TIDMHDU
RNS Number : 9913M
Hardy Underwriting Bermuda Ld
25 August 2011
Date: 25 August 2011
On behalf of: Hardy Underwriting Bermuda Limited ("Hardy" or "the
Group")
Embargoed until: 0700hrs
Hardy Underwriting Bermuda Limited
! Interim Results for the half year ended 30 June 2011
Hardy Underwriting Bermuda Limited (LSE: HDU), the specialist
insurer and reinsurer, today announces its interim results for the
half year ended 30 June 2011. The key points are set out below.
-- Results have been significantly influenced by catastrophe
losses
-- Combined ratio of 119% (2010: 102%) includes 30% attributable
to catastrophe losses
-- Underlying combined ratio of 89% excluding catastrophe
losses
-- Loss after tax of GBP17.1m (2010: profit GBP2.0m)
-- Gross written premium of GBP167.3m (2010: GBP155.9m)
-- Net tangible assets 223p per share (2010: 257p per share)
-- Interim dividend of 4.4p per share (2010: 4.4p per share)
-- Basic loss per share of 34.2p (2010: earnings per share of
3.8p)
-- Investment return of 0.9% (2010: 0.6%)
-- Appointment of Paul Dawson to develop a new energy account
from 2012
-- Appointment of Ian Parker as Chief Operating Officer
-- Good progress made by Singapore office in its first year
Commenting on the Group's interim results, David Mann, Chairman
of Hardy Underwriting Bermuda Limited, said:
"The last 18 months have been extremely challenging. In common
with the wider market, Hardy has incurred large losses. The overall
development of the business, with the aim of achieving a larger,
well diversified short tail portfolio with above average long run
returns, however, remains on track. We have strengthened all areas
of the business, and will continue to add to the team, building on
our strong brand and reputation, in lines of business where we are
able to attract first class underwriters."
For further enquiries, please contact:
Hardy Underwriting Bermuda Limited www.hardygroup.co.uk
Barbara Merry, Chief Executive Tel: 020 7626 0382
Patrick Gage, Director of Underwriting
Jamie MacDiarmid, Finance Director
Redleaf Polhill Tel: 020 7566 6720
Emma Kane/Samantha Robbins/Henry hardy@redleafpolhill.com
Columbine
Notes to Editors:
-- Hardy is a specialist underwriting business operating within
Lloyd's of London. Its business has been built around its
management of and participation on Lloyd's syndicate 382, which
underwrites a range of insurance and reinsurance classes on a
worldwide basis.
-- Further information on Hardy is available at the Group's
website: www.hardygroup.bm
INTERIM RESULTS STATEMENT
Hardy underwrites risks in niche lines of business where it has
specialist expertise and underwriting excellence. Our focus is on
profitable business more than volume and on being adaptable to the
rating environment. Hardy's predominantly short tail business mix
enables the Group to quantify the impact of events quickly and
employ a dynamic and flexible strategy to mitigate risks and manage
change efficiently and effectively. Today, Hardy has a diversified
portfolio and operates across most of the major classes of
commercial insurance and reinsurance business, except for liability
and motor lines. This diversification of the Group's portfolio is
key to Hardy's longer term success.
We have experienced the most extraordinary run of catastrophe
losses that the insurance market has ever seen. Hardy's more
internationally focused catastrophe portfolio differs from the
typical Lloyd's concentration on the US, however, and has therefore
been hit hard in the last 18 months, with significant losses in
Australia, New Zealand and Japan. We have also experienced modest
losses from the US tornadoes. Our attention has inevitably been on
the impact of these losses. One of the critical inputs for our own
estimates of these losses, particularly the quake losses, is
information received from reinsureds about the quantum of their
losses. The scale and complexity of the losses is evidenced by the
recent revisions to estimates by reinsureds, which obviously impact
Hardy's own booked reserves. These revisions are ongoing, so there
remains an element of uncertainty about eventual outcomes. Hardy's
approach to reserving is, however, unchanged and a robust margin
over best estimate reserves continues to be maintained.
It is nevertheless important not to forget what has been
achieved in recent years. In particular, in the period under
review, the non-cat portfolio has performed overall in line with or
ahead of expectations and shows a loss ratio of 51%.
Hardy's diversification strategy also extends to the geographic
locations in which we now operate. Our Bermuda office, which was
set up in 2008 following the decision in 2007 to redomicile to
Bermuda, is proving itself as a platform to gain greater access to
US D&F and property treaty risks. Hardy's office in Singapore
commenced underwriting in December 2010 and has made good progress
in its first year and is well positioned to capitalise on the
growing significance of the Asia Pacific economies. The office in
Bahrain provides exposure to the MENA region and is focused on
writing large scale construction and onshore energy business. Most
recently, the Guernsey office was established earlier this year to
facilitate the development of a kidnap and ransom portfolio.
The loss events of 2010 and 2011 have put risk appetite much
higher up the agenda. We have reduced risk by containing exposures
on inwards business and with the purchase of additional
reinsurance, protecting against our major areas of exposure. In
addition, we have been focusing on enhancing returns on risk
capital and have decided to cut back on certain schemes and
facilities which have produced marginal returns. These changes will
have a beneficial effect overall, not least in terms of capital
requirements which are covered later in this statement.
Summary of interim results
Natural catastrophe activity is the principal contributor to the
half year pre-tax loss of GBP20.7m and accounted for 30% of the
combined ratio of 119%. The result for the full year will be
dependent on the level of any further catastrophe activity, notably
during the Atlantic hurricane season.
Half year Half year Full year
2011 2010 2010
GBPm GBPm GBPm
Gross premium written 167.3 155.9 279.4
---------- ---------- ----------
Net insurance premium revenue 109.9 97.8 192.7
Total underwriting (loss) /return (19.8) (2.7) 9.3
Investment income 2.7 1.6 3.1
Other income - 0.1 0.1
Other charges (2.4) (5.0) (11.3)
Finance charges (1.0) (1.2) (2.3)
---------- ---------- ----------
(Loss) before tax and foreign
exchange (20.5) (7.2) (1.1)
Foreign exchange (loss) / gain (0.2) 8.0 11.1
---------- ---------- ----------
(Loss) / profit before tax (20.7) 0.8 10.0
---------- ---------- ----------
Post tax (loss) / return on equity (11.1%) 1.3% 6.3%
Basic (loss) / earnings per share (34.2p) 3.8p 18.6p
Dividend per share 4.4p 4.4p 14.6p
------------------------------------ ---------- ---------- ----------
Business unit review, including rating environment
The diversification and growth strategy, which began in 2003,
has delivered clear benefits, and the areas which we now consider
to be core to the business have grown beyond the traditional marine
and aviation niches. These continue to deliver satisfactory margins
even during the low part of the cycle.
Aside from the catastrophe activity, underlying underwriting
performance has been encouraging. The following table shows the
gross written premium and the average rate change on renewal
business during the first half of the year. The clear trend in the
non-marine property and property treaty sectors has been for more
significant rises in Q2 and further rises are expected, regardless
of hurricane activity. Indeed, the overall rate change for risks
incepting on 1(st) July is 16%.
