Randall & Quilter Investment Hldg : Interim Results

Randall & Quilter Investment Holdings Ltd.

("Randall & Quilter" or the "Group")

Interim results for the six months ended 30 June 2014

The Board of Randall & Quilter (AIM: RQIH), the specialist non-life insurance investor, service provider and underwriting manager, is pleased to announce its Group interim results for the six months ended 30 June 2014.

FINANCIAL HIGHLIGHTS

·      Total Group income of £35.1m (2013: £26.2m)

·      Loss before tax of £0.6m* (2013: profit of £3.0m**)

·      Basic earnings per share of (0.9p) (2013: 4.0p)

·      Cash distribution of 3.4p per share (2013: 3.4p) through proposed R/S share scheme

·      Undiscounted net tangible asset value per share of 109.4p (31 Dec 2013: 116.4p)

*   Prior to exceptional costs of £250k in relation to proposed acquisition of Accredited

** After deduction of minority interest relating to syndicate 3330 of £992k

OPERATIONAL HIGHLIGHTS

·      Near doubling of the capacity of Syndicate 1991 to £150m with strong support from all previous capital providers as well as Qatar Re, who joined for the 2014 year of account.

·      Active period for acquisitions including a Bermuda captive, a Black Lung Trust, an Isle of Man insurer, a broker runoff and a retrospective reinsurance.

·      Successful refinancing of the Group's credit facilities with the Royal Bank of Scotland providing a 5 year term with up to £35m of available facilities; current drawn position of £22m. New structure to reflect and support legacy insurance acquisitions and Funds at Lloyd's provision.

·      Proposed acquisition of Accredited Surety and Casualty, an A- rated US carrier to support the growth of fee based underwriting management model.

·      Receipt of over $8m from creditor positions on the Integrity insurance estate.

·      Awarded contract to provide outsourcing support for a prospective new syndicate.

·      Further contract wins in credit control, binder management and claims servicing

DIVISIONAL PERFORMANCE

·      Insurance Investments Division - a higher operating result of £1.6m* (H1 13: £0.8m**) with higher investment income of 2.0% (H1 13: 1.2%) and a higher contribution from new legacy transactions offsetting a lower profit from the insurance debt purchase activity and weaker syndicate results. Reserve releases from the run-off insurance companies were similar to the prior year.

·      Insurance Services Division - an operating profit of £3 .8m (H1 13: £6.3m). A strong performance in the UK operations was offset by a lower result in the US, which did not benefit from the exceptional level of credit write backs it experienced in the prior period.

·      Underwriting Management Division - an operating loss of £0.7m (H1 13: operating profit of £0.1m) primarily due to a reduction of profit commission under the provisions of the s.102 RITC agreement following an increase in legal expense reserves

Commenting on the results, Ken Randall, Chairman and Chief Executive Officer said:

"We anticipated that 2014 was going to be challenging from a financial perspective, most especially in the first half which is always impacted by the second half income bias in our service businesses, the timing of the actuarial reviews of our run-off portfolios and April bonus payments. Delays in the completion of certain anticipated legacy transactions due to extended regulatory and counterparty processes, together with time and expenses incurred on the Accredited acquisition process also affected the result.

Whilst financial performance was weak in the first half, as flagged in the AGM trading update, 2014 has seen many positive developments. We have progressed a number of legacy insurance transactions in the first six months of the year, using our newly enhanced and flexible legacy platforms, and the newly refinanced bank facility provides valuable additional long term investment capacity for our healthy ongoing pipeline.

The proposed acquisition of Accredited is an exciting development for us and will bring the Group its first 'A' rated carrier. We anticipate building on Accredited's existing business platform over the medium term with the intention of developing a substantial and sustainable fee based model for the Underwriting Management Division.

We are delighted to have been selected as outsourcing provider to assist in the planned launch of a new syndicate supported by third party capital.

Losses from our Lloyd's syndicate participations were largely as expected given the well flagged expense drag of Syndicate 1991 during the premium income build up stage. We were not successful in getting an early determination of a life settlement claim in former Syndicate 102 which worsened the result as a significant additional legal expense reserve was required to prepare for a hearing scheduled for 2015.

