NEWS RELEASE
   5 August 2010
   For immediate release
Novae Group plc
Interim results for the six months ended 30 June 2010
Highlights
Novae Group plc ("Novae"), the specialist insurance group, today announces its
interim results for the six months ended 30 June 2010. Highlights:
* Profit before tax and foreign exchange movement on non-monetary items: £13.6
million (H1 2009: loss of £2.1 million)
* Operating profit before tax and foreign exchange movement on non-monetary
items: £18.2 million (H1 2009: loss of £5.1 million)
* Gross written premium: £333.4 million, up 51% (H1 2009: £220.3 million)
* Net premium revenue: £189.9 million, up 31% (H1 2009: £145.4 million)
* Investment return: £16.4 million, up 50% (H1 2009: £10.9 million)
* Earnings per share: 14.9p (H1 2009: 14.6p loss per share)
* Interim dividend per share: 3.3p, up 10% (H1 2009: 3.0p per share)
* Net assets per share: 441.9p, up 1% (December 2009: 436.2p per share)
* Net tangible assets per share: 429.4p, up 2% (December 2009: 422.7p per
share)
Matthew Fosh, Chief Executive, today said:
"Novae has delivered a good result given a challenging marketplace for
underwriting. Premium growth has been disciplined and focussed in new areas of
underwriting. The market experienced a significant number of major losses in the
first half although rating in many areas remains weak. Nevertheless, we have had
another strong period of investment return and remain on-track to deliver on the
strategic priorities identified last December."
There will be a presentation for analysts at 9.00 a.m. today in Room 713,
Gallery 7 of the Lloyd's Building, One Lime Street, London EC3M 7HA. Invitees
only are requested to go to the Main Entrance of Lloyd's where they will be
provided with a pass.
For further information:
Matthew Fosh, Novae Group plc       020 7903 7300
Nick Miles, M:Communications       020 7920 2330
Introduction to Novae
Novae is a risk-taking insurance business operating at Lloyd's via Syndicate
2007 managed by Novae Syndicates Limited ("NSL"). Novae has a diversified mix of
business consisting of 29 specialist underwriting units. Syndicate 2007 is rated
A2 (Good) by Moody's and also benefits from the ratings given to Lloyd's. Novae
is based in London and has been listed on the London Stock Exchange since 1998.
Interim results statement
Financial results
Operating profit before foreign exchange gain on non-monetary items was £18.2
million (H1 2009: loss of £5.1 million). Profit before tax was £14.9 million (H1
2009: loss of £18.5 million) and earnings per share were 14.9p (H1 2009: loss of
14.6p).
The combined ratio in the first half, calculated on an earned premium basis, was
100.8% (H1 2009: 110.5%). This was made up of a claims ratio of 63.3% and an
expense ratio of 37.5% (H1 2009: 69.0% and 41.5% respectively).
The yield on short duration investment grade bonds and cash remains at very low
levels. Nonetheless, Novae's investment assets made an important contribution to
profitability. Investment return in the period was £16.4 million (H1 2009: £10.9
million).
Financing costs were £4.6 million (H1 2009: £3.0 million credit, being a £4.7
million underlying charge more than offset by a realised gain of £7.7 million on
the buy back for cancellation of an element of the Group's 2017 Subordinated
Notes). Assuming no material changes in the second half, the Board currently
expects financing costs for the year as a whole to be around £9 million.
Net assets per share as at 30 June 2010 were 441.9p (December 2009: 436.2p). Net
tangible assets per share were 429.4p (December 2009: 422.7p).
Improving Novae's return on equity
In December 2009 Novae announced a series of specific steps the Group was taking
to improve its return on equity. Set out below is the progress that Novae has
achieved in each area by 30 June 2010.
NICL surplus capital
Novae remains committed to extracting surplus capital from NICL, its FSA
authorised insurance company. NICL's audited net assets at 31 December 2009 were
£107.7 million and the regulatory capital deployed to support its business at
that date was around £40 million. NICL's surplus capital as at 31 December 2009
was therefore over £60 million.