2011 2010 Change Renewal
GBPm GBPm GBPm rate change
Marine & Aviation 47.0 41.1 5.9 (0.3%)
Non-marine property 61.4 49.3 12.1 4.5%
Specialty Lines 38.2 44.8 (6.6) (0.9%)
Property Treaty 98.1 93.8 4.3 7.8%
Total 244.7 229.0 15.7 4.1%
(All figures are at Q4 2010 rates of exchange (USD1.57 CAD1.56
EUR1.17 JPY126.98) and are gross of commissions)
Property treaty
As would be expected, rates in Japan, New Zealand and Australia
have increased significantly in Q2, whilst there has been a modest
knock on effect in certain other territories, notably the US, where
recent catastrophe model change has resulted in greater demand. The
balance of the account going forward will change as appropriate to
ensure that we take advantage of rating improvements and that
returns are optimised within the Group's risk appetite.
Non-marine property
Our direct and facultative property accounts have outperformed
the market since 2007 when Patrick Gage and Tony Hepburn joined the
team. The construction portfolio is performing as expected,
although with a longer policy period than traditional risks, the
profits will only begin to be seen in any material way as we move
into 2012. Following Patrick's appointment as Director of
Underwriting in May 2011, Tony has taken over the role of business
unit manager.
Marine & aviation
The modest increase in income is spread across most of the
individual sub-classes. These accounts require patience and
expertise to generate margin. There is strong potential for growth
when the hard market returns but we are not necessarily expecting
this in the short term. For 2012 this business unit will benefit
from a meaningful energy portfolio for the first time.
Specialty lines
The core specialty lines accounts introduced since 2004,
financial institutions, political risks and terrorism, are all
showing positive results despite the volatile political and
economic conditions which prevail. As largely non-correlating to
natural catastrophe exposures, these classes can be very
competitive, so growth opportunities have, so far, been
limited.
Underwriting portfolio strategy
Lower margin business is only acceptable where it is proven to
deliver consistently satisfactory risk adjusted results. Hardy's
strategy is that the core of the book should be in the higher
margin classes underwritten where we are able to add genuine value
through expertise, as well as service to brokers and clients. The
new energy account for 2012 is consistent with this strategy. Given
increases in rating, and therefore margin expectations for some
lines of business, Hardy has discontinued certain lower margin
scheme business and also the high net worth home owners book. These
changes will enhance expected return on capital.
Reserving
Hardy has a conservative approach to the estimation of
outstanding claims reserves and maintains reserves with a margin
above management's actuarial best estimate to account for the
inherent uncertainties implicit in writing large commercial
insurance and reinsurance risks. There have been no changes to the
reserving methodology in the period. The Group continues to hold a
margin above actuarial best estimate reserves within the range 7.5%
to 12.5% of those best estimate reserves, which we consider to be
prudent for a predominantly short tail portfolio.
Risk management
The development of the property treaty portfolio has been a key
part of our recent growth and diversification. Whilst the core
philosophies of the account are unchanged, we have kept the risk in
this area under constant review. The management of this risk is a
combination of the application of pricing principles, risk
selection, exposure management and the purchase of reinsurance.
Catastrophe rates are rising strongly in some areas of the world
and we intend to take advantage of improved market conditions
through selective application of capacity and judicious purchase of
reinsurance in order to mitigate against excessive volatility. An
additional GBP5m has been spent on reinsurance in order to protect
returns for the remainder of 2011.
Solvency II
Risk and capital assessment is a continuous process and one
which has been overhauled over the last two years in preparation
for meeting the Solvency II requirements. Solvency II compliance
remains high on Hardy's agenda. Regardless of whether there are any
changes to the regulatory timetable, Hardy is committed to meeting
the expected standards, not least because we have invested
significant amounts of time and money already in pursuit of this.
To delay now would inevitably lead to additional costs and, having
put in considerable effort, we are keen to achieve full compliance
as soon as possible.
Investment returns
Hardy's investment strategy has continued to be low risk and
there has been no significant change in approach during the period
under review. With interest rates low, material levels of return
have not been possible. Whilst we have reviewed our strategy again
recently, allowing greater flexibility in some areas, the
philosophy remains conservative given Hardy's short tail
underwriting. The half year investment return of 0.9% is on track
for our expectations for full year performance.
The investment return for the period is set out below.
Six months to 30 June Six months to 30 June
2011 2010
Average Average
balance Return Return balance Return Return
GBPm GBPm % GBPm GBPm %
Fixed income 180.3 1.9 1.0% 180.2 1.2 0.7%
Cash and deposits 113.3 0.8 0.8% 115.4 0.4 0.4%
--------- ------- ------- --------- ------- -------
293.6 2.7 0.9% 295.6 1.6 0.6%
========= ======= ======= ========= ======= =======
The Group's conservative investment strategy limits exposure by
asset class, credit quality and issuer which has meant that
throughout the period all assets are either held in fixed income
securities, money market investments or deposits. All assets are
short dated, highly liquid and have a high credit rating.
The allocation over the main asset classes is set out below.
As at 30 June As at 30 June As at 31 Dec
2011 2010 2010
GBPm % GBPm % GBPm %
Fixed income 160.7 56.3% 173.8 59.0% 199.9 66.0%
Cash and deposits 124.6 43.7% 122.8 41.0% 101.9 34.0%
-------
285.3 100.0% 296.6 100.0% 301.8 100.0%
======= ======= ======= ======= ====== =======
The fixed income portfolios are analysed by asset type and
credit rating below.
As at 30 June 2011 Holding Credit rating
GBPm % AAA AA A BBB
Government * 70.5 44% 42% 2% 0% 0%
Government agency 12.3 8% 5% 3% 0% 0%
Supranationals 9.9 6% 6% 0% 0% 0%
Corporate 68.0 42% 16% 14% 10% 2%
Fixed income securities 160.7 100% 69% 19% 10% 2%
====== ===== ==== ==== ==== ====
* The GBP70.5m of Government debt held is not affected by the
current European Union sovereign debt issue and
there have been no material downgrades in credit ratings since
30 June 2011.
As at 31 December
2010 Holding Credit rating
GBPm % AAA AA A BBB
Government 97.0 49% 47% 2% 0% 0%
Government agency 17.4 9% 7% 2% 0% 0%
Supranationals 9.6 5% 5% 0% 0% 0%
Corporate 75.9 37% 12% 14% 9% 2%
Fixed income securities 199.9 100% 71% 18% 9% 2%
====== ===== ==== ==== === ====
Given the asset allocation strategy, the main element of risk in
the portfolio is interest rate volatility. This risk is managed
through the use of short duration benchmarks. The actual durations
for the fixed income portfolios were:
Asset Duration
30-Jun 30-Jun 31-Dec
2011 2010 2010
Years Years Years
Sterling 0.47 0.53 0.51
Euro 0.61 0.66 0.62
US dollar 1.79 0.70 1.59
Administration costs and expenses
Hardy continues to invest in its infrastructure and support
functions to ensure that its operating environment appropriately
supports the Group's objectives. At the half year stage, the
expense ratio has remained broadly constant at 38% (2010: 40%).