The core UK services businesses performed well during the period and a broker runoff acquisition benefited the result further. The US business suffered from new business delays and from the lack of exceptional credit write backs which had improved the prior year result.

The Underwriting Management operations generally performed in line with expectations though the legal expense reserve increase relating to former Syndicate 102 also impacted profit commissions, further lowering the overall result.

Whilst growing premium income in s.1991 remains slow, the first half result was in line with expectations.  The legal expense reserve increase in former s.102 had a negative impact on the first half year results, however, legal advice remains positive as regards our prospects for a successful outcome in this matter.

New business wins in the UK service business have been pleasing, especially in credit control and broker runoff, and we expect these to have a favourable impact over the coming months. The US service business remains challenging, though the second half should be significantly better. Over the medium term, the considerable efforts expended in launching our new healthcare related initiatives are expected to bring material improvements in financial performance.

Investment markets were relatively benign in the first half and our performance was strong relative to our peers despite our much shorter interest rate duration in a period of falling rates when duration benefitted performance. The outlook however looks more challenging with low yields, compressed credit spreads and fully valued equity markets.

The faster than expected settlement of US asbestos claims may impact reserve setting at the year-end given a reliance on 'survival ratios'. We have engaged independent actuarial consultants to perform a granular ground up analysis on a number of key accounts. Whilst this initial analysis has yielded favourable results to date, we should caution that some deterioration may materialise, though this would be largely mitigated by the reinsurance coverage.

The second half of the year is expected to be considerably stronger, driven by increased service and fee income. As a consequence, we still anticipate that our full year results will meet market expectations, although this is inevitably contingent on completing a number of well progressed legacy transactions before year end.

We are pleased to announce a proposed interim return of cash of 3.4p per share payable in October. We remain committed to maintaining total distributions to shareholders of 8.4p per share for 2014 and, as operational progress converts into revenue and profit growth, to resuming growth in annual distributions from 2015 onwards.

Our strategy remains firmly rooted in acquiring value enhancing legacy assets, growing our niche service businesses and leveraging our underwriting platforms to secure meaningful fee income. At the same time, we do not expect to increase our underwriting exposure further and  we anticipate our associated capital deployment will naturally reduce from late 2015".

Enquiries:

Company:                                              Randall & Quilter Investment Holdings Ltd.

Tom Booth                                                             Tel: +1 441 247 8330

Nominated Advisor                             Numis Securities Limited

& Joint Broker:                                     Stuart Skinner/Robert Bruce

(Nominated Advisor)                                          Tel: 020 7260 1314        

Charlie Farquhar (Broker)                                 Tel: 020 7260 1233             

Joint Broker:                                         Shore Capital Stockbrokers Ltd

Dru Danford                                                         Tel: 020 7408 4090

Stephane Auton                                                    Tel: 020 7408 4090

Corporate & Financial PR:                  FTI

Ed Berry/Tom Blackwell                                     Tel: 020 3727 1046

The Chairman's Statement, Business Review and Highlights of Accounts are attached.  The full interim results for the six months ended 30 June 2014 will be sent to shareholders shortly and will be available on the Company's website atwww.rqih.com.

Chairman's Statement and Business Review

For the six months ended 30 June 2014

Summary of Results

Divisional Performance

*Prior to £250k of exceptional expenses related to proposed Accredited acquisition

** After deduction of Minority Interests relating to the 2012 YOA of s.3330 of £996k in the 6 months ended 30 June 2013 and £1,660k in the year ended 31 December 2013

Chairman's Statement

The Group delivered a pre-tax loss of £(0.6)m* for the half year (2013: pre-tax profit of £3.0m**). The comparable figure for 2013 was stated after deducting the minority interest relating to Syndicate 3330 because of its materiality. Post-tax profit was £0.7m against £2.0m in H1 2013.

The results are in line with expectations at the AGM trading update which highlighted the potential impact from delays in the completion of certain legacy transactions. Second half bias in the income of our services businesses, the timing of actuarial reviews and bonus payments made in April tend to make the first half year significantly weaker than the second half. This year, the overall result was further impacted by weak syndicate results, as largely predicted, and costs related to the Accredited transaction.

