Interim results

NEWS RELEASE 30 July 2009 For immediate release Novae Group plc Interim results for the period ended 30 June 2009 Highlights Novae Group plc ("Novae"), the specialist insurance group, today announces its 2009 interim results. Highlights: * Loss before tax and before foreign exchange movement on non-monetary items: £2.1 million (H1 2008: profit of £16.8 million), after a charge of £26 million from aviation reinsurance and credit insurance claims * Loss before tax and after foreign exchange movement on non-monetary items: £18.5 million (H1 2008: profit of £16.3 million) * Combined ratio: 112.2% (H1 2008: 98.7%), 90.4% excluding aviation and trade credit losses * Gross written premium: £220.3 million (H1 2008: £186.0 million) * Interim dividend per share: 3.0p (H1 2008: 2.5p) * Net asset value per share: 389p (June 2008: 390p) * Investment return: £10.9 million, equivalent to an annualised return of 2.02% (H1 2008: £20.7 million) * Realised gain from repurchase of 2017 bonds for cancellation: £7.7 million (H1 2008: nil) Matthew Fosh, Chief Executive, today said: "An otherwise sound performance in the first half was hit principally by an abnormal incidence of loss during the period in our aviation reinsurance unit, including the Air France loss over the Atlantic. There was also an increase in losses from our credit insurance unit but, as a whole, our range of property and casualty classes has been resilient in a market where rates overall are rising but only in a piecemeal fashion. That said, we saw a whole account rate increase of 8% during the period. We will be accelerating the growth of premium income into 2010 and increasingly deploying the Group's surplus capital into an improving rating environment. We will need to remain patient, but we continue to be optimistic about the outlook for the remainder of this year and beyond." There will be a presentation to analysts at 09.00 a.m. today at Citypoint, 9th floor, 1 Ropemaker Street, EC2Y 9HT. For further information: Matthew Fosh Novae Group plc 020 7903 7300 Nick Miles M:Communications 020 7153 1535 Introduction to Novae Novae, which is based in London and listed on the London Stock Exchange, is a risk-taking insurance business operating at Lloyd's via Syndicate 2007 managed by Novae Syndicates Limited ("NSL") and through Novae Insurance Company Limited ("NICL"), an FSA-regulated UK insurance company. Novae has a diversified mix of business with underwriters operating across four segments made up of 21 specialist units. Syndicate 2007 is rated A2 (Good) by Moody's; A (Excellent) by AM Best; and LSA 3- by Standard & Poors within the context of its overall A+ Lloyd's rating. NICL is rated A- (Excellent) by AM Best and A- by Fitch. All these ratings have a stable outlook. Interim results statement Financial results Novae's results in the first half of 2009 reflect in large part catastrophe losses from the aviation reinsurance unit. There was also an increase in recession-related losses from our credit insurance unit, but in general our range of property and casualty classes performed satisfactorily in a market where rates overall are still responding only slowly and interest rates remain at all time lows. Rates in the property reinsurance, energy and financial institutions classes have firmed, reflecting actual or perceived market losses, but more widely the rating environment is yet to respond to circumstances which suggest losses to come. Operating loss before foreign exchange loss on non-monetary items was £5.1 million (H1 2008: profit of £23.1 million). Loss before tax and foreign exchange loss on non-monetary items was £2.1 million (H1 2008: profit of £16.8 million). The combined ratio in the first half, calculated at the ownership level on an earned premium basis of £145.4 million, was 112.2% (H1 2008: 98.7%). This was made up of a claims ratio of 69.0% (H1 2008: 51.9%), based on net claims of £100.3 million, and an expense ratio of 43.2% (H1 2008: 46.8%), based on acquisition and operating costs of £62.9 million (excluding the foreign exchange loss on non-monetary items). Excluding variable compensation, the running costs of the Discontinued Units and central costs together totalling £8.8 million, the expense ratio falls to 37.2% (H1 2008: 36.8%) based on operating costs net of these items of £54.1 million. Novae's investment assets made an important contribution in spite of a much lower interest rate environment and continuing volatility. Investment return in the period was £10.9 million, equivalent to an annualised return on average invested assets over the six month period of 2.02% (H1 2008: £20.7 million and 4.34% respectively). First half financing credit was £3.0 million (H1 2008: £6.3 million expense). This was made up of an underlying cost of £4.7 million, more than offset by a realised gain of £7.7 million arising from the buy in for cancellation of 2017 subordinated notes. Assuming no material changes to the capital structure of the Group in the second half, financing costs for the year as a whole are expected to be around £1.0 million after taking credit for the gain on buying in 2017 subordinated notes for cancellation. Net assets per share as at 30 June 2009 were 389.0p (30 June 2008: 389.6p). Net tangible assets per share were 374.6p (30 June 2008: 381.2p). Net tangible assets reflect the effects of purchasing the remaining third party capacity rights of tenure on Syndicate 2007 in January 2009. Unrecognised deferred tax assets represent an additional 34.1p per share (30 June 2008: 23.6p). Underwriting performance Overall performance Operating loss for the period was £5.1 million (H1 2008: profit of £23.1 million). The rating environment in the first half was mixed. In US-windstorm related classes such as US property, property treaty and Gulf of Mexico energy rates were up strongly. Rating has also begun to improve for financial institutions business. Although rates have generally stopped falling in most other areas, there is limited evidence so far of a transition to an improved pricing environment. Rate increases in the first half are consistent with the the Board's expectation of a 5-10% increase overall for the year as whole. Competition remains intense in many casualty classes as well as in UK regional business. In spite of the gradual emergence of recession-related losses and low investment returns, some insurers appear to remain focussed on increasing market share rather than on underwriting for profit. The Group has deliberately not written for gross income in such circumstances. Claims activity increased, reflecting the emergence of recession-related claims in the credit and political risks unit and catastrophe losses in the aviation reinsurance unit. Claims activity elsewhere in the business was mixed with some units enjoying a benign period and others seeing an increase in claims notifications. The combined ratio for the period was 112.2% (H1 2008: 98.7%). Catastrophe losses on the aviation reinsurance account contributed 13.3% to this; and recession-related losses in the credit and political