Capital
As stated, Hardy's capital requirement for 2012 will benefit
from a rigorous approach to assessment of the economic contribution
of each product line. The business plan for 2012 is still under
review, although we currently anticipate increased volume, most of
which emanates from the new energy account. When the business plan
has been finalised, the absolute amount of capital required to
support underwriting will become clearer. The plan will be financed
by a combination of our own resources and a range of other readily
available sources including third party syndicate capital, on a
limited tenure basis, further syndicate reinsurance or other third
party capital reinsurances and unsecured letters of credit. This
should enhance expected returns on equity.
Dividend policy
Hardy's policy has been to increase the level of dividend by 10%
each year. Given current trading conditions and capital demands,
this policy is being modified and the Board intends to maintain but
not increase the interim dividend.
People
This has been a testing time for the Hardy team but the
commitment shown across the board has been exemplary. Our
undiminished focus on future opportunities and our belief in our
culture and vision are key to our ability to continue to build the
team and to attract excellent people, such as Paul Dawson and Ian
Parker, whose appointment as Chief Operating Officer was announced
this morning.
Conclusion
There is no doubt that we have been through an extraordinarily
challenging time, but the overall development of the business, with
the aim of achieving a larger, well diversified short tail
portfolio with above average long run returns remains on track.
Whilst large losses have been incurred, they remain within expected
outcomes and tolerance limits. We have strengthened all areas of
the business, and will continue to add to the team, building on our
strong brand and reputation, in particular where we are able to
attract first class underwriters.
Hardy Underwriting Bermuda Limited
Interim Financial review for the six months ended 30 June
2011
Condensed Consolidated InTERIM INCOME statement For the six
month period ended 30 June 2011
Year
Six months Six months ended 31
ended 30 ended 30 December
Notes June 2011 June 2010 2010
GBP'000 GBP'000 GBP'000
Insurance premium revenue 5 142,865 128,543 257,725
Reinsurance premiums 5 (32,963) (30,705) (65,008)
----------- ----------- ----------
Net insurance premium
revenue 109,902 97,838 192,717
Financial income 6 2,748 1,635 3,138
Other operating income - 91 149
----------- ----------- ----------
Net income 112,650 99,564 196,004
Claims incurred 7 (159,869) (100,172) (167,169)
Reinsurers' share of
claims incurred 7 71,589 38,553 60,783
----------- ----------- ----------
Net claims incurred (88,280) (61,619) (106,386)
Expenses incurred in
insurance activities 8 (41,415) (38,974) (77,022)
Foreign exchange (losses)
/ gains 9 (226) 8,047 11,075
Other operating expenses (2,414) (5,043) (11,310)
----------- ----------- ----------
Total operating expenses (132,335) (97,589) (183,643)
Operating (loss) / profit (19,685) 1,975 12,361
Finance charges 10 (1,057) (1,201) (2,343)
----------- ----------- ----------
(Loss) / profit before
tax (20,742) 774 10,018
Comprises:
Underlying (loss) /
profit * (20,964) (718) 9,060
Notional adjustment for
foreign exchange
movements on
non-monetary items 9 222 1,492 958
-------------------------- ------ ----------- ----------- ----------
Income tax credit /
(expense) 11 3,660 1,199 (467)
(Loss) / profit for the
period (17,082) 1,973 9,551
----------- ----------- ----------
(Loss) / earnings per share
(pence)
Basic 12 (34.2) 3.8 18.6
Diluted 12 (34.2) 3.7 17.9
All of the operations relate to continuing activities during the
current and previous period.
*Underlying profit or loss comprises profit or loss before tax
with non-monetary items translated at closing foreign exchange
rates.
Condensed Consolidated INTERIM STATEMENT OF COMPREHENSIVE INCOME
For the six month period ended 30 June 2011
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2011 2010 2010
(Loss) / profit recognised (17,082) 1,973 9,551
Other comprehensive income - - -
--------------- --------------- -------------
Total comprehensive income
recognised (17,082) 1,973 9,551
--------------- --------------- -------------
CONDENSED Consolidated Interim STATEMENT OF FINANCIAL POSITION
As at 30 June 2011
As at As at As at
Notes 30 June 2011 30 June 2010 31 December 2010
GBP'000 GBP'000 GBP'000
Assets
Intangible assets 15,509 15,509 15,509
Property, plant and
equipment 3,523 2,876 3,466
Reinsurance assets
- Reinsurers' share
of outstanding
claims 20 124,399 73,394 71,595
- Reinsurers' share
of unearned
premium 20 44,672 31,994 26,417
Deferred acquisition
costs 39,107 32,555 32,445
Trade and other
receivables 158,964 120,430 112,515
Current income tax
assets - 5,304 6,354
Prepayments and
accrued income 4,598 6,665 3,811
Financial
Investments 15 160,738 173,786 199,939
Cash and cash
equivalents 16 124,626 122,852 101,939
Total assets 676,136 585,365 573,990
------------- ------------- -----------------
Equity
Share capital 17 10,563 10,553 10,554
Contributed surplus 17 77,403 77,306 77,314
Other reserves 18 (2,277) 2,873 1,880
Retained earnings 41,409 58,220 63,551
Total equity 127,098 148,952 153,299
------------- ------------- -----------------
Liabilities
Financial
liabilities -
subordinated debt 19 18,164 19,476 18,617
Insurance
liabilities
- Outstanding claims 20 303,144 223,958 215,431
- Unearned premium 20 158,967 140,181 134,511
Deferred income tax
liabilities 21 3,267 8,373 7,683
Trade and other
payables 65,256 44,425 44,449
Current tax
liabilities 240 - -
Total liabilities 549,038 436,413 420,691
------------- ------------- -----------------
Total equity and
liabilities 676,136 585,365 573,990
------------- ------------- -----------------
Net assets per share 22 GBP2.54 GBP2.87 GBP3.00
(GBP)
Net tangible assets 22 GBP2.23 GBP2.57 GBP2.70
per share (GBP)
CONDENSED Consolidated interim statement of changes in equity
For the six month period ended 30 June 2011
Common Contributed Other Retained
shares surplus reserves earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2011 10,554 77,314 1,880 63,551 153,299
Total
comprehensive
income for the
period
Loss
recognised - - - (17,082) (17,082)
Transactions
with owners,
recorded
directly in
equity
Proceeds of
shares issued
in relation
to share
options
exercised 9 89 - - 98
Share-based
payments - - (45) - (45)
Employee
Benefit Trust
holding - - (1,503) - (1,503)
Dividends 13 - - - (5,060) (5,060)
Purchase of
treasury
shares - - (2,609) - (2,609)
Balance at 30
June 2011 10,563 77,403 (2,277) 41,409 127,098
-------- ------------ --------- --------- ---------
For the six month period ended 30 June 2010
Common Contributed Other Retained
shares surplus reserves earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2010 10,464 77,295 3,357 60,975 152,091
Total comprehensive income
for the period
Profit recognised - - - 1,973 1,973
Transactions with owners,
recorded directly in equity
Proceeds of shares issued in
relation to share options
exercised 89 11 - - 100
Share-based payments - - 946 - 946
Employee Benefit Trust
holding - - (1,430) - (1,430)
Dividends 13 - - - (4,728) (4,728)