Higher investment returns and an increased contribution from legacy related transactions, despite delays in certain transactions, compensated for weak syndicate results and a lower profit from our insurance debt purchase operations, which nevertheless produced strong cash flow on the receipt of large dividend payments. Insurance company reserve releases were at similar levels to the prior year. The Insurance Investments Division's operating result was higher overall than the prior year result.

The Insurance Services Division's performance was weaker due to a poor result in the US, which more than offset a strong performance from the UK operations and the benefit of a broker run-off acquisition. Much of the underperformance in the US was however due to income deferral, some of which should materialise in the remainder of the year. On a relative basis, comparisons with 2013 suffer from an absence of the exceptional levels of credit write backs in that year.

The Underwriting Management Division generated a small operating loss, primarily due to a profit commission reversal associated with the expense reserve addition in former Syndicate 102.

Corporate overheads were in line with expectations but higher than the prior period which benefited from higher investment income on a larger average free cash balance.

The Group's tax credit of £1.4m reflected losses in certain US subsidiaries. Basic earnings per share were (0.9p) (2013: 4.0p).

In line with our distribution policy, we are pleased to announce a proposed 3.4p per share return of cash, in line with the prior year (see note 1).

Net tangible assets per share of 109.4p were lower than as at 31 December 2013 (116.4p) after the 5.0p final distribution relating to the 2013 financial year and some adverse FX movements affecting the US companies whose surplus is held in dollars.

Note 1: Further details of the proposed R/S share scheme will be outlined in a circular to be posted to shareholders during September with payment due in early November 2014 to those shareholders on the record date in October 2014.  

Further detail on the operating divisions is provided below.

Insurance Investments Division

1 Includes a material retrospective RI premium

2 Insurance companies only (i.e. excludes Syndicates' investment income of £310k which is included in the Syndicates' operating result)

3 Includes net insurance liabilities relating to a retrospective reinsurance

4 After deduction of Minority Interests relating to Syndicate 3330 of £996k and £1,660k in H1 and FY 2013 respectively

5 Excluding costs of £250k relating to proposed Accredited acquisition

The Insurance Investment Division's performance was better than the prior year period, producing an operating profit of £1.6m5 (2013: £0.8m).

Premium income was much increased as a result of a large retrospective reinsurance deal during the period.

Total investment income of £4.6m for the insurance companies included external income of £3.4m, which represented a 2.0% return (2013: £2.3m of which £1.2m was external, 1.2%). The improved performance was due to favourable investment markets in both fixed income and equities.

Reserve releases from the owned insurance companies of £2.3m (2013: £2.6m) were in line with expectations and the prior year. The H1 2014 releases came primarily from favourable re-evaluations of reserves but also from commutation activity. The most notable releases were in R&Q Cyprus, La Licorne and Capstan, the latter two entities including a number of formerly separate entities such as La Reassurance, R&Q Re Belgium and various consolidated Guernsey captives. There was also a small favourable technical provision movement in R&Q Re (UK), where we have recently agreed a large commutation, much reducing the size of the outstanding book. There was a small deterioration in R&Q Re (US) and though ground up analysis appears to suggest the accounts reviewed are adequately reserved, we may well be affected by deteriorating industry benchmarks and faster claims settlements when entering the year end reserving process. The net impact should however be ameliorated through the strong reinsurance cover.  

The debt purchase income ('RQLM' income), which is mostly related to the acquisition and management of claims against insolvent insurance companies, was lower than the prior year period, which benefited from the move to fair value accounting.   We received some large cash dividends on our insurance debt portfolio as anticipated during June and as a result, the carrying value at the period end fell to £10.6m from £16.1m at 31 December 2013. We continue to bid for additional insurance debt and the pipeline for new acquisitions continues to look positive which is likely to lead to an acquisition partnership model to increase our capacity as a bidder.

As is customary, we are hopeful that commutation and settlement activity, particularly in our non US portfolios will produce further releases by the year end. The net assets of the Group's owned insurance companies at 30 June 2014 was £110.7m, a small decrease on the 2013 year end value mostly as a result of capital extractions, the weakened dollar and operating expenses. There were further capital extractions from the portfolio in the period, especially the run-off captive programmes, in addition to the aforementioned dividends received on the insurance debt portfolio.

* IFRS basis

** After capital extraction during period

Operating expenses rose to £10.9m (2013: £8.4m) due to the impact of new companies acquired including R&Q Cyprus, new hires in the Bermuda based M&A team, costs associated with transfers and M&A, and certain US company expenses which were recovered through reinsurance arrangements.

