------------+--------+------------+------------+------------+
| Provisions | | 1.4 | 2.3 | 2.1 |
+---------------------------+--------+------------+------------+------------+
| Other liabilities and | | 13.1 | 37.2 | 17.8 |
| charges | | | | |
+---------------------------+--------+------------+------------+------------+
| Trade and other payables | | 70.3 | 87.4 | 69.3 |
+---------------------------+--------+------------+------------+------------+
| | | | | |
+---------------------------+--------+------------+------------+------------+
| Total liabilities | | 931.4 | 1,369.9 | 998.9 |
+---------------------------+--------+------------+------------+------------+
| | | | | |
+---------------------------+--------+------------+------------+------------+
| Net assets | | 296.0 | 361.0 | 336.7 |
+---------------------------+--------+------------+------------+------------+
| | | | | |
+---------------------------+--------+------------+------------+------------+
| EQUITY | | | | |
+---------------------------+--------+------------+------------+------------+
| Capital and reserves attributable to the | | |
| Company's equity holders | | |
+-------------------------------------------------+------------+------------+
| Share capital | | 1.7 | 1.7 | 1.7 |
+---------------------------+--------+------------+------------+------------+
| Other reserves | | 701.8 | 683.2 | 692.4 |
+---------------------------+--------+------------+------------+------------+
| Retained loss | | (407.5) | (323.9) | (357.4) |
+---------------------------+--------+------------+------------+------------+
| | | | | |
+---------------------------+--------+------------+------------+------------+
| Total equity | | 296.0 | 361.0 | 336.7 |
+---------------------------+--------+------------+------------+------------+
| | | | | |
+---------------------------+--------+------------+------------+------------+
Performance indicators and comparison to prior years
The Group ceased underwriting new and renewal business and was placed into
run-off in 2005. As a result, the standard indicators used to assess the
performance of participants in the insurance industry relating to premium levels
and loss ratios are not considered appropriate for the Group. Performance
indicators that are relevant to the Group's run-off strategy are provided where
such indicators provide meaningful and useful comparisons.
Reserves and claims
At 30 June 2010, the total insurance contracts balance of $723.2 million
comprises gross claims outstanding and the provisions for claims handling, less
discount on claims outstanding and claims handling provisions. At 31 December
2009, the total insurance contracts liabilities of the Group were $788.2
million. The $65.0 million reduction in total insurance contracts represents a
decrease of 8.2% in the six months ended 30 June 2010. The claims outstanding,
net of reinsurance at 30 June 2010 were $390.2 million (31 December 2009: $455.5
million). Therefore, the change in claims outstanding, net of reinsurance was a
reduction of 14.3%.
The table below shows all insurance and reinsurance contract reserves held
within the Group:
+----------------------------+------------+-----------+-------------+
| | As at | As at | As at |
+----------------------------+------------+-----------+-------------+
| | 30 June | 30 June | 31 December |
| | 2010 | 2009 | 2009 |
+----------------------------+------------+-----------+-------------+
| | $'million | $'million | $'million |
| | | | |
+----------------------------+------------+-----------+-------------+
| Gross claims outstanding | | | |
+----------------------------+------------+-----------+-------------+
| Provision for claims | 755.4 | 813.1 | 819.0 |
| outstanding, reported and | | | |
| not reported | | | |
+----------------------------+------------+-----------+-------------+
| Discount | (37.5) | (39.1) | (36.5) |
+----------------------------+------------+-----------+-------------+
| | 717.9 | 774.0 | 782.5 |
+----------------------------+------------+-----------+-------------+
| Claims handling provisions | 5.3 | 6.5 | 5.7 |
+----------------------------+------------+-----------+-------------+
| Total insurance contracts | 723.2 | 780.5 | 788.2 |
+----------------------------+------------+-----------+-------------+
| | | | |
+----------------------------+------------+-----------+-------------+
| Total reinsurance | | | |
+----------------------------+------------+-----------+-------------+
| Provision for claims | 335.7 | 298.5 | 335.1 |
| outstanding, reported and | | | |
| not reported | | | |
+----------------------------+------------+-----------+-------------+
| Discount | (2.7) | (2.2) | (2.4) |
+----------------------------+------------+-----------+-------------+
| Total reinsurance | 333.0 | 296.3 | 332.7 |
| contracts | | | |
+----------------------------+------------+-----------+-------------+
| | | | |
+----------------------------+------------+-----------+-------------+
| Undiscounted claims | 425.0 | 521.1 | 489.6 |
| outstanding, net of | | | |
| reinsurance | | | |
+----------------------------+------------+-----------+-------------+
| Discount | (34.8) | (36.9) | (34.1) |
+----------------------------+------------+-----------+-------------+
| Claims outstanding, net of | 390.2 | 484.2 | 455.5 |
| reinsurance | | | |
+----------------------------+------------+-----------+-------------+
The following table presents the Group's booked gross claims outstanding before
claims handling provisions and before discount as at 30 June 2010 by class of
business.
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| | General | Motor | Workers' | Professional | Property | MAT1 | Total |
| $'million | liability | | comp. | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 1999 and prior | 23.1 | 20.1 | 3.3 | 0.2 | 11.9 | 19.8 | 78.4 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2000 | 15.5 | 5.6 | 7.8 | 6.7 | 1.7 | 5.2 | 42.5 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2001 | 10.9 | 1.8 | 17.8 | 4.2 | 1.0 | 0.4 | 36.1 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2002 | 6.9 | 3.4 | 2.8 | 4.0 | 3.6 | 0.3 | 21.0 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2003 | 8.5 | 7.4 | 1.8 | 3.9 | 1.5 | 0.1 | 23.2 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2004 | 8.8 | 13.0 | 4.2 | 7.5 | 0.4 | - | 33.9 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2005 | 6.0 | 23.1 | 0.8 | 6.7 | 5.0 | - | 41.6 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Reinsurance | 79.7 | 74.4 | 38.5 | 33.2 | 25.1 | 25.8 | 276.7 |
| reserves | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Insurance | 42.4 | 11.4 | 52.3 | 0.0 | 1.8 | - | 107.9 |
| reserves | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Total non-life | 122.1 | 85.8 | 90.8 | 33.2 | 26.9 | 25.8 | 384.6 |
| reserves | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Life structured | | | | | | | 286.3 |
| settlements | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Life reinsurance | | | | | | | 84.5 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Provision for claims outstanding, reported | | | 755.4 |
| and not reported | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
1 Marine, Aviation and Transport
The following table sets out Alea's non-life gross claims outstanding,
distinguishing between case reserves and incurred but not reported ("IBNR") as
at 30 June 2010.
+-----------------------------------------------------+--------------+
| Percentage | Total |
+-----------------------------------------------------+--------------+
| Case reserves | 32% |
+-----------------------------------------------------+--------------+
| IBNR | 68% |
+-----------------------------------------------------+--------------+
| Total | 100% |
+-----------------------------------------------------+--------------+
Adverse reserve development
During the six months ended 30 June 2010, the Group experienced adverse
development in its reserves, net of reinsurance and excluding the impact of
commutations and discount of $3.7 million (30 June 2009: adverse reserve
development, net of reinsurance and excluding the impact of commutations and
discount of $10.9 million). Adverse development during the six months ended 30
June 2010 of $3.6 million arises from the Group's life reserves and is a result
of the liability adequacy test performed at the balance sheet date.
Loss reserve discount
As permitted by IFRS 4, categories of claims provisions may be discounted at a
rate which does not exceed that expected rate to be earned by assets covering
the provisions, where the expected average interval between the date of
settlement and the balance sheet date is in excess of four years. As at 30 June
2010, 43% (31 December 2009: 38%; 30 June 2009: 39%) of the Group's gross
reserves were discounted at a rate of 4.0% (31 December 2009: 4.0%; 30 June
2009: 4.0%).
As at 30 June 2010, the Group's total net discount was $34.8 million (31
December 2009: $34.1 million; 30 June 2009: $36.9 million). The change in net
discount is charged to insurance claims and loss adjustment expenses in the
income statement over the duration of payout of the reserves. The net discount
is calculated for each category of claims provisions separately and will be
reduced to zero as the average expected duration drops below the level of four
years as permitted by IFRS 4.
Income statement
Gross premiums written and net insurance premium revenue
Gross premiums written in the six months ended 30 June 2010 were $5.4 million
(30 June 2009: $10.7 million). Net insurance premium revenue decreased by 49.6%
to $5.4 million (30 June 2009: $10.7 million). This low volume results from and
is to be expected due to the Group's decision in 2005 to cease writing new and
renewal business. The majority of the remaining premium is derived from Alea
(Bermuda) Ltd's life portfolio and represents renewal premium which totalled
$7.2 million in the first six months of 2010 compared to $9.7 million in the
first six months of 2009. In addition the Group reduced its non-life pipeline
premium balance by $1.8 million in the period ended 30 June 2010.
Investment income, realised gains and losses and impairment of financial assets
Investment income in the six months ended 30 June 2010 was $14.8 million, $5.4
million or 26.7% lower than the $20.2 million recorded in the six months ended
30 June 2009. This reflects a 3.4% yield on invested assets for the six months
ended 30 June 2010 on average invested assets of $859.3 million compared with a
4.3% yield on invested assets for the six months ended 30 June 2009 on average
invested assets of $930.0 million.
Net realised gains on financial assets were $1.9 million in the six months ended
30 June 2010 (30 June 2009: $4.7 million).
The Group recognised an impairment to the amortised cost of non-agency US
mortgage-backed securities of $50.6 million in the six months ended 30 June 2010
(30 June 2009: $21.6 million).
At each balance sheet date, the Group performs an impairment test with regard to
its non-agency US mortgage-backed securities. An impairment is recognised
wherever the amortised cost of a specific asset is greater than the estimated
recoverable amounts. Recoverable amounts are determined by projecting estimated
future cash flows associated with holding an asset. Estimating future cash flows
requires making explicit assumptions about the future behaviour of the loans
collateralising the securitisation. The key variables in determining the
estimated future cash flows of these securities include the rate of voluntary
prepayments, the rate of defaults and the loss severity on defaulted loans. The
data used for the testing is based on recent actual performance and
characteristics of the collateral.
Insurance claims and loss adjustment expenses
In the six months ended 30 June 2010, the Group incurred net insurance claims
and loss adjustment expenses of $3.0 million, including net adverse reserve
development of $3.7 million (30 June 2009: $23.5 million, including net adverse
reserve development of $10.9 million). The remaining movement consists of
incurred claims in respect of life business, discount on claims reserves, claims
handling expenses and commutation profits.
Acquisition costs
Acquisition costsoccur as a result of the past acquisition of insurance and
reinsurance contracts including brokerage, commissions, underwriting expenses
and other acquisition costs. For life contracts, the acquisition costs paid to
the retrocedents were deferred and are being amortised over the period of the
contracts, consistent with the earning of premium.
In the six months ended 30 June 2010, total acquisition costs were $0.8 million
net of a reduction in accrued acquisition cost of $0.4 million relating to a
decrease in non-life pipeline premiums as discussed above in the section titled
"Gross premiums written and net insurance premium revenue". This compares to
$3.6 million in the six months ended 30 June 2009. Acquisition costs also
include $0.9 million (30 June 2009: $1.4 million) of commission in respect of
life business, which includes $0.2 million in respect of amortisation of
deferred acquisition costs ("DAC").
Other operating expenses
The Group isfocused on minimisingoperating expenses while still retaining the
personnel and capabilities to manage an efficient run-off of the existing
insurance and reinsurance portfolio and to pursue other corporate activities. To
the extent that investment income does not offset the change in net discount on
net claims outstanding and other operating expenses in relation to run-off
activities, the Group will establish a run-off provision. The Group's current
investment income performance and financial projections do not require such a
provision.
In the six months ended 30 June 2010, other operating expenses were $14.3
million (30 June 2009: $15.7 million).
Restructuring costs
In the six months ended 30 June 2010, restructuring costs were $0.2 million,
consisting of severance payments that were not part of the restructuring
provision established at 31 December 2005. In the six months ended 30 June 2009
restructuring costs were $0.1 million.
Staff headcount at 30 June 2010stood at 32 (31 December 2009: 39, 30 June 2009:
64). Excluding the staff of the three UK companies sold on 29 October 2009,
staff headcount was 43 at 30 June 2009.
Results of operating activities
In the six months ended 30 June 2010, the result of operating activities was a
loss of $46.8 million (including impairment of financial assets of $50.6
million) compared with a loss of $28.9 million (including impairment of
financial assets of $21.6 million) in the six months ended 30 June 2009.
Finance costs
Finance costs include investment expenses, foreign exchange movements and
interest costs. In the six months ended 30 June 2010, total finance costs were
$3.3 million, compared with $5.1 million recorded in the corresponding period in
2009. Included within finance costs is $1.9 million (30 June 2009: $2.7 million)
of interest payable on $120 million of 30-year hybrid trust preferred securities
(excluding the cumulative deferred interest of $5.4 million) referred to in the
section below entitled "Financing Facilities". Foreign exchange movements in
respect of non-functional currencies generated a loss of $0.6 million (30 June
2009: gain of $0.1 million). Investment expenses for the period were $0.8
million (30 June 2009: $2.5 million including a charge of $1.8 million which
relates to the costs incurred in re-securitising certain non-agency US
mortgage-backed securities). Further detail is provided in the section titled
"Invested assets".
Loss for the period from continuing operations
Loss before income tax from continuing operations was $50.1 million in the six
months ended 30 June 2010 compared with a loss of $34.0 million in the six
months ended 30 June 2009.
Income tax (credit) / expense
The income tax credit in respect of continuing operations in the six months
ended 30 June 2010 was $nil, compared with a tax credit of $0.3 million in the
six months ended 30 June 2009.