The Group's preferred solution for unlocking the surplus capital is through the
transfer to the Group's ongoing Lloyd's business of renewal rights to the NICL
book of business followed by a Court-sanctioned transfer of NICL reserves under
Part VII of the Financial Services and Markets Act ("Part VII transfer"). NICL's
renewal rights have already been successfully transferred to the Group's Lloyd's
business and the High Court will consider the application for the Part VII
transfer at a hearing in September. Subject primarily to the outcome of this
hearing, the Board expects the Part VII transfer process to complete shortly
after the hearing. An announcement setting out the basis and timing of any
consequential return of capital to shareholders is expected to be made by the
end of the year.
Reinsurance savings
In December 2009 the Group indicated that it would aim to reduce its outwards
reinsurance spend, measured on a consistent basis, by £10 million in 2010,
rising to £12.5 million in 2011 and £15 million in 2012. The Group is on target
to achieve its 2010 objective.
Cost savings
In December 2009 Novae announced that it was seeking annualised pre-tax cost
savings of £2.0 million by 2011. By June 2010 the Group had achieved annualised
cost savings of £0.8 million. The Group is on target at the interim stage and
expects to achieve further cost savings in the second half.
Underwriting performance
Segmental reporting
Up to and including the financial year ended 31 December 2009, Novae reported
under IFRS 8 through four ongoing operating segments: Specialty, Property,
Liability and Aviation & Marine.
As a result of the Group's expansion and development since 2006, Novae announced
in its April 2010 interim management statement that the Board had concluded that
the most appropriate business segmentation through which to manage the Group is
between property/short-tail and liability/long-tail. These two ongoing segments
therefore form the basis of Novae's financial reporting and comparative
information for earlier periods has been restated accordingly. The discontinued
units continue to be reported separately.
Novae's first half business mix, measured in terms of gross written premium, was
55% property/short-tail and 45% liability/long-tail. Based on the Board's
current assessment for the balance of 2010, the split for the year as a whole is
expected to be around 50% property/short-tail and 50% liability/long-tail.
Overall performance
First half operating profits before foreign exchange movement on non-monetary
items were £18.2 million (H1 2009: loss of £5.1 million). This includes reserve
releases from the 2007 and prior years of £11.1 million.
Although Novae saw an improvement in claims experience over the comparable
period of the previous year, for the Lloyd's market generally the first half of
2010 was characterised by a higher than usual number of large loss events.
Notwithstanding large loss frequency and low investment returns, the rating
environment in the period remained competitive. The renewal book generated a
rate increase of 1% on a whole account basis.
At 30 June 2010 the Group's aggregate level of net claims reserves was £46.8
million or 6.8% higher than the total derived from a class-by-class assessment
of best estimate liabilities (December 2009: £41.6 million or 6.6%).
Underwriting risk appetite
Novae's underwriting risk appetite is set by its Willingness to Lose ("WTL"), or
the maximum financial effect net of reinsurance and reinstatement premiums from
particular modelled events. The Group Board sets Novae's overall risk appetite
which is managed on a day-to-day basis by the Board of the Group's Lloyd's
managing agency.
Under the WTL framework underwriting risk appetite is capped at $120 million for
the most severe scenarios modelled; for monitoring purposes this is translated
into sterling at £1:$1.50 and thus represents a peak risk appetite of £80
million for potentially market changing loss events. This limit is set by
reference to the Group's expected current year profits, being the first layer of
loss absorbency, and its equity capital base. In effect, the Board is prepared
to tolerate the erosion of around 20% of its equity base from a market changing
loss event. The Group's current assessment of the likely net loss from these
realistic disaster scenarios is below the maximum WTL.
Property/short-tail
The property/short-tail segment produced a profit of £14.8 million despite some
well-publicised loss events (H1 2009: loss of £12.3 million).
The majority of the Group's increase in premium income is in the
property/short-tail segment. This principally reflects the formation of Novae Re
in the second half of 2009. Elsewhere, the Group continues to take a disciplined
approach to growth in premium income.
There was a strong recovery in the underwriting performance of the Group's
credit business following a difficult 2009. CIFS, the UK trade credit unit,
enjoyed a particularly strong turn-around. Combined with the profitability of
the political and credit unit, this part of the Group made a valuable
contribution to segmental performance.