risks unit a further 8.5%. The underlying combined ratio in the period was thus 90.4%, which the Board regards as a satisfactory performance given the current rating and economic environment. Specialty Specialty remains the Group's largest segment, although its relative contribution to gross written premium has fallen as the Group's diversification has gathered pace. Gross written premiums in the first half of 2009 were £71.9 million (H1 2008: £74.4 million), reflecting both underwriting discipline and a second half bias for a number of units within the segment. The overall contribution to Group profit was substantially lower at £3.1 million (H1 2008: £14.9 million), with much of that profit coming from business underwritten by NICL. The Lloyd's business made a small profit after absorbing significant losses from credit insurance. CIFS, the UK trade credit business, returned a loss of around £8 million and emerging market trade credit made a loss of over £4 million. These losses, although disappointing, are within the Group's loss tolerance in a severe recession. The financial institutions and professional indemnity units benefited from reserve releases on prior years. Both professional indemnity and management liability business have made significant contributions to profit in respect of more recent years notwithstanding the extremely competitive trading environment that has prevailed, reflecting strong underwriting discipline. Property Gross written premium income on property business in the first half was £59.2 million (H1 2008: £45.7 million), reflecting an increase in scale, the benefits of rate increases and exchange rate movements. Novae's property segment has continued to develop and diversify, providing a better balance of direct and reinsurance business and of US and non-US exposure. The first half of 2009 saw the Property segment contribute a loss of £1.6 million (H1 2008: profit of £8.1 million). Historically the profit has had a second half bias in years characterised by a low level of catastrophe loss and the performance in the first half this year also reflects a cautious view of claims activity. Despite the improving balance of the segment, experience in the US windstorm season is likely to be a key factor in the outcome for the year. Aviation & Marine This segment has grown in significance in recent years, reflecting both the formation of the energy unit and growth and diversification of the marine units. Gross written premiums in the period were £51.5 million (H1 2008: £25.7 million), including a sizeable element on loss-related reinstatement premium income from the aviation reinsurance unit. In the first half of 2009 the aviation reinsurance unit has suffered from a particularly severe claims experience, with the largest single impact being from the Air France loss. There were, however, a number of other significant losses in both the first and second quarters. Overall, net of reinsurance recoveries and reinstatement premiums, aviation reinsurance losses were $29 million. This means that after several years of very strong contribution to profits, the aviation reinsurance unit will produce a significant loss in 2009. The individual loss events that occurred in the period were in line with the Group's risk appetite and loss tolerance. While marine hull, energy and marine war business each made valuable profits, the scale of the loss from aviation reinsurance is reflected in the overall segment loss of £8.8 million. Both energy and marine business have benefited from an improving rating environment. We expect claims experience on aviation business in the first half of 2009 to stimulate pressure for significant rate hardening. Liability During the period this was the smallest of the four segments by gross premium income. Generally the market has remained competitive and Novae's underwriting posture has continued to reflect a disciplined and circumspect approach. In the first half of 2009 gross written premiums of this segment were £37.6 million (H1 2008: £39.8 million). The profit from liability business was an extremely creditable £8.4 million, reflecting valuable contributions from both the Lloyd's business and NICL. This included the emergence of extremely good levels of profit from business transacted in the 2007 and 2008 underwriting years. In the Lloyd's business the marine liability unit again produced a substantial level of profit while the non-marine liability profit arose mainly in NICL. Discontinued Units The Discontinued Units are made up of liability reinsurance, healthcare and third party liability written across Syndicates 1241 and 1007. The 2002 and prior years of Syndicates 1241 and 1007 continue to run off in line with expectations. The population of lead claims (in relation to both Discontinued Units and other business) has fallen further to 1,545 at 30 June 2009 (30 June 2008: 2,214; 31 December 2005: 6,117). This represents a reduction of 75% over the past three and a half years. Over the same period the value of open lead claims across these two syndicates had fallen by 41% to £224.4 million (30 June 2008: £228.2 million; 31 December 2005: £378.0 million). As at 30 June 2009 the Discontinued Units accounted for £117.0 million of gross reserves and £26.6 million of reinsurance asset (30 June 2008: £127.1 million and £30.8 million respectively). Investment performance Investment return in the first half was £10.9 million, equivalent to an annualised return on average invested assets of 2.02% (H1 2008: £20.7 million and 4.34% respectively). As at 30 June 2009 investment assets including cash were £1,011.1 million (30 June 2008: £951.5 million). The Group's investment strategy remains focussed on capital preservation and, subject to that constraint, the achievement of an explicit total return each financial year. The investment guidelines were revised during the first quarter of 2009 to permit a modestly increased weighting in short duration investment grade bonds. During the first half the Group reduced its exposure to pooled money market funds and rotated into investment grade corporate bonds. This is against a backdrop of very low returns from short duration UK and US government bonds, typically under 1.0%. Following asset/liability modelling carried out at the end of 2008, neutral duration was re-set at 3.0 years. The Group's targeted total return for the year to December 2009 is 2.0-2.5%. Investment type 30 June 30 June 2009 2008 £m £m Cash 289.2 326.6 Government bonds and bills 226.3 179.4 Corporate and supranational issuers 200.1 65.2 Certificates of deposit and floating rate notes 140.2 216.2 Lloyd's overseas deposits 79.5 64.7 Government agencies 75.8 48.0 Pooled money market funds - 39.2 Asset-backed securities - 12.2 Total 1,011.1 951.5 Investment assets can be further analysed by rating as follows: S&P rating equivalent 30 June 30 June 2009 2008 £m £m AAA rated 371.5 275.0 AA rated 102.3 21.4 A rated 25.7 8.0 BBB+ or better rated 2.4 - Total bond portfolio 501.9 304.4 Other * 140.5 216.6 Cash 289.2 326.6 Total managed portfolios 931.6 847.6 Lloyd's