The impact of the income tax expense on the income statement is summarised as
follows:
+---------------------------+--------------+------+--------+--------------+
| | | | Continuing operations |
+---------------------------+--------------+------+-----------------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| | Six months | Six months | Year ended |
| | ended | ended | |
+---------------------------+--------------+---------------+--------------+
| | 30 June 2010 | 30 June 2009 | 31 December |
| | | | 2009 |
+---------------------------+--------------+---------------+--------------+
| | $'million | $'million | $'million |
+---------------------------+--------------+---------------+--------------+
| Current tax (credit) / | | | |
| expense: | | | |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| UK corporation tax | - | - | - |
+---------------------------+--------------+---------------+--------------+
| Foreign tax | - | (0.3) | (0.6) |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Total current (credit) / | - | (0.3) | (0.6) |
| expense: | | | |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Deferred tax expense: | - | - | - |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Total income tax (credit) | - | (0.3) | (0.6) |
| / expense | | | |
+---------------------------+--------------+---------------+--------------+
| | | | | |
+---------------------------+--------------+------+--------+--------------+
+---------------------------+--------------+------+--------+--------------+
| | | | |
| | | | Discontinued |
| | | | operations |
+---------------------------+--------------+------+-----------------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| | Six months | Six months | Year ended |
| | ended | ended | |
+---------------------------+--------------+---------------+--------------+
| | 30 June 2010 | 30 June 2009 | 31 December |
| | | | 2009 |
+---------------------------+--------------+---------------+--------------+
| | $'million | $'million | $'million |
+---------------------------+--------------+---------------+--------------+
| Current tax expense: | | | |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| UK corporation tax | - | 0.1 | 0.1 |
+---------------------------+--------------+---------------+--------------+
| Foreign tax | - | 0.1 | 0.1 |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Total current expense: | - | 0.2 | 0.2 |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Deferred tax expense: | - | 0.1 | 0.1 |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Total income tax expense | - | 0.3 | 0.3 |
+---------------------------+--------------+---------------+--------------+
| | | | | |
+---------------------------+--------------+------+--------+--------------+
The Group's US entities have significant net operating loss carryforwards in
respect of which no deferred tax assets have been recognised due to the lack of
certainty regarding future profitability.
Loss for the period from continuing operations
Loss on ordinary activities after income tax in the six months ended 30 June
2010 was $50.1 million (30 June 2009: loss of $33.7 million).
Discontinued operations
Discontinued operations consist of the results of the following formerly
wholly-owned subsidiaries for the six months ended 30 June 2009 and the year
ended 31 December 2009: Alea Holdings UK Limited, Alea London Limited and Alea
Services UK Limited. The results derived from these entities have been
classified as discontinued as these entities were sold on 29 October 2009 and
were not consolidated in the Group balance sheet as at 31 December 2009.
In the six months ended 30 June 2009, the results derived from these entities
have been classified as discontinued as these entities formed a disposal group
that was available-for-sale. As of 30 June 2009, prior to the completion of the
sale, the assets and liabilities of these subsidiaries have been reclassified to
assets and liabilities of a disposal group classified as held for sale on the
balance sheet.
The results of discontinued operations for the six months ended 30 June 2009 was
a loss of $11.0 million (31 December 2009: loss of $10.7 million).
Loss per share
Basic and fully diluted loss per share for all operations of the Group for the
six months ended 30 June 2010 was $0.29 per share (30 June 2009: loss per share
of $0.26).
Dividend
The Company has not declared an interim dividend for the 2010 financial year
(interim 2009: $nil).
Balance sheet
Total assets
Total assets as at 30 June 2010 decreased by 8.1% to $1,227.4 million from
$1,335.6 million as at 31 December 2009.
Net assets
Net assets (shareholders' funds attributable to equity interests) at 30 June
2010 were $296.0 million (31 December 2009: $336.7 million, 30 June 2009: $361.1
million). Net assets per share were $1.70 (31 December 2009: $1.94, 30 June
2009: $2.08).
Net assets in the six month ended 30 June 2010 decreased by $40.7 million, which
was primarily due to a loss of $50.1 million and a $9.2 million decrease in
cumulative unrealised losses in the investment portfolio described below.
As discussed in the section titled "Invested assets", the Group reclassified its
entire portfolio of non-agency US mortgage-backed securities out of investments
available-for-sale into loans and receivables. These assets are carried at a
total amortised cost of $316.0 million and had an approximate market value of
$219.7 million as at 30 June 2010. If the non-agency US mortgage-backed
securities were reflected in the accounts at their approximate market value,
then the net assets per share of the Group would be $1.15, as compared to values
of $1.03 and $0.90 at 31 December 2009 and 30 June 2009, respectively.
Reinsurance contracts
Reinsurance contracts are $333.0 million at 30 June 2010 as compared to $332.7
million at 31 December 2009 and $296.3 million at 30 June 2009.
Invested assets
The nature of the Group's run-off operations coupled with its long-tail
liabilities allows the Group to pursue a buy and hold investment strategy that
can include an element of long-term securities that may experience price
volatility. During the year ended 31 December 2008, the Group increased its
asset weighting in non-agency US mortgage-backed securities and is still holding
these investments.
As previously disclosed, in accordance with the EU endorsed amendments to IAS 39
and IFRS 7, "Reclassification of Financial Assets," the Group reclassified its
entire portfolio of non-agency US mortgage-backed securities out of investments
available-for-sale into loans and receivables. As of 1 July 2008, the date of
reclassification, the reclassified investments had an amortised cost of $377.0
million and an approximate market value of $347.0 million. The loss position is
to be amortised over the life of the instruments using the effective interest
method.
As at 30 June 2010, financial assets carried at amortised cost within loans and
receivables had a carrying value of $316.0 million (31 December 2009: $362.7
million, 30 June 2009: $374.2 million). These assets have an approximate market
value of $219.7 million as at 30 June 2010 (31 December 2009: $205.5 million, 30
June 2009: $165.7 million).
At 30 June 2010, the market value of available-for-sale investments was $400.9
million, compared with $323.8 million at 31 December 2009 (30 June 2009: $379.0
million).
Of total invested assets, $693.0 million (31 December 2009: $687.8 million, 30
June 2009: $769.1 million) is managed by fund managers with the asset mix shown
below. The remaining invested assets of $65.2 million (31 December 2009: $164.8
million, 30 June 2009: $64.1 million) include predominantly mutual funds
invested in fixed income securities and deposits at banking institutions.
The following analyses the asset class of invested assets:
+------------------------------+----+---+------+------------+---------------+
| Asset class | 30 June 2010 | 30 June | 31 December |
| | | 2009 | 2009 |
+------------------------------+---------------+------------+---------------+
| US government | 10% | 2% | 7% |
+------------------------------+---------------+------------+---------------+
| US mortgage | 25% | 28% | 31% |
+------------------------------+---------------+------------+---------------+
| EU and Switzerland government and | 5% | 10% | 12% |
| corporate | | | |
+-----------------------------------+----------+------------+---------------+
| US corporate | 3% | 3% | - |
+------------------------------+---------------+------------+---------------+
| Asset backed securities | 23% | 17% | 23% |
+------------------------------+---------------+------------+---------------+
| Canadian government and | 1% | - | 1% |
| provinces | | | |
+------------------------------+---------------+------------+---------------+
| Cash, cash equivalents and short term | 33% | 40% | 26% |
| investments | | | |
+---------------------------------------+------+------------+---------------+
| Total | 100% | 100% | 100% |
+------------------------------+---------------+------------+---------------+
| | | | | | |
+------------------------------+----+---+------+------------+---------------+
At 30 June 2010, the Group's investment portfolio had an average duration of 1.7
years (31 December 2009: 1.4 years, 30 June 2009: 3.8 years). The Group seeks to
match duration of the portfolio to expected payment patterns. The Group may
choose to increase the average duration of the portfolio in the future.
In the six months ended 30 June 2010, the Group achieved a total gross return on
the investment portfolio of negative 5.9% (30 June 2009: negative return of
6.5%). The investment return comprised 3.4% investment income (30 June 2009:
4.3%), 0.3% realised gain (30 June 2009: realised gain of 1.0%), 2.2% unrealised
gain (30 June 2009: unrealised loss of 7.2%) and 11.8% impairment loss (30 June
2009: impairment loss of 4.6%) on average invested assets of $859.3 million (30
June 2009: $930.0 million).
At 30 June 2010, apart from $22.6 million rated BBB/Baa and $40.1 million rated
BB/Ba, and $142.5 million rated B or below, all of the Group's fixed income
portfolio was rated A or better and 66.9% was rated AA/Aa or better (31 December
2009: 64.1%, 30 June 2009: 84.2%) by either Standard & Poor's or Moody's. The
portfolio had a weighted average rating of AA+ based on ratings assigned by
Standard & Poor's, and a weighted average rating of Aa3 based on ratings
assigned by Moody's. Excluded from the Standard & Poor's weighted average are
$49.2 million of securities which are not rated or where no rating has been
assigned. Excluded from the Moody's weighted average are $157.9 million of
securities which are not rated or where no rating has been assigned. Other than
with respect to US, Canadian and European Union government and agency
securities, the Group's investment guidelines limit its aggregate exposure to
any single issuer to 5% of its portfolio. Under the Group's current investment
guidelines, all securities (excluding securities in the Company's portfolio
managed by Fortress Fund IV Advisor LLC) must be rated A- or better at the time
of purchase and the weighted average rating requirement of the Group's portfolio
(other than certain portfolios containing private residential US mortgage-backed
securities managed by Fortress Fund IV Advisor LLC) is AA/Aa. As described
below, certain non-agency US mortgage-backed securities were re-securitised in
2009. The weighted average credit ratings provided in the above analysis reflect
the impact of this re-securitisation. A comparison of the credit ratings of
these assets before and after the re-securitisation is provided in note 4 of the
Annual Financial Report 2009 on page 55. The Group recognised an impairment to
the amortised cost of non-agency US mortgage-backed securities of $50.6 million
in the six months ended 30 June 2010 (31 December 2009: $30.5 million, 30 June
2009: $21.6 million).
Certain investments are pledged to secure the issuance of letters of credit in
the normal course of business. As of 30 June 2010, the Group pledged assets of
$57.3 million (31 December 2009: $95.4 million, 30 June 2009: $95.7 million) to
secure the issuance of letters of credit. In addition, $88.5 million of invested
assets (31 December 2009: $88.8 million, 30 June 2009: $127.1 million) are held
as statutory deposits for local regulators and a further $303.4 million (31
December 2009: $380.9 million, 30 June 2009: $426.2 million) are held in trust
for the benefit of policyholders including $116.0 million (31 December 2009:
$157.0 million 30 June 2009: $179.8 million) that Alea (Bermuda) Ltd has placed
in trust on behalf of Alea North America Insurance Company.
As at 30 June 2010, the Group held Société d'Investissement à Capital Variable
("SICAV") of $45.0 million (31 December 2009: $63.1 million, 30 June 2009: $52.6
million) pledged for the benefit of French and Belgian cedants. These SICAVs are
mutual funds invested in European fixed income securities with weighted average
credit quality of AA and duration of approximately six years.
In its Annual Financial Report 2009, the Group reported that $170.1 million in
book value of option ARM securities, part of the Group's non-agency US
mortgage-backed securities portfolio, were downgraded in February 2009 by
Moody's, in some cases directly from Aaa to Ca. On 22 May, 2009, $264.9 million
of certificate principal balance of new non-agency US mortgage-backed securities
were issued in connection with a re-securitisation transaction of existing
non-agency US mortgage-backed securities of an equivalent amount. As a result of
this transaction, non-agency US mortgage-backed securities were re-securitised
to create new non-agency US mortgage-backed securities rated A or higher by
either Standard & Poor's or Fitch. These new investment grade non-agency US
mortgage-backed securities are available to be used as collateral for the pledge
arrangements used by the Group. The re-securitisation also supports the Group's
buy and hold strategy for these securities.
Capital management
Financing facilities
The Group raised $100.0 million of hybrid capital in December 2004 and a further
$20.0 million in early January 2005. This capital is in the form of 30-year
hybrid trust preferred securities priced at LIBOR plus 285 basis points.
Commencing on the 15 June 2009 interest payment date, Alea Holdings US Company
("AHUSCO") has elected to defer the payment of interest on debentures underlying
$120.0 million of trust preferred securities due 2034 and 2035. As at 30 June
2010 the deferred interest was $5.4 million (31 December 2009: $3.5 million, 30
June 2009: $1.5 million). The deferral may be continued for a period not to
exceed five years under the terms of the debentures. During the deferral period,
unpaid quarterly coupons will compound at the rate of three month LIBOR (reset
quarterly) plus 285 basis points. While the deferral remains in effect, neither
Alea nor AHUSCO may make any payments on any securities that are pari passu or
subordinate to the debentures, including any common shares.
The total borrowings of $123.4 million include $120.0 million of hybrid trust
preferred securities, deferred interest of $5.4 million and are reduced by the
capitalised debt raising expenses of $2.0 million.
Liquidity and cash flow
Cash flows from operating activities primarily consist of premiums collected,
investment income and collected reinsurance recoverable balances, less paid
claims, retrocession payments, commutation payments, operating expenses and tax
payments. The resulting net cash outflow from operating activities after income
tax paid for the six months ended 30 June 2010 was $52.7 million (30 June 2009:
$69.1 million).
The net decrease in cash was $124.8 million (decrease for the six months ended
30 June 2009 of $37.7 million). This is after net cash used in investing
activities of $72.0 million (30 June 2009: net cash received of $56.1 million)
and net cash used in financing activities of $nil (30 June 2009: net cash used
of $1.2 million). As a result, after taking account of a negative exchange
movements of $0.1 million (30 June 2009: positive exchange movements of $0.9
million), the Group's cash and cash equivalents at 30 June 2010 were $41.3
million (30 June 2009: $80.0 million).
Intra-Group arrangements
The Group designed intra-Group quota share arrangements to ensure that each
local balance sheet retains risk commensurate with its capital base. With the
merger of Alea Europe Ltd into Alea (Bermuda) Ltd in September 2009, an existing
quota share arrangement was eliminated. The only remaining quota share
arrangement in place is a 70% quota share to Alea Bermuda of Alea North
America's insurance and reinsurance business for the 2002 to 2005 underwriting
years.
Credit ratings
In the first half of 2006, Alea Group requested the withdrawal of all Group and
member company ratings following ratings downgrades by both Standard & Poor's
and A.M. Best.
Branches
In the period ended 30 June 2010 the Company's subsidiary, Alea (Bermuda) Ltd.
had a licensed branch in Canada. A full listing of the Company's subsidiaries is
set out in note 41 of the Annual Financial Report 2009.
Related party transactions
Related party transactions are disclosed in note 20 of the condensed set of
consolidated financial statements. There have been no material changes in the
related party transactions described in the Annual Financial Report 2009.
Principal risks and uncertainties
There are several different types of risk and uncertainty which could have a
material impact on the Group's performance in the six months to 31 December
2010. Further information of the principal long-term risks and uncertainties to
which the Group is exposed and the procedures that the Group has in place to
mitigate these can be found in note 4 of the Annual Financial Report 2009. The
following risks and uncertainties could cause the actual results for the six
months ended 30 June 2010 to differ materially from expected or historical
results.