There was a significant increase in the amount of 'goodwill on bargain purchase' in the period, which was £2.8m against £1.8m in 2013. This arose primarily on the purchase of an Isle of Man domiciled insurer subject to a scheme, the novation of SRM's Bermuda based captive business and the acquisition of a Black Lung Trust and associated liabilities. A large retrospective reinsurance to be succeeded by a portfolio transfer, subject to court and regulatory approval, has been accounted for as a premium with the net insurance liabilities coming into the Net Insurance Claims line. The pipeline for new acquisitions continues to be strong and we expect a significant contribution in the second half arising from the purchase of additional insurance companies, portfolios and captives, though timing for their completion is never easy to estimate; this makes forecasting difficult, however a number of these deals are progressing well. We maintain our focus on the small to medium end of the size spectrum and our newly flexible and efficient transaction structures and infrastructure are helping provide vendors with attractive and competitively priced solutions. We continue to seek legacy transactions in Lloyd's and, following the Group's creation of a Bermuda based M&A team, we are beginning to benefit from improved access to the Bermudian and USA market.

As largely expected, the performance of our syndicate participations, which are primarily run through R&Q Re Bermuda, was weak with slow premium build in Syndicate 1991 causing an ongoing expense drag and a loss of £1.2m (2013: £0.9m) . Our 8.33% share of former turnkey Syndicate 1897 for the 2011-2013 years produced a small positive result of £0.2m (2013: ( £0.2m)) but this was below expectations given lower income levels. In the run-off syndicate, the 2012 Year of Account of Syndicate 3330 produced a good result again of £0.5m but it was significantly below the prior year result of £1.1m . The newly reinsured to close former Syndicate 102 had a significant reserve deterioration as we were unable to secure an early determination on a dispute concerning a life settlement claim. The consequential increase in the legal expense reserve as we gear up for the substantive hearing in 2015, has given rise to deterioration in the syndicate result, resulting in a loss of £1.4m against a small loss of £0.2m in 2013 . We expect weak results on our syndicate participations during the second half of the year due to the same factors continuing within Syndicate 1991. We do not plan to increase the Group's participation in Syndicate 1991 any further, having reached our optimal level of exposure and should see our capital deployment begin to reduce from late 2015 as the new Lloyd's syndicate's capital loadings are removed and the underwriting track record benefits the capital setting process.

Investment Income

Investment income in the Group's insurance companies in run-off includes £1.3m of intercompany loan interest which nets out at Group level. External investment income of £3.4m (2.0%) was significantly higher than 2013 (£1.2m, 1.2%) as the portfolio benefited from continuing spread contraction and strong equity markets. To produce a return at the top end of our industry peers who report on a mark to market basis was especially pleasing in a period where our short interest duration stance meant that we did not benefit from falling yields.

The investment allocation for the Group's owned insurance companies by asset class at 30 June 2014 was as follows:

Invested funds as at 30 June 2014 were £163.2m equivalent, comprising of $170.3m, £53.7m, €4.9m and A$4.4m. The non-Sterling assets closely matched the currencies of the non-Sterling net insurance liabilities.

The credit ratings of the debt securities held by the Group at 30 June 2014 were as follows:

Overall the interest rate duration of the investment portfolio is still under one year given that a significant portion of the assets are invested in floating rate securities which will benefit in time from rising short term rates. The weighted average lives of the structured securities we own is around 3 years, which means the Group has relatively modest exposure to credit spread duration especially given the high credit quality maintained. We are not immune however from the impact of on-going volatility in the credit markets and conditions appear tougher with lower yields, compressed credit spreads and fully valued equity markets. Whilst an ultra defensive strategy is tempting, we hope that our diversification and conservative strategy within the asset classes we have selected will help protect us in any future risk-off period.

The Group's investment yield fell slightly below 3% at period end as spreads narrowed further.

Insurance Services Division

The ISD operating profit of £3.8m was below H1 2013 (£6.3m), primarily as a result of the absence of the exceptional levels of credit write-backs in certain of the Group's US manager and broker operations which benefited the prior year period.