Novae's exposure to major loss events was within the Group's loss appetite for
such events. This was key to delivering the segment's profit. Novae's assessment
of the likely cost of its exposure to the February earthquake in Chile has
fallen to under $10 million (compared to an estimate of $10-15 million included
in the Group's April Interim Management Statement). A similar impact arose from
the Deepwater Horizon rig loss in April (spread across the two segments). Other
high profile industry loss events including windstorm Xynthia, Australian
hailstorms and the Haiti earthquake have had a relatively modest effect.
Both the property and energy/marine components of this segment made a profit.
The contribution of the US property units, both reinsurance and direct, was
notable. There was a useful first time contribution to profit from Novae Re
based on gross written premium to 30 June 2010 of £57.3 million (with a further
£20.2 million in the liability/long-tail segment).
Liability/long-tail
Against the background of a challenging operating environment the
liability/long-tail segment achieved a profit of £8.8 million (H1 2009: profit
£13.4 million).
The Group has continued with its cautious approach to reserving financial
institutions business. Novae's professional indemnity, management liability and
medical malpractice units have again reported good profits.
The UK general liability unit (which writes on an occurrence form basis)
produced a strong profit. In the first half of 2010 this was supplemented by a
useful contribution from the Group's international casualty unit formed in 2007.
Marine liability business was affected by the Deepwater Horizon rig loss but
still made a profit for the period. Aviation RI showed a pronounced improvement
over the first half of 2009 but still had to contend with significant loss
activity including two major hanger losses, at Dulles (February) and Jeddah
(June), and the Air Afriqiyah loss at Tripoli in May.
Investment performance
Investment return in the first half was £16.4 million, equivalent to a 3.1%
annualised return on average invested assets of £1,058.1 million (H1 2009: £10.9
million, 2.0% and £1,011.1 million respectively).
Novae has had one of the best investment performances of its peer group since
2007; this has been achieved with a low overall level of volatility. During the
first half the Group benefitted from its conservative asset allocation policy
and a further bond market rally as redemption yields on short duration Gilts and
US Treasuries declined still further. Investment return in the first half is
flattered as a result, and the Board's estimate for return for the year as a
whole is around 2.0%. As a result, investment income in the second half is
expected to be lower than the first half.
The profile of the Group's investment portfolio at 30 June 2010 was as follows:
Investment type 30 June 30 June
2010 2009
£m £m
Corporate and supranational issuers    449.5    200.1
Cash    251.6    289.2
Government bonds and bills    175.7    226.3
Government agencies    95.3    75.8
Lloyd's overseas deposits    83.1    79.5
Certificates of deposit and floating rate notes    12.7    140.2
---------------------------------------------------------------------------
Total    1,067.9    1,011.1
---------------------------------------------------------------------------
Investment assets can be analysed by rating as follows:
S&P rating equivalent 30 June 30 June
2010 2009
    %    £m    %    £m
AAA rated    46    493.5    37    371.5
AA rated    16    166.3    10    102.3
A+ or better rated     5     57.2    3    25.7
BBB+ or better rated     -     3.5    -    2.4
-----------------------------------------------------------------------
Total bond portfolio    67    720.5    50    501.9
Cash/unrated    25    264.3    42    429.7
-----------------------------------------------------------------------
Total managed portfolios    92    984.8    92    931.6
Lloyd's overseas deposits     8     83.1    8    79.5
-----------------------------------------------------------------------
Total    100    1,067.9    100    1,011.1
-----------------------------------------------------------------------
Novae has no exposure to sovereign debt issued by Portugal, Italy, Ireland,
Greece or Spain.
As at 30 June 2010 the overall duration of the segregated portfolios was 1.2
years (H1 2009: 1.8 years). The investment assets were held as to 49% in
sterling, 35% in US dollars and 16% in other currencies (H1 2009: 52%, 34% and
14% respectively).
Expenses
The expense charge for the first half was £71.3 million, made up of acquisition
costs of £44.3 million and operating costs of £27.0 million (H1 2009: £60.4
million, £34.9 million and £25.5 million respectively).