Balance at 30 June 2010 10,553 77,306 2,873 58,220 148,952
---------- -------------- ------------ ----------- --------
For the year ended 31 December 2010
Contributed Other Retained
Commonshares Surplus Reserves Earnings Total
Note GBP'000 GBP000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2010 10,464 77,295 3,357 60,975 152,091
Total
comprehensive
income for the
period
Profit
recognised - - - 9,551 9,551
Transactions
with owners,
recorded
directly in
equity
Proceeds of
shares issued
in relation
to share
options
exercised 90 19 - - 109
Share-based
payments - - 1,927 - 1,927
Employee
Benefit Trust
holding - - (1,429) - (1,429)
Dividends 13 - - - (6,975) (6,975)
Purchase of
treasury
shares - - (1,975) - (1,975)
Balance at 31
December
2010 10,554 77,314 1,880 63,551 153,299
------------- ------------ --------- --------- --------
CONDENSED Consolidated interim statement of Cash flows For the
six month period ended 30 June 2011
Six
Six months
months to to 30
30 June June Year ended 31
2011 2010 December 2010
GBP'000 GBP'000 GBP'000
(Loss) / profit before tax (20,742) 774 10,018
Depreciation of property, plant
and equipment 561 539 1,065
Interest and equity dividend
income (3,619) (2,986) (6,093)
Net unrealised gains/ (losses) on
investments 701 (356) 1,891
Foreign exchange losses / (gains) 226 (8,047) (11,075)
Share-based payments (45) 945 1,927
Finance charges 1,057 1,201 2,343
Change in underwriting balances 8,947 19,279 19,972
Decrease / (increase) in
investments 37,791 21,382 (8,322)
Decrease / (increase) in debtors
and prepayments 9,376 (4,473) (2,679)
(Decrease) in creditors and
accruals (3,438) (5,986) (5,053)
Interest received 3,619 2,986 6,093
Income tax paid (328) (1,334) (3,750)
---------- --------- ---------------
Net cash generated from operating
activities 34,106 23,924 6,337
Cash flows from investing
activities
Purchase of property, plant and
equipment (624) (340) (1,456)
---------- --------- ---------------
Cash used in investing activities (624) (340) (1,456)
Cash flows from financing
activities
Dividends paid (5,060) (4,728) (6,975)
Cash received from issue of
shares 98 100 109
Purchase of own shares including
those arising on share buy-back
programme (4,112) (1,430) (3,404)
Finance charges (1,057) (1,201) (2,343)
---------- --------- ---------------
Net cash (used in) financing
activities (10,131) (7,259) (12,613)
---------- --------- ---------------
Net increase / (decrease) in cash
and cash equivalents 23,351 16,325 (7,732)
Cash and cash equivalents at
beginning of year 101,939 98,254 98,254
Effect of exchange rate
fluctuations on cash and cash
equivalents (664) 8,273 11,417
---------- --------- ---------------
Cash and cash equivalents at end
of the period 124,626 122,852 101,939
---------- --------- ---------------
Change in underwriting balances shows the movement in the
underwriting debtors and creditors in the relevant period.
Included within cash and cash equivalents held by the Group are
balances totaling GBP95,676,785 (2010: GBP90,084,508) not available
for immediate use by the Group outside of the Lloyd's syndicate
within which they are held.
Notes to the condensed consolidated interim financial
statements
1 Reporting entity
Hardy Underwriting Bermuda Limited is a company domiciled in
Bermuda. The condensed consolidated interim financial statements of
the Company for the six month period ended 30 June 2011 relate to
the Company and its subsidiaries (together referred to as the
"Group") and the Group's interest in jointly controlled entities,
which are all attributable to the owners of the company. The
interim financial review has been prepared in accordance with
Bermudian law and with the Listing Rules and Disclosure and
Transparency Rules issued by the Financial Services Authority. The
information presented does not include all of the disclosures
typically required for full consolidated financial statements and
consequently should be read in conjunction with the full
consolidated financial statements of the Group as at , and for the
year ended, 31 December 2010. The interim financial review
accompanying these condensed consolidated interim financial
statements form the interim management report for the six months
ended 30 June 2011.
These condensed consolidated interim financial statements were
approved for issue by the board on 25 August 2011.
2 Basis of preparation
The Group condensed consolidated interim financial statements
have been prepared in accordance with IAS 34 Interim Financial
Reporting and do not include all of the information required for
full annual financial statements. Consequently these financial
statements should be read in conjunction with the full consolidated
financial statements of Hardy Underwriting Bermuda Limited as at,
and for the year ended, 31 December 2010, which are available from
the Company's registered office or at www.hardygroup.bm. Except
where otherwise indicated, all amounts are presented in Pounds
Sterling, rounded to the nearest thousand.
The independent auditors have reported on the Group's full
consolidated financial statements as at, and for the year ended, 31
December 2010. The report of the independent auditors was not
qualified, with no matters to which the independent auditors drew
attention. The amounts presented for the 30 June 2011 and 30 June
2010 period are unaudited.
The Group have adequate resources to continue in operational
existence for the foreseeable future. For this reason the condensed
consolidated interim financial statements have been prepared on a
going concern basis and are prepared on a historic cost basis, as
modified by the revaluation of financial instruments at fair value
through the condensed consolidated interim income statement.
3 Accounting policies
The accounting policies adopted in preparing these condensed
consolidated interim financial statements are those that the Group
expects to apply for the year ending 31 December 2011. They are
consistent with those followed in the preparation of Hardy
Underwriting Bermuda Limited consolidated financial statements as
at, and for the year ended 31 December 2010, which were prepared in
accordance with International Financial Reporting Standards issued
by the IASB and adopted by the European Union. The interim
financial review is compliant with IAS 34 Interim Financial
Reporting as adopted by the European Union.
There have been no amendments to accounting policies as a result
of new standards or interpretations that have become effective
during 2011.
4 Operating Segments
Business segments
The Group's operating segments consist of four segments which
recognise the different types of insurance risks underwritten. The
operating segments have been identified as follows:
-- Marine and aviation, which underwrites a broad spectrum of
aviation and marine classes including general aviation, airlines,
space, cargo, jewelers block, other specie and marine hulls.
-- Specialty lines, which includes a diverse range of accounts
including financial institutions, terrorism, political risks and
accident and health insurance.
-- Non-marine property, which underwrites property risks on both
a direct insurance and facultative reinsurance basis.
-- Property treaty, which underwrites the reinsurance of
property risks on both a non-proportional and proportional
basis.