Total income fell to £15.4m (2013: £21.6m), mainly as a result of lower income in the US services operations, offset in part by an increase in income from UK Claims and Reinsurance Management Services and UK Broker Services. The latter also benefited from a new broker run-off acquisition which brought in goodwill on bargain purchase of £2.8m. The broker run-offs we have acquired continue to perform well and we have considerable scale and efficiency in this area with other deals in the pipeline. We have also extended our active broking operations, offering execution only services and a turnkey service for brokers looking to gain Lloyd's accreditation with a number of contract wins.

Commission income on reinsurance collections and new business is typically weighted towards the second half of the year and the outlook looks promising.

Operating profits in this claims and reinsurance management area rose significantly as new business income largely fell to the bottom line.

UK Liquidity Management, which focuses on credit control services, is an area of expertise and focus for the division. Adjusting for higher recharged intra-divisional income in 2013, the first half year was in line with the prior year with almost identical external income levels. Having been awarded preferred supplier status of credit control services at Lloyd's, we have recently added a number of new clients with much improved results expected in the remainder of the year and beyond.

The US services operations produced an operating loss of £1.5m (2013: profit of £3.7m). The unfavourable comparison with the prior year period was primarily as a result of the exceptional levels of credit write backs which benefited 2013. Outside of this, the core business was impacted by delays in certain new business income, including in the RTU legacy broking business, and some restructuring charges as we continue to work on reducing the fixed cost base. The new initiatives to develop onshore captive and programme management services in the US Healthcare industry following recent wholesale changes under 'Obamacare' are progressing well and are expected to develop into a significant new revenue and profit centre to the division.

The Captive Management operations performed satisfactorily during the period with lower income of £2.5m (2013: £3.4m) as a result of a weaker dollar and larger run-off related income in the prior year affecting the Bermuda based operations and some expected client reductions in Gibraltar and Norway. The core Bermuda business continues to trade well however, with new income ahead of budget and strong prospects for the second half from the captive exit transactions and new client prospects, especially from Latin America. The newer US operations performed well with increased income and a small operating profit. The programme management initiatives in the US Healthcare sector could produce significant additional captive management income in our Bermuda operations as well as income in US services as mentioned above. The operating loss of £0.1m (2013: profit of £0.3m) arose from a weaker result in the Gibraltar operations and small adverse results in Bermuda and Norway for the reasons cited above. Investments in new senior recruits in Gibraltar and Norway and a new manager based in South Carolina increased costs but have already begun to improve new business generation which will benefit the remainder of the year.

In summary, whilst the first half result does not compare favourably with the previous year, the core services business performed well in the UK whilst the US was primarily affected by a lack of credit write-backs and income deferral rather than lost income. We believe that our scale and expertise in niches such as broker run-off and liquidity management, together with the accounting services and regulatory support services, which continue to be in demand in the face of increasing regulation, should allow us to grow core sustainable income and profits. Furthermore, the new broker execution only and broker turnkey services offered in the UK and the legacy transaction 'broking' services and programme management initiatives in the US position us well for some near term and longer-term growth in the division. We continue meanwhile to focus on cost control and managing resource in the maturing and more competitive areas of our operations, whilst expanding in areas where we see future growth.

Underwriting Management Division

The Underwriting Management Division generated a first half year operating loss of £0.7m (2013: profit of £0.1m) . Overall, revenue grew slightly to £8.4m (2013: £8.1m).

There was a significant increase in fee income from the Lloyd's managing agency operations, which continued to benefit from the scaling up of Syndicate 1991 though with some associated expense increase. As a result of a return of profit commission under the terms of the RITC agreement following the reserve deterioration in former Syndicate 102, there was an adverse movement in the contribution from profit commissions of £600k . Compared with the same period in 2013, the operating result in the managing agency operations was therefore lower; a loss of £0.3m (2013: profit of £0.6m).