overseas deposits 79.5 64.7 Pooled money market funds - 39.2 Total 1,011.1 951.5 * included within other investment assets is £140.2 million (30 June 2008: £216.2 million) of certificates of deposits and floating rate notes together with £0.3 million (30 June 2008: £0.4 million) in respect of a single legacy shareholding. The average duration of the bond element of the managed portfolios is currently 1.8 years (30 June 2008: 0.6 years). As at 30 June 2009 investment assets were held as to 52% in sterling, 34% in US dollars and 14% in other currencies (30 June 2008: 56%, 33% and 11% respectively). Currency assets and liabilities Novae is exposed to foreign currency risk. Its principal exposure is to the US dollar, which accounts for approximately 50% of gross written premiums. IFRS requires non-monetary items to be carried at historical exchange rates rather than at closing rates (as for monetary items). Non-monetary items comprise unearned premiums, reinsurers' share of unearned premiums and deferred acquisition costs. During 2008 the US dollar appreciated against sterling, resulting in a non-monetary gain of £12.9 million. The exchange rate was £1:$1.44 at 31 December 2008; this had moved to £1:$1.65 at 30 June 2009. As a result, a non-monetary foreign currency loss of £16.4 million was recorded in the period, reversing the gain recorded in 2008. Interim dividend The Board has declared an interim dividend of 3.0p per share (H1 2008: 2.5p). This will be paid on 5 October 2009 to shareholders on the register on 11 September 2009. Tax The Group's tax credit in the first half was £8.0 million (H1 2008: charge of £0.9 million), representing 43% of loss before tax (H1 2008: 6% of profit before tax). The deferred tax asset held on the balance sheet at 30 June 2009 is £29.5 million (30 June 2008: £22.4 million). A further £24.5 million of deferred tax assets are not included on the balance sheet (30 June 2008: £16.9 million). These are worth 34.1p per share (30 June 2008: 23.6p per share). Capital Novae's capital employed as at 30 June 2009 was £358.7 million, made up as follows: 30 June 2009 30 June 2008 £m £m Shareholders' funds 279.7 279.4 Less: intangible assets (10.4) (6.0) Net tangible assets 269.3 273.4 2017 subordinated notes 68.9 97.8 2034 loan notes 20.5 19.4 2008 convertible bonds - 7.6 Capital employed 358.7 398.2 In April 2007 Novae issued £100.0 million (nominal value) of 2017 subordinated bonds. It had intended to use part of the net proceeds of this issue to refinance its $36.0 million (nominal value) 2034 notes. The 2034 notes are priced at a weighted average margin over LIBOR of 366 basis points. Following the reduction in $ LIBOR over the last 12 months, the 2034 notes now have a lower running cost than the 2017 subordinated notes, which carry a fixed coupon of 8.375% to their first call date in 2012. As a result, the Group has bought in a total of £30.0 million (nominal value) of 2017 subordinated notes for cancellation at a weighted average price of 63p per £1 nominal value. This has resulted in a total realised pre-tax gain of £10.5 million. Of this, £2.8 million was recognised in the year ended 31 December 2008 and £7.7 million recognised in the period ended 30 June 2009. £70.0 million (nominal value) of 2017 subordinated notes remain in issue. The Group's total debt at 30 June was £89.4 million, compared with shareholders' funds of £279.7 million. This is equivalent to a financial gearing level of 32.0%. Capital is used to provide admissible assets for Novae's regulated subsidiaries as well as working capital. Novae's Lloyd's corporate member currently has a 2009 capital requirement of £223.7 million, equivalent to 66% of its 2009 premium capacity of £340.0 million. Of the Lloyd's corporate member's capital requirement, around £170 million underpins the ongoing business with the balance of some £50 million supporting the 2002 run-off year of Syndicates 1007 and 1241. Syndicate 2007's gross written premium in its regulatory business plan (net of acquisition costs and at Lloyd's stipulated exchange rates of $1.50:£1) is £291 million at the 100% level. Expressing the Group's capital requirement excluding 2002 and prior run-off of £170 million as a percentage of its share of gross income of £275 million produces a solvency ratio of 62%. For 2010, the Group is currently intending to pre-empt the capacity of Syndicate 2007 by 25% to £450.0 million, reflecting continuing recruitment of new teams and rate hardening in some areas where the Group is active. The additional capital required to support this level of pre-emption is currently expected to be relatively modest. NICL's net assets at 31 December 2008 were £104.7 million, more than double its stand-alone regulatory capital requirement. However, NICL has to maintain minimum net worth to satisfy rating agency and brokers' security requirements. In particular, rating agency models impose a higher capital requirement in the start-up phase of an insurance company's life than on a mature business of equal size. This is likely to result in NICL remaining over-capitalised relative to its premium base until the start-up phase has concluded in 2011. On 18 March 2009 the Group's £20 million revolving credit facility was extended until 31 December 2010. The facility remains undrawn. Principal risks The principal risks that face the Group are described in the risk disclosure section in the 2008 annual report (pages 71 to 84), together with the relevant section of the operating review (pages 26 to 27). There have been no significant changes to the principal risks during the six months ended 30 June 2009. Outlook The first six months of 2009 represented a challenging period for the Group. Although rates in property classes began to improve, liability rates generally have yet to do so; investment returns on risk free assets are at an all time low; recession-related claims led to losses within the credit insurance unit; and one of Novae's two event-driven reinsurance units, aviation reinsurance, suffered from a series of major loss events. While the financial outcome is disappointing, these events need to be seen in context. The aviation reinsurance unit has made a major contribution to Novae's profits over the past five years. It has the potential to generate significant profits in the future as rates improve. The credit and political risks unit is one of several specialist areas in which Novae has a niche presence. Against the background of perhaps the most severe and rapid recession since 1945 it should come as no surprise the unit made a loss even if, as the anecdotal evidence suggests, the unit's performance is favourable when compared to its peers. Novae's business mix more generally continues to be around two thirds liability, one third property. In this context, the current interest rate environment is clearly an obstacle to progress. Over the past 10 years the redemption yield on the short gilt has averaged 5.04%. As at 30 June 2009, the redemption yield on the Treasury 2010 4.75% note was 0.77%; it has since fallen to 0.67%. The fall