Acquisition costs of £44.3 million represent 23.3% of net earned premium. The
acquisition cost ratio over recent periods compares as follows:
 30 June 30 June 30 June
2010 2009 2008
£m £m £m
Acquisition costs  44.3 34.9 29.8
Net earned premium 189.9 145.4 125.9
Acquisition cost ratio (%) Â Â 23.3% 24.0% 23.7%
-----------------------------------------------------------
The Group's operating costs in the first half of 2010 may be analysed as
follows:
Expense type 30 June 2010 30 June 2009
£m £m
Pre-bonus employee costs 13.8 10.7
IT costs  2.5 1.8
Establishment costs 1.7 1.4
Legal and professional costs 1.0 1.0
Other costs  1.4 1.1
--------------------------------------------------------------------
Core costs 20.4 16.0
Lloyd's and other regulatory costs  6.1 5.4
Bonus and equity incentive charges  6.3 5.8
Amortisation of intangible assets  0.7 0.6
--------------------------------------------------------------------
Total cost base 33.5 27.8
Deferral/claims handling adjustments  (5.9) (1.5)
Syndicate ownership adjustments  (0.6) (0.8)
--------------------------------------------------------------------
Operating expenses 27.0 25.5
--------------------------------------------------------------------
The principal movements in operating costs between the first half of 2010 and
the comparative period in 2009 reflect continuing investment in and development
of the business, as follows:
Operating costs in the period ended 30 June 2010
       £m    £m
   H1 2009 core cost base        16.0
   Increase in IT costs    0.7
   Other movements net of cost savings     0.6
----------------------------------------------------------------------
   Cost movements on a like-for-like basis          1.3
   Novae Re         2.6
   Other new teams (European property & PA and marine RI)         0.5
--------------------------------------------------------------------------------
   H1 2010 core cost base        20.4
--------------------------------------------------------------------------------
Novae's operating cost ratio, expressed as a percentage of net earned premium,
has developed as follows:
 30 June 30 June 30 June
2010 2009 2008
£m £m £m
Operating costs 27.0 25.5 27.6
Net earned premium 189.9 145.4 125.9
Operating cost ratio (%) 14.2% 17.5% 21.9%
--------------------------------------------------------
Currency assets and liabilities
Novae is exposed to foreign currency risk. Its principal exposure is to the US
dollar, which accounted for 42% of gross written premiums in the first half.
39% of gross written premiums arise in sterling, 10% in euros and the balance in
other currencies including the Canadian and Australian dollar and Japanese yen.
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 the first half of 2010 the US dollar appreciated against sterling,
resulting in a non-monetary gain of £1.3 million. The exchange rate was £1:$1.61
at 31 December 2009; this had moved to £1:$1.50 at 30 June 2010.
Discontinued units
The discontinued units are made up of liability reinsurance, healthcare and
third party liability written across Syndicates 1241 and 1007.
Syndicates 1241 and 1007 continue to run off in line with the Board's
expectations, with the population of lead claims (in relation to both
discontinued units and other business) from 2002 and prior down to 1,139 at 30
June 2010 (December 2009: 1,314; December 2005: 6,117). This represents a
reduction of 81% in the population of lead claims over the past four and a half
years. Novae's share of gross claims reserves accounted for by the discontinued
units has fallen to £80.3 million or 7% of the Group's overall gross claims
reserves:
 30 June 30 June 31 December
2010 2009 2009
£m £m £m
Property/short tail 168.7 Â 147.7 133.9
Liability/long tail 850.1 775.7 801.8
-------------------------------------------------------
Continuing 1,018.8 923.4 935.7
Discontinued units  80.3 117.0 101.1
-------------------------------------------------------
Total 1,099.1 1,040.4 1,036.8
-------------------------------------------------------
The Group's participations on Syndicates 1241 and 1007 currently require capital
support of around £40 million. This capital is not generating an appropriate
risk-adjusted return for the Group and Novae continues to explore options to
restructure its 2002 and prior underwriting to eliminate this drag on
performance.
Tax
The Group's tax charge in the first half was £4.1 million (H1 2009: £8.0 million
credit), representing 28% of profit before tax. The deferred tax asset held on
the balance sheet at 30 June 2010 is £42.5 million (December 2009: £45.3
million). Utilisation of these deferred tax losses means that no significant
cash tax is payable.