Premium income in the MGA units increased to £17.4m (2013: £16.0m) as we continued to build out the accounts through existing and new distribution channels. This was despite challenging market conditions with our improved capacity in terms of line size and security helping mitigate competitive pressures.  The MGA commission and other income was flat overall compared with the prior year at £2.5m (2013: £2.6m) only as a result of lower intra-divisional recharge income. Though commission rates came under a little pressure due to market conditions, we grew commission income in every MGA business unit though expenses grew in Commercial Risk Services due to the regional build out. Profit commissions also rose, especially in the yachts and marine account. The operating profit of £0.2m was very similar to the prior year period with only lower overhead recovery from the division's other operations preventing bottom line growth. New underwriting hires, distribution initiatives and product design should continue to improve performance during the remainder of the year though tough trading conditions remain. We are focused on launching complementary products from our existing MGAs, cross-selling between them and seeking new quality underwriting teams with established books of business and capacity.

The planned strong increase in capacity in Syndicate 1991 to £150m for the 2014 underwriting year was very well supported by existing Names, R&Q and industry players. We were also pleased to announce the addition of Qatar Re as a significant capacity provider. The delay in signing up coverholders during 2013, discussed in previous results statements and trading updates continues to impact earned premium development, resulting in losses under international accounting standards due to the customary early year expense drag. The impact of this on the Underwriting Management Division's result is a slower than anticipated recognition/accrual of profit commissions in the event that the underwriting is profitable in line with projections.

The other area of focus for the division is in securing new turnkey clients to bring additional revenues, cost recoveries and profit commissions. We are also in discussions with a number of other interested parties and are well placed to capitalise on the sustained interest in the Lloyd's market. In parallel, we are looking at ways of setting up and managing consortium facilities, especially following the completion of the Accredited acquisition.

There are also opportunities to expand the management of run-off business at Lloyd's, primarily from the proposed expansion of our own involvement in this market as principal.

In summary, the division's progress has been slower than hoped for, especially financially, but we remain excited by the potential for generating a significant and sustainable fee based model. As well as the organic growth opportunities arising from Syndicate 1991, our new third party management contract win proves our credentials in a market with few quality full scale management providers. Furthermore, new legacy management, increasing maturing of the MGA business units and the potential to use the Accredited platform for consortium management are all avenues we are actively pursuing to deliver growth.  We also remain firmly of the view that the value of the platform we have invested in over the past few years is considerable even ahead of delivering the associated income streams.

Other Corporate

Net central corporate costs in the first half year were in line with expectations but higher than the year prior due to lower investment income on Group 'free' funds and some additional expenses relating to the establishment of the new Bermuda Head Office.

Return of Cash via a R/S Share Scheme

The Return of Value, details of which will be outlined in a circular to be posted to shareholders during September, will give shareholders the option of receiving their payment as capital or income and provides a more flexible and efficient mechanism of returning capital. The payment of 3.4p per share is anticipated to be made through the scheme in late October 2014 to those shareholders on the record date in early October 2014.

The proposed return of cash to shareholders through an R/S share scheme comes in a period when the Group successfully managed to release capital from certain of its insurance investments.

The proposed Return of Value is in place of the interim dividend for the 2014 year but the Group may choose to make future returns of value in addition to or instead of ordinary dividend payments, whilst maintaining its stated policy to pursue a progressive distribution policy following the decision to maintain total distributions to shareholders at 8.4p per share during 2014 absent unforeseen circumstances and recommencing growth in distributions along with profits from 2015.

Litigation

There is no material litigation with which the Group is involved outside of the ordinary course of business. Other than a dispute concerning a life settlements claim in former Syndicate 102, we continue to receive asbestos related claims and we have a number of on-going legal disputes with cedants but our reinsurers continue to bear the majority of the claims cost.  

Outlook

2014 was always going to be a challenging year financially but we remain confident about the prospects and outlook for the Group and we are pleased to report therefore that we still expect the full year result to meet market expectations. There are risks however, all of which have been referred to above. A number of these are customary risks we face as a Group, including the outcome of the year end actuarial reserving process, final investment performance and timing of the completion of the various legacy insurance transactions we are already working on. There are however a few specific risks which relate to these generic risks. These include market trends in asbestos claims and the impact of faster settlements in R&Q Re (US) on benchmark survival ratio analysis, the outcome of a dispute in former Syndicate 102, and the ability to generate substantial growth in business from the 2013 binders in Syndicate 1991 over the coming months. 

The acquisition of Accredited, which is subject to change of control approval by the Florida Department of Insurance, is a much welcome addition to our infrastructure and will be the first time the Group has owned an 'A' rated carrier. The consequent opportunities to feed fee income into our Underwriting Management Division to supplement other initiatives and the new third party management contract win are considerable.