Sources of uncertainty in the estimation of future claim payments
The Group takes steps to ensure that it has appropriate information regarding
its claims exposures. However, given the uncertainty in establishing claims
provisions, it is likely that the final outcome will prove to be different from
the original and current net liability balances established.
In estimating the liability for the cost of reported claims not yet paid, the
Group considers any information available from loss adjusters and information on
the cost of settling claims with similar characteristics in previous periods.
Large claims are assessed on a case-by-case basis or projected separately in
order to allow for the possible distorting effect of their development and
incidence on the rest of the portfolio.
The estimation of claims incurred but not reported ("IBNR") is generally subject
to a greater degree of uncertainty than the estimation of the cost of settling
claims already notified to the Group, where information about the claim event is
available. An assessment of the liability for future claims is affected not only
by the risks inherent in the perils insured but also by changes that may occur
in the legal and judicial environment before claims are settled, all of which
affect the quantum of the claim. Additionally, the practical limits to
information flows from insured parties hamper the estimation of the claim
amounts.
The Group seeks to reduce the uncertainty inherent within claims estimation by
using different estimation methods for different classes of business. The
projections given by the various methodologies also assist in estimating the
range of possible outcomes. The most appropriate estimation technique is
selected taking into account the characteristics of the business class and the
extent of the development of each underwriting year.
Prior year reserve development
The Group's expected loss development is determined by the Group's actuaries
based on historical claims analysis and projected trends. Actual reported losses
may vary from expected loss development. Generally, as the policies mature, the
level of newly reported claims decreases.
By their nature, reinsurance operations add further complications to the
reserving process, particularly to casualty business, where there is an inherent
lag in the timing and reporting of a loss event from an insured or ceding
company to the reinsurer. This reporting lag creates an even longer period of
time between the policy inception and when a claim is finally settled. As a
result, more judgement is required to establish reserves for ultimate losses in
reinsurance operations.
Interest rate risk
The Group's invested assets are subject to interest rate risk. The Group's
interest rate risk is concentrated in the US and Europe and is sensitive to many
factors, including governmental monetary policies and domestic and international
economic and political conditions. Changes in interest rates will have an impact
on both investment income yield derived from invested assets and also the market
value of those assets.
The Group is also exposed to interest rate risk on its insurance reserves and
floating rate borrowings.
Where appropriate, reserves are discounted in accordance with existing UK GAAP
as permitted by IFRS 4. Discount rates are based on the expected future cash
flow derived from assets established for the payment of reserves. The Group
discounts loss reserves for certain business with a mean term to ultimate claims
settlement in excess of four years. The majority of such discount applies to the
casualty business. The unwind of the discount is sensitive to the claims payment
pattern.
The Group discount rate used is based on the relevant average investment return
of the last five years. Consequently, a reduction in the relevant average
investment return would lead to a reduction in the net discount on the balance
sheet and a charge to the income statement.
The Group has $120.0 million of trust preferred securities in issue (exclusive
of accrued but unpaid deferred interest of $5.4 million). These securities
provide for a preferred dividend at a rate of three month LIBOR plus 285 basis
points. Therefore, movements in three month LIBOR rates will have an impact on
the level of preferred dividend payable.
Credit risk
When the Group was underwriting, it purchased reinsurance to manage its
catastrophe exposure and mitigate insurance risk. However, the ceding of
insurance risk exposes the Group to credit risk from its reinsurers and
retrocessionaires.
The Group selected its reinsurers and retrocessionaires based on price and
credit quality and continues to monitor them closely over time. The Group
required that at the time of purchase all reinsurers and retrocessionaires had a
minimum credit rating of A- / A3, unless high quality collateral was provided.
The Group also sought to diversify its business among reinsurers and
retrocessionaires and required collateral where deemed prudent to do so. Thus,
the use of maximum limits for credit exposure to any one counter party was an
effective method for mitigating credit risk.
Additionally, the Group is subject to issuer credit risk in respect of third
party companies in which the Group holds debt securities. The Group observes
strict investment guidelines when determining counterparties in which to invest.
Other than with respect to US, Canadian and European Union government and agency
securities, the Group's investment guidelines limit its aggregate exposure to
any single issuer to 5% of its portfolio. All securities must be rated A- or
better at the time of purchase and the weighted average rating requirement of
the Group's portfolio is AA / Aa (excluding certain portfolios managed by
Fortress Fund IV Advisor LLC).
Asset and liability mismatch risk
The Group is subject to several types of financial risk. The most significant of
these is the risk that at any given date, the proceeds from realising the
financial assets of the Group may be insufficient to meet the financial
obligations arising from its insurance contracts. In order to ensure that
adequate liquid resources are available to fund insurance liability cash
outflows when they fall due, the Group's practice is to invest in assets
matching the currency and to have equal or shorter duration of the expected
related liabilities.
Currency risk
The Group reports its results in US Dollars and accordingly, to the extent that
shareholders' funds are invested in assets denominated in currencies other than
US Dollars, exchange gains or losses may arise on translation.
The Group controls its currency risk by investing in assets that match the
currency in which it expects related liabilities to be paid and by investing the
majority of assets backing shareholder funds in US Dollars. The Directors
consider the revaluation gains and losses arising from the revaluation of
non-functional currencies that impact the income statement and equity to be
insignificant.
Risk management framework
The Board of Directors retains overall responsibility for the risk management
framework that has been established to mitigate the Group's exposure to risk and
assesses the effectiveness of the controls established to identify, monitor and
mitigate the risks faced by the Group.
Financial calendar 2010
The Group expects to release its results for the year ended 31 December 2010 on
17 March 2011.*
Carl Speck
Chief Financial Officer
11 August 2010
*provisional date
ALEA GROUP INTERIM REPORT 2010
Six months ended 30 June 2010
Condensed consolidated income statement
+------------------------------+--+-+--------+----------+----------+-------------+----------+
| | | Six | Six | Year | |
| | | months | months | ended | |
| | | ended | ended | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | 30 June | 30 June | 31 December | |
| | | 2010 | 2009 | 2009 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | Notes | $'000 | $'000 | $'000 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Continuing operations | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Gross premiums written | | 5,425 | 10,731 | 17,477 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Revenue | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Premium revenue | | 5,453 | 10,801 | 17,528 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Premium ceded to from | | (47) | (93) | (282) | |
| reinsurers | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Net insurance premium | | 5,406 | 10,708 | 17,246 | |
| revenue | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Fee income | | 1 | - | 7,928 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Investment income | 5 | 14,808 | 20,175 | 36,954 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Net realised gains on | 6 | 1,855 | 4,684 | 5,184 | |
| financial assets | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Impairment of financial | 7 | (50,631) | (21,562) | (30,493) | |
| assets | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Net realised losses on sale | 8 | - | - | (15,000) | |
| of renewal rights | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Total revenue | | (28,561) | 14,005 | 21,819 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Expenses | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Insurance claims and loss | | 2,251 | 14,765 | 43,532 | |
| adjustment expenses | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Insurance claims and loss | | 781 | 8,702 | 5,662 | |
| adjustment expenses paid to | | | | | |
| reinsurers | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Net insurance claims | | 3,032 | 23,467 | 49,194 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Acquisition costs | | 751 | 3,597 | 4,137 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Other operating expenses | | 14,304 | 15,720 | 27,092 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Restructuring costs | 9 | 158 | 72 | 192 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Total expenses | | 18,245 | 42,856 | 80,615 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Results of operating | | (46,806) | (28,851) | (58,796) | |
| activities | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Finance costs | | (3,320) | (5,099) | (9,328) | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Loss before income tax | | (50,126) | (33,950) | (68,124) | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Income tax credit | 10 | - | 277 | 611 | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Loss for the period from | | (50,126) | (33,673) | (67,513) | |
| continuing operations | | | | | |
+-----------------------------------+--------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Discontinued operations | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Loss for the period from | 11 | - | (10,986) | (10,651) | |
| discontinued operations | | | | | |
+---------------------------------+----------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Loss profit for the period | | (50,126) | (44,659) | (78,164) | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Earnings per share for losses attributable to the equity shareholders of the Company |
| during the period: |
+-------------------------------------------------------------------------------------------+
| Basic in respect of | 12 | (0.29) | (0.20) | (0.39) | |
| continuing operations ($) | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Basic in respect of | 12 | - | (0.06) | (0.06) | |
| discontinued operations ($) | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Diluted in respect of | 12 | (0.29) | (0.20) | (0.39) | |
| continuing operations ($) | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Diluted in respect of | 12 | - | (0.06) | (0.06) | |
| discontinued operations ($) | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Basic in respect of loss for | 12 | (0.29) | (0.26) | (0.45) | |
| the period | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| Diluted in respect of loss | 12 | (0.29) | (0.26) | (0.45) | |
| for the period | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | |
| | | | | | |
| Condensed consolidated | | | | | |
| balance sheet | | | | | |
+------------------------------+-------------+----------+----------+-------------+----------+
| | | | | | | | |
+------------------------------+--+-+--------+----------+----------+-------------+----------+
+------------------------------+-------+----------+------------+-----------+-------------+
| | | As at | As at | As at |
+------------------------------+-------+-----------------------+-----------+-------------+
| | | 30 June 2010 | 30 June | 31 December |
| | | | 2009 | 2009 |
+------------------------------+-------+-----------------------+-----------+-------------+
| |Notes | $'000 | $'000 | $\'000 |
+------------------------------+-------+-----------------------+-----------+-------------+
| | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| ASSETS | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Property, plant and | | 1,693 | 2,790 | 2,076 |
| equipment | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Intangible assets | | 8,479 | 8,479 | 8,479 |
+------------------------------+-------+-----------------------+-----------+-------------+
| Deferred acquisition costs | | 789 | 1,346 | 1,053 |
+------------------------------+-------+-----------------------+-----------+-------------+
| Assets of a disposal group | 11 | - | 421,907 | - |
| classified as held for sale | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Financial assets | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Equity securities | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| - available-for-sale | | 96 | 77 | 77 |
+------------------------------+-------+-----------------------+-----------+-------------+
| Debt securities | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| - available-for-sale | | 400,774 | 378,972 | 323,706 |
+------------------------------+-------+-----------------------+-----------+-------------+
| Loans and receivables | 13 | 441,205 | 541,007 | 501,372 |
| including insurance | | | | |
| receivables | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Derivative financial | | - | - | 39 |
| instruments | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Reinsurance contracts | 14 | 332,953 | 296,341 | 332,667 |
+------------------------------+-------+-----------------------+-----------+-------------+
| Cash and cash equivalents | | 41,293 | 79,978 | 166,103 |
+------------------------------+-------+-----------------------+-----------+-------------+
| | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Total assets | | 1,227,282 | 1,730,897 | 1,335,572 |
+------------------------------+-------+-----------------------+-----------+-------------+
| | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| LIABILITIES | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Insurance contracts | 14 | 723,238 | 780,551 | 788,276 |
+------------------------------+-------+-----------------------+-----------+-------------+
| Borrowings | 15 | 123,370 | 119,357 | 121,441 |
+------------------------------+-------+-----------------------+-----------+-------------+
| Liabilities of a disposal | 11 | - | 342,993 | - |
| group classified as held for | | | | |
| sale | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Derivative financial | | | | 100 |
| instruments | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Provisions | 16 | 1,364 | 2,266 | 2,054 |
+------------------------------+-------+-----------------------+-----------+-------------+
| Other liabilities and | | 13,098 | 37,289 | 17,761 |
| charges | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Trade and other payables | | 70,254 | 87,383 | 69,262 |
+------------------------------+-------+-----------------------+-----------+-------------+
| Current income tax | | 6 | 6 | 7 |
| liabilities | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Total liabilities | | 931,330 | 1,369,845 | 998,901 |
+------------------------------+-------+-----------------------+-----------+-------------+
| | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Net assets | | 295,952 | 361,052 | 336,671 |
+------------------------------+-------+-----------------------+-----------+-------------+
| | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| EQUITY | | | | |
+------------------------------+-------+-----------------------+-----------+-------------+
| Capital and reserves attributable to the Company's equity | | |
| holders | | |
+--------------------------------------------------------------+-----------+-------------+
| Share capital | 17 | 1,740 | 1,739 | 1,739 |
+------------------------------+------------------+------------+-----------+-------------+
| Other reserves | | 701,717 | 683,187 | 692,311 |
+------------------------------+------------------+------------+-----------+-------------+
| Retained loss | | (407,505) | (323,874) | (357,379) |
+------------------------------+------------------+------------+-----------+-------------+
| | | | | |
+------------------------------+------------------+------------+-----------+-------------+
| Total equity | | 295,952 | 361,052 | 336,671 |
+------------------------------+------------------+------------+-----------+-------------+
| | | | | |
+------------------------------+------------------+------------+-----------+-------------+
| | | | | | |
+------------------------------+-------+----------+------------+-----------+-------------+
Approved by the Board of Directors on 11 August 2010 and signed on its behalf
by:
Carl Speck
Chief Financial Officer
Condensed consolidated cash flow statement
+---------------------------------+---+---+-----------+-------------+-----------------------------+
| | | Six | Six | Year |
| | | months | months | ended |
| | | ended | ended | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| | | 30 June | 30 June | 31 |
| | | 2010 | 2009 | December |
| | | | | 2009 |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| |Notes | $'000 | $'000 | $'000 |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Cash used in operations | 18 | (52,753) | (68,501) | (136,918) |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Income tax paid / (recovered) | | 56 | (623) | 116 |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Net cash used in operating activities | (52,697) | (69,124) | (136,802) |
+-----------------------------------------+-----------+-------------+-----------------------------+
| | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Cash flows (used in) / generated from | | | |
| investing activities | | | |
+-----------------------------------------+-----------+-------------+-----------------------------+
| Purchase of property, plant and | | (111) | (428) | (553) |
| equipment | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Proceeds on sale of property, plant | 17 | - | 23 |
| and equipment | | | |
+-----------------------------------------+-----------+-------------+-----------------------------+
| Cash payments to acquire equity and | (795,607) | (1,866,803) | (3,214,298) |
| debt securities | | | |
+-----------------------------------------+-----------+-------------+-----------------------------+
