Brit : 2016 Half Year Report

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2016

A SOUND RESULT IN A CHALLENGING ENVIRONMENT

Key points

• Gross written premiums of US$1,030.6m (2015: US$1,096.9m), a decrease at constant exchange rates of 4.9%.
• Net earned premium decreased by 6.8% at constant exchange rates to US$751.8m (2015: US$816.5m).
• Combined ratio of 96.5% (2015: 90.6%), including 4.0 percentage points of major losses (2015: nil) and despite further rate decreases from the ongoing challenging rating environment.
• Operating profit before FX and corporate activity costs of US$198.5m (2015: US$70.9m).
• Profit after tax of US$197.6m (2015: US$6.4m).
• Investment return after fees for the period of US$180.8m, representing a non-annualised return of 4.6% (2015: US$7.6m/0.2%).
• RoNTA (non-annualised) of 16.1% (2015: 5.6%).
• Adjusted net tangible assets increased to US$1,241.4m (31 December 2015: US$1,074.3m), after a dividend payment of US$26.1m in April 2016.
• Continued execution of strategy to deliver opportunity-driven profitable growth, with considered expansion in a number of areas of our book including US marine and Latin American engineering business, the successful opening of our Singapore office and the launch of a number of initiatives across both underwriting and claims.

Mark Cloutier, Group CEO of Brit Limited, said:
'Brit has delivered a sound performance in the first half of 2016. Our non-annualised return on adjusted net tangible assets before FX, which we see as a key indicator of our performance, increased significantly to 16.1%. This was driven by the combination of a continuing contribution from underwriting results, under difficult circumstances, and a very strong performance from our investment portfolio.

Focused and disciplined underwriting remains at the heart of our strategy and, in H1 2016, we reported a combined ratio of 96.5%, including 4.0 percentage points attributable to major losses. This was a solid result in today's challenging environment, as we continue to see pressure on pricing and an increasingly complex marketplace in terms of capacity, distribution and regulation.

During 2016, we have maintained our strategy of building our platform through the addition of specialty underwriting talent in targeted areas. We have also launched a number of initiatives, demonstrating our commitment to innovating new products that address real client needs, both in terms of the cover we offer and the claims service we provide. Our international distribution capabilities also continue to expand, with our new Singapore service company starting to write business in the period and with a significant strategic investment in Camargue Underwriting Managers, a Lloyd's coverholder and one of South Africa's leading providers of specialised insurance products.

Following the rebalancing of our investment portfolio in 2015, we have adopted a defensive strategy which takes a long term view on markets. We are pleased this strategy has resulted in a non-annualised return of 4.6% in the period, primarily driven by contraction in the US yield curve, giving rise to mark to market gains on our long dated treasuries.

The medium and long-term ramifications of the UK's vote to leave the EU will take some time to assess. Our focus remains on putting our clients first. Their needs will remain at the core of everything we do, and we will continue to manage our business with this in mind. We will continue to monitor developments and work to minimise the impact on Brit and our clients and to take advantage of opportunities as they arise.
Looking forward, we believe we have the right operating model, underwriting approach and corporate culture to continue to drive success in this challenging trading environment, underpinned by the supportive and stable long-term platform we enjoy as a member of the Fairfax family.'
Matthew Wilson, Group Deputy CEO of Brit Limited, commented:

'Market conditions have, as expected, remained difficult during the first half of 2016, with the industry experiencing continued pressure on premium rates. Against this backdrop with increased catastrophe activity, we delivered a respectable combined ratio of 96.5%, including 4.0 percentage points attributable to major losses.

Brit experienced an expected overall rate reduction of 3.7%, lower than the 4.2% reduction experienced in H1 2015. This reduction was strongly influenced by reinsurance business which experienced rate reductions of 5.5%, while rates for Brit Global Specialty Direct business were more resilient, falling by 3.2%. We have maintained our rigorous risk selection in the classes experiencing pressure and continue to focus on growth in classes experiencing more favourable rating conditions.

It is pleasing to have seen a number of initiatives successfully launched during the period, and pleasing to see those initiated in recent years delivering profitable premium growth for the Group. In the current environment, we believe this proactive approach and emphasis on innovation is an important complement to our highly disciplined underwriting. More broadly, we continue to look at new opportunities as they arise and, looking ahead, we believe our clearly defined underwriting approach and opportunity driven growth strategy will allow us to navigate the ongoing challenging conditions.'

Notes

1 Net earned premium and the combined ratio exclude the effect of foreign exchange on non-monetary items.
2 Investment return includes return on investment related derivatives and is after deducting investment management fees.
3 RoNTA excludes all foreign exchange movements and corporate activity costs and is based on adjusted net tangible assets.
4 Adjusted net tangible assets are defined as total equity, less intangible assets net of the deferred tax liability on those intangible assets.

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