No credit has been taken for capital losses of £45.8 million (December 2009: no
credit, capital losses of £45.8 million).
Interim dividend
The Board has declared an interim dividend of 3.3p per share (H1 2009: 3.0p per
share). This will be paid on 4 October 2010 to shareholders on the register on
10 September 2010.
Board
Following the Annual General Meeting on 29 April 2010 Allan Nichols resigned
from the Board of Novae. As mentioned in the annual report, Allan's move allows
Novae to move towards compliance with the requirements on board composition set
out in the UK Corporate Governance Code. He will in all other respects continue
in his same executive role as underwriting review director.
Principal risks
The principal risks that face the Group are described in the risk disclosure
section in the 2009 Annual Report (pages 74 to 89). There have been no changes
to the principal risks during the six months ended 30 June 2010.
Outlook
For 2010 as a whole the Board continues to expect rating to be broadly similar
to that in 2009 and evidence so far this year supports that view. Despite
significant loss experience across the market as a whole, there is little
evidence thus far of any general change to the rating environment. A
market-turning event has not yet emerged and thus positive rating momentum is
limited to classes that have suffered significant loss experience.
The underwriting outcome for the year will be dependent upon loss activity in
the second half of the year. This includes the scale and incidence of landfall
of hurricanes in the Gulf of Mexico.
Risk free returns from short duration sterling and dollar bonds have fallen
further in the first half. This has led to capital gains and a strong overall
performance in the period. However, the economic effect is to benefit the first
half of 2010 at the expense of subsequent reporting periods. Investment return
in the second half is likely to be lower, producing a return for the year as a
whole of around 2.0%.
Against the challenges of underwriting and investment markets, there are
company-specific actions which the Group is taking and which will leave Novae
well-placed to deliver on its strategic objectives and to enhance return on
equity.
Matthew Fosh
Group Chief Executive
5 August 2010
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
5 August 2010
Condensed consolidated statement of comprehensive income
for the six months ended 30 June 2010
  Six months Six months Year
ended ended ended
30 June 30 June 31 December
  2010 2009 2009
 Note £m £m £m
Gross premium revenue 4 241.9 199.9 389.1
Less premium ceded to reinsurers 4 (52.0) (54.5) (85.5)
--------------------------------------------------------------------------------
Net premium revenue  189.9 145.4 303.6
Investment income 5 16.4 10.9 31.0
Fees and commission income  0.7 1.8 1.1
--------------------------------------------------------------------------------
Total revenue (net of premium ceded to  207.0 158.1 335.7
reinsurers)
Gross claims incurred  (167.6) (128.5) (243.5)
Reinsurers' share of claims incurred  47.4 28.2 48.8
--------------------------------------------------------------------------------
Net claims incurred  (120.2) (100.3) (194.7)
Policy acquisition costs  (44.3) (34.9) (70.8)
Operating expenses 6 (27.0) (25.5) (52.9)
Net foreign exchange gains/(losses) 7 4.0 (18.9) (12.1)
--------------------------------------------------------------------------------
Operating profit/(loss) Â 19.5 (21.5) 5.2
Financing (costs)/credit 8 (4.6) 3.0 (1.0)
--------------------------------------------------------------------------------
Profit/(loss) before income taxes  14.9 (18.5) 4.2
+------------------------------------------------------------------------------+
|Underlying profit/(loss) before income  13.6 (2.1) 17.7|
|taxes and gain/(loss) on non-monetary |
|items |
| |
|Â Â Â Â Â |
| |
|Notional currency gain/(loss) on 7 1.3 (16.4) (13.5)|
|non-monetary items |
+------------------------------------------------------------------------------+
Income taxes 9 (4.1) 8.0 22.2
--------------------------------------------------------------------------------
Profit/(loss) for the period  10.8 (10.5) 26.4
attributable to shareholders
--------------------------------------------------------------------------------
Earnings/(losses) per share
Basic earnings/(losses) per share 10 14.9p (14.6)p 36.8p
Diluted earnings/(losses) per share 10 14.8p (14.6)p 36.1p
The profit attributable to shareholders includes all comprehensive income.
