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Abonner Alea Group Holdings (Bermuda) Ltd.

Alea Group Holdings (Bermuda) Ltd.

Preliminary Results for the year ended 31 December 2003 - Part 4 of 7

London (ots)

Interest on bank borrowings under the Term "A" loan and the
Revolving Credit Facility is charged at a rate per annum according to
applicable currency LIBOR rates designated as the British Bankers
Association interest settlement rate plus a margin of ) 0.625% (2002
0.625%). The margin charged on the Term "B" loan is 3.25% (2002
3.25%). The interest expense in 2003 amounted to $4.7 million (2002
$6.5 million). The estimated increase in interest expense in the
event of a 100 basis point increase in applicable rates is $1.7
million.
At 31 December 2003 the Group also had collateralised bank letters
of
credit and loan facilities available from a variety of sources to
support the need to collateralise commitments made in the normal
course of business outlined above, including $100 million and $10
million uncommitted letter of credit facilities entered into by Alea
(Bermuda) Ltd with the Royal Bank of Scotland and The Bank of N.
Butterfield respectively, $97 million uncommitted letter of credit
facility entered into by Alea Europe Ltd. with UBS and a $15 million
working capital facility extended to Alea Europe Ltd. by UBS.
Additionally Alea London has access to letters of credit through
collateral arrangements with Citibank.
Interest cover
Operating Interest cover improved in 2003. This was a combination
of the increase in profits coupled with the reduction in interest
costs following reductions in applicable LIBOR rates compared to
2002.
2003           2002
                                       $ million      $ million
Operating profit before interest 
 and taxation                               85.5           28.2
 Interest                                    4.7            6.5
Interest cover based on operating profit  18.1x           4.3x
Capitalisation
The capital structure of the Group was simplified in 2003. The $50
million subordinated preferred shares were purchased from a third
party shareholder from the proceeds of the offering for $42.5 million
creating a $7.5 million profit in the second half of 2003 and
removing a contingent liability in respect of the cumulative
accretion of subordinated preferred return dividends of $13.6 million
as at 30 June 2003.
CHF 16 million was repaid under the Term A loan facility which was
offset by a draw down of CHF 16 million under the revolver facility
to create new USD debt of $0.5 million. The increases in debt shown
on the balance sheet reflects the retranslation of the CHF facility
into USD as the Swiss franc appreciated against the United States
Dollar to CHF1.24:1 from CHF 1.4 to 1.
The debt to total capitalisation ratio reduced from 26.8% in 2002
to 19.7% in 2003 following the initial public offering. Alea intends
to augment group liquidity and operating subsidiary capital through
the continued use of down-streamed holding company level debt - to
the extent such debt does not detrimentally affect debt ratings and
bank/capital market access. To this end, Alea will consider
refinancing elements of the existing bank facilities during 2004.
As at 31                As at 31
                            December 2003           December 2002
                                $ million               $ million
Debt                               178.4                   168.5
 Subordinated preferred shares          -                    50.0
 Equity                             725.4                   410,5
 ---------------------         -----------            -----------
 Total capitalisation               903.8                   629.1
 ---------------------         -----------            -----------
Debt                               19.7%                   26.8%
 Subordinated preferred shares       0.0%                    7.9%  
 Equity                             80.3%                   65.3%
                              -----------             -----------
 Total capitalisation              100.0%                  100.0%
                              -----------             -----------
Capital expenditure
The Group invested $10.2 million (2002: $9.3 million) in capital
expenditure principally computer equipment and software, including
capitalised costs from the continued internal development of the
software supporting the Group's operations and received $7.3 million
from the proceeds of the disposal of fixed assets at profit on
disposal of $1.6 million.
Liquidity and cash flow
Total proceeds from the issue of common share capital during 2003
were $291.9 million including the proceeds of the Group's offering on
the London Stock Exchange which raised GBP168.9 million ($287.5
million). The balance being raised from the issues of shares to
employees under the Group's share and options scheme.
The expenses of raising capital were $23.7 million. In addition
the Group used $42.5 million of the proceeds to purchase subordinated
preferred shares with a face value of $ 50 million creating a gain on
redemption of $7.5 million. The remaining proceeds of the IPO were
employed as capital to support profitable growth within the operating
subsidiaries rather than to support specific cash flow needs. The
Group met its liquidity requirements primarily from funds provided by
operations.
Cash provided by operating activities primarily consists of
premiums collected, investment income and collected reinsurance
recoverable balances, less paid claims, retrocession payments,
operating expenses and tax payments. Net cash flow from operating
activities was $250.9 million (2002: $99.4 million).
The $250.9 million cash inflow in 2003 is after payment of $68.9
million (2002: $62.0 million) in respect of the Max Re aggregate
excess contract. On a like-for-like basis after adjusting for the Max
Re aggregate excess contract, cash flow was $319.8 million (2002:
$161.4 million). Thus underlying cash flow has improved by $158.4
million year-on-year, reflecting the growth in the business coupled
with the reduction in settlements related to reducing run-off