| Cash receipts from sales of equity and | 718,272 | 1,888,712 | 3,332,845 |
| debt securities | | | |
+-----------------------------------------+-----------+-------------+-----------------------------+
| Net amounts outstanding for | | - | 24,019 | - |
| securities | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Cash receipt from sale of subsidiary | - | - | 78,551 |
+-----------------------------------------+-----------+-------------+-----------------------------+
| Cash receipts from interest and | 5,401 | 10,625 | 18,894 |
| dividends | | | |
+-----------------------------------------+-----------+-------------+-----------------------------+
| | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Net cash (used in) / generated | | (72,028) | 56,125 | 215,462 |
| from investing activities | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Cash flows used in financing | | | |
| activities | | | |
+-----------------------------------------+-----------+-------------+-----------------------------+
| Interest paid on borrowings | | - | (1,195) | (1,195) |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Net cash used in financing | | - | (1,195) | (1,195) |
| activities | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Net (decrease) / increase in cash and | (124,725) | (14,194) | 77,465 |
| cash equivalents | | | |
+-----------------------------------------+-----------+-------------+-----------------------------+
| | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Cash and cash equivalents at | | 166,103 | 117,660 | 117,660 |
| beginning of period | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Cash of disposal group transferred | | - | (24,430) | (29,475) |
| to assets available-for-sale | | | | |
+-------------------------------------+---+-----------+-------------+-----------------------------+
| Exchange (losses) / gains on cash and | (85) | 942 | 453 |
| bank overdrafts | | | |
+-----------------------------------------+-----------+-------------+-----------------------------+
| | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| Cash and cash equivalents at | | 41,293 | 79,978 | 166,103 |
| end of period | | | | |
+---------------------------------+-------+-----------+-------------+-----------------------------+
| | | | | | |
+---------------------------------+---+---+-----------+-------------+-----------------------------+
Condensed consolidated statement of comprehensive income
+------------------------------+--+-----+----------+------------+----------+------------+
| | | Six months | Six | Year |
| | | ended | months | ended |
| | | | ended | |
+------------------------------+-------------------+------------+----------+------------+
| | | 30 June | 30 June | 31 |
| | | 2010 | 2009 | December |
| | | | | 2009 |
+------------------------------+-------------------+------------+----------+------------+
| | | $'000 | $'000 | $'000 |
+------------------------------+-------------------+------------+----------+------------+
| | | | | |
+------------------------------+-------------------+------------+----------+------------+
| Loss for the period | (50,126) | (44,659) | (78,164) |
+--------------------------------------------------+------------+----------+------------+
| | | | |
+--------------------------------------------------+------------+----------+------------+
| Other comprehensive income | | | |
+--------------------------------------------------+------------+----------+------------+
| Gain / (loss) on revaluation of | 361 | (11,848) | 7,863 |
| available-for-sale investments | | | |
+--------------------------------------------------+------------+----------+------------+
| | | (545) | 6,995 | (4,443) |
| Transfers to profit and loss on sale | | | | |
| of available-for-sale investments | | | | |
+---------------------------------------+----------+------------+----------+------------+
| | | 9,389 | 2,635 | 5,910 |
| Amortisation of the unrealised loss | | | | |
| related to loans and receivables | | | | |
| carried at amortised cost | | | | |
+---------------------------------------+----------+------------+----------+------------+
| | | (95) | 1,680 | 2,389 |
| Exchange differences on | | | | |
| translation of foreign | | | | |
| operations | | | | |
+------------------------------+-------------------+------------+----------+------------+
| | | - | - | - |
| Tax relating to components of | | | | |
| other comprehensive income | | | | |
| | | | | |
+---------------------------------+----------------+------------+----------+------------+
| Other comprehensive income / | | 9,110 | (538) | 11,719 |
| (expense) for the period, net of tax | | | | |
+---------------------------------------+----------+------------+----------+------------+
| | | | | |
+------------------------------+-------------------+------------+----------+------------+
| Total comprehensive expense for the | | (41,016) | (45,197) | (66,445) |
| period, net of tax | | | | |
+---------------------------------------+----------+------------+----------+------------+
| | | | | | | |
+------------------------------+--+-----+----------+------------+----------+------------+
The total comprehensive income is attributable to the Company's equity holders
Condensed consolidated statement of changes in equity
+------------+----+---------+---+-----+------------+----------+------+------+----------+------------+-------------+-+-----+----------+
| | Attributable to equity holders of the Company |
+------------+-----------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | |
+------------+----+-------------+-----+-----------------------+------+------+-----------------------+---------------+-----+----------+
| | Share | Share | Capital | Revaluation | Hedging and | Retained | Share-based | Total |
| | capital | premium | reserve | reserve 1 | translation | earnings | payment | |
| | | | | | reserves 2 | | reserve | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| As at 1 January | 1,739 | 629,965 | 75,381 | (23,804) | 9,540 | (357,379) | 1,229 | 336,671 |
| 2010 | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| Loss for the | - | - | - | - | - | (50,126) | - | (50,126) |
| period | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| Other | - | - | - | 9,205 | (95) | - | - | 9,110 |
| comprehensive | | | | | | | | |
| income | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| Total | - | - | - | 9,205 | (95) | (50,126) | - | (41,016) |
| comprehensive | | | | | | | | |
| income | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| Issuance of | 1 | 297 | - | - | - | - | (298) | - |
| shares | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| Movement in share based | - | - | - | - | - | 297 | 297 |
| payment reserve - | | | | | | | |
+-------------------------------+-----+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | |
+-------------------------------+-----+------------+-----------------+-----------------+------------+-------------+------------------+
| As at 30 June | 1,740 | 630,262 | 75,381 | (14,599) | 9,445 | (407,505) | 1,228 | 295,952 |
| 2010 | | | | | | | | |
+-----------------+---------+---------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | | | | | | | |
+------------+----+---------+---+-----+------------+----------+------+------+----------+------------+-------------+-+-----+----------+
+------------+----+---------+----+-----+------------+----------+------+------+----------+------------+-------------+-+-----+----------+
| | Attributable to equity holders of the Company |
+------------+------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | |
+------------+----+--------------+-----+-----------------------+------+------+-----------------------+---------------+-----+----------+
| | Share | Share | Capital | Revaluation | Hedging and | Retained | Share-based | Total |
| | capital | premium | reserve | reserve 1 | translation | earnings | payment | |
| | | | | | reserves 2 | | reserve | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| As at 1 January | 1,738 | 629,668 | 75,381 | (30,579) | 7,888 | (279,215) | 1,211 | 406,092 |
| 2009 | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Loss for the | - | - | - | - | - | (44,659) | - | (44,659) |
| period | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Other | - | - | - | (2,218) | 1,680 | - | - | (538) |
| comprehensive | | | | | | | | |
| income | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Total | - | - | - | (2,218) | 1,680 | (44,659) | - | (45,197) |
| comprehensive | | | | | | | | |
| income | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Issuance of | 1 | 297 | - | - | - | - | (298) | - |
| shares | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Movement in share based | - | - | - | - | - | 157 | 157 |
| payment reserve - | | | | | | | |
+--------------------------------+-----+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| As at 30 June | 1,739 | 629,965 | 75,381 | (32,797) | 9,568 | (323,874) | 1,070 | 361,052 |
| 2009 | | | | | | | | |
+-----------------+---------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | | | | | | | |
+------------+----+---------+----+-----+------------+----------+------+------+----------+------------+-------------+-+-----+----------+
1 The revaluation reserve is a component of shareholders' equity that is
used to record the difference between the market value of available-for-sale
investments carried on the balance sheet and the amortised cost. In addition it
includes an unrealised loss which arose as a result of the decision to
reclassify the portfolio of non-agency US mortgage-backed securities into the
loans and receivables category and carry them at amortised cost. The unrealised
loss in respect of these assets is the difference between the market value and
amortised cost as at 1 July 2008 and this loss is being amortised through the
income statement using the effective interest method from the date of
reclassification.
2 Movements in the unrealised gains and losses arising from the translation
of the Group's assets and liabilities denominated in functional currencies of
the Group are shown in the hedging and translation reserve.
+------------+----+----+----------+----+-----+------------+----------+------+------+----------+------------+-------------+-+-----+----------+
| | Attributable to equity holders of the Company |
+------------+------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | |
+------------+----+--------------------+-----+-----------------------+------+------+-----------------------+---------------+-----+----------+
| | Share | Share | Capital | Revaluation | Hedging and | Retained | Share-based | Total |
| | capital | premium | reserve | reserve 1 | translation | earnings | payment | |
| | | | | | reserves 2 | | reserve | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| As at 1 January | 1,738 | 629,668 | 75,381 | (30,579) | 7,888 | (279,215) | 1,211 | 406,092 |
| 2009 | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Loss for the | - | - | - | - | - | (78,164) | - | (78,164) |
| year | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Other | - | - | - | 9,330 | 2,389 | - | - | 11,719 |
| comprehensive | | | | | | | | |
| income | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Total | - | - | - | 9,330 | 2,389 | (78,164) | - | (66,445) |
| comprehensive | | | | | | | | |
| income | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Issuance of | 1 | 297 | - | - | - | - | (298) | - |
| shares | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Movement in share based payment | - | - | - | - | - | 316 | 316 |
| reserve - | | | | | | | |
+--------------------------------------+-----+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+----------------------+----------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Disposed on sale of | - | - | - | (2,555) | (737) | - | - | (3,292) |
| Alea Holdings UK | | | | | | | | |
| Limited | | | | | | | | |
+----------------------+----------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| As at 31 | 1,739 | 629,965 | 75,381 | (23,804) | 9,540 | (357,379) | 1,229 | 336,671 |
| December 2009 | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | | | | | | | | |
+------------+----+----+----------+----+-----+------------+----------+------+------+----------+------------+-------------+-+-----+----------+
1 The revaluation reserve is a component of shareholders' equity that is
used to record the difference between the market value of available-for-sale
investments carried on the balance sheet and the amortised cost. In addition it
includes an unrealised loss which arose as a result of the decision to
reclassify the portfolio of non-agency US mortgage-backed securities into the
loans and receivables category and carry them at amortised cost. The unrealised
loss in respect of these assets is the difference between the market value and
amortised cost as at 1 July 2008 and this loss is being amortised through the
income statement using the effective interest method from the date of
reclassification.
2 Movements in the unrealised gains and losses arising from the translation
of the Group's assets and liabilities denominated in functional currencies of
the Group are shown in the hedging and translation reserve.
Notes to the condensed set of consolidated financial statements
1 General information
Alea Group Holdings (Bermuda) Ltd (the "Company") and its subsidiaries (together
the "Group") were engaged in the business of underwriting insurance and
reinsurance risks. In 2005 the Group ceased writing new business and placed all
operations into run-off. Although the Group has disposed of the renewal rights
for Alea Alternative Risk, Alea London and Alea Europe and placed all operations
into run-off, the Group will continue to service claims relating to business
written up to 2005 for the foreseeable future.
On 16 September 2009, the Group announced that its former Swiss subsidiary, Alea
Europe Ltd., had re-domiciled into Bermuda and had merged into Alea (Bermuda)
Ltd. The re-domiciliation and merger were completed following approvals from the
Swiss Financial Market Authority ("FINMA"), the Bermuda Monetary Authority
("BMA") and the Bermuda Registrar of Companies ("ROC").
On 29 October 2009, the Alea Group completed the sale of Alea Holdings UK
Limited along with its subsidiaries Alea London Limited and Alea Services UK
Limited. Consequently, the three companies that make up the Alea Holdings UK
Limited sub-group are no longer consolidated in the Group balance sheet as at 31
December 2009, and the results of this disposal group are presented as
discontinued operations for the year ended 31 December 2009 and for the
comparative period ended 30 June 2009.
The Company is registered in Bermuda and is listed on the London Stock Exchange.
As such it is required to prepare its financial information in accordance with
the Bermuda Companies Act 1981, which permits the Company and the Group to
prepare financial statements which comprise the consolidated income statement,
the consolidated balance sheet, the consolidated cash flow statement, the
consolidated statement of comprehensive income, the consolidated statement of
changes in equity and the related notes 1 to 20 in accordance with International
Financial Reporting Standards ("IFRS"). Accordingly, the financial information
has been prepared in accordance with Bermuda Law.
2 Basis of preparation
The condensed set of consolidated financial statements, as required by the
Disclosure and Transparency Rules of the United Kingdom's Financial Services
Authority ("FSA"), has been prepared in accordance with IAS 34 'Interim
Financial Reporting'.
The condensed set of consolidated financial statements do not include all the
information and disclosures required in the annual financial statements, and
should be read in conjunction with the Group's annual financial statements as at
31 December 2009.
The condensed set of consolidated financial statements is presented in thousands
of US dollars, rounded to the nearest thousand. They have been prepared under
the historical cost convention, as modified by the revaluation of financial
instruments which have been classified as available-for-sale.
The preparation of the condensed set of consolidated financial statements in
conformity with IAS 34 requires management to exercise its judgement in making
estimates and assumptions that affect the application of the Group's accounting
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 judgement about
the carrying values of assets and liabilities that are not readily available
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period or in future
periods, depending on applicability of the revision.
Judgements made by management in the application of IFRS that have a significant
effect on the consolidated financial statements and estimates with a significant
risk of material adjustments in following periods are discussed below.
As IFRS have limited full insurance-specific guidelines pertaining to the
requirements of IFRS 4 'Insurance Contracts' pending completion of the second
phase of the IASB's project on insurance contracts, accounting policies for
insurance contracts have been selected with primary consideration to existing UK
GAAP (as permitted by IFRS 4). The annual basis of accounting has been applied
to all classes of business.
Going Concern
Further information regarding the Group's business activities, together with the
factors likely to affect its future development, performance and position are
set out in the Management Report beginning on page 4. The financial position of
the Group, its cash flows, liquidity position and borrowing facilities are
described in the Financial Review on pages 5 to 19. In addition, note 4 to the
Annual Financial Report 2009 includes the Group's objectives, policies and
processes for managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities and its exposures to
credit risk and liquidity risk.
Having considered the foregoing, after making enquiries, the Directors have a
reasonable expectation that the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the condensed set of
consolidated financial statements.
3 Accounting policies
The accounting policies adopted in the preparation of the condensed set of
consolidated financial statements are consistent with those applied in the
preparation of the Group's annual financial statements for the year ended 31
December 2009.
The accounting policies have been applied consistently by all Group entities.
Status of condensed set of consolidated financial statements
The 30 June 2010 statements are unaudited but have been reviewed by the
Company's auditors, Ernst & Young LLP, and their report for the six months ended
30 June 2010 is included with this report. The 30 June 2009 statements were
unaudited but were reviewed by Deloitte LLP. The condensed set of consolidated
financial statements does not constitute statutory accounts as defined in
section 84 of the Bermuda Companies Act 1981. The results for the year ended 31
December 2009 do not constitute statutory accounts as defined in section 84 of
the Bermuda Companies Act 1981. The published statutory accounts for the year
ended 31 December 2009 received an unqualified audit opinion.