Condensed consolidated balance sheet
as at 30 June 2010
  30 June 30 June 31 December
  2010 2009 2009
 Note £m £m £m
Assets
   Intangible assets  9.0 10.4 9.7
   Property, plant and equipment  1.6 1.2 1.1
   Deferred acquisition costs  50.6 37.6 32.7
   Deferred tax assets 11 42.5 29.5 45.3
   Reinsurance contracts 12 423.5 421.2 388.7
   Insurance and other receivables  305.5 184.6 177.3
   Financial assets 13 733.2 642.4 736.7
   Cash and cash equivalents 14 334.7 368.7 296.7
--------------------------------------------------------------------------------
Total assets  1,900.6 1,695.6 1,688.2
Liabilities
   Insurance contracts 15 (1,372.5) (1,241.0) (1,210.0)
   Financial liabilities, due after one
year
    - Loan notes 16 (24.0) (20.5) (22.4)
    - Subordinated notes 16 (69.3) (68.9) (69.1)
   Insurance and other payables, due within  (116.0) (83.2) (73.0)
one year
   Insurance and other payables, due after  - (2.3) -
one year
--------------------------------------------------------------------------------
Total liabilities  (1,581.8) (1,415.9) (1,374.5)
--------------------------------------------------------------------------------
Net assets  318.8 279.7 313.7
--------------------------------------------------------------------------------
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  108.9 69.8 103.8
--------------------------------------------------------------------------------
Total shareholders' equity  318.8 279.7 313.7
--------------------------------------------------------------------------------
Net asset value per share 10 441.9p 389.0p 436.2p
Net tangible asset value per share 10 429.4p 374.6p 422.7p
These financial statements were approved by the Board of Directors on 5 August
2010 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 2010
Six months ended 30 June 2010
 Share Share Merger Retained Total
capital premium reserve earnings
 £m £m £m £m £m
Profit for the period - - - 10.8 10.8
Decrease in share-based payment reserve
 - - - (2.6) (2.6)
Transactions with owners recorded
directly in equity:
- Acquisition of treasury shares, net of
LTIP shares vested - - - 2.7 2.7
- Dividends paid (note 18) - - - (5.8) (5.8)
--------------------------------------------------------------------------------
Net increase in equity - - - 5.1 5.1
As at 31 December 2009 73.2 67.1 69.6 103.8 313.7
--------------------------------------------------------------------------------
As at 30 June 2010 73.2 67.1 69.6 108.9 318.8
--------------------------------------------------------------------------------
Six months ended 30 June 2009
 Share Share Merger Retained Total
capital premium reserve earnings
 £m £m £m £m £m
Loss for the period - - - (10.5) (10.5)
Increase in share-based payment reserve
 - - - 0.4 0.4
Transactions with owners recorded
directly in equity:
- Acquisition of treasury shares, net of
LTIP shares vested - - - (2.4) (2.4)
- 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
--------------------------------------------------------------------------------
Year ended 31 December 2009
 Share Share Merger Retained Total
capital premium reserve earnings
 £m £m £m £m £m
Profit for the period - - - 26.4 26.4
Decrease in share-based payment reserve
- - - (1.1) (1.1)
Transactions with owners recorded
directly in equity:
- Acquisition of treasury shares, net of
LTIP shares vested - - - (1.6) (1.6)
- Dividends paid (note 18) - - - (10.5) (10.5)
--------------------------------------------------------------------------------
Net increase in equity - - - 13.2 13.2
As at 31 December 2008 73.2 67.1 69.6 90.6 300.5
--------------------------------------------------------------------------------
As at 31 December 2009 73.2 67.1 69.6 103.8 313.7
--------------------------------------------------------------------------------
Condensed consolidated cash flow statement
for the six months ended 30 June 2010
  Six months Six months Year
ended ended ended
30 June 30 June 31 December
  2010 2009 2009
  £m £m £m
Profit/(loss) before income taxes  14.9 (18.5) 4.2
Adjustments for non-cash items and items
separately disclosed
- Foreign exchange on investment assets  (36.8) 79.6 56.0
- Financing costs/(credit) Â 4.6 (3.0) 1.0
- Amortisation charge  0.7 0.6 1.3
- Investment income  (16.4) (10.9) (31.0)
- Depreciation charge  0.6 0.4 1.0
- Employee equity incentives  1.2 2.6 4.0