The segment results for the six months ended 30 June 2011 are as
follows:
Effects of
foreign
Marine Total exchange on Other
and Specialty Non-marine Property operating non-monetary foreign
aviation lines property treaty segments items exchange Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gross premium
written 31,229 29,125 37,387 69,580 167,321 - - 167,321
--------------- --------- ---------- ----------- --------- ---------- ------------- --------- ----------
Net insurance
premium
revenue 26,358 23,533 24,807 34,170 108,868 1,034 - 109,902
Net claims
incurred (7,802) (15,210) (18,254) (47,014) (88,280) - - (88,280)
Expenses
incurred in
insurance
activities (8,685) (8,360) (8,970) (15,317) (41,332) (83) - (41,415)
--------------- --------- ---------- ----------- --------- ---------- ------------- --------- ----------
Total
operating
expenses (16,487) (23,570) (27,224) (62,331) (129,612) (83) - (129,695)
--------------- --------- ---------- ----------- --------- ---------- ------------- --------- ----------
Underwriting
return/(loss)
before
foreign
exchange 9,871 (37) (2,417) (28,161) (20,744) 951 - (19,793)
--------------- --------- ---------- ----------- --------- ---------- ------------- --------- ----------
Foreign
exchange
(loss)/gain
(Note 9) - (729) 503 (226)
---------- ------------- --------- ----------
Underwriting
(loss)/return
after foreign
exchange (20,744) 222 503 (20,019)
---------- ------------- --------- ----------
Financial income (Note
6) 2,748
Other
operating
income -
Other
operating
expenses (2,414)
----------
Operating loss (19,685)
Finance charges (Note
10) (1,057)
----------
Loss before
tax (20,742)
Taxation credit (Note
11) 3,660
----------
Loss after tax (17,082)
----------
Claims ratio
(%) 29.6% 64.6% 73.6% 137.6% 81.1%
Expense ratio
(%) 33.0% 35.5% 36.2% 44.8% 38.0%
--------- ---------- ----------- --------- ----------
Combined ratio
(%) 62.6% 100.1% 109.8% 182.4% 119.1%
--------- ---------- ----------- --------- ----------
The claims ratio is net claims incurred as a percentage of net
insurance premium revenue.
The expense ratio is expenses incurred in insurance activities
(excluding other operating expenses, which are corporate and head
office expenses) as a percentage of net insurance premium
revenue.
The combined ratio is the sum of the claims ratio and expense
ratio.
The segment results for the six months ended 30 June 2010 are as
follows:
Effects of
foreign
Marine Total exchange on Other
and Specialty Non-marine Property operating non-monetary foreign
aviation lines property treaty segments items exchange Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gross premium
written 30,534 27,519 30,354 67,500 155,907 - - 155,907
--------------- --------- ---------- ----------- --------- ---------- ------------- --------- ----------
Net insurance
premium
revenue 25,733 29,147 18,828 25,529 99,237 (1,399) - 97,838
Net claims
incurred (8,427) (10,150) (13,424) (29,618) (61,619) - - (61,619)
Expenses
incurred in
insurance
activities (8,212) (12,555) (7,807) (10,699) (39,273) 299 - (38,974)
--------------- ------------- --------- ----------
Total
operating
expenses (16,639) (22,705) (21,231) (40,317) (100,892) 299 - (100,593)
Underwriting
return/(loss)
before
foreign
exchange 9,094 6,442 (2,403) (14,788) (1,655) (1,100) - (2,755)
--------------- --------- ---------- ----------- --------- ---------- ------------- --------- ----------
Foreign
exchange
losses (Note
9) - 2,592 5,455 8,047
---------- ------------- --------- ----------
Underwriting
return after
foreign
exchange (1,655) 1,492 5,455 5,292
---------- ------------- --------- ----------
Financial income (Note
6) 1,635
Other
operating
income 91
Other
operating
expenses (5,043)
----------
Operating
profit 1,975
Finance charges (Note
10) (1,201)
----------
Profit before
tax 774
Taxation credit (Note
11) 1,199
----------
Profit after
tax 1,973
----------
Claims ratio
(%) 32.7% 34.8% 71.3% 116.0% 62.1%
Expense ratio
(%) 31.9% 43.1% 41.5% 41.9% 39.6%
--------- ---------- ----------- --------- ----------
Combined ratio
(%) 64.6% 77.9% 112.8% 157.9% 101.7%
--------- ---------- ----------- --------- ----------
The segment results for the year ended 31 December 2010 are as
follows:
Effects of
foreign
Marine Total exchange on Other
and Specialty Non-marine Property operating non-monetary foreign
aviation lines property treaty segments items exchange Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gross premium
written 54,539 52,287 66,230 106,363 279,419 - - 279,419
-------------- --------- ---------- ----------- --------- ---------- ------------- --------- ----------
Net insurance
premium
revenue 48,545 52,250 42,168 51,039 194,002 (1,285) - 192,717
Net claims
incurred (13,059) (17,236) (17,755) (58,336) (106,386) - - (106,386)
Expenses
incurred in
insurance
activities (17,296) (19,700) (16,976) (23,391) (77,363) 341 - (77,022)
-------------- --------- ---------- ----------- --------- ---------- ------------- --------- ----------
Total
operating
expenses (30,355) (36,936) (34,731) (81,727) (183,749) 341 - (183,408)
Underwriting
return
before
foreign
exchange 18,190 15,314 7,437 (30,688) 10,253 (944) - 9,309
-------------- --------- ---------- ----------- --------- ---------- ------------- --------- ----------
Foreign
exchange
losses (Note
9) - 1,902 9,173 11,075
---------- ------------- --------- ----------
Underwriting
return after
foreign
exchange 10,253 958 9,173 20,384
---------- ------------- --------- ----------
Financial income (Note
6) 3,138
Other
operating
income 149
Other
operating
expenses (11,310)
----------
Operating
profit 12,361
Finance charges (Note
10) (2,343)
----------
Profit before
tax 10,018
Taxation charge (Note
11) (467)
----------
Profit after
tax 9,551
----------
Claims ratio
(%) 26.9% 33.0% 42.1% 114.3% 54.8%
Expense ratio
(%) 35.6% 37.7% 40.3% 45.8% 39.9%
--------- ---------- ----------- --------- ----------
Combined
ratio (%) 62.5% 70.7% 82.4% 160.1% 94.7%
--------- ---------- ----------- --------- ----------
5 Net insurance premium revenue
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Gross premiums written 167,321 155,907 279,419
Change in gross unearned premiums
provision (24,456) (27,364) (21,694)
----------- ----------- ------------
Gross earned premiums 142,865 128,543 257,725
Premiums ceded to reinsurers (51,218) (44,327) (73,054)
Change in ceded unearned premiums
provision 18,255 13,622 8,046
----------- ----------- ------------
Ceded earned premiums (32,963) (30,705) (65,008)
Net insurance premium revenue 109,902 97,838 192,717
----------- ----------- ------------
6 Financial income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Interest income cash and cash
equivalents 868 447 853
Investment income on financial assets
designated at fair value through
the income statement on initial
recognition
Interest income from fixed income
securities 2,751 2,539 5,240
Fair value gains/(losses) on
financial assets at fair value
through the income statement
Designated upon initial recognition
(realised) (1,572) (995) (1,952)
Designated upon initial recognition
(unrealised) 701 (356) (1,003)
----------- ----------- ------------
2,748 1,635 3,138
----------- ----------- ------------
7 Net claims incurred
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Claims paid 72,957 48,132 121,593
Movement in insurance liabilities 86,912 52,040 45,576
----------- ----------- ------------
Gross claims incurred 159,869 100,172 167,169
Reinsurers' share of claims paid (19,595) (12,533) (36,022)
Reinsurers' share of movement
in insurance liabilities (51,994) (26,020) (24,761)
----------- ----------- ------------
Reinsurers' share of claims incurred (71,589) (38,553) (60,783)
Net claims paid 53,362 35,599 85,571
Net movement in insurance liabilities 34,918 26,020 20,815
----------- ----------- ------------
Net claims incurred 88,280 61,619 106,386
----------- ----------- ------------
The reassessment of total claims reserves has not given rise to
any material movements in the period.