4 Segmental information
Operating results by reportable segment
The Group classifies all of its operations under the 'run-off business' segment.
This reflects the basis on which the Group's operations are managed by the chief
operating decision maker. Insurance liabilities are determined using a
consistent reserving methodology across the Group and are monitored and reported
on a Group-wide basis, investments and cash treasury are managed by a
centralised function and senior staff resource is deployed on a Group-wide
basis. This structure reflects the relative maturity of the run-off book of
business.
Geographical distribution of non-current assets
The Group holds non-current assets in the following countries:
+---------------------+--------------------------+------------+-------------+---------------+
| As at 30 June 2010 | Property, | Intangible | Non-current | Total |
| | plant and | assets | deferred | |
| | equipment | | acquisition | |
| | | | costs | |
+---------------------+--------------------------+------------+-------------+---------------+
| | $'000 | $'000 | $'000 | $'000 |
+---------------------+--------------------------+------------+-------------+---------------+
| | | | | |
+---------------------+--------------------------+------------+-------------+---------------+
| Bermuda | 14 | - | - | 14 |
+---------------------+--------------------------+------------+-------------+---------------+
| United States | 1,679 | 8,479 | - | 10,158 |
+---------------------+--------------------------+------------+-------------+---------------+
| Switzerland | - | - | 539 | 539 |
+---------------------+--------------------------+------------+-------------+---------------+
| | 1,693 | 8,479 | 539 | 10,711 |
+---------------------+--------------------------+------------+-------------+---------------+
+---------------------+--------------------------+------------+-------------+------------------+
| As at 30 June 2009 | Property, | Intangible | Non-current | Total |
| | plant and | assets | deferred | |
| | equipment | | acquisition | |
| | | | costs | |
+---------------------+--------------------------+------------+-------------+------------------+
| | $'000 | $'000 | $'000 | $'000 |
+---------------------+--------------------------+------------+-------------+------------------+
| | | | | |
+---------------------+--------------------------+------------+-------------+------------------+
| Bermuda | 17 | - | - | 17 |
+---------------------+--------------------------+------------+-------------+------------------+
| United States | 2,691 | 8,479 | - | 11,170 |
+---------------------+--------------------------+------------+-------------+------------------+
| United Kingdom1 | 519 | - | - | 519 |
+---------------------+--------------------------+------------+-------------+------------------+
| Switzerland | 82 | - | 870 | 952 |
+---------------------+--------------------------+------------+-------------+------------------+
| | 3,309 | 8,479 | 870 | 12,658 |
+---------------------+--------------------------+------------+-------------+------------------+
1 The non-current assets of the Group that are located in the United Kingdom
are included within 'Assets of a disposal group classified as held for sale' on
the face of the balance sheet.
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| As at 31 December | Property, | Intangible | Non-current | Total |
| 2009 | plant and | assets | deferred | |
| | equipment | | acquisition | |
| | | | costs | |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| | $'000 | $'000 | $'000 | $'000 |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| | | | | |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| Bermuda | 9 | | - | 9 |
| | | - | | |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| United States | 2,025 | 8,479 | - | 10,504 |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| Switzerland | 42 | | 685 | 727 |
| | | - | | |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| Total | 2,076 | 8,479 | 685 | 11,240 |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
5 Investment income
Continuing operations
+-------------------------------+-+---+---------+-------------+-------------+
| | Six months | Six months | Year ended |
| | ended | ended | |
+-------------------------------+---------------+-------------+-------------+
| | 30 June 2010 | 30 June | 31 December |
| | | 2009 | 2009 |
+-------------------------------+---------------+-------------+-------------+
| | $'000 | $'000 | $'000 |
+-------------------------------+---------------+-------------+-------------+
| | | | |
+-------------------------------+---------------+-------------+-------------+
| Financial assets - | 3,785 | 6,819 | 10,917 |
| available-for-sale interest | | | |
| income | | | |
+---------------------------------+-------------+-------------+-------------+
| | | | |
+-------------------------------+---------------+-------------+-------------+
| Financial assets carried at | 10,972 | 13,228 | 25,839 |
| amortised cost interest income | | | |
+-------------------------------------+---------+-------------+-------------+
| | | | |
+-------------------------------+---------------+-------------+-------------+
| Cash and cash equivalents | 51 | 128 | 198 |
| interest income | | | |
+-------------------------------+---------------+-------------+-------------+
| | | | |
+-------------------------------+---------------+-------------+-------------+
| | 14,808 | 20,175 | 36,954 |
+-------------------------------+---------------+-------------+-------------+
| | | | | | |
+-------------------------------+-+---+---------+-------------+-------------+
Discontinued operations
+-------------------------------+--+--+---------+-------------+-------------+
| | Six months | Six months | Year ended |
| | ended | ended | |
+-------------------------------+---------------+-------------+-------------+
| | 30 June 2010 | 30 June | 31 December |
| | | 2009 | 2009 |
+-------------------------------+---------------+-------------+-------------+
| | $'000 | $'000 | $'000 |
+-------------------------------+---------------+-------------+-------------+
| | | | |
+-------------------------------+---------------+-------------+-------------+
| Financial assets - | - | 3,147 | 4,814 |
| available-for-sale interest | | | |
| income | | | |
+----------------------------------+------------+-------------+-------------+
| | | | |
+-------------------------------+---------------+-------------+-------------+
| Financial assets carried at | - | 348 | 433 |
| amortised cost interest income | | | |
+-------------------------------------+---------+-------------+-------------+
| | | | |
+-------------------------------+---------------+-------------+-------------+
| Cash and cash equivalents | - | 820 | 176 |
| interest income | | | |
+-------------------------------+---------------+-------------+-------------+
| | | | |
+-------------------------------+---------------+-------------+-------------+
| | - | 4,315 | 5,423 |
+-------------------------------+---------------+-------------+-------------+
| | | | | | |
+-------------------------------+--+--+---------+-------------+-------------+
6 Net realised gains / (losses) on financial assets
Continuing operations
+-------------------------------+--+--+----------+-------------+-------------+
| | Six months | Six months | Year ended |
| | ended | ended | |
+-------------------------------+----------------+-------------+-------------+
| | 30 June 2010 | 30 June | 31 December |
| | | 2009 | 2009 |
+-------------------------------+----------------+-------------+-------------+
| | $'000 | $'000 | $'000 |
+-------------------------------+----------------+-------------+-------------+
| | | | |
+-------------------------------+----------------+-------------+-------------+
| Realised gains on financial | 1,295 | 5,112 | 6,041 |
| assets - available-for-sale | | | |
+----------------------------------+-------------+-------------+-------------+
| Realised losses on financial assets | (1) | (428) | (857) |
| - available-for-sale | | | |
+-------------------------------------+----------+-------------+-------------+
| Realised gains on currency | 561 | - | |
| derivatives - non functional | | | - |
| currencies | | | |
+-------------------------------+----------------+-------------+-------------+
| | 1,855 | 4,684 | 5,184 |
+-------------------------------+----------------+-------------+-------------+
| | | | | | |
+-------------------------------+--+--+----------+-------------+-------------+
Discontinued operations
+-------------------------------+--+--+----------+-------------+-------------+
| | Six months | Six months | Year ended |
| | ended | ended | |
+-------------------------------+----------------+-------------+-------------+
| | 30 June 2010 | 30 June | 31 December |
| | | 2009 | 2009 |
+-------------------------------+----------------+-------------+-------------+
| | $'000 | $'000 | $'000 |
+-------------------------------+----------------+-------------+-------------+
| | | | |
+-------------------------------+----------------+-------------+-------------+
| Realised gains on financial | - | 198 | 274 |
| assets - available-for-sale | | | |
+----------------------------------+-------------+-------------+-------------+
| Realised losses on financial assets | - | (4) | (2) |
| - available-for-sale | | | |
+-------------------------------------+----------+-------------+-------------+
| | | | |
+-------------------------------+----------------+-------------+-------------+
| | - | 194 | 272 |
+-------------------------------+----------------+-------------+-------------+
| | | | | | |
+-------------------------------+--+--+----------+-------------+-------------+
7 Impairment of financial assets
The Group recognised an impairment to the amortised cost of non-agency US
mortgage-backed securities of $50.6 million in the six months ended 30 June 2010
(30 June 2009: $21.6 million, 31 December 2009: $30.5 million).
At each balance sheet date, the Group performs an impairment test with regard to
its non-agency US mortgage-backed securities. An impairment is recognised
wherever the amortised cost of a specific asset is greater than the estimated
recoverable amounts. Recoverable amounts are determined by projecting estimated
future cash flows associated with holding an asset. Estimating future cash flows
requires making explicit assumptions about the future behaviour of the loans
collateralising the securitisation. The key variables in determining the
estimated future cash flows of these securities include the rate of voluntary
prepayments, the rate of defaults and the loss severity on defaulted loans. The
data used for the testing is based on recent actual performance and
characteristics of the collateral.
8 Net realised losses on sale of renewal rights
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| | Six months | Six months | Year |
| | ended | ended | ended |
+-------------------------------+------------+------------+-----------+
| | 30 June | 30 June | 31 |
| | 2010 | 2009 | December |
| | | | 2009 |
+-------------------------------+------------+------------+-----------+
| | $'000 | $'000 | $'000 |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| Net realised losses on sale | - | - | 15,000 |
| of renewal rights | | | |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
All net realised losses on sale of renewal rights relate to continuing
operations.
The Group completed three renewal rights transactions in the fourth quarter of
2005. These were accounted for as net realised gains on sale of renewal rights
which were recognised in the year ended 31 December 2005, and represented the
Directors' valuation at fair value of the business sold. In determining the fair
market value of renewal rights sales, the Board considered the prior production
and growth of the businesses sold, external projections and a recent assessment
of the businesses sold. The fair market value of the renewal rights is regularly
evaluated by the Board based on available data.
Where necessary, amounts are charged or credited to the income statement to
reflect any changes in the fair value which is based on the latest financial
data available. These amounts reflect the discounted estimated future cash flows
arising from specified percentages of applicable commissionable premiums written
over the applicable period in accordance with sale contracts.
Of the three transactions discussed above only one of these is still producing
commissionable premium. This contract is with AmTrust Financial Services Inc.
('AmTrust'). The next paragraphs provide analysis of the cash receipts and the
outstanding receivables in respect of this contract.
Following the reassessments performed at each balance sheet date subsequent to
31 December 2005, the gain has been calculated as the estimated fair value of
consideration receivable of $25.0 million (30 June 2009: $40.0 million, 31
December 2009: $25.0 million). In the year ended 31 December 2009, the Group
recognised a loss of $15.0 million on the sale of the renewal rights as a result
of this reassessment (30 June 2009: $nil). The Group has received payments to 30
June 2009 of $14.2 million (31 December 2009: $15.4 million). Subsequent to year
end 2009, no further payments have been received. The remaining balance of $9.6
million (30 June 2009: $25.8 million, 31 December 2009: $9.6 million) is
included within loans and receivables including insurance receivables, see note
13.
This amount represents the Directors' best estimate of the risk adjusted future
receipts discounted at 4.0%. The Directors' best estimate is based on premium
reported by AmTrust as commissionable, premium reported by AmTrust as
non-commissionable and the consideration of prior production, experienced growth
and published data of the businesses sold.
Whether premium is commissionable is subject to contract interpretation and the
Directors believe that AmTrust has substantially under-reported commissionable
premium in past periods. As such, the Group is currently disputing this practice
with AmTrust. AmTrust is contending that it has overpaid commissionable premium
in past periods. See note 19, 'Contingent Liabilities'. The receipt of the
accrued income is dependent upon the future levels of business generated in
relation to the rights sold over a five-year time period as specified in the
sale contract. A 10% deviation of the projected renewals could result in a
change in receivable of $2.5 million.
The Directors consider that the receivable is collectable based upon an
assessment of the credit ratings of AmTrust.
9 Restructuring costs
In 2005, the Group announced its intention to run-off the remaining property and
casualty business. Those fixed assets not subject to renewal rights agreements
and not required for the run-off operations were written down to their residual
value. A restructuring provision was established to cover estimated expenses for
future redundancy payments for employees who cannot be redeployed in the run-off
business plan. The provision also contained estimated expenses with respect to
onerous contracts. Onerous contracts are operating leases in respect of any
premises that were expected to be vacated as part of the restructuring. The
provision was established based on a run-off business plan approved by the Board
of Directors. Other costs are included in the claims handling provisions.
Six months ended 30 June 2010
+---------------------------------+----------+---------+-----------+------+--+
| | | Continuing operations | |
+---------------------------------+----------+----------------------------+--+
| | | Alea | Alea | Total |
| | | North | Services1 | |
| | | America | | |
+---------------------------------+----------+---------+-----------+---------+
| | | $'000 | $'000 | $'000 |
+---------------------------------+----------+---------+-----------+---------+
| | | | | |
+---------------------------------+----------+---------+-----------+---------+
| Redundancy costs incurred in | | 158 | - | 158 |
| excess of the provision | | | | |
| established based on run-off | | | | |
| plan | | | | |
+---------------------------------+----------+---------+-----------+---------+
| | | | | |
+---------------------------------+----------+---------+-----------+---------+
| Total restructuring costs | | 158 | - | 158 |
+---------------------------------+----------+---------+-----------+---------+
| | | | | | |
+---------------------------------+----------+---------+-----------+------+--+
Six months ended 30 June 2009
+----------------------------------+-----+--------+----------+----------+-------+
| | Discontinued | Continuing | |
| | operations | operations | |
+----------------------------------+--------------+---------------------+-------+
| | Alea | Alea | Alea | Total |
| | London | North | Europe | |
| | | America | | |
+----------------------------------------+--------+----------+----------+-------+
| | $'000 | $'000 | $'000 | $'000 |
+----------------------------------------+--------+----------+----------+-------+
| | | | | |
+----------------------------------------+--------+----------+----------+-------+
| Redundancy costs incurred in excess | 128 | 72 | - | 200 |
| of the provision established based on | | | | |
| run-off plan | | | | |
+----------------------------------------+--------+----------+----------+-------+
| | | | | |
+----------------------------------------+--------+----------+----------+-------+
| Total restructuring costs | 128 | 72 | - | 200 |
+----------------------------------------+--------+----------+----------+-------+
| | | | | | |
+----------------------------------+-----+--------+----------+----------+-------+
Year ended 31 December 2009
+----------------------------------+-----+--------+----------+----------+-------+
| | Discontinued | Continuing | |
| | operations | operations | |
+----------------------------------+--------------+---------------------+-------+
| | Alea | Alea | Alea | Total |
| | London | North | Europe | |
| | | America | | |
+----------------------------------------+--------+----------+----------+-------+
| | $'000 | $'000 | $'000 | $'000 |
+----------------------------------------+--------+----------+----------+-------+
| | | | | |
+----------------------------------------+--------+----------+----------+-------+
| Redundancy costs incurred in excess | 111 | 192 | - | 303 |
| of the provision established based on | | | | |
| run-off plan | | | | |
+----------------------------------------+--------+----------+----------+-------+
| | | | | |
+----------------------------------------+--------+----------+----------+-------+
| Total restructuring costs | 111 | 192 | - | 303 |
+----------------------------------------+--------+----------+----------+-------+
| | | | | | |
+----------------------------------+-----+--------+----------+----------+-------+
1 As a result of the merger between Alea Europe Ltd and Alea Bermuda Ltd
the restructuring provision has been assumed by Alea Services AG, the remaining
subsidiary in Switzerland.