portfolios in Alea Europe and the Imperial book of business that was
acquired in 2000. The Max Re aggregate excess contract covered
underwriting years 2001- 2003 and has not been replaced in 2004, thus
amounts paid to this contract will reduce further in 2004 compared to
2003.
Cash flows from operating activities were used to pay interest in
bank loans of $4.7 million (2002: $6.5 million) and to pay taxes $1.7
million (2002: tax refunds $1.2 million) and capital expenditures
described above.
Total net cash flows were $466.4 million (2002: $121.8 million)
which was primarily used to invest in debt securities and other fixed
income instruments. The total investments including cash balances
increased 41% from $1,732.3 million (2002: $1,227.8 million).
Intra-group arrangements
Whilst recognising the separate legal status of each entity,
business processes are standardised and managed consistently. The
Group continues to view each of its insurance operating entities as
core to the whole. Mindful of local market conditions, regulatory
requirements and the capital adequacy requirements of the rating
agencies, the Group ensures that each balance sheet retains risk
commensurate with its capital base.
The primary means of achieving this is by arranging capacity
through internal quota shares primarily with Alea (Bermuda) Ltd which
now has the majority of the Group's operating capital of $435.2
million. For 2002 and 2003 underwriting years we have put into effect
a 70% quota share to Alea (Bermuda) Ltd of Alea North America's
insurance and reinsurance business. This will be particularly
important for Alea North America during its growth phase.
In addition the Group makes public its view of the interdependence
of each subsidiary with the issue of intra-group cross guarantees
that, whilst inevitably affected by local regulatory requirements,
make clear that it is management's intention to view each subsidiary
as part of the whole. Through consultation with A.M. Best and
Standard & Poor's, a form of wording for the guarantees has been
developed that is acceptable to both agencies. Group guarantors may
only terminate these guarantees after giving one month's notice to
these agencies. Any contract written whilst the guarantees are in
force remains guaranteed should the guarantee be cancelled.
In the third quarter of 2002, in recognition of its new status as
the ultimate holding company of the Group, Alea Group Holdings
(Bermuda) Ltd entered into a top down guarantee with each of the
seven rated insurance operating entities. These guarantees are in
addition to the pre-existing cross company guarantees already in
place between the various subsidiaries of the Group. Details of these
guarantees have been made available to the rating agencies and broker
security committees.
Alea (Bermuda) Ltd also entered into an aggregate stop loss
arrangement designed to protect the balance sheet of Alea Europe Ltd
in both 2003 and 2002.
Rating Agencies
On a Group basis, Standard & Poor's and A.M. Best provided
financial strength ratings of all of the Group's operating
subsidiaries of ''A- (Strong)'' and ''A- (Excellent)'' respectively.
These ratings were issued on 2 June 2002 and 2 July 2003
respectively. In each case, the ratings are expressed to have stable
outlooks. Other agencies may rate the Group or one or more of the
Group's subsidiaries on an unsolicited basis.
Standard & Poor's has assigned a ''BBB-'' counterparty credit
rating to AGHAG and a ''BBB-'' senior debt rating to the $75 million
term loan supplement to the Credit Agreement. In each case, the
ratings are expressed to have stable outlooks. The ''BBB-'' rating is
one full rating category below the Group's claims paying ability
rating because the senior debt is subordinated to the obligations of
the Group's operating subsidiaries.
Lumbermens (LMC)
The Group has a significant reinsurance relationship with LMC
which arose in connection with the Group's acquisition of the Equus
Re reinsurance division of LMC on 3 December 1999, Alea Bermuda and
LMC entered into a 100% quota share reinsurance of the LMC business
written by Equus Re through 30 September 1999 (namely, business
written by Equus Re prior to the Group's acquisition of its
operations). In turn, LMC provides stop loss reinsurance to Alea
Bermuda for losses in excess of a 75% paid loss ratio on the same
business ("Protected Business"). In addition to the Protected
Business, LMC also authorised the Group to write new and renewal
business on behalf of LMC (as reinsurer) through 31 December 2001,
which business is ceded by a 100% quota share reinsurance to Alea
Bermuda ("Fronted Business"). As is required for credit for
reinsurance purposes when cessions are made to non-U.S. licensed
reinsurers such as Alea Bermuda, the Group collateralises its
obligations to LMC. Pursuant to contract, the required collateral is
equal to 120% of the estimated loss reserves. Concurrent with these
arrangements, LMC retained Alea North America Company (ANAC) as its
agent to adjust and pay claims and collect premiums for both the
Protected Business and the Fronted Business. The respective
obligations of Alea Bermuda and LMC noted above are subject to
contractual mutual offset provisions under the reinsurance agreements
and as permitted under Illinois law. Further, in respect of the
Protected Business, LMC is contractually required to fund (and has
been funding) losses on its own behalf now that the 75% paid loss
ratio has been met.
LMC's financial strength ratings were downgraded and then
withdrawn by A.M. Best and by Standard & Poor's, at LMC's request,
following LMC's announcement in 2002 that it would cease writing new
business. LMC announced that at 31 December 2003, it had remaining
audited statutory surplus of $202.4 million. LMC risk based capital
level allows the Illinois Department of Insurance to assume control
of LMC at its discretion. As noted above, in light of the mutual
offset provisions under the reinsurance agreements and as permitted
under applicable Illinois law, the Directors believe that the Group
should not be exposed to material credit risk resulting from its