8 Expenses incurred in insurance activities
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Commission expenses payable 35,958 31,748 58,552
Other acquisition costs 5,477 3,934 9,249
Change in deferred acquisition
costs (6,663) (3,011) (2,901)
----------- ----------- ------------
Total acquisition costs 34,772 32,671 64,900
Administrative expenses 6,643 6,303 12,122
Expenses incurred in insurance
activities 41,415 38,974 77,022
----------- ----------- ------------
9 Foreign exchange movements
Foreign exchange gains and losses result from the translation of
the monetary items in the condensed consolidated interim statement
of financial position to closing rates and the condensed
consolidated interim income statement to average exchange rates.
Net unearned premium ("UEP") and deferred acquisition costs ("DAC")
are treated as non-monetary items in accordance with IAS 21: The
Effects of Changes in Foreign Exchange Rates, which requires
non-monetary items remain at historic rates. As a result a foreign
exchange mismatch arises caused by these non-monetary items
translated at historic rates and the resulting monetary items
retranslated at the end of each period.
The financial effects of this mismatch are shown in the table
below:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2011 2010 2010
Foreign exchange (losses) / gains
arising from: GBP'000 GBP'000 GBP'000
Translation of monetary items in
the statement of financial position
and income statement 503 5,455 9,173
Gain representing the non
retranslation of non-monetary items
in the statement of financial
position 222 1,492 958
(Loss) / gain representing the
non retranslation of non-monetary
items in the income statement (951) 1,100 944
(226) 8,047 11,075
----------- ----------- ------------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2011 2010 2010
Effects of foreign exchange on
non-monetary items: GBP'000 GBP'000 GBP'000
UEP and DAC items at historic rates 75,188 75,632 75,649
UEP and DAC items at closing rates 75,833 76,589 76,072
----------- ----------- ------------
Valuation difference in closing
balance sheet 645 957 423
Valuation difference in opening
balance sheet (423) 535 535
222 1,492 958
----------- ----------- ------------
10 Finance costs
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Letter of credit charges 719 835 1,610
Subordinated debt interest 338 366 733
1,057 1,201 2,343
----------- ----------- ------------
11 Income tax expense
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Current period tax expense 2,338 833 1,618
Adjustment for prior period (1,582) (445) 1,126
Deferred tax (credit)
Origination and reversal of temporary
differences (note 21) (4,416) (1,587) (2,277)
(3,660) (1,199) 467
----------- ----------- ------------
The Group records its income tax expense based on the expected
effective rate for the full year.
12 Earnings per share
Basic
Basic earnings per share is calculated by dividing the (loss) /
profit after tax by the weighted average number of common shares
in issue during the period, excluding common shares purchased by
the Group and held as treasury shares.
Six
Six months months Year
ended ended ended
31
30 June 30 June December
2011 2010 2010
(Loss) / profit for the period
(GBP'000) (17,082) 1,973 9,551
------------ ---------- ----------
Thousands Thousands Thousands
Issued shares at 1 January 52,768 52,318 52,318
Effect of own shares held (2,856) (1,148) (1,253)
Effect of shares issued in period 23 277 363
------------ ---------- ----------
Weighted average number of common
shares in issue during period 49,935 51,447 51,428
------------ ---------- ----------
Basic earnings per share (pence (34.2p) 3.8p 18.6p
per share)
Diluted
Diluted earnings per share is calculated by adjusting the weighted
average number of ordinary shares outstanding to assume conversion
of all dilutive potential ordinary shares. The Company has two categories
of dilutive potential ordinary shares being share options and rewards
of shares under the groups share scheme. For share options, a calculation
is made to determine the number of shares that could have been acquired
at fair value (determined as the average annual market price of
the Company's shares) based on the monetary value of the subscription
rights attached to outstanding share options. The number of shares
calculated as above is compared with the number of shares that would
have been issued assuming the exercise of the options. Diluted earnings
per share are calculated using the same profits for the year as
for basic earnings per share. If the inclusion of potentially issuable
shares would decrease the loss per share, the potentially issuable
shares are excluded from the diluted earnings per share calculation.
Six
Six months months Year
ended ended ended
31
30 June 30 June December
2011 2010 2010
Thousands Thousands Thousands
Weighted average number of ordinary
shares in issue during period 49,935 51,447 51,428
Adjusted for share options and
share schemes - 2,241 1,807
------------ ---------- ----------
Weighted average number of ordinary
shares for diluted earnings per
share 49,935 53,688 53,235
------------ ---------- ----------
Diluted earnings per share (pence (34.2p) 3.7p 17.9p
per share)
13 Dividends per share
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Second interim dividend for the
year ended 31 December 2009 of 9.3p
per share - 4,728 4,728
Interim dividend for the year ended
31 December 2010 of 4.4p per share - - 2,247
Final dividend for the year ended
31 December 2010 of 10.2p per share 5,060 - -
5,060 4,728 6,975
----------- ----------- ------------
The group has declared an interim dividend of 4.4p per share (2010:
4.4p) payable on 7 October 2011.
14 Reinsurance assets
As at As at As at
31
30 June 30 June December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Reinsurers' share of unearned
premiums 44,672 31,994 26,417
Reinsurers' share of outstanding
claims 128,000 75,250 73,532
Impairment provision (3,601) (1,856) (1,937)
---------- -------- ---------
Reinsurance assets (note 20) 169,071 105,388 98,012
---------- -------- ---------
Amounts due from reinsurers in respect of claims already paid by
the Group are included in trade and other receivables.
15 Financial investments
As at As at As at
31
30 June 30 June December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Financial assets at fair value
through the income statement
Designated upon initial recognition 160,738 173,786 199,939
Financial assets at fair value
through the income statement
Debt and other fixed income
securities 160,738 173,786 199,939
The Group has designated all investments at fair value through the
income statement. There has been no recognition of loss from the
impairments in financial investments during the period.