Meanwhile, our acquisition activity in the legacy insurance area continues to benefit from a strong pipeline and we expect to build on a good first half and complete a number of transactions in the remainder of the year ranging from portfolio transfers, retrospective reinsurances and acquisitions. This will bring an immediate as well as sustained benefit to the Group through the potential for additional service income and future reserve savings. Our underwriting commitment has reached a level where expansion becomes less desirable and as Syndicate 1991 begins to mature, we should see our capital deployment naturally reduce.

Our UK service businesses have performed well and new client wins in binder management, credit control and broker turnkey will help drive growth in the remainder of the year. New senior hires in Captive Management together with good new business levels in the Bermuda operation should also boost performance. The US remains challenging and further downsizing has taken place as a result in the more consultancy orientated part of the business but the healthcare initiative has progressed well with substantial revenue opportunities potentially transforming results in future years.

K E Randall

Chairman and Chief Executive Officer

22 August 2014

Condensed Consolidated Income Statement

For the six months ended 30 June 2014

The attached notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statement of Financial Position

As at 30 June 2014

Company number 47341

Approved by the Board on 22 August 2014.

K E Randall                                                                                           T A Booth

The attached notes form an integral part of these condensed consolidated financial statements.

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2014

The attached notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2014

Consolidated Statement of Changes in Equity (unaudited)

For the six months ended 30 June 2014

Consolidated Statement of Changes in Equity (unaudited)

For the six months ended 30 June 2014

Consolidated Statement of Changes in Equity (audited)

For the six months ended 30 June 2014

The attached notes are an integral part of these condensed consolidated financial statements.

Notes to the Interim Financial Statements

For the six months ended 30 June 2014

1.         Basis of preparation

The condensed interim financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting.

The condensed interim financial statements for the 2014 and 2013 half years are unaudited, but have been subject to review by the Company's auditors. 

2.         Significant accounting policies

The condensed interim financial statements have been prepared under the historical cost convention, except that financial assets are stated at their fair value.

The accounting policies adopted in the preparation of the condensed interim financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2013 other than as detailed below.  There have been no amendments to accounting policies.

New standards effective from 1 January 2014:-

• IFRS 10: Consolidated financial statements

• IFRS 11: Joint arrangements;

• IFRS 12: Disclosure of interests in other entities;

• IAS 19: Amendment: Defined benefit plans: Employee Contributions;

• IAS 27: Amendment: Separate financial statements;

• IAS 28: Amendment: Investments in associates and joint ventures;

• IAS 32: Amendment: Offsetting financial assets and financial liabilities;

• IAS 36: Amendment: Recoverable amount disclosures for non-financial assets;

• IAS 39: Amendment: Novation of derivatives and continuation of hedge accounting; and

• IFRIC 21: Levies.

The adoption of these standards has had no material impact on the group's accounting policies.

3.         Segmental information

The Group's segments represent the level at which financial information is reported to the Board, being the chief operating decision maker as defined in IFRS 8.  The reportable segments have been identified as follows:-

•           Insurance Investments, which acquires legacy portfolios and insurance debt and provides capital support to the Group's managed Lloyd's Syndicates

•           Insurance Services, which provides insurance related services (including captive management) to both internal and external clients in the insurance market

•           Underwriting Management, which provides management to Lloyd's syndicates and operates other underwriting entities

•           Other corporate activities, which primarily includes the holding company and other minor subsidiaries which fall outside of the segments above

Segment result for the six months ended 30 June 2014

Internal income includes fees payable by the insurance companies to the Insurance Services Division in the period, which are contractually committed on an arm's length basis.

External income contains no clients which generate more than 10% of the total external income.

Segment result for the six months ended 30 June 2013

Internal income includes fees payable by the insurance companies to the Insurance Services Division in the period, which are contractually committed on an arm's length basis.

External income contains no clients which generate more than 10% of the total external income.

Segment result for the year ended 31 December 2013

Internal income includes fees payable by the insurance companies to the Insurance Services Division in the period, which are contractually committed on an arm's length basis.

No income from any one client included within the external income generated more than 10% of the total external income.

Geographical analysis

Other information

4.         Investment return