arrangements with LMC.
Management of Financial Risks
The Group recognises the critical importance of efficient and
effective risk management systems. Close attention is paid to asset
and liability management.
Asset and liability management
The Group's general practice is to invest in assets that match the
currency in which it expects related liabilities to be paid.
Shareholders' equity held in local insurance units is primarily kept
in local currencies to the extent that shareholders' equity is
required to satisfy regulatory and self-imposed capital
requirements. This facilitates the Group's efforts to ensure that
capital held in local insurance units will be able to support the
local insurance business irrespective of currency movements.
Derivatives
Derivative instruments are only used to a limited extent within
guidelines established by the Board. Derivatives may be used for
efficient portfolio management, hedging debt and the outcome of
corporate transactions. Speculative activity is prohibited and all
derivative transactions should be covered fully, either by cash or by
corresponding assets and liabilities. The only hedging
transaction undertaken in 2003 was the sale of 20 million Canadian
Dollars into United States Dollars representing Canadian assets held
in excess of the Group's requirements as a result of regulatory
requirements in Canada.
Foreign exchange management
The Group publishes its financial statements in United States
Dollars. Therefore, fluctuations in exchange rates used to translate
other currencies, particularly European currencies including the
Euro, British Pound and Swiss Franc, into United States Dollars will
impact its reported financial condition, results of operations and
cash flows from year to year.
As a result of the international diversity of its operations,
approximately 18% (2002: 19%) of the Group's premium income arises in
currencies other than United States Dollars. Similarly, its net
assets are denominated in a variety of currencies, with approximately
22% (2002: 21%) of invested assets and cash being
non-United States Dollar investments.
In managing the Group's foreign currency exposures we do not hedge
revenues as these are substantially retained locally to support the
growth of our business and to meet local regulatory and market
requirements. The Group's net assets and, to a more limited extent
its solvency, are exposed to movements in exchange rates.
Total Group exchange losses were $1.9 million based on total gross
assets of $3,477 million compared to $0.4 million in 2002 based on
total gross assets of $2,713 million in 2002 reflecting the
essentially matched nature of the Group's assets and liabilities
despite the significant exchange devaluation of the United States
Dollar, particularly compared to the Euro, British Pound and Swiss
Franc, that occurred during the year.
Reinsurance security management
Reinsurance is a key tool in managing our catastrophe exposure. In
designing our reinsurance programmes we take account of our risk
assessment, the financial strength of reinsurance counterparties, the
benefits to shareholders of capital efficiency and reduced
volatility, and the cost of reinsurance protection.
The Group purchases retrocessional reinsurance to improve the
extent to which it can manage risk exposures, protect against
catastrophic losses, access additional underwriting capacity and
stabilise financial ratios.
As a general rule, the Group's aggregate net line with respect to
risks assumed under contracts written will not exceed $10 million or
its equivalent in foreign currencies. In addition, where considered
appropriate, the Group purchases reinsurance protections that provide
coverage against accumulations of risk. The Group selects its
reinsurers and retrocessionaires primarily based upon credit quality
and monitors them closely over time. It also seeks to diversify its
business among reinsurers and retrocessionaires and requires
collateral where deemed prudent to do so.
Accounting Policies
Prior Year Adjustments (see note 4)
In 2003, in accordance with the recommendations of the ABI SORP
for companies listed on the LSE, the Group included allocated
investment income using a longer term rate of 4.5% selected by the
Group in both 2002 and 2003 technical accounts. Use of this longer
term rate gave rise to operating profits in 2003 of $80.8 million
compared to $21.6 million in 2002.
As part of the Listing process the Group determined that it would
be appropriate to record in the accounts of the Group the $1.7
million adjustment net of taxation in respect of the Claims
Equalisation Provisions established by Alea London Ltd.
The Group also reviewed the application of the deficit payback and
commutation provisions of each of the Inter-Ocean contract and the
OPL contract and determined that the financial statements did not
fully reflect the consequences of the deficit payback and
commutation/ termination provisions of the contracts This had an
adverse impact to the Group of $43.2 million for the Inter-Ocean
contract and a positive impact of $13.2 million for the OPL contract.
Accordingly reinsurance recoverables were reduced by $24 million in
respect of the 2000 annual financial result and $6 million in respect
of the 2001 annual financial result. These amounts have been
accounted as a prior year adjustment in the financial statements.
International Financial Reporting Standards
Alea Group Holdings (Bermuda) Ltd, as a publicly listed company,
is required to prepare its accounts under International Financial
Reporting Standards (IFRS) from 1 January 2005.
An evaluation of the impact of IFRS on the Group has been
completed which suggests that the current IFRS endorsed by the
Accounting Regulatory committee of the European Commission which
excludes, in particular, the accounting for insurance contracts
exposure draft, will have little impact on the net asset position of
the Group compared to that produced under current United Kingdom
accounting standards. However, there will be significant increases in
disclosure particularly with regard to business risk and management.
The changes in accounting resulting from adoption of the insurance