Hardy Re Limited ("HRe"), Hardy Underwriting Limited ("HU") and
Hardy Names Limited ("HN") are wholly owned subsidiaries of Hardy
Underwriting Bermuda Limited. They have entered into Lloyd's Deposit
Trust Deeds under the terms of which they have deposited funds (cash
and investments) with Lloyd's, as security in respect of their underwriting
business at Lloyd's. At 30 June 2011 the total deposited under these
Trust Deeds, including cash, amounted to GBP125,630,741 (2010: GBP135,935,789)
and the relevant investments together with income thereon represent
the maximum contingent liability under the Trust Deeds. HRe, HU
and HN may, however, incur further liabilities pursuant to their
underwriting activities at Lloyd's which would need to be met from
their other assets.
In addition, on behalf of HU, the Company has deposited letters
of credit with Lloyd's totaling US$65m (2010: US$50m). These letters
of credit have been issued by Lloyds TSB Bank, Calyon and Barclays
Bank and are secured on the assets of the Group. This facility supports
underwriting on the 2011 year of account and the Group expects to
be able to renew this facility for the 2012 year of account on similar
terms.
Fair value measurement
All financial instruments carried at fair value are categorised
in three categories, defined as follows:
Level 1 - Quoted market prices
Level 2 - Valuation techniques (market observable)
Level 3 - Valuation techniques (non-market observable)
The group measures the fair value of its financial assets based
on prices provided by investment managers who obtain market data
from independent pricing services. The pricing services used by the
investment manager obtain actual transaction prices for holdings
that have quoted prices in active markets. For those securities
which are not actively traded, the pricing services use common
market valuation pricing models. Observable inputs used in common
market valuation pricing models include, but are not limited to,
broker quotes, credit ratings, interest rates and yield curves,
prepayment speeds, default rates and other such inputs which are
available from market sources.
Level 1 includes Government bonds and Treasury bills, which are
measured using quoted prices.
Level 2 includes Government agencies, Supranationals and
Corporate securities. The fair values of these assets are based on
prices obtained from both investment managers and investment
custodians as discussed above. The Group records the unadjusted
price provided and validates the price through a number of methods,
including a comparison of the prices provided by the investment
manager with the investment custodian and the valuation used by
external parties to derive fair value.
There have been no material movements of instruments between
levels in the period.
Level
Level 1 Level 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets:
Debt and fixed income
As at 30 June 2011 15,443 145,295 - 160,738
As at 30 June 2010 19,942 153,844 - 173,786
As at 31 December 2010 39,012 160,927 - 199,939
16 Cash and cash equivalents
As at As at As at
30 June 30 June 31 December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Short-term bank deposits 93,629 96,184 85,367
Deposits with credit institutions 30,997 26,668 16,572
--------- --------- -------------
124,626 122,852 101,939
--------- --------- -------------
Included in cash and cash equivalents held by the Group are balances
totaling GBP95,676,785 (2010: GBP90,084,508) which are not available
to the Group because they are held within syndicate premium trust
funds.
17 Capital and contributed surplus
Number of Contributed
shares Common shares surplus
Thousands GBP'000 GBP'000
As at 1 January 2010 52,318 10,464 77,295
Issues in relation
to share options
exercised 447 89 11
As at 30 June 2010 52,765 10,553 77,306
---------- -------------- ------------
Issues in relation
to share options
exercised 3 1 8
As at 31 December
2010 52,768 10,554 77,314
---------- -------------- ------------
Issues in relation
to share options
exercised 47 9 89
As at 30 June 2011 52,815 10,563 77,403
---------- -------------- ------------
The total authorised number of common shares is 75 million
(2010: 75 million), with a par value of 20 pence per share.
18 Other reserves
Own Merger Other Share-based
shares reserve reserve Treasuryshares payments Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 January
2010 (2,287) 2,441 75 - 3,128 3,357
Share-based
payments - - - - 946 946
Employee benefit
trust holding (1,430) - - - - (1,430)
-----------------
As at 30 June 2010 (3,717) 2,441 75 - 4,074 2,873
Share-based
payments - - - - 981 981
Employee benefit
trust holding 1 - - - - 1
Purchase of own
shares held in
Treasury - - - (1,975) - (1,975)
-----------------
As at 31 December
2010 (3,716) 2,441 75 (1,975) 5,055 1,880
Share-based
payments - - - - (45) (45)
Employee benefit
trust holding (1,503) - - - - (1,503)
Purchase of own
shares held in
Treasury - - - (2,609) - (2,609)
---------- ---------- -------- ----------------- ------------ --------
As at 30 June 2011 (5,219) 2,441 75 (4,584) 5,010 (2,277)
---------- ---------- -------- ----------------- ------------ --------
On 15 December 2010 the Group commenced a share buy-back
programme, under which the company intended to purchase up to 2.7m
shares. During 2011 959,174 shares were acquired at a range of
between 261p and 275p per share. These shares are held as treasury
shares. As at 30 June 2011 1,677,766 treasury shares have been
acquired.
The merger reserve relates to the merger of Hardy Underwriting
Group plc with Hardy Underwriting Limited on formation of the Group
in 1996. Other reserves were created following the capitalisation
of reserves in Hardy (Underwriting Agencies) Limited during
1998.
19 Financial liabilities - subordinated debt
As at As at As at
31
30 June 30 June December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Subordinated debt 18,164 19,476 18,617
The Group issued a $30m subordinated bond on 19 September 2006. The
bond bears a variable interest rate set at three month US dollar
LIBOR plus 3.3%. The bond must be redeemed by no later than 15 September
2036 at the principle plus any accrued interest. The Group has the
option to redeem all or some of the bond at any time on or after
15 December 2011.
The subordinated debt is carried at amortised. As the debt is held
in US$, the movement in the exchange rate has meant that when re-valued
to the reporting currency the subordinated debt is held on the statement
of financial position at a lower value than the previous reporting
period.
20 Insurance liabilities and reinsurance assets
As at As at As at
31
30 June 30 June December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Gross
Claims reported 193,405 134,031 148,302
Loss adjustment expenses 4,078 5,017 4,599
Claims incurred but not reported 105,661 84,910 62,530
Unearned premiums 158,967 140,181 134,511
---------- ---------- -----------
Total gross insurance liabilities 462,111 364,139 349,942
---------- ---------- -----------
Recoverable from reinsurers
Claims reported 63,170 44,004 52,196
Claims incurred but not reported 61,229 29,390 19,399
Unearned premiums 44,672 31,994 26,417
---------- ---------- -----------
Total reinsurers' share of insurance
liabilities 169,071 105,388 98,012
---------- ---------- -----------
Net
Claims reported 130,235 90,027 96,106
Loss adjustment expenses 4,078 5,017 4,599
Claims incurred but not reported 44,432 55,520 43,131
Unearned premiums 114,295 108,187 108,094
---------- ---------- -----------
Total net insurance liabilities 293,040 258,751 251,930
---------- ---------- -----------
The gross liabilities for claims reported, loss adjustment expenses
and claims incurred but not reported are net of expected recoveries
from salvage and subrogation. The amounts for salvage and subrogation
at the end of the reporting periods above were not material.