in the return on risk free assets, imposed by policymakers to support the banking sector, has implications on the profitability of liability business. These headwinds have obscured good progress on several other fronts. New units established since 2006 have made a strong contribution to performance and longer established units have continued to display the quality of the underwriting expertise that they represent. Novae is recruiting new talent to build upon its underwriting strengths and further diversify the business. It is also worth noting that the financial outcome in the six months to 30 June 2009 follows a year in which the Group's strategy delivered one of the best returns on equity in its sector. Novae's ability to absorb exceptional losses and low investment returns in the first half of the year, and still be able to grow the scale of its business without recourse to additional capital, validates its policy of diversification and controlled risk appetite. The emergence of a more favourable rating environment continues to be patchy. While financial institutions, property reinsurance and energy classes are enjoying rating momentum, rates in other areas are improving only reluctantly. This is despite a backdrop in the insurance industry and in the wider economy which would imply upward rating pressure. A contracting global economy is one factor restraining rates. But if claims frequency does increase, replacement capital and investment returns will not easily make up the difference. Rate increases across the whole account of 5-10% for the full year are expected for 2009, driven by classes already reporting losses. But if the broader claims environment deteriorates, wider and more sustained rating improvements are likely. We will be patient in deploying capital, but will respond boldly as conditions dictate. M K Fosh Group Chief Executive 30 July 2009 Responsibility statement of the directors in respect of the half-yearly financial report We confirm that to the best of our knowledge: * the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU * the interim management report includes a fair review of the information required by: (a) section 4.2.7 of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year (b) section 4.2.8 of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so By order of the Board M J Turvey Secretary 30 July 2009 Condensed consolidated statement of comprehensive income for the six months ended 30 June 2009 Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 Note £m £m £m Gross premium revenue 4 199.9 162.7 345.7 Less premium ceded to 4 (54.5) (36.8) (87.3) reinsurers Net premium revenue 145.4 125.9 258.4 Investment income 5 10.9 20.7 50.0 Fees and commission income 1.8 0.8 1.8 Total revenue (net of premium 158.1 147.4 310.2 ceded to reinsurers) Gross claims incurred (128.5) (79.0) (240.6) Reinsurers' share of claims 28.2 13.6 73.7 incurred Net claims incurred (100.3) (65.4) (166.9) Policy acquisition costs (34.9) (29.8) (61.5) Operating expenses 6 (44.4) (29.6) (32.0) Operating (loss)/profit before (5.1) 23.1 36.9 currency (loss)/gain on non- monetary items Currency (loss)/gain on 7 (16.4) (0.5) 12.9 non-monetary items Operating (loss)/profit (21.5) 22.6 49.8 Financing credit/(costs) 8 3.0 (6.3) (9.6) (Loss)/profit before income (18.5) 16.3 40.2 taxes Income taxes 9 8.0 (0.9) (3.1) (Loss)/profit for the period (10.5) 15.4 37.1 attributable to shareholders (Losses)/earnings per share Basic (losses)/earnings per 10 (14.6)p 21.4p 51.7p share Diluted (losses)/earnings per 10 (14.6)p 20.8p 50.2p share Condensed consolidated balance sheet as at 30 June 2009 30 June 30 June 31 December 2009 2008 2008 Note £m £m £m Assets Intangible assets 10.4 6.0 6.5 Property, plant and 1.2 1.0 1.1 equipment Deferred acquisition costs 37.6 33.7 31.1 Deferred tax assets 11 29.5 22.4 20.2 Financial assets 12 642.4 560.2 478.3 Reinsurance contracts 13 421.2 358.1 410.2 Insurance and other 184.6 201.0 184.4 receivables Cash and cash equivalents 14 368.7 391.3 622.5 Total assets 1,695.6 1,573.7 1,754.3 Liabilities Insurance contracts 15 (1,241.0) (1,098.0) (1,277.3) Financial liabilities, due within one year - Convertible debt 16 - (7.6) - Financial liabilities, due after one year - Loan notes 16 (20.5) (19.4) (21.3) - Subordinated notes 16 (68.9) (97.8) (89.2) Insurance and other payables, (83.2) (71.5) (66.0) due within one year Insurance and other payables, (2.3) - - due after one year Total liabilities (1,415.9) (1,294.3) (1,453.8) Net assets 279.7 279.4 300.5 Shareholders' equity Share capital 17 73.2 73.2 73.2 Share premium 67.1 67.1 67.1 Merger reserve 69.6 69.6 69.6 Retained earnings 69.8 (89.1) 90.6 Other reserves - 155.2 - Equity component of - 3.4 - convertible debt Total shareholders' equity 279.7 279.4 300.5 Net asset value per share 10 389.0p 389.6p 420.0p Net tangible asset value per 10 374.6p 381.2p 410.8p share These financial statements were approved by the Board of Directors on 30 July 2009 and were signed on its behalf by: J P Hastings-Bass O R P Corbett Chairman Group Finance Director Condensed consolidated statement of changes in equity for the six months ended 30 June 2009 Share Share Merger Profit and Total capital premium reserve loss account account £m £m £m £m £m Loss for the period - - - (10.5) (10.5) Increase in share-based payment reserve - - - 0.4 0.4 Acquisition of treasury shares, net of LTIP - - - (2.4) (2.4) shares vested Dividends paid (note 18) - - - (8.3) (8.3) Net decrease in equity - - - (20.8) (20.8) As at 31 December 2008 73.2 67.1 69.6 90.6 300.5 As at 30 June 2009 73.2 67.1 69.6 69.8 279.7 for the six months ended 30 June 2008 Share Share Merger Other Profit Equity Total capital premium reserve reserves and component account loss of account convertible debt £m £m £m £m £m £m £m Profit for - - - - 15.4 - 15.4 the period Convertible bond - - - - - (0.1) (0.1) redemption Increase in share-based - - - - 0.1 - 0.1 payment reserve Acquisition of - - - - (0.5) - (0.5) treasury shares, net of LTIP shares vested Dividends - - - - (5.4) - (5.4) paid (note 18) Net increase / - - - - 9.6 (0.1) 9.5 (decrease) in equity As at 31 December 73.2 67.1 69.6 155.2 (98.7) 3.5 269.9 2007 As at 30 June 2008 73.2 67.1 69.6 155.2 (89.1) 3.4 279.4 for the year ended 31 December 2008 Share Share Merger Other Profit Equity Total capital premium reserve reserves and component account loss of account convertible bond £m £m £m £m £m £m £m Profit for the - - - - 37.1 - 37.1 period Convertible bond - - - - 3.4 (3.5) (0.1) redemption Increase in share-based - - - - 1.6 - 1.6 payment reserve Acquisition of treasury - - - - (0.8) - (0.8) shares, net of LTIP shares vested Reserves - - - (155.2) 155.2 - - reorganisation Dividends paid - - - - (7.2) - (7.2) (note 18) Net increase / (decrease) in - - - (155.2) 189.3 (3.5) 30.6 equity As at 31 December 73.2 67.1 69.6 155.2 (98.7) 3.5 269.9 2007 As at 31 December 2008 73.2 67.1 69.6 - (90.6) - 300.5 Condensed consolidated cash flow statement for the six months ended 30 June 2009 Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £m (Loss)/profit before tax (18.5) 16.3 40.2 Adjustments for non-cash items and items separately disclosed - Foreign exchange on financial 79.6 (16.4) (77.7) assets - Financing (credit)/costs (3.0) 6.3 9.6 - Amortisation charge 0.6 0.4 1.0 - Investment income (10.9) (20.7) (50.0) - Depreciation charge 0.4 0.4 1.1 - Employee equity incentives 2.6 3.1 4.7 Changes in operating assets and liabilities - Change in insurance contract (36.3) 23.9 203.2 liabilities - Change in insurance 0.4 (5.5) (15.5) receivables - Change in other receivables 0.1 (20.1) 4.0 - Change in deferred (6.5) (4.9) (2.3) acquisition costs - Change in reinsurance (11.0) (17.2) (69.3) contract assets - Change in insurance and other 25.9 33.5 24.3 payables - Change in market value of (0.8) 0.1 2.0 loan notes - Change in market value of 8.0 (14.1) (18.9) investments - Other non-cash movements (3.2) (2.8) 0.1 Net cash from operating 27.4 (17.7) 56.5 activities Cash flows from investing activities - Purchase of property, plant (0.5) (0.6) (1.4) and equipment - Purchase of intangible fixed (4.5) - (1.1) assets - Interest received 11.9 21.3 42.8 - Purchase of financial assets (927.6) (773.7) (1,088.0) - Proceeds from sale of 716.6 812.8 1,218.6 financial assets Net cash used in investing (204.1) 59.8 170.9 activities Cash flows from financing activities - Acquisition of treasury (7.7) (3.5) (5.3) shares - Redemption of convertible - (2.9) (10.2) debt - Redemption of subordinated (13.0) - (6.0) notes - Interest paid (8.1) (9.6) (11.6) - Dividends paid (8.3) (5.4) (7.2) Net cash used in financing (37.1) (21.4) (40.3) activities Net (decrease)/increase in cash (213.8) 20.7 187.1 and cash equivalents Opening cash and cash equivalents 622.5 367.0 367.0 Effect of exchange rate changes (40.0) 3.6 68.4 on cash and cash equivalents Closing cash and cash equivalents 368.7 391.3 622.5 Notes to the interim financial information 1) Significant accounting policies The unaudited interim financial statements, which do not comprise annual accounts, have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, and on the basis of the accounting policies set out in the annual report of Novae Group plc for the year ended 31 December 2008. The consolidated financial statements include the results of Novae Group plc and all its subsidiary undertakings made up to the same accounting date. The financial information contained in these interim results does not constitute statutory accounts of Novae within the meaning of Section 435 of the Companies Act 2006. Statutory accounts for Novae Group plc for the year ended 31 December 2008 have been delivered to the Registrar of Companies. The auditors have reported on the accounts, their report was unqualified and did not constitute a statement under Section 237(2) or (3) of the Companies Act 1985. Basis of preparation The financial statements are presented in pounds sterling unless otherwise stated. They have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. The results of these factors allow judgements to be made regarding the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Uncertainties exist where current valuations are dependent on estimates of future results. This applies to the share based payment charge, the deferred tax asset and financial assets and liabilities held at fair value. The accounting policies have been applied consistently to all periods presented in this report. The Group's greatest area of uncertainty relates to insurance contract liabilities (see note 15). The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period, or in the period of the revision and future periods if the revision affects both current and future periods. Revised and new reporting standards The Group has adopted the amendment to IAS 1 Presentation of Financial Statements. This has resulted in the income statement being renamed the statement of comprehensive income. No other revised disclosures and measurements have been required as a result of new or amended international standards and interpretations that the Group had not previously chosen to adopt in preparing the financial statements for the year ended 31 December 2008. 2) Segmental information The Group's operating segments are organised into similar product and service types. The Board is the Group's chief operating decision maker. This is due to the Board being the ultimate decision maker for future resource allocation to the Group's underwriting platforms. Monthly management information is reported to the Board on a segmental basis to aid its assessment of the Group's performance. Segment results, assets and liabilities include items that can be allocated on a reasonable basis. Unallocated items comprise insurance working capital, central items and the deferred tax asset. The Group comprises the following reportable operating segments: (i) Specialty Business included within the Specialty segment relates to financial institutions, professional indemnity, management liability, fine art & specie, special situations, bloodstock and credit, political risk & terrorism. (ii) Property The Property segment consists of both direct and reinsurance business transacted in the USA and internationally (including the UK). (iii) Liability This comprises a UK general liability account, both public and employers' liability risks, international general liability, marine liability business and a motor fleet account. (iv) Aviation & Marine This segment is dominated by aviation reinsurance and marine energy, and also includes the specialist hull, cargo and marine war accounts. (v) Discontinued Units This segment is primarily made up of liability reinsurance (or casualty treaty) accounts and also includes smaller healthcare and third party liability units. The Group withdrew from these classes prior to 2002 and they have subsequently been reported separately to management. This does not represent a discontinued business analysis for IFRS 5 purposes. 2a. Segmental information at the 100% level This information is presented to include 100% of the syndicate results. This is to avoid any distortion from the effects of change in ownership of syndicates between underwriting years. The segment results for the six months ended 30 June 2009 include: Specialty Property Liability Aviation Discontinued Total & Units Marine £m £m £m £m £m £m Gross 75.3 62.4 39.3 54.6 0.2 231.8 written premium Gross 85.3 38.7 36.7 49.6 0.2 210.5 premium revenue Net premium 62.7 27.2 31.1 32.3 0.3 153.6 revenue Net claims 41.0 18.4 13.0 34.1 (0.9) 105.6 incurred Operating 22.0 12.2 11.2 8.8 0.3 54.5 expenses (including brokerage) The segment results for the six months ended 30 June 2008 include: Specialty Property Liability Aviation Discontinued Total & Units Marine £m £m £m £m £m £m Gross 77.6 48.6 41.7 27.3 0.4 195.6 written premium Gross 79.6 31.8 33.9 25.4 0.4 171.1 premium revenue Net premium 50.2 33.3 31.9 17.7 - 133.1 revenue Net claims 29.9 10.8 18.5 7.8 4.1 71.1 incurred Operating 20.9 9.9 10.8 6.2 0.2 48.0 expenses (including brokerage) The segment results for the year ended 31 December 2008 include: Specialty Property Liability Aviation Discontinued Total & Units Marine £m £m £m £m £m £m Gross 165.8 76.7 68.2 55.9 0.5 367.1 written premium Gross 166.9 76.6 62.8 57.7 0.5 364.5 premium revenue Net premium 124.0 56.2 51.0 41.2 (0.2) 272.2 revenue Net claims 87.6 38.6 30.6 20.9 3.8 181.5 incurred Operating 41.3 21.5 19.2 15.6 0.6 98.2 expenses (including brokerage) b) Segmental information at the Novae ownership level The segment results for the six months ended 30 June 2009 are as follows: Specialty Property Liability Aviation & Discontinued Total Unallocated Total Marine Units reportable by segment segments £m £m £m £m £m £m £m £m Gross written 71.9 59.2 37.6 51.5 0.1 220.3 - 220.3 premium Gross premium 81.3 36.6 35.2 46.7 0.1 199.9 - 199.9 revenue Net premium 59.3 25.7 29.8 30.4 0.2 145.4 - 145.4 revenue Net claims (40.0) (17.1) (12.3) (32.1) 1.2 (100.3) - (100.3) incurred Investment 4.8 1.4 1.7 1.1 1.3 10.3 0.6 10.9 return Fees and - - - - - - 1.8 1.8 commission income Policy (14.1) (7.6) (7.5) (5.7) - (34.9) - (34.9) acquisition costs Operating (6.9) (4.0) (3.3) (2.5) (0.3) (17.0) (27.4) (44.4) expenses Operating 3.1 (1.6) 8.4 (8.8) 2.4 3.5 (25.0) (21.5) profit Financing - - - - - - 3.0 3.0 credit/(costs) Profit/(loss) 3.1 (1.6) 8.4 (8.8) 2.4 3.5 (22.0) (18.5) before tax Income taxes - - - - - - 8.0 8.0 Profit/(loss) 3.1 (1.6) 8.4 (8.8) 2.4 3.5 (14.0) (10.5) after tax Included within operating expenses are: Depreciation (0.1) (0.1) (0.1) (0.1) - (0.4) - (0.4) The segment results for the six months ended 30 June 2008 are as follows: Specialty Property Liability Aviation Discontinued Total Unallocated Total & Marine Units reportable by segment segments £m £m £m £m £m £m £m £m Gross written 74.4 45.7 39.8 25.7 0.4 186.0 - 186.0 premium Gross premium 75.8 29.9 32.5 24.1 0.4 162.7 - 162.7 revenue Net premium 56.7 24.3 27.4 17.4 0.1 125.9 - 125.9 revenue Net claims (30.2) (10.1) (17.7) (7.5) 0.1 (65.4) - (65.4) incurred Investment 8.1 3.4 2.7 2.0 2.1 18.3 2.4 20.7 return Fees and - - - - - - 0.8 0.8 commission income Policy (12.9) (6.3) (7.1) (3.9) - (30.2) 0.4 (29.8) acquisition costs Operating (6.8) (3.2) (3.2) (1.9) (0.2) (15.3) (14.3) (29.6) expenses Operating 14.9 8.1 2.1 6.1 2.1 33.3 (10.7) 22.6 profit/(loss) Financing - - - - - - (6.3) (6.3) costs Profit/(loss) 14.9 8.1 2.1 6.1 2.1 33.3 (17.0) 16.3 before tax Income taxes - - - - - - (0.9) (0.9) Profit/(loss) 14.9 8.1 2.1 6.1 2.1 33.3 (17.9) 15.4 after tax Included within operating expenses are: Depreciation (0.1) (0.1) (0.1) (0.1) - (0.4) - (0.4) The segment results for the year ended 31 December 2008 are as follows: Specialty Property Liability Aviation Discontinued Total Unallocated Total & Marine Units reportable by segment segments £m £m £m £m £m £m £m £m Gross written 158.6 72.0 65.3 52.5 0.6 349.0 - 349.0 premium Gross premium 159.0 71.8 60.1 54.2 0.6 345.7 - 345.7 revenue Net premium 118.4 52.4 48.8 38.9 (0.1) 258.4 - 258.4 revenue Net claims (82.7) (36.0) (29.0) (19.9) 0.7 (166.9) - (166.9) incurred Investment 22.2 4.5 9.3 4.0 5.8 45.8 4.2 50.0 return Fees and - - - - - - 1.8 1.8 commission income Policy (26.4) (13.7) (12.8) (9.3) - (62.2) 0.7 (61.5) acquisition costs Operating (12.8) (6.4) (5.6) (5.3) (0.6) (30.7) (1.3) (32.0) expenses Operating 18.7 0.8 10.7 8.4 5.8 44.4 5.4 49.8 profit Financing - - - - - - (9.6) (9.6) costs Profit/(loss) 18.7 0.8 10.7 8.4 5.8 44.4 (4.2) 40.2 before tax Income taxes - - - - - - (3.1) (3.1) Profit/(loss) 18.7 0.8 10.7 8.4 5.8 44.4 (7.3) 37.1 after tax Included within operating expenses are: Depreciation (0.5) (0.1) (0.3) (0.1) (0.1) (1.1) - (1.1) c) Segmental balance sheet analysis Relevant balance sheet captions are deemed to be attributable to the business segments as follows (investment assets comprise financial assets, cash and cash equivalents): As at Aviation Discontinued Total Unallocated 30 June 2009 Specialty Property Liability & Units reportable by segment Total Marine segments £m £m £m £m £m £m £m £m Reinsurers' 227.0 20.0 29.7 62.6 26.6 365.9 - 365.9 share of claims outstanding Investment 467.8 116.7 170.1 99.5 115.4 969.5 41.6 1,011.1 assets Other assets - - - - - - 318.6 318.6 Total assets 694.8 136.7 199.8 162.1 142.0 1,335.4 360.2 1,695.6 Gross 572.2 60.6 161.4 129.2 117.0 1,040.4 - 1,040.4 provision for claims outstanding Other - - - - - - 375.5 375.5 liabilities Shareholders' - - - - - - 279.7 279.7 funds Total 572.2 60.6 161.4 129.2 117.0 1,040.4 655.2 1,695.6 liabilities As at Aviation Discontinued Total Unallocated 30 June 2008 Specialty Property Liability & Units reportable by segment Total Marine segments £m £m £m £m £m £m £m £m Reinsurers' 214.3 10.9 24.2 29.7 30.8 309.9 - 309.9 share of claims outstanding Investment 386.4 145.8 129.3 90.5 92.2 844.2 107.3 951.5 assets Other assets - - - - - - 312.3 312.3 Total assets 600.7 156.7 153.5 120.2 123.0 1,154.1 419.6 1,573.7 Gross 506.0 44.7 155.1 82.7 127.1 915.6 - 915.6 provision for claims outstanding Other - - - - - - 378.7 378.7 liabilities Shareholders' - - - - - - 279.4 279.4 funds Total 506.0 44.7 155.1 82.7 127.1 915.6 658.1 1,573.7 liabilities As at Aviation Discontinued Total Unallocated 31 December Specialty Property Liability & Units reportable by segment Total 2008 Marine segments £m £m £m £m £m £m £m £m Reinsurers' 250.9 20.9 30.0 48.1 31.2 381.1 - 381.1 share of claims outstanding Investment 515.1 90.2 213.5 88.2 112.9 1,019.9 80.9 1,100.8 assets Other assets - - - - - - 272.4 272.4 Total assets 766.0 111.1 243.5 136.3 144.1 1,401.0 353.3 1,754.3 Gross 611.2 68.7 173.2 111.0 144.3 1,108.4 - 1,108.4 provision for claims outstanding Other - - - - - - 345.4 345.4 liabilities Shareholders' - - - - - - 300.5 300.5 funds Total 611.2 68.7 173.2 111.0 144.3 1,108.4 645.9 1,754.3 liabilities As at 30 June 2009 the Group's share of the aggregate gross assets and liabilities of the 2002 open year of Syndicates 1007 and 1241 was £357.6 million (30 June 2008: £393.4 million, 31 December 2008: £452.4 million). 3) Seasonality of interim operations Within a financial year, the Group's underwriting income is not recognised on a straight line basis. This is due to a number of factors. Gross written premium is recognised on the inception of an insurance contract. For many classes of business these have historically been weighted towards the first half of the year. Certain of the Group's underwriting units (primarily property reinsurance and energy) are exposed to major risk events, such as US windstorms. The US hurricane season runs from May to November, which means that the Group may experience large losses in the second half of the year. Conversely, in years without a major event, the loss ratio is likely to be lower in the second half. Premium revenue is earned separately for each insurance contract in line with the risk exposure profile. This means that for catastrophe exposed contracts, the majority of income is recognised in the second half of the year. Movements in foreign exchange rates also affect seasonality. This effect is accentuated as the Group's catastrophe exposed units primarily transact business in US dollars. This