exposure draft may lead to significant changes in the future as it
proposes a fundamentally different basis for recognition of profit on
insurance contracts. However, it is not expected that these proposals
will be formal requirements within the next three reporting periods
and the proposals may change materially before they are finalised.
Unaudited
 Consolidated profit and loss account
                                                            Restated
 Technical account                           Year ended   Year ended
 - general business                Notes    31 Dec 03    31 Dec 02
                                                $'000        $'000
Gross premiums written                2    1,300,182      931,631
 Outward reinsurance premiums          2     (271,471)    (223,399)
                                            ---------    ---------
 Net premiums written                  2    1,028,711      708,232
                                            ---------    ---------
 Change in the provision for unearned
 premiums
 - gross amount                             (185,907)    (257,603)
 - reinsurers' share                          15,677       67,422
                                            ---------    ---------
 Change in the net provision for unearned
 premiums                                   (170,230)    (190,181)
Earned premiums, net of reinsurance          858,481      518,051
Allocated investment return 
 transferred from
 the non-technical account                     57,811       46,952
 Other technical income, net of reinsurance     2,364        5,671
                                             ---------    ---------
 Total technical income                       918,656      570,674
                                             ---------    ---------
 Claims paid
 - gross amount                               468,537      397,422
 - reinsurers' share                        (114,987)     (77,663)
                                             ---------    ---------
 Net claims paid                              353,550      319,759
 Change in the provision for claims
 - gross amount                               249,743        8,491
 - reinsurers' share                          (74,643)      (6,396)
                                             ---------    ---------
 Change in the net provision for claims       175,100        2,095
Claims incurred, net of reinsurance          528,650      321,854
 Change in other technical provisions, 
 net of reinsurance
 Net operating expenses                       285,499      203,981
 Other technical charges, net of 
 reinsurance                                   19,004       16,678
                                             ---------    ---------
 Total technical charges                      833,153      542,513
Balance on the technical account for 
 general business before claims 
 equalisation provision                        85,503       28,161
 Change in claims equalisation provision 4     (3,771)      (2,368)
                                             ---------    ---------
 Balance on the technical account for 
 general business                              81,732       25,793
                                             =========    =========
This preliminary announcement was approved by the Board on 12
March 2004. The results constitute unaudited non-statutory accounts.
Unaudited
 Consolidated profit and loss account
                                                           Restated
                                             Year ended  Year ended
 Non-technical account               Notes    31 Dec 03   31 Dec 02
                                                  $'000       $'000
 Balance on the general business
 technical account                               81,732      25,793
Gross investment income                        56,337       49,170
 Net realised gains on investments              12,146        8,477
 Net unrealised (losses)/gains on              (29,173)      25,388
 investments
 Other investment expenses                      (3,975)     (2,761)
                                              --------    ---------
                                                35,335      80,274
 Allocated investment return 
 transferred to the
 technical account - general business          (57,811)    (46,952)
 Debt interest                                  (4,718)     (6,530)
Profit on ordinary activities before
 tax                                           --------   ---------
 -continuing operations                         54,538      52,585
                                              --------    ---------
 Comprising:
 ------------------------------    --------    --------   ---------
Operating profit                               80,786      21,631
 Short-term fluctuations in investment         (22,477)     33,322
 return
 Movement in claims equalisation                     
 provision                              4       (3,771)     (2,368)
                                                54,538       52,585
                                               --------    --------
Tax (charge)/credit on profit on
 ordinary activities                           (13,528)       1,994
                                               --------    --------
 Profit on ordinary activities after tax        41,010       54,579
Minority interest - gain on purchase
 subordinated preferred shares issued by
 subsidiaries                                    7,500            -
                                              --------    ---------
Profit for the financial year                         
 attributable to equity shareholders     3      48,510       54,579
========    =========
The results in each of the financial years are derived from the
Group's continuing activities.
Unaudited earnings per share attributable to equity shareholders
Operating profit is based on long term investment returns excluding
movements in claims equalisation provision and the gain on purchase
of subordinated preferred shares issued by subsidiaries.
Earnings per share - basic ($)          3         0.42       0.52