10 Income tax (credit) / expense
Continuing operations
+------------------------------+------------+------------+------------+
| | Six months | Six months | Year ended |
| | ended | ended | |
+------------------------------+------------+------------+------------+
| | 30 June | 30 June | 31 |
| | 2010 | 2009 | December |
| | | | 2009 |
+------------------------------+------------+------------+------------+
| | $'000 | $'000 | $'000 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Current tax (credit) / | | | |
| expense | | | |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| UK corporation tax | - | 1 | 1 |
+------------------------------+------------+------------+------------+
| Foreign tax | - | (278) | (612) |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Total current tax | - | (277) | (611) |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Deferred tax | - | - | - |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Total income tax (credit) / | - | (277) | (611) |
| expense | | | |
+------------------------------+------------+------------+------------+
Discontinued operations
+------------------------------+------------+------------+------------+
| | Six months | Six months | Year ended |
| | ended | ended | |
+------------------------------+------------+------------+------------+
| | 30 June | 30 June | 31 |
| | 2010 | 2009 | December |
| | | | 2009 |
+------------------------------+------------+------------+------------+
| | $'000 | $'000 | $'000 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Current tax expense/(credit) | | | |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| UK corporation tax | - | 67 | 29 |
+------------------------------+------------+------------+------------+
| Foreign tax | - | 160 | 132 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Total current tax | - | 227 | 161 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Deferred tax | - | 48 | 125 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Total income tax expense | - | 275 | 286 |
+------------------------------+------------+------------+------------+
UK corporation tax was calculated at 28% of the estimated assessable UK profit
for the period.
Taxation for other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
11 Discontinued operations
On 29 October 2009, the Group completed the disposal of its wholly owned
subsidiaries Alea Holdings UK Limited, Alea London Limited and Alea Services UK
Limited. The results of these entities are considered to be discontinued
operations in the results for the periods ended 31 December 2009 and 30 June
2009.
The results of the discontinued operations, which have been included in the
consolidated income statement, were as follows:
+-----------------------------+-------+---+-------+---------------------------+--------------------------+
| | Six months ended | Six months | Year ended |
| | | ended | |
+-----------------------------+-------------------+---------------------------+--------------------------+
| | 30 June 2010 | 30 June | 31 |
| | | 2009 | December |
| | | | 2009 |
+-----------------------------+-------------------+---------------------------+--------------------------+
| | $'000 | $'000 | $'000 |
+-----------------------------+-------------------+---------------------------+--------------------------+
| | | | |
+-----------------------------+-------------------+---------------------------+--------------------------+
| Revenue from discontinued | | 4,869 | 5,999 |
| operations | - | | |
+-----------------------------+-------------------+---------------------------+--------------------------+
| | | | |
+-----------------------------+-------------------+---------------------------+--------------------------+
| Expenses from discontinued | | 2,750 | 2,985 |
| operations | - | | |
+-----------------------------+-------------------+---------------------------+--------------------------+
| Profit before tax | | 2,119 | 3,014 |
| | - | | |
+-----------------------------+-------------------+---------------------------+--------------------------+
| | | | |
+-----------------------------+-------------------+---------------------------+--------------------------+
| Attributable tax expense | | (275) | (286) |
| | - | | |
+-----------------------------+-------------------+---------------------------+--------------------------+
| | | | |
+-----------------------------+-------------------+---------------------------+--------------------------+
| Estimated loss on disposal of | - | (12,830) | |
| discontinued operations | | | - |
+-----------------------------------------+-------+---------------------------+--------------------------+
| | | | |
+-----------------------------------------+-------+---------------------------+--------------------------+
| Loss on disposal of discontinued | | - | (16,671) |
| operations | | | |
+-----------------------------------------+-------+---------------------------+--------------------------+
| | | | |
+-----------------------------------------+-------+---------------------------+--------------------------+
| Realisation of revaluation and hedging | | - | 3,292 |
| and translation reserves | | | |
+-----------------------------------------+-------+---------------------------+--------------------------+
| | | | |
+-----------------------------+-------------------+---------------------------+--------------------------+
| Net loss attributable to | - | (10,986) | (10,651) |
| discontinued operations | | | |
+-------------------------------------+-----------+---------------------------+--------------------------+
| | | | | | |
+-----------------------------+-------+---+-------+---------------------------+--------------------------+
During the six months ended 30 June 2010 the disposed companies contributed a
cash outflow of $nil (30 June 2009: $30.5 million, 31 December 2009: $46.1
million) to the Group's net cash outflow from operating activities, a cash
inflow of $nil (30 June 2009: $16.2 million, 31 December 2009: $36.9 million) in
respect of investing activities and a cash outflow of $nil (30 June 2009: $nil,
31 December 2009: $nil) in respect of financing activities.
The Alea Holdings UK Limited disposal group comprised of the following major
classes of assets and liabilities as at the date of disposal (or when classified
as held for sale):
+----------------------------------+----------+----------+------------+
| | As at | As at | As at |
+----------------------------------+----------+----------+------------+
| | 30 June | 30 June | 29 October |
| | 2010 | 2009 | 2009 |
+----------------------------------+----------+----------+------------+
| | $'000 | $'000 | $'000 |
+----------------------------------+----------+----------+------------+
| | | | |
+----------------------------------+----------+----------+------------+
| ASSETS | | | |
+----------------------------------+----------+----------+------------+
| | | | |
+----------------------------------+----------+----------+------------+
| Property, plant and equipment | - | 519 | 447 |
+----------------------------------+----------+----------+------------+
| Financial assets | | | |
+----------------------------------+----------+----------+------------+
| Debt securities | | | |
+----------------------------------+----------+----------+------------+
| - available-for-sale | - | 274,742 | 254,113 |
+----------------------------------+----------+----------+------------+
| Loans and receivables including | - | 32,286 | 48,287 |
| insurance receivables | | | |
+----------------------------------+----------+----------+------------+
| Deferred tax assets | - | 700 | 600 |
+----------------------------------+----------+----------+------------+
| Reinsurance contracts | - | 89,230 | 89,182 |
+----------------------------------+----------+----------+------------+
| Cash and cash equivalents | - | 24,430 | 29,475 |
+----------------------------------+----------+----------+------------+
| | | | |
+----------------------------------+----------+----------+------------+
| Total assets of a disposal | - | 421,907 | 422,104 |
| group1 | | | |
+----------------------------------+----------+----------+------------+
| | | | |
+----------------------------------+----------+----------+------------+
| | | | |
+----------------------------------+----------+----------+------------+
| LIABILITIES | | | |
+----------------------------------+----------+----------+------------+
| Insurance contracts | - | 315,533 | 305,301 |
+----------------------------------+----------+----------+------------+
| Provision for loss on sale of | - | 12,830 | 1,940 |
| disposal group | | | |
+----------------------------------+----------+----------+------------+
| Other liabilities and charges | - | 5,704 | 19,514 |
+----------------------------------+----------+----------+------------+
| Trade and other payables | - | 8,803 | 127 |
+----------------------------------+----------+----------+------------+
| Current income tax liabilities | - | 123 | |
+----------------------------------+----------+----------+------------+
| | | | |
+----------------------------------+----------+----------+------------+
| Total liabilities of a disposal | - | 342,993 | 326,882 |
| group1 | | | |
+----------------------------------+----------+----------+------------+
| | | | |
+----------------------------------+----------+----------+------------+
| Net assets of a disposal group | - | 78,914 | 95,222 |
+----------------------------------+----------+----------+------------+
| | | | |
+----------------------------------+----------+----------+------------+
| Cash proceeds received from sale | - | - | 79,500 |
| of disposal group | | | |
+----------------------------------+----------+----------+------------+
| | | | |
+----------------------------------+----------+----------+------------+
| Less transaction costs | - | - | (949) |
| associated with disposal | | | |
+----------------------------------+----------+----------+------------+
| | | | |
+----------------------------------+----------+----------+------------+
| Cash proceeds received net of | - | - | 78,551 |
| transaction costs | | | |
+----------------------------------+----------+----------+------------+
| Net loss on sale of disposal | - | - | (16,671) |
| group | | | |
+----------------------------------+----------+----------+------------+
1 Classified as held for sale at 30 June 2009
12 Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
+--+------------------+-----------+------+--------------+----------+-------+----+--------------+
| | | | | | Continuing operations |
+---------------------+-----------+------+--------------+----------+---------------------------+
| Earnings | | | Six | Six months ended | Year ended |
| | | | months | | |
| | | | ended | | |
+---------------------+-----------+------+--------------+-----------------------+--------------+
| | | | | 30 June | 30 June 2009 | 31 |
| | | | | 2010 | | December |
| | | | | | | 2009 |
+--+------------------+-----------+------+--------------+-----------------------+--------------+
| | | | | $ | $ | $ |
+--+------------------+-----------+------+--------------+-----------------------+--------------+
| | | | | | |
+---------------------+-----------+------+--------------+-----------------------+--------------+
| Earnings for the purposes of basic | (50,126,185) | (33,673,291) | (67,513,305) |
| earnings per share | | | |
+----------------------------------------+ + + +
| being net loss attributable to equity | | | |
| holders of the Company | | | |
+----------------------------------------+--------------+-----------------------+--------------+
| | | | | | | |
+--+------------------+-----------+------+--------------+-----------------------+--------------+
| Effect of dilutive potential | | - | - | - |
| ordinary shares: | | | | |
+---------------------------------+------+--------------+-----------------------+--------------+
| | | | | | | |
+--+------------------+-----------+------+--------------+-----------------------+--------------+
| Earnings for the purposes of diluted | (50,126,185) | (33,673,291) | (67,513,305) |
| earnings per share | | | |
+----------------------------------------+--------------+-----------------------+--------------+
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
+--+------------------+-----------+------+--------------+-----------------------+--------------+
| | | | | | Discontinued |
| | | | | | operations |
+---------------------+-----------+------+--------------+------------------+-------------------+
| Earnings | | | Six | Six months ended | Year ended |
| | | | months | | |
| | | | ended | | |
+---------------------+-----------+------+--------------+-----------------------+--------------+
| | | | | 30 June | 30 June 2009 | 31 |
| | | | | 2010 | | December |
| | | | | | | 2009 |
+--+------------------+-----------+------+--------------+-----------------------+--------------+
| | | | | $ | $ | $ |
+--+------------------+-----------+------+--------------+-----------------------+--------------+
| | | | | | |
+---------------------+-----------+------+--------------+-----------------------+--------------+
| Earnings for the purposes of basic | - | (10,986,075) | (10,650,766) |
| earnings per share | | | |
+----------------------------------------+ + + +
| being net loss attributable to equity | | | |
| holders of the Company | | | |
+----------------------------------------+--------------+-----------------------+--------------+
| | | | | | | |
+--+------------------+-----------+------+--------------+-----------------------+--------------+
| Effect of dilutive potential | | - | - | - |
| ordinary shares: | | | | |
+---------------------------------+------+--------------+-----------------------+--------------+
| | | | | | | |
+--+------------------+-----------+------+--------------+-----------------------+--------------+
| Earnings for the purposes of diluted | - | (10,986,075) | (10,650,766) |
| earnings per share | | | |
+----------------------------------------+--------------+-----------------------+--------------+
| | | | | | | | | |
+--+------------------+-----------+------+--------------+----------+-------+----+--------------+
+--+-------------------+-----------+---+--+----------+-------------+-+------------+
| | | | | | |
+----------------------+-----------+------+----------+---------------+------------+
| Number of shares | | | Six months | Six | Year ended |
| | | | ended | months | |
| | | | | ended | |
+----------------------+-----------+---+-------------+-------------+--------------+
| | | | | 30 June | 30 June | 31 December |
| | | | | 2010 | 2009 | 2009 |
+--+-------------------+-----------+---+-------------+-------------+--------------+
| | | | | Number | Number | Number |
+--+-------------------+-----------+---+-------------+-------------+--------------+
| | | | | | | |
+--+-------------------+-----------+---+-------------+-------------+--------------+
| Weighted average number of | | 174,024,626 | 173,885,387 | 173,897,021 |
| ordinary shares for the purposes | | | | |
| of basic earnings per share | | | | |
+----------------------------------+---+-------------+-------------+--------------+
| | | | | | | |
+--+-------------------+-----------+---+-------------+-------------+--------------+
| Weighted average number of | | 174,024,626 | 173,885,387 | 173,897,021 |
| ordinary shares for the purposes | | | | |
| of diluted earnings per share1 | | | | |
+----------------------------------+---+-------------+-------------+--------------+
| | | | | | | | | |
+--+-------------------+-----------+---+--+----------+-------------+-+------------+
1 For the period ended 30 June 2010, 1,357,017 restricted stock units (30 June
2009: 305,780 restricted stock units, 31 December 2009: 294,146 restricted stock
units) have been excluded from the calculation of the weighted average number of
ordinary shares for the purposes of diluted earnings per share as their effects
are anti-dilutive.