seasonality can be demonstrated by reviewing Novae's key metrics: Gross written premium Claims ratio Net premium revenue H1 H2 Total H1 H2 Total H1 H2 Total £m £m £m % % % £m £m £m 2005 129.2 115.1 244.3 35.3 93.2 69.4 111.4 159.2 270.6 2006 146.6 134.6 281.2 53.0 39.0 46.3 114.8 106.0 220.8 2007 173.3 159.7 333.0 47.7 58.3 53.7 96.8 124.2 221.0 2008 186.0 163.0 349.0 51.9 76.6 64.6 125.9 132.5 258.4 4) Premium revenue Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £m Gross written premium 220.3 186.0 349.0 Change in the gross provision for (20.4) (23.3) (3.3) unearned premiums Gross premium revenue 199.9 162.7 345.7 Outward reinsurance premiums (78.2) (59.2) (90.8) Change in reinsurers' share of 23.7 22.4 3.5 provision for unearned premiums Premium ceded to reinsurers (54.5) (36.8) (87.3) Net premium revenue 145.4 125.9 258.4 5) Investment income Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £m Interest income on fair value 11.5 21.7 44.1 through profit and loss assets Net fair value (losses)/gains (0.3) (0.7) 6.5 Investment management expenses (0.3) (0.3) (0.6) 10.9 20.7 50.0 6) Operating expenses Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £m Underwriting expenses 17.0 15.2 30.7 Distribution company expenses 1.3 - - Central expenses 7.2 12.4 23.6 Foreign exchange losses/(gains) 18.9 2.0 (22.3) (see note 7) 44.4 29.6 32.0 The increase in other income and consequent increase in distribution company expenses are due to changes made on certain underwriting classes whereby the distribution company now charges commission to the Group's syndicate and incurs the associated expenses. 7) Foreign exchange The net foreign exchange gains and losses for the period comprise the following amounts: Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £m Foreign exchange (losses)/gains (2.5) (1.5) 9.4 (excluding non-monetary items) Foreign exchange (losses)/gains (16.4) (0.5) 12.9 on non-monetary items Net foreign exchange (18.9) (2.0) 22.3 (losses)/gains Foreign exchange movements are included within operating expenses (see note 6). Foreign exchange movements on non-monetary items are highlighted on the face of the statement of comprehensive income. Principal exchange rates applied are as follows: Six months ended Six months ended Year ended 30 June 2009 30 June 2008 31 December 2008 Period Period Period Period Year Year average end average end average end US dollar 1.50 1.65 1.98 1.99 1.85 1.44 Euro 1.12 1.17 1.29 1.26 1.26 1.03 Canadian dollar 1.80 1.91 1.99 2.02 1.96 1.77 8) Financing (credit)/costs Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £m Cost of 2017 subordinated notes 3.8 4.4 8.8 Cost of 2034 loan notes 0.7 0.9 1.8 Other financing 0.2 0.1 0.2 Cost of 2008 convertible bond - 0.5 0.8 Reinsurer letter of credit cost - 0.4 0.8 4.7 6.3 12.4 Less: gain on purchase and (7.7) - (2.8) cancellation of 2017 subordinated notes (see note 16(d)) (3.0) 6.3 9.6 9) Income taxes Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £m Current tax expense: Current period 1.3 - - Adjustments for prior years - - - Total current tax 1.3 - - Deferred tax (see note 11): Effect of tax losses utilised (9.3) 0.9 3.1 Total income tax (credit)/expense (8.0) 0.9 3.1 Reconciliation of effective tax rate: (Loss)/profit before income taxes (18.5) 16.3 40.2 Income tax at the standard UK (5.2) 4.7 11.5 corporation tax rate (28%) (June 2008: 29%; December 2008: 28.5%) Effect of disallowable (10.2) (0.6) (2.1) expenditure/timing differences Effect of tax losses de- 7.4 (3.2) (6.3) recognised/(recognised) (8.0) 0.9 3.1 The future tax charge is dependent on the Group's ability to utilise past tax losses. 10) Losses/earnings, net assets and net tangible assets per share Basic losses per share The calculation of losses per share of 14.6p (June 2008: earnings of 21.4p; December 2008: earnings of 51.7p) is based on a loss attributable to equity shareholders of the parent company of £10.5 million (June 2008: profit of £15.4 million; December 2008: profit of £37.1 million) and on 71.9 million shares (June 2008: 71.9 million shares; December 2008: 71.7 million shares), being the weighted average number of shares in issue (excluding shares held by the Employee Benefit Trust which are earmarked for the Group's Long Term Incentive Plan ("LTIP") and deferred bonuses payable in shares) during the period ended 30 June 2009. Diluted losses per share Diluted losses per share are calculated adjusting the weighted average number of shares outstanding to assume conversion of all potentially dilutive shares. Novae Group has two sources of potentially dilutive shares: share options and LTIP awards/deferred bonuses payable in shares. For share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined at the average annual market share price) based on the monetary value of the subscription rights attached to outstanding share options. For LTIP awards and deferred bonuses payable in shares, the number of potential shares is calculated with reference to the current date as though it were the vesting date, excluding shares held by the Employee Benefit Trust earmarked for these awards. For the six months ended 30 June 2009 and the year ended 31 December 2008, share options are not considered to have any dilutive effect as the average market share price during these periods did not exceed the exercise price. Six months Six months Year ended ended ended 30 June 2009 30 June 31 December 2008 2008 £m £m £m (Loss)/profit used to determine (10.5) 15.4 37.1 diluted earnings per share Weighted average number of shares 71.9 71.9 71.7 in issue (millions) excluding treasury shares Adjustments for: - share options (millions) - - - - LTIPs and deferred bonuses 2.0 2.2 2.1 payable in shares (millions) Weighted average number of shares 73.9 74.1 73.8 for diluted earnings per share Diluted (losses)/earnings per (14.6)p 20.8p 50.2p share (pence per share) The dilutive impact on shares is excluded when it decreases the loss per share in accordance with IAS 33 Earnings per share. Net assets and net tangible assets per share Net assets and net tangible assets per share are calculated on the number of shares in issue (excluding shares held by the Employee Benefit Trust which are earmarked for the Group's LTIPs and deferred bonuses payable in shares) at 30 June 2009. Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £m Net assets 279.7 279.4 300.5 Intangible assets (10.4) (6.0) (6.5) Net tangible assets 269.3 273.4 294.0 Number of shares in issue 71.9 71.7 71.5 (millions) excluding treasury shares Net asset value per share 389.0p 389.6p 420.0p Net tangible asset value per share 374.6p 381.2p 410.8p 11) Deferred tax 30 June 30 June 31 December 2009 2008 2008 £m £m £m Recognised deferred tax assets Temporary differences 2.4 1.5 2.1 Underwriting profits earned and taxed in (3.7) (22.8) (27.4) future periods Unutilised tax losses 30.8 43.7 45.5 29.5 22.4 20.2 Unrecognised deferred tax assets Trading losses - 28% (2008: 28%) of gross 24.5 16.9 17.1 unrecognised losses Deferred tax assets amounting to £24.5 million have not been recognised in respect of losses because of the uncertainty that future taxable profit will be available against which the Group can utilise the benefits therefrom in the foreseeable future. Future projected utilisation of the asset has been measured by reference to the Group's relevant projected profit. The Group also has accumulated gross capital losses of £45.8 million. No asset has been recognised in respect of these losses. 