                                               ========   ========
 Earnings per share - fully diluted ($)  3         0.42       0.51
                                               ========   ========
 Operating earnings per share - basic ($)3         0.55       0.24
                                               ========   ========
 Operating earnings per share - fully
 diluted ($)                             3         0.54       0.24
                                               ========   ========
Unaudited consolidated statement of total recognised gains and
losses
Year ended   Year ended
                                           31 Dec 03    31 Dec 02
                                               $'000        $'000
 Profit for the financial year
 attributable to equity shareholders          48,510            -
 Profit for the financial year 
 attributable to equity shareholders 
 as previously reported                            -       56,238
 Exchange differences                         (1,893)        (445)
                                            ---------     --------
 Total gains and losses recognised for
 the financial year                           46,617       55,793
 Prior year adjustments (see note 4)     4   (31,659)
 Total recognised gains and losses
 since last annual report and accounts        14,958
Unaudited
 Consolidated balance sheet
                                                         Restated
                                    Year ended         Year ended
                            Notes    31 Dec 03          31 Dec 02
                                         $'000              $'000
ASSETS
Intangible assets
 Licences                                9,968             9,968
                                       --------         --------
9,968             9,968
 Investments
 Other financial investments         1,582,357         1,106,739
 Deposits with ceding undertakings     105,513            92,106
                                      --------          --------
                                     1,687,870         1,198,845
 Reinsurers' share of 
 technical provisions
 Provision for unearned premiums       123,606           101,312
 Claims outstanding 
 - Aggregate excess reinsurance        473,569           400,175
 Claims outstanding 
 - Other reinsurance                   252,992           238,625
                                       --------         --------
 Claims outstanding                    726,561           638,800
                                       --------         --------
                                       850,167           740,112
 Debtors
 Debtors arising out of 
 insurance operations                   66,931           111,489
 Debtors arising out of 
 reinsurance operations                531,635           377,654
 Amounts due from reinsurance 
 operations not
 transferring significant 
 insurance risk                         44,385            50,429
 Other debtors                          55,693            66,227
                                      --------          --------
                                       698,644           605,799
 Other assets
 Tangible assets                        12,212            13,130
 Cash at bank and in hand               44,307            28,989
                                      --------          --------
                                        56,519            42,119
 Prepayments and accrued income
 Accrued interest and rent              14,968            10,545
 Deferred acquisition costs            153,243            97,449
 Other prepayments and 
 accrued income                          5,680             8,708
                                      --------          --------
                                       173,891           116,702
                                      --------          --------
 TOTAL ASSETS                        3,477,059         2,713,545
                                      ========          ========
Unaudited
 Consolidated balance sheet
Restated
                            Notes    31 Dec 03        31 Dec 02
                                         $'000            $'000
 LIABILITIES
 Capital and reserves
 Called up share capital                 1,747               53
 Share premium account                 633,053          361,407
 Profit and loss account                14,958          (50,287)
 Capital reserve                        75,644           99,367
                                       --------        --------
 Shareholders' funds 
 attributable to equity
 interests                             725,402          410,540
 Minority interests
 subordinated preferred 
 shares issued by
 subsidiaries                                            50,000
                                      --------         --------
 TOTAL CAPITAL EMPLOYED                725,402          460,540
Technical provisions
 Provision for unearned premiums       686,935          477,121
 Claims outstanding                  1,398,551        1,126,949
 Claims equalisation provision    4      6,408            2,368
                                      --------         --------
                                     2,091,894        1,606,438
Deposits received from 
 reinsurers                            199,903          225,144
Creditors
 Creditors arising out of 
 insurance and
 reinsurance operations                196,371          158,770
 Liabilities from reinsurance 
 operations not 
 transferring significant 
 insurance risk                         44,319           53,130
 Amounts owed to credit 
 institutions                          178,375          168,536
 Other creditors including 
 taxation and social security            2,995            4,629
                                      --------         --------
                                       621,963          610,209
 Accruals and deferred income           37,800           36,358
                                      --------         --------
 TOTAL LIABILITIES                   3,477,059        2,713,545
                                      ========         ========
Part 5 follows