13 Loans and receivables, including insurance receivables
+------------------------------------+------+---------+----------+------------+
| | As at | As at | As at |
+------------------------------------+----------------+----------+------------+
| | 30 June 2010 | 30 June | 31 |
| | | 2009 | December |
| | | | 2009 |
+------------------------------------+----------------+----------+------------+
| | $'000 | $'000 | $'000 |
+------------------------------------+----------------+----------+------------+
| | | | |
+------------------------------------+----------------+----------+------------+
| Deposits with ceding undertakings | 74,773 | 83,904 | 89,045 |
+------------------------------------+----------------+----------+------------+
| Financial assets carried at | 315,982 | 374,234 | 362,663 |
| amortised cost | | | |
+------------------------------------+----------------+----------+------------+
| Debtors arising out of insurance | 938 | - | 446 |
| operations | | | |
+------------------------------------+----------------+----------+------------+
| Debtors arising out of reinsurance | 29,838 | 42,463 | 27,447 |
| operations | | | |
+------------------------------------+----------------+----------+------------+
| Accrued income 1 | 11,300 | 29,679 | 15,477 |
+------------------------------------+----------------+----------+------------+
| Other prepayments | 2,127 | 2,586 | 2,198 |
+------------------------------------+----------------+----------+------------+
| Other debtors | 6,247 | 8,141 | 4,096 |
+------------------------------------+----------------+----------+------------+
| | | | |
+------------------------------------+----------------+----------+------------+
| Total loans and receivables, including | 441,205 | 541,007 | 501,372 |
| insurance receivables | | | |
+-------------------------------------------+---------+----------+------------+
| Current asset | 68,884 | 57,294 | 44,430 |
+------------------------------------+----------------+----------+------------+
| Non-current asset | 372,321 | 483,713 | 456,942 |
+------------------------------------+----------------+----------+------------+
| | 441,205 | 541,007 | 501,372 |
+------------------------------------+----------------+----------+------------+
| | | | | |
+------------------------------------+------+---------+----------+------------+
1 $9.6 million (31 December 2009: $9.6 million, 30 June 2009: $26.0
million) of the renewal rights sales are recorded as accrued income at the
balance sheet date as disclosed in note 8.
Loans and receivables, including insurance receivables are recorded on the
balance sheet at amortised cost.
14 Insurance and reinsurance contracts
Insurance and reinsurance contracts are comprised of the following:
+-----------------------------------+----------+----------+------------+
| | As at | As at | As at |
+-----------------------------------+----------+----------+------------+
| | 30 June | 30 June | 31 |
| | 2010 | 2009 | December |
| | | | 2009 |
+-----------------------------------+----------+----------+------------+
| | $'000 | $'000 | $'000 |
+-----------------------------------+----------+----------+------------+
| | | | |
+-----------------------------------+----------+----------+------------+
| Gross claims outstanding | | | |
+-----------------------------------+----------+----------+------------+
| Provision for claims outstanding, | 755,422 | 813,145 | 819,011 |
| reported and not reported | | | |
+-----------------------------------+----------+----------+------------+
| Discount | (37,465) | (39,027) | (36,515) |
+-----------------------------------+----------+----------+------------+
| | 717,957 | 774,118 | 782,496 |
+-----------------------------------+----------+----------+------------+
| Claims handling provisions | 5,281 | 6,433 | 5,780 |
+-----------------------------------+----------+----------+------------+
| Total insurance contracts | 723,238 | 780,551 | 788,276 |
+-----------------------------------+----------+----------+------------+
| | | | |
+-----------------------------------+----------+----------+------------+
| | | | |
+-----------------------------------+----------+----------+------------+
| Total reinsurance | | | |
+-----------------------------------+----------+----------+------------+
| Provision for claims outstanding, | 335,701 | 298,493 | 335,100 |
| reported and not reported | | | |
+-----------------------------------+----------+----------+------------+
| Discount | (2,748) | (2,152) | (2,433) |
+-----------------------------------+----------+----------+------------+
| Total reinsurance contracts | 332,953 | 296,341 | 332,667 |
+-----------------------------------+----------+----------+------------+
| | | | |
+-----------------------------------+----------+----------+------------+
| Undiscounted claims outstanding, | 425,002 | 521,085 | 489,691 |
| net of reinsurance | | | |
+-----------------------------------+----------+----------+------------+
| Discount | (34,717) | (36,875) | (34,082) |
+-----------------------------------+----------+----------+------------+
| Claims outstanding net of | 390,285 | 484,210 | 455,609 |
| reinsurance | | | |
+-----------------------------------+----------+----------+------------+
+----------------------------------+----------+-----------+------------+
| | As at | As at | As at |
+----------------------------------+----------+-----------+------------+
| | 30 June | 30 June | 31 |
| | 2010 | 2009 | December |
| | | | 2009 |
+----------------------------------+----------+-----------+------------+
| | $'000 | $'000 | $'000 |
+----------------------------------+----------+-----------+------------+
| Current assets | 17,238 | 22,232 | 20,418 |
+----------------------------------+----------+-----------+------------+
| Non-current assets | 315,715 | 274,109 | 312,249 |
+----------------------------------+----------+-----------+------------+
| Total reinsurance contracts | 332,953 | 296,341 | 332,667 |
+----------------------------------+----------+-----------+------------+
+----------------------------------+----------+-----------+------------+
| | | | |
+----------------------------------+----------+-----------+------------+
| Current liabilities | 140,892 | 154,768 | 163,741 |
+----------------------------------+----------+-----------+------------+
| Non-current liabilities | 582,346 | 625,783 | 624,535 |
+----------------------------------+----------+-----------+------------+
| Total insurance contracts | 723,238 | 780,551 | 788,276 |
+----------------------------------+----------+-----------+------------+
Basis for establishing provision for claims outstanding
Loss reserves for the reinsurance business are established based on claims data
reported to the Group by ceding companies supplemented periodically with
relevant industry benchmark loss development patterns used to project the
ultimate incurred loss. Ultimate incurred loss indications are calculated by the
Group's actuaries using several standard actuarial methodologies, including paid
and incurred loss development and the Bornhuetter-Ferguson incurred and paid
loss methods.
The Group's actuaries utilise several assumptions in applying each methodology,
including loss development factors, expected loss ratios based on pricing
analysis, and actual reported claim frequency and severity. These reviews and
documentation are completed in accordance with professional actuarial standards
appropriate to the jurisdictions where the business was written. The selected
assumptions typically reflect the actuaries' judgement based on historical data
and experience combined with information concerning past underwriting and
current economic, judicial, regulatory and other influences on ultimate claim
settlements.
Based on the actuarial indications and management's knowledge of the business,
the Group selects and records a single point estimate separately for each line
of business for each underwriting year. The single point reserve estimate is
management's best estimate of the point which the Group considers there to be an
equal likelihood of developing a redundancy or deficiency as the loss experience
matures. On a quarterly basis, the Group analyses and records its loss reserve
estimates across several hundred detailed lines of business which reflect class
of business, geographic location, insurance versus reinsurance, proportional
versus non-proportional, and treaty versus facultative exposures. In addition, a
limited number of the Group's largest contracts are reviewed individually.
During the loss settlement period, additional facts regarding claims are
reported. As this occurs, it may be necessary to increase or decrease the unpaid
losses and loss expense reserves. The actual final liability may be
significantly different to prior estimates. The Group reviews additional
reported claim information on a monthly basis. Actual claim experience is
compared to that expected from the most recent actuarial reserve review to
highlight significant variances. A complete actuarial analysis by detailed
business segment, including selection of single point estimates, is completed
semi-annually and is reviewed by the Group's management.
15 Borrowings
The borrowings represent trust preferred securities and are repayable as
follows:
+--------------------------------+----------+--------------+-------------------------------+
| | As at | As at | As at |
+--------------------------------+----------+--------------+-------------------------------+
| | 30 June | 30 June 2009 | 31 December |
| | 2010 | | 2009 |
+--------------------------------+----------+--------------+-------------------------------+
| | $'000 | $'000 | $'000 |
+--------------------------------+----------+--------------+-------------------------------+
| | | | |
+--------------------------------+----------+--------------+-------------------------------+
| On demand or within one year | - | - | - |
+--------------------------------+----------+--------------+-------------------------------+
| In the second year | - | - | - |
+--------------------------------+----------+--------------+-------------------------------+
| In the third to fifth years | 5,381 | 1,450 | 3,493 |
| inclusive | | | |
+--------------------------------+----------+--------------+-------------------------------+
| After five years | 120,000 | 120,000 | 120,000 |
+--------------------------------+----------+--------------+-------------------------------+
| Total borrowings | 125,381 | 121,450 | 123,493 |
+--------------------------------+----------+--------------+-------------------------------+
| | | | |
+--------------------------------+----------+--------------+-------------------------------+
| Less: Capitalised debt raising | (2,011) | (2,093) | (2,052) |
| expenses | | | |
+--------------------------------+----------+--------------+-------------------------------+
| Total borrowings net of | 123,370 | 119,357 | 121,441 |
| capitalised expenses | | | |
+--------------------------------+----------+--------------+-------------------------------+
| | | | |
+--------------------------------+----------+--------------+-------------------------------+
| | | | |
+--------------------------------+----------+--------------+-------------------------------+
All borrowings are recorded at amortised cost. The Directors consider the
carrying values disclosed above to be a reasonable approximation of the fair
value at the end of the period.
Trust preferred securities
In December 2004, the Group issued $100.0 million of trust preferred securities
and had in place a commitment for an additional $20.0 million of trust preferred
securities which were issued in January 2005. These securities (issued from
three Delaware trusts established by Alea Holdings US Company ('AHUSCO'), of
which one trust was established in January 2005) provide for a preferred
dividend at a rate of three month LIBOR plus 285 basis points and are
consolidated due to the guarantee that the Group issued to the holders of these
securities. These securities allow for the postponement of preferred dividends
under certain circumstances for up to five years. These securities carry no
financial covenants and no cross default covenants, have a fixed maturity of 30
years, and are callable after five years. AHUSCO may not optionally redeem the
debentures and thereby retire the trust preferred securities until the interest
payment date following the fifth anniversary of issue. The earliest call dates
were 15 March 2010 for the first issue and 15 June 2010 for the second and third
issues. The holders of the debentures may not call the debentures prior to their
maturity dates.
Commencing on the 15 June 2009 interest payment date, AHUSCO has elected to
defer the payment of interest on debentures underlying $120.0 million of trust
preferred securities due 2034 and 2035. As at 31 June 2010 the deferred interest
was $5.4 million (30 June 2009: $1.5 million, 31 December 2009: $3.5 million).
The deferral may be continued for a period not to exceed five years under the
terms of the debentures. During the deferral period, unpaid quarterly coupons
will compound at the rate of three month LIBOR (reset quarterly) plus 285 basis
points. While the deferral remains in effect, neither Alea nor AHUSCO may make
any payments on any securities that are pari passu or subordinate to the
debentures, including any common shares.
16 Provisions
+-----------------------------------------------------+----------------+
| | Restructuring |
| | Provision1 |
+-----------------------------------------------------+----------------+
| | $'000 |
+-----------------------------------------------------+----------------+
| | |
+-----------------------------------------------------+----------------+
| At 1 January 2009 | 2,808 |
+-----------------------------------------------------+----------------+
| | |
+-----------------------------------------------------+----------------+
| Utilisation of provision due to onerous contracts | (136) |
+-----------------------------------------------------+----------------+
| Utilisation of provision due to severance payments | (376) |
+-----------------------------------------------------+----------------+
| Exchange difference | (30) |
+-----------------------------------------------------+----------------+
| | |
+-----------------------------------------------------+----------------+
| At 30 June 2009 | 2,266 |
+-----------------------------------------------------+----------------+
| | |
+-----------------------------------------------------+----------------+
| Utilisation of provision due to onerous contracts | (135) |
+-----------------------------------------------------+----------------+
| Utilisation of provision due to severance payments | (153) |
+-----------------------------------------------------+----------------+
| Exchange difference | 76 |
+-----------------------------------------------------+----------------+
| | |
+-----------------------------------------------------+----------------+
| At 31 December 2009 | 2,054 |
+-----------------------------------------------------+----------------+
| | |
+-----------------------------------------------------+----------------+
| Utilisation of provision due to onerous contracts | (136) |
+-----------------------------------------------------+----------------+
| Utilisation of provision due to severance payments | (494) |
+-----------------------------------------------------+----------------+
| Exchange difference | (60) |
+-----------------------------------------------------+----------------+
| | |
+-----------------------------------------------------+----------------+
| At 30 June 2010 | 1,364 |
+-----------------------------------------------------+----------------+
1 The restructuring provision was established to cover anticipated future
severance payments and payments under onerous contracts that will arise as a
result of the decision to place all of the Group's operations into run-off.
For further details regarding the restructuring costs see note 9.