12) Financial assets 30 June 30 June 31 December 2009 2008 2008 £m £m £m Fixed interest securities 642.1 559.8 477.9 Equities 0.3 0.4 0.4 642.4 560.2 478.3 Financial assets comprise: Syndicate 293.2 254.5 216.8 Corporate 349.2 305.7 261.5 642.4 560.2 478.3 All financial assets are listed and they are all held at fair value through profit or loss. 13) Reinsurance contracts 30 June 30 June 31 December 2009 2008 2008 £m £m £m Reinsurance contracts 421.2 358.1 410.2 Less: reinsurers' share of provisions for (55.3) (48.2) (29.1) unearned premium Reinsurers' share of claims outstanding 365.9 309.9 381.1 Less: reinsurers' share of provision for (97.4) (64.2) (83.5) losses incurred but not reported ("IBNR") Balance 268.5 245.7 297.6 Being: Recoveries on claims notified not yet due 272.4 249.5 301.8 Provision for bad debt (3.9) (3.8) (4.2) Net recoveries on claims notified not yet 268.5 245.7 297.6 due 14) Cash and cash equivalents 30 June 30 June 31 December 2009 2008 2008 £m £m £m Cash 289.2 326.6 546.1 Overseas deposits 79.5 64.7 76.4 368.7 391.3 622.5 Of the total cash and cash equivalents £291.0 million (June 2008: £266.3 million; December 2008: £444.8 million) is held by the syndicates in Premium Trust Funds to meet policyholder liabilities and £1.8 million (June 2008: £3.5 million; December 2008: £3.0 million) is held by Novae's service company subsidiary on behalf of policyholders. No cash and cash equivalents are held in segregated accounts as security for bank cash collateralised letters of credit (June 2008 and December 2008: £20.0 million). 15) Insurance contract liabilities 30 June 2009 £m £m £m Gross Reinsurance Net Unearned premiums 200.6 55.3 145.3 IBNR 345.2 97.4 247.8 Notified claims 695.2 268.5 426.7 Total insurance liabilities 1,241.0 421.2 819.8 30 June 2008 £m £m £m Gross Reinsurance Net Unearned premiums 182.4 48.2 134.2 IBNR 290.8 64.2 226.6 Notified claims 624.8 245.7 379.1 Total insurance liabilities 1,098.0 358.1 739.9 31 December 2008 £m £m £m Gross Reinsurance Net Unearned premiums 168.9 29.1 139.8 IBNR 333.1 83.5 249.6 Notified claims 775.3 297.6 477.7 Total insurance liabilities 1,277.3 410.2 867.1 16) Financial liabilities (a) Convertible debt Novae Holdings Limited issued 500,000 7% £100 convertible bonds at a nominal value of £50.0 million on 15 December 2003. On 18 May 2006 the liability due on these bonds was transferred to Novae Group plc. On 7 November 2007 Novae Group plc announced its intention to acquire the convertible bonds for cancellation. At the maturity date £46.0 million (30 June 2008: £42.2 million) had been bought at par value plus accrued interest and cancelled. The remaining £4.0 million matured on 15 December 2008. The bonds could have been converted into shares at the holder's option at the rate of one ordinary share per 556.6p (nominal value) of convertible debt at any time until 9 December 2008. No bonds were converted. (b) Loan notes During 2004 the Group issued $36.0 million of 30 year floating rate notes and floating rate subordinated notes in three tranches. The notes constitute direct and unsecured obligations of the issuer. The notes are listed on the Irish Stock Exchange. The earliest redemption dates are 15 August 2009 ($26 million) and 19 November 2009 ($10 million). (c) Revolving credit facility Novae Group has available a revolving credit facility from one of its banks of £20.0 million, none of which was drawn at 30 June 2009 (June 2008 and December 2008: none). (d) Subordinated notes 1,000,000 fixed/floating rate subordinated notes at a nominal value of £100.0 million were issued on 27 April 2007. The notes are listed on the London Stock Exchange. The notes are callable at par on 27 April 2012 and bear an initial interest rate of 8.375% per annum. Following the call date the interest rate resets at a step up of 313 basis points above the original three month sterling LIBOR equivalent spread until the notes fall due on 27 April 2017. At 30 June 2009 £30.0 million (June 2008: nil; December 2008: £9.0 million) (nominal value) had been bought at market value of £19.0 million plus accrued interest and cancelled (June 2008: nil; December 2008: £6.0 million). The resulting gain during the six months ended 30 June 2009 of £7.7 million (stated after unamortised issue costs and discount of £0.3 million) has been deducted from finance costs (year ended 31 December 2008: gain of £2.8 million stated after costs and discount of £0.2 million). 17) Share capital Ordinary shares Preference shares of £1 of £1 Number £ Number £ Authorised 31 December 2008 and 30 349,950,000 349,950,000 50,000 50,000 June 2009 Issued and fully paid 31 December 2008 and 30 73,221,346 73,221,346 - - June 2009 18) Dividends per share Six months Six months Year ended ended ended 30 June 30 June 31December 2009 2008 2008 £m £m £m Interim dividend for the year ended - - 1.8 31 December 2008 of 2.5p per share Final dividend for the year ended 31 - 5.4 5.4 December 2007 of 7.5p per share Special dividend of 4.0p per share 2.9 - - Final dividend for the year ended 31 5.4 - - December 2008 of 7.5p per share 8.3 5.4 7.2 A final dividend of 7.5p per ordinary share and a special dividend of 4.0p per ordinary share were paid on 7 May 2009. An interim dividend of 3.0p (2008: 2.5p) per ordinary share is payable on 5 October 2009 to shareholders registered on 11 September 2009. This interim report does not provide for the interim dividend as a liability. 19) 2005 LTIP - vesting conditions The 2005 LTIP was approved by shareholders on 12 January 2006. Under the 2005 LTIP awards were made in January 2006 ("Initial Awards") and January 2007 ("Second Year Awards"). Under the terms of the 2005 LTIP, progress towards vesting must be reported in each annual and interim report. As disclosed in the 2008 annual report, all awards under the 2005 LTIP have met their vesting conditions. The Initial Awards were released in March 2009 and the Second Year Awards will be released in March 2010 (their respective third anniversaries). Independent review report to Novae Group plc Introduction We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2009 which comprises a condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement 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, 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 set of 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 set of financial statements in the half-yearly financial report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA. Rees Aronson For and behalf of KPMG Audit Plc Chartered Accountants 8 Salisbury Square London EC4Y 8BB 30 July 2009 ---END OF MESSAGE--- This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.