Plus de actualités: Alea Group Holdings (Bermuda) Ltd.
Plus de actualités: Alea Group Holdings (Bermuda) Ltd.
  • 15.03.2004 – 10:42

    Preliminary Results for the year ended 31 December 2003 - Part 3 of 7

    London (ots) - FINANCE DIRECTOR'S REPORT Performance Management The highlights of the consolidated financial statements are as follows: Summary of results 2003 2002 $ million Gross premiums written 1,300.2 931.6 Net premiums earned 858.5 518.1 Underwriting profit ...

  • 15.03.2004 – 10:41

    Preliminary Results for the year ended 31 December 2003 - Part 2 of 7

    London (ots) - On the closing of the Imperial acquisition in 2000, the Group reinforced the reserve strengthening of the Imperial business by entering into the OPL (see Finance Director's Review). Since that date there continues to be immaterial development of these reserves. Total loss reserves covered by the OPL contract increased to $87.1 million compared to ...

  • 19.02.2004 – 17:15

    Alea Group welcomes A.M. Best rating of Alea Specialty

    LONDON (ots) - Alea Group Holdings (Bermuda) Ltd. (Alea Group),the global reinsurance and specialty insurance company, is pleased to announce that A.M. Best has assigned a group rating of A- (Excellent) to Alea North America Specialty Insurance Company (Alea Specialty), a wholly owned US subsidiary of Alea. A.M. Best said the group rating reflects Alea Specialty's core status within Alea. The insurance rating and ...