Transcript Document
Preliminary Results Year ended 31 December 2006 Barbara Merry - Chief Executive Jamie MacDiarmid - Finance Director Adrian Walker - Active Underwriter S382 Patrick Gage - Active Underwriter S38Twenty 1 Agenda 2 Agenda Introduction Barbara Merry Results Overview and Highlights Barbara Merry Financial Performance Jamie MacDiarmid Underwriting Review Adrian Walker Syndicate 38Twenty Patrick Gage Summary Barbara Merry Questions 3 Overview and Highlights 4 Results Overview Combined ratio of 76.9% (2005: 92.7%) Gross written premium of £106.1 million (2005: £111.3 million) Record profit before tax of £16.8 million (2005: £7.5 million) Basic earnings per share of 34.1p (2005: 15.3p) Post tax return on equity of 17.8% (2005: 8.3%) Net tangible assets of 173p per share (2005: 164p) Final dividend increased 21% to 10p per share (2005: 8.25p) 5 Overview Focus on underwriting excellence Proven track record: - three decades of underwriting profits - never made an underwriting loss Niche specialisms within broad mix of aviation, marine and non-marine 90% of underwriting portfolio is short tail Exclusively Lloyd’s based 6 Business Environment Competitive environment is challenging Surplus capital is a global issue Opportunities in selected lines of business remain Bermuda is single biggest challenge to London Lloyd’s undergoing a renaissance 7 Strategic Developments Launch of syndicate 38Twenty to underwrite more mainstream nonmarine lines Buy out of 9% minority on syndicate 382 Improvements to systems and M.I. infrastructure New dividend policy as part of capital management strategy Issue of $30m subordinate debt On-going consideration of a move overseas 8 Financials 9 Preliminary Highlights Full Year 2006 £’000 Full Year 2005 £’000 106,066 111,276 Profit before tax 16,837 7,474 Claims ratio 37.8% 64.1% Expense ratio 39.1% 28.6% Combined ratio 76.9% 92.7% Basic earnings per share 34.1p 15.3p Post tax return on equity 17.8% 8.3% Shareholders’ equity 76,797 67,592 Net assets per share 217p 191p Net tangible assets per share 173p 164p 10p 8.25p Gross written premium Final dividend per share 10 Group Performance Full Year 2006 £’000 Full Year 2005 £’000 Underwriting year 2006 (2005) 1,047 (5,315) Underwriting year 2005 (2004) 11,278 6,603 6,121 4,963 18,446 6,251 6,025 5,043 Other income 512 803 Total income 24,983 12,097 Other operating expenses (7,506) (4,308) Finance charges (640) (315) Profit before tax 16,837 7,474 Underwriting years 2004 (2003) & prior Total Investment return 11 Foreign Exchange Full Year 2006 £’000 Full Year 2005 £’000 Expenses incurred in insurance activities 31,301 24,419 Foreign exchange (losses) / gains (3,501) 2,471 Expenses excluding foreign exchange 27,800 26,890 Expense Ratio 39.1% 28.6% Expense ratio excluding foreign exchange 34.8% 31.4% Other operating expenses 7,506 4,308 Foreign exchange (losses) / gains (846) 1,005 Other expenses excluding foreign exchange 6,660 5,313 12 Investment Analysis As at 31 Dec 2006 £’000 As at 31 Dec 2005 £’000 3,048 - Fixed interest 42,091 33,343 Deposits 29,919 35,230 Group share of syndicate assets 75,058 68,573 Equity based investments 6,321 - Absolute return bond fund 2,074 - Fixed interest 19,711 25,072 Deposits 30,151 12,763 Group assets supporting underwriting 58,257 37,835 Equity based investments - 12,335 Foreign exchange contracts - 67 Deposits 8,635 4,662 Group free investments 8,635 17,064 141,950 123,472 Absolute return bond fund Total 13 Underwriting Review 14 Aviation Key points Net Premium & Ultimate Net Loss Ratios (UNLR) 25 100% 90% 20 80% millions 70% 15 60% 50% 10 40% 30% 5 Airline income negligible as rates have fallen to almost unprecedented levels Focus on general aviation book Made a significant contribution in 2006 For 2007, portfolio expected to mirror 2006 20% 10% 0 0% 1993 1995 1997 1999 Aviation Net Premium 2001 2003 2005 Aviation UNLR 15 Marine: Hull Key points millions Net Premium & Ultimate Net Loss Ratios 9 8 7 160% 140% 120% 6 5 4 3 100% 80% 60% 40% 2 1 0 Portfolio comprises fishing vessels, loss of hire and harbour craft Rating scale approach to underwriting Margins satisfactory in 2006 For 2007, competition is emerging but new opportunities also being exploited Energy book expanded 20% 0% 1993 1995 1997 1999 Marine Net Premium 2001 2003 2005 Marine UNLR 16 Marine: Cargo & Specie Key points Net Premium & Ultimate Net Loss Ratios millions 20 120% 100% 15 80% 10 60% 40% 5 20% 0 0% 1993 1995 1997 1999 Cargo Net Premium 2001 2003 2005 Broad range of cargoes insured, also jewellers block, fine art and collections Core account expanded in recent years Team strengthened with appointment of a specialist specie underwriter 2006 generated steady profits Rating levels reducing