+-----------------------------------------------------+----------------+
| At 30 June 2010 | |
+-----------------------------------------------------+----------------+
| Current liabilities | 646 |
+-----------------------------------------------------+----------------+
| Non-current liabilities | 718 |
+-----------------------------------------------------+----------------+
| | 1,364 |
+-----------------------------------------------------+----------------+
+-----------------------------------------------------+----------------+
| At 30 June 2009 | |
+-----------------------------------------------------+----------------+
| Current liabilities | 1,791 |
+-----------------------------------------------------+----------------+
| Non-current liabilities | 475 |
+-----------------------------------------------------+----------------+
| | 2,266 |
+-----------------------------------------------------+----------------+
+-----------------------------------------------------+----------------+
| At 31 December 2009 | |
+-----------------------------------------------------+----------------+
| Current liabilities | 1,692 |
+-----------------------------------------------------+----------------+
| Non-current liabilities | 362 |
+-----------------------------------------------------+----------------+
| | 2,054 |
+-----------------------------------------------------+----------------+
17 Share capital
+------------------------------------------------------+---------+-------+
| | Number | |
| | | |
+------------------------------------------------------+---------+-------+
| | '000s | $'000 |
| | | |
+------------------------------------------------------+---------+-------+
| | | |
+------------------------------------------------------+---------+-------+
| At 1 January 2009 | 173,769 | 1,738 |
+------------------------------------------------------+---------+-------+
| Issuance of shares | 139 | 1 |
+------------------------------------------------------+---------+-------+
| | | |
+------------------------------------------------------+---------+-------+
| At 30 June 2009 | 173,908 | 1,739 |
+------------------------------------------------------+---------+-------+
| | | |
+------------------------------------------------------+---------+-------+
| At 31 December 2009 | 173,908 | 1,739 |
+------------------------------------------------------+---------+-------+
| | | |
+------------------------------------------------------+---------+-------+
| Issuance of shares | 139 | 1 |
+------------------------------------------------------+---------+-------+
| | | |
+------------------------------------------------------+---------+-------+
| At 30 June 2010 | 174,047 | 1,740 |
+------------------------------------------------------+---------+-------+
18 Cash used in operations
+----------+---------------------------------+----+--+-+--------+------------+------------+
| | Six months ended | Six months | Year ended |
| | | ended | |
+--------------------------------------------+------------------+------------+------------+
| | 30 June 2010 | 30 June | 31 |
| | | 2009 | December |
| | | | 2009 |
+--------------------------------------------+------------------+------------+------------+
| | $'000 | $'000 | $'000 |
+--------------------------------------------+------------------+------------+------------+
| | | | |
+--------------------------------------------+------------------+------------+------------+
| Loss for the period | (50,126) | (44,659) | (78,164) |
+--------------------------------------------+------------------+------------+------------+
| Adjustments for: | | | |
+--------------------------------------------+------------------+------------+------------+
| - tax credit | - | (2) | (325) |
+--------------------------------------------+------------------+------------+------------+
| - depreciation | 476 | 721 | 1,605 |
+--------------------------------------------+------------------+------------+------------+
| - impairment loss recognised in respect of | 50,631 | 21,562 | 30,493 |
| financial assets | | | |
+----------------------------------------------------+----------+------------+------------+
| | - net realised loss on disposal of | - | - | 16,671 |
| | subsidiary | | | |
+----------+-------------------------------------------+--------+------------+------------+
| | - realisation of revaluation reserve and | - | - | (3,292) |
| | hedging and translation reserve | | | |
+----------+-------------------------------------------+--------+------------+------------+
| - provision for estimated loss on sale of | - | 12,830 | - |
| disposal group | | | |
+-------------------------------------------------+-------------+------------+------------+
| | | | |
+--------------------------------------------+------------------+------------+------------+
| Net cash flows for the period transferred | (5,401) | (10,625) | (18,894) |
| to investing activities | | | |
+--------------------------------------------+------------------+------------+------------+
| Loss on sale of property, plant and | - | - | (6) |
| equipment | | | |
+--------------------------------------------+------------------+------------+------------+
| Debt interest expense | 1,929 | 2,687 | 4,774 |
+--------------------------------------------+------------------+------------+------------+
| (Profit)/loss on foreign exchange | (123) | 572 | 2,272 |
+--------------------------------------------+------------------+------------+------------+
| | | | |
+--------------------------------------------+------------------+------------+------------+
| Change in operating assets and liabilities | | | |
| (excluding the effect of acquisitions and | | | |
| exchange differences on consolidation) | | | |
+--------------------------------------------+------------------+------------+------------+
| | | | |
+--------------------------------------------+------------------+------------+------------+
| Net decrease in insurance liabilities | (65,037) | (93,430) | (120,342) |
+--------------------------------------------+------------------+------------+------------+
| Net decrease in reinsurance assets | (287) | 32,175 | 7,562 |
+--------------------------------------------+------------------+------------+------------+
| Net decrease in loans and receivables | 19,132 | 11,491 | 15,670 |
+--------------------------------------------+------------------+------------+------------+
| Net decrease in renewal rights accrued | - | - | 15,000 |
| income | | | |
+--------------------------------------------+------------------+------------+------------+
| Net decrease in other operating | (4,244) | (1,980) | (10,258) |
| liabilities | | | |
+--------------------------------------------+------------------+------------+------------+
| Net movement in share-based payment | 297 | 157 | 316 |
| reserve | | | |
+--------------------------------------------+------------------+------------+------------+
| Cash used in operations | (52,753) | (68,501) | (136,918) |
+--------------------------------------------+------------------+------------+------------+
| | | | | | | | |
+----------+---------------------------------+----+--+-+--------+------------+------------+
19 Contingent liabilities
Structured settlements
The Group, through the Canadian branch of Alea (Bermuda) Ltd, has assumed
ownership of certain structured settlements and has purchased annuities from
life assurers to provide fixed and recurring payments to those underlying
claimants. As a result of these arrangements, the Group is exposed to a credit
risk to the extent that any of these insurers are unable to meet their
obligations under the structured settlements. This risk is viewed by the
Directors as being remote as the annuities were paid for in full at the time of
purchase and the Group has only purchased annuities from Canadian insurers with
a financial stability rating of AA or higher (Standard & Poor's). The Canadian
branch is in run-off and the branch discontinued accepting assignments of
annuities in August 2001.
In the event of all the relevant life insurers being unable to meet their
obligations under the structured settlements, at 30 June 2010, the total
exposure, net of amounts that may be recoverable from the Compensation
Corporation of Canada (a Canadian industry-backed compensation scheme), is
estimated to be $45.1 million CAD ($42.9 million USD) and the maximum in
relation to any one insurer $23.2 million CAD ($22.1 million USD).
Regulatory matters
In connection with a periodic market conduct examination, the California
Department of Insurance has disputed certain fees collected from policyholders
by two agents of one of the Group's subsidiaries. The Group disagrees with the
Department's position, but is cooperating to audit these fee arrangements. The
agreements with the agents involved have been terminated. It is not possible to
predict the impact of this dispute on the Group's financial results.
Legion Companies in Liquidation
Alea (Bermuda) Ltd is in dispute with Legion Insurance Company (in liquidation)
and Villanova Insurance Company (in liquidation) regarding the terms of an
aggregate excess reinsurance treaty that was automatically commuted on 31 July
2006 in accordance with an agreed formula. Legion and Villanova have sought to
draw a letter of credit in the amount of $6,818,480 in connection with their
claim that amounts remain due under this treaty. Alea (Bermuda) Ltd obtained a
temporary restraining order preventing Legion and Villanova from drawing the
letter of credit. Based upon an agreement to arbitrate the matter, Legion and
Villanova will not draw the letter of credit for sums relating to the aggregate
excess reinsurance treaty until a final arbitration decision on the matter
allows them to draw on the letter of credit. At this time, Alea (Bermuda) Ltd
is not able to estimate any potential liability to Legion Insurance Company and
Villanova Insurance Company.
AmTrust Litigation
Certain U. S. subsidiaries of the Company ("Alea US") have filed suit against
AmTrust Financial Services, Inc. in the Supreme Court of the State of New York,
county of New York, seeking various relief including, damages for breach of
contract, specific performance and a permanent injunction arising out of
AmTrust's failure to report or pay commissions due and to maintain and provide
records required by the terms of a Renewal Rights and Asset Purchase Agreement
dated November 21, 2005. For further detail on this agreement and the estimated
amounts due from AmTrust see note 8. Alea US included in its complaint a demand
for payments of amounts that AmTrust had previously certified as due to Alea US
pursuant to the above referenced agreement. AmTrust has filed an answer denying
these allegations and has counterclaimed against Alea US on various grounds,
including breach of contract and has claimed overpayment of commissions to Alea
US, due to AmTrust's erroneous inclusion of commissionable premium in such
earlier certifications. At this time, Alea US is not able to estimate the
potential liability to AmTrust, if any, under the counterclaim, but intends to
vigorously pursue its claims against AmTrust and to vigorously defend against
any counterclaims filed by AmTrust.
20 Related party transactions
Fortress Investment Group
At 30 June 2010, certain parties related to Fortress Investment Group owned
72.41% of the Company's issued shares. Effective 1 October 2007, the Company
put in place an amended and restated advisory fee agreement with FIG LLC, a
Fortress affiliate ("Fortress"), under which the Company has agreed to pay
Fortress $1.0 million per year, payable quarterly in arrears, for advisory
services. For the period ended 30 June 2010, Fortress had received $0.5
million. As at 30 June 2010, the outstanding balance due under these
arrangements was $nil. The Fortress Directors' beneficial interests in common
shares of the Company as at 30 June 2010 were as follows:
+-----------------------------+--------------------------------------+
| Name of Director | Number of common shares |
+-----------------------------+--------------------------------------+
| Robert I Kauffman1 | 125,826,832 |
+-----------------------------+--------------------------------------+
| Randal A Nardone1 | 125,826,832 |
+-----------------------------+--------------------------------------+
1 Robert Kauffman and Randal Nardone are members of the Joint Investment
Committee formed pursuant to the terms of a Joint Investment Committee Agreement
("JICA") by and among FIG Corp., Fortress Investment Group LLC (the direct
parent of FIG Corp. "Fortress"), Fortress Operating Entity I LP, Fortress
Operating Entity II LP, Messrs Kauffman, Nardone, Peter L. Briger Jr., Wesley R.
Edens and Michael R. Novogratz. Under the terms of the JICA, each other party to
the Joint Investment Committee Agreement has delegated all power to control, to
direct or to cause the direction of the management and policies of the Company
to Messrs Kauffman, Nardone and Edens. As such Messrs Kauffman and Nardone are
interested in the 125,826,832 common shares owned by FIN Acquisition Limited, an
indirect wholly-owned subsidiary of Fortress.
In connection with services involving potential acquisition opportunities in the
property and casualty insurance sector that may be performed by Mark Cloutier, a
Non-Executive Director of the Company, Mr Cloutier entered into a consultancy
agreement effective 1 October 2007 with Fortress Capital Finance III (A) LLC, a
Fortress affiliate, whereby he would be paid $2,000 per day spent on such
activities plus a discretionary bonus. At 30 June 2010, $nil had been paid or
accrued under this arrangement.
Investment Management
Fortress Fund IV Advisor LLC ("FFIVA"), a Fortress affiliate, provides
investment management services to the Company and certain of its subsidiaries
pursuant to investment management agreements. FFIVA is paid a flat service fee
of 11 basis points per annum on the total fair market value of the assets under
management, payable quarterly in arrears. At 30 June 2010, FFIVA had
approximately $219.8 million in assets under management.
Key management personnel
The Group considers its key management personnel to include its Directors and
those members of management reporting directly to its Executive Director that
have executive management responsibility for Group-wide operations.
Remuneration of key management personnel
The remuneration of the Directors and those members of management reporting
directly to its Executive Directors that have executive management
responsibility for Group-wide operations, who are the key management personnel
of the Group, is set out below in aggregate for each of the categories specified
in IAS 24 Related Party Disclosures. For the period ended 30 June 2010 this
included 6 individuals (30 June 2009: 6, 31 December 2009: 6).
+------------------+----------------+----------------+--------------+
| | Six months | Six months | Year ended |
| | ended 30 June | ended 30 June | 31 December |
| | 2010 | 2009 | 2009 |
+------------------+----------------+----------------+--------------+
| | $ | $ | $ |
+------------------+----------------+----------------+--------------+
| | | | |
+------------------+----------------+----------------+--------------+
| Short-term | 1,571,999 | 1,987,072 | 2,350,384 |
| employee | | | |
| benefits | | | |
+------------------+----------------+----------------+--------------+
| Post-employment | 64,798 | 75,512 | 153,847 |
| benefits | | | |
+------------------+----------------+----------------+--------------+
| Other long-term | nil | nil | nil |
| benefits | | | |
+------------------+----------------+----------------+--------------+
| Termination | 157,500 | nil | nil |
| benefits | | | |
+------------------+----------------+----------------+--------------+
| Share-based | 133,418 | 156,178 | 154,555 |
| payment | | | |
+------------------+----------------+----------------+--------------+
| | | | |
+------------------+----------------+----------------+--------------+
| Total | 1,927,715 | 2,218,762 | 2,658,786 |
+------------------+----------------+----------------+--------------+
Key management personnel employment and retention contracts
Members of the Group have entered into employment and retention contracts with
Executive Directors and/or certain members of key management, in each case
taking into account the practices in the jurisdiction where the Group operates.
Compensation and termination benefits in the table above include amounts paid in
2009 and 2010 to Executive Directors and certain members of key management under
(and if applicable, settlement of) such contracts, to the extent not reported
in earlier periods.
Share and loan transactions with members of key management
Jeff Rosenthal
Mr Rosenthal was awarded 1,190,476 restricted stock units on 12 May
2010. These restricted stock units were awarded pursuant to Part C of the Alea
Group Executive Option and Stock Plan. The restricted stock units were priced
in accordance with the terms of the Plan. The Restricted Stock Units will vest
33% on 1 April 2011 and 2012, respectively, and the remainder will vest on 1
April 2013 and are not subject to financial performance requirements.
Mark Cloutier
Mr Cloutier was awarded 140,647 restricted stock units on 19 June
2008. These restricted stock units were awarded pursuant to Part C of the Alea
Group Executive Option and Stock Plan. The restricted stock units were priced
in accordance with the terms of the Plan. The Restricted Stock Units vested 33%
on 31 December 2008 and 2009, respectively, and the remainder will vest on 31
December 2010 and are not subject to financial performance requirements.
Carl Speck
Mr Speck was awarded 140,647 restricted stock units on 19 June 2008. These
restricted stock units were awarded pursuant to Part C of the Alea Group
Executive Option and Stock Plan. The restricted stock units were priced in
accordance with the terms of the Plan. The Restricted Stock Units vested 33% on
31 December 2008 and 2009, respectively, and the remainder will vest on 31
December 2010 and are not subject to financial performance requirements.
George Judd
Mr Judd was awarded 140,647 restricted stock units on 19 June 2008. These
restricted stock units were awarded pursuant to Part C of the Alea Group
Executive Option and Stock Plan. The restricted stock units were priced in
accordance with the terms of the Plan. The Restricted Stock Units vested 33% on
31 December 2008 and 2009, respectively, and the remainder will vest on 31
December 2010 and are not subject to financial performance requirements.
During the period ending 30 June, 2009, a subsidiary of the Company paid $769 in
total to Mr Judd's spouse, Sally Judd, for filing and record keeping services at
$25.00 per hour.
INDEPENDENT REVIEW REPORT TO ALEA GROUP HOLDINGS (BERMUDA) LTD
We have been engaged by the Company to review the condensed set of consolidated
financial statements in the half yearly financial report for the six months
ended 30 June 2010 which comprises the consolidated income statement, the
consolidated balance sheet, the consolidated cash flow statement, the
consolidated statement of comprehensive income, the consolidated statement of
changes in equity and related notes 1 - 20. We have read the other information
contained in the half-yearly financial report and considered whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of consolidated financial statements.
This report is made solely to the Company in accordance with International
Standard on Review Engagements 2410 "Review of Interim Financial Information
performed by the Independent Auditor of the Entity" issued by the International
Auditing and Assurance Standards Board (IAASB). To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the
Company, for our review work, for this report, or for the conclusions we have
formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the Directors. The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual consolidated financial statements of the
group are prepared in accordance with International Financial Reporting
Standards. The condensed set of consolidated financial statements included in
this half-yearly financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of consolidated financial statements in the half-yearly financial report
based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements 2410 "Review of Interim Financial Information performed by the
Independent Auditor of the Entity" issued by the IAASB. A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of consolidated financial statements in the half-yearly
financial report for the six months ended 30 June 2010 is not prepared, in all
material respects, in accordance with International Accounting Standard 34 and
the Disclosure and Transparency Rules of the United Kingdom's Financial Services
Authority.
Ernst & Young LLP
New York
11 August 2010
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LFFSLTLILLII
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