21 Deferred income tax liability
2011 2010 2010
GBP'000 GBP'000 GBP'000
As at 1 January 7,683 9,960 9,960
(Credit) in period (4,416) (1,587) (2,277)
As at 30 June / 31 December 3,267 8,373 7,683
-------- -------- ----------
The income tax expense is recognised using the annual income tax
rate expected for the full financial year applied to the pre-tax
income for the interim period. The Group and its subsidiaries are
subject to enacted tax laws in the jurisdictions in which they are
incorporated and domiciled.
Deferred tax assets and deferred tax liabilities relating to the
same tax authority are presented net on the condensed consolidated
interim statement of financial position.
22 Net assets per share
Net assets and net tangible assets per share are calculated based on
the number of common shares in issue at the period end, excluding common
shares purchased by the Group and held as treasury shares.
As at As at As at
31
30 June 30 June December
2011 2010 2010
GBP'000 GBP'000 GBP'000
Net assets 127,098 148,952 153,299
Intangible assets (15,509) (15,509) (15,509)
--------- --------- -----------
Net tangible assets 111,589 133,443 137,790
Issued shares at end of period
(number of shares '000s) 52,815 52,765 52,768
Effect of own shares held (number
of shares '000s) (2,682) (939) (1,744)
--------- --------- -----------
Issued shares after adjustment
(number of shares '000s) 50,133 51,826 51,024
--------- --------- -----------
Net assets per share GBP2.54 GBP2.87 GBP3.00
Net tangible assets per share GBP2.23 GBP2.57 GBP2.70
23 Risk management
The Group's insurance, financial and other risk management
objectives and policies are consistent with that disclosed in note
3 of the full consolidated financial statements for Hardy
Underwriting Bermuda Limited as at, and for the period ended, 31
December 2010. The principal risks and uncertainties are unchanged
and may be summarised as insurance risk, credit risk, market risk
and liquidity risk. The Group continues to monitor all aspects of
its financial risk appetite.
The Groups investment allocation is comparable to that at 31
December 2010, as detailed in note 15. The Group continues to be
mindful of processes required for establishing the reliability of
fair values obtained across financial asset classes. The
measurement attributes of the investment portfolio in a fair value
hierarchy are disclosed in note 15 in accordance with the
amendments to IFRS 7: Financial Instruments: Disclosures.
The Group continues to manage credit risk through the selection
of approved counterparties. The primary source of this risk is
through reinsurance arrangements, which are designed to mitigate
insurance risk.
The Group manages liquidity risk by structuring its working
capital to ensure that there are available cash resources or
sufficiently liquid investments to meet expected cash flow
requirements. The Group's investment requirements are structured to
ensure that syndicate investments can be liquidated at short notice
and without capital loss, to meet higher levels of demand in
exceptional circumstances. Liquid funds and cash flows are
monitored regularly to ensure that the need for sufficient
liquidity is balanced against investment return objectives.
24 Related parties
Directors of the Company and their immediate relatives control
4.4 per cent of the voting shares of the Company. This includes the
shares held in the Hardy EBT. The company considers that the
directors are the key management personnel of the company in the
context of the IAS 24 definition.
In addition to salaries, the Group also provides non-cash
benefits to directors and executive officers, and contributes to a
post-employment defined contribution pension plan on their behalf.
Directors participated in the Group's share option schemes. Full
details of all elements of remuneration payable to the directors
are contained in the Directors' Remuneration Report for the period
to 31 December 2010. No other transactions took place between the
Company and key management personnel.
25 Seasonality of operations
Certain lines of business written by the Group, in particular
the non-marine property and property treaty divisions, are exposed
to weather related claims. These accounts are, therefore, exposed
to catastrophe losses, some of which have a seasonal bias.
The Group's reinsurance business has developed a balance of risk
around the world. Historically there has been concentration of
exposure to windstorm activity in the North Atlantic, although over
the last few years the book of business has expanded with increased
international exposure.
Whilst the great majority of these risks are underwritten in the
first half of the year, the North Atlantic hurricane season is
almost entirely in the second half of the year. It should be noted
that catastrophe losses can occur at any time, in particular from
earthquake activity.
The following table shows the Group's claims ratio for the first
and second six month period in each full year.
Six months Six months Year
ended ended ended
30 June 31 December 31 December
% % %
2002 54.3 47.9 50.8
2003 46.9 45.5 46.2
2004 45.2 68.7 57.7
2005 51.6 77.2 64.1
2006 47.8 25.4 37.8
2007 41.7 50.1 46.3
2008 51.8 63.6 57.7
2009 41.3 49.1 45.1
2010 62.1 47.2 54.8
Directors' responsibility statement
The directors confirm that the interim results statement,
interim financial review and condensed consolidated interim
financial statements have been prepared in accordance with IAS 34
Interim Financial Reporting as adopted by the European Union, and
the interim statement includes a fair review of the information
required by sections 4.2.7R and 4.2.8R of the Disclosure and
Transparency Rules of the United Kingdom's Financial Services
Authority, being:
(a) an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed consolidated interim financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) related party transactions that have taken place in the
first six months of the current financial year and that have
materially affected the consolidated financial position or
performance of Hardy Underwriting Bermuda Limited during that
period; and any changes in the related party transactions described
in the last annual report that could have such a material
effect.
The individuals responsible for authorising the responsibility
statement on behalf of the Board are the Chief Executive Officer, B
J Merry and the Group Finance Director, J D MacDiarmid. The
statements were approved for issue on 25 August 2011.
INDEPENDENT REVIEW REPORT BY KPMG TO HARDY UNDERWRITING BERMUDA
LIMITED
Introduction
We have been engaged by the company to review the condensed
consolidated interim financial statements in the half-yearly
financial report for the six months ended 30 June 2011 which
comprises the condensed consolidated interim statement of
comprehensive income, condensed consolidated interim statement of
financial position, condensed consolidated interim statement of
changes in equity, condensed consolidated interim statement of cash
flows and the related explanatory notes. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the Disclosure and Transparency Rules ("the DTR")
of the UK's Financial Services Authority ("the UK FSA"). Our review
has been undertaken so that we might state to the company those
matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company
for our review work, for this report, or for the conclusions we
have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FSA.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the EU.
The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed 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 (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated financial
statements in the half-yearly financial report for the six months
ended 30 June 2011 is not prepared, in all material respects, in
accordance with IAS 34 as adopted by the EU and the DTR of the UK
FSA.
Salim Tharani
for and on behalf of KPMG Audit Plc
Chartered Accountants
15 Canada Square
London E14 5GL
25 August 2011
Financial calendar
7 September 2011 Ex-dividend date for interim dividend
9 September 2011 Record date for interim dividend
7 October 2011 Payment of interim dividend
March 2012 Announcement of results for the year ending 31
December 2011
May 2012 Payment of 2011 final dividend
August 2012 Announcement of results for the six months ending 30
June 2012
This information is provided by RNS
The company news service from the London Stock Exchange
END
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