in 2007 but expect to be able to maintain income Cargo UNLR 17 Non-Marine: Catastrophe Excess of Loss Key points Net Premium & Ultimate Net Loss Ratios millions 9 8 7 160% 140% 120% 6 5 4 3 100% 80% Boom or bust account 2006 likely to produce an excellent result For 2007, opportunities remain and account is being expanded to include a more international account 60% 40% 2 1 0 20% 0% 1993 1995 1997 1999 Cat XL Net Premium 2001 2003 2005 Cat XL UNLR 18 Non-Marine: All Other Key points millions Net Premium & Ultimate Net Loss Ratios 30 140% 25 120% 100% 20 80% 15 60% 10 40% 5 20% 0 0% 1993 1995 1997 1999 Non Marine Net Premium 2001 2003 2005 Non Marine UNLR Very well diversified portfolio includes: – Direct Property (UK / Europe) – Accident & Health – Financial Institutions – Political Risk & Trade Credit – Conveyancing – International Direct / Facultative Property All made a positive contribution to 2006 underwriting results 2007 market conditions are weakening but margins are still acceptable 19 Syndicate 38Twenty 20 38Twenty Need for Hardy to grow into more mainstream non-marine lines of business, specifically direct and facultative property and property treaty Opportunities to access business exist Rating at good levels in those classes Separate syndicate approach allows for structural differences 21 38Twenty Underwriting commenced with effect from 1 January 2007 £65m capacity for 2007 – going well so far Team now largely in place: Patrick Gage, Tony Hepburn, David Carson and Henry Glasse Some business being underwritten across both syndicates Focus on risk selection, pricing and margins is key Larger line size requires different approach to reinsurance 22 Summary 23 Summary Existing business is performing very well – combined ratio confirms this Major step forward for Hardy business following capacity buy-out, and more importantly, establishment of syndicate 38Twenty 75% increase in 2007 underwriting capability on same capital base Balance sheet is being managed to support further growth and new dividend policy Business infrastructure and management information investment will mean Hardy is primed to do more Market conditions will dictate pace of growth The future looks very exciting 24 Appendices 25 Structure 100% HUG PLC 100% HUA Patrick Gage/Adrian Walker management 382 AJW Marine Hull Cargo/specie Jewellers’ Block Aviation US & International Cat Direct Property (UK & Europe) Int’l direct & facultative property Financial Institutions Political Risks Conveyancing HUL 100% capital 3820 PG Int’l & US cat Int’l & US direct & facultative property Speciality lines 26 Performance Pre-Tax Profit (£m) Gross Written Premiums (£m) 18000 120000 Dividend 100000 35 80000 30 16000 14000 12000 10000 60000 25 8000 20 6000 40000 4000 15 2000 20000 10 2003 2004 2005 2006 2003 2004 2005 2006 2002 Special 2001 2006 2005 2004 Final 35 2003 2002 2001 0 2000 EPS (p) 0 5 2000 2006 2005 2004 2003 2002 2001 2000 0 Combined Ratio % 100 95 30 90 25 Full year 20 15 Atrium gain 10 80 75 5 2002 70 2001 NB 2004, 2005 and 2006 values are reported under IFRS. 2000 to 2003 are reported under UK GAAP. 2000 2006 2005 2004 2003 2002 2001 2000 0 85 27 Executive Directors Barbara Merry – Chief Executive Director of the other Hardy group companies Member of Council of Lloyd’s On Board of Lloyd’s Market Association Corporation of Lloyd's - 14 years. General Manager in the regulatory division 1984: chartered accountant Jamie MacDiarmid – Finance Director Joined Board in 1 October 2003 Previously with KPMG: manager in insurance sector Adrian Walker – Active Underwriter Non-executive director on Board prior to becoming active underwriter (2001) Formerly underwriter for syndicate 902 (AJ Walker & Others) 28 Non-Executive Directors David Mann – non-executive chairman A Board member of Hardy’s subsidiary company, Hardy (Underwriting Agencies) Ltd since November 2004 Formerly the active underwriter of non-marine syndicate 435, which was managed by D P Mann Ltd (“DPL”). DPL was acquired by General Re in 1998 and changed its name to Faraday Underwriting Ltd in 2001 Ian Ivory - non-executive director Founded two investment management companies (Ivory & Sime, Stewart Ivory) Member of Lloyd’s for 18 years Barbara Thomas - non-executive director Appointed 17 March 2004 Currently deputy Chairman of Friends’ Provident plc and of Financial Reporting Council Previously a commissioner of US Securities & Exchange Commission Rick Abbott – non-executive director Rick has worked in banking with Bank of America, Samuel Montagu, Deutsche Bank, Morgan Grenfell and ABN Amro. Specialist in financial institutions and particularly insurance business. Directorships include Deputy Chairman of Knight Frank Corporate Finance Limited 29