Changes in operating assets and liabilities
 - Change in insurance contract liabilities  162.5 (36.3) (67.3)
 - Change in insurance receivables  (113.7) 0.4 9.3
 - Change in other receivables  (10.4) 0.1 10.2
 - Change in deferred acquisition costs  (17.9) (6.5) (1.6)
 - Change in reinsurance contract assets  (34.8) (11.0) 21.5
 - Change in insurance and other payables  51.1 25.9 7.0
 - Change in market value of loan notes  1.6 (0.8) 1.1
 - Change in market value of financial  2.5 8.0 8.3
assets
 - Income taxes paid  (1.8) - (0.5)
 - Other non-cash movements  2.6 (3.2) 0.4
--------------------------------------------------------------------------------
Net cash from operating activities  10.5 27.4 24.9
Cash flows from investing activities
 - Purchase of tangible fixed assets  (1.1) (0.5) (1.0)
 - Purchase of intangible fixed assets  - (4.5) (2.3)
 - Interest received  10.9 11.9 12.9
 - Purchase of financial assets  (673.8) (927.6) (1,796.6)
 - Proceeds from sale of financial assets  694.8 716.6 1,504.3
--------------------------------------------------------------------------------
Net cash from/(used in) investing activities  30.8 (204.1) (282.7)
Cash flows from financing activities
 - Acquisition of treasury shares  (6.4) (7.7) (9.7)
 - Redemption of subordinated notes  - (13.0) (13.0)
 - Interest paid  (6.6) (8.1) (8.7)
 - Dividends paid  (5.8) (8.3) (10.5)
--------------------------------------------------------------------------------
Net cash used in financing activities  (18.8) (37.1) (41.9)
--------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash  22.5 (213.8) (299.7)
equivalents
Opening cash and cash equivalents  296.7 622.5 622.5
Effect of exchange rate changes on cash and  15.5 (40.0) (26.1)
cash equivalents
--------------------------------------------------------------------------------
Closing cash and cash equivalents  334.7 368.7 296.7
--------------------------------------------------------------------------------
Notes to the interim financial information
1)Â Â Â Significant accounting policies
The unaudited interim financial statements 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 2009.
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
2009 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 498 (2) or (3) of the Companies Act 2006.
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 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 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
No 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 2009.
2)Â Â Â 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 segments. 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.
During the period, the Group revised its internal reporting structure. The
operating segments have been revised to reflect this (with the comparatives
restated accordingly). The Group comprises the following operating segments:
(i)Â Â Â Property/short-tail
This segment consists of:
* both direct insurance and reinsurance of property in the USA and
internationally (including the UK)
* engineering and agriculture reinsurance accounts
* marine units (energy, hull, reinsurance, specie & cargo and war)
* political and credit units
* bloodstock
(ii)Â Â Liability/long-tail
This segment consists of:
* occurrence-form risks: a UK general liability account, both public and
employers' liability risks, international general liability, marine
liability business and a motor account. In addition, a new liability/motor
reinsurance unit has been established
* specialty lines relating to financial institutions, professional indemnity,
medical malpractice, management liability and special situations
* aviation reinsurance
(iii)Â Â 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.
b) Segmental statement of comprehensive income
The segment results for the six months ended 30 June 2010 are as follows:
 Property/ Liability/ Discontinued Total Unallocated  Total
short-tail long-tail units reportable by segment
   segments
£m £m £m £m £m £m
Gross written 183.2 149.6 0.6 333.4 - Â 333.4
premium
Gross premium 110.7 130.6 0.6 241.9 - Â 241.9
revenue
Net premium 92.0 98.1 (0.2) 189.9 - Â 189.9
revenue
Net claims (48.4) (69.6) (2.2) (120.2) - Â (120.2)
incurred
Investment 3.6 11.3 1.5 16.4 - Â 16.4
income
Fees and - - - - 0.7 Â 0.7
commission
income
Policy (23.0) (21.2) (0.1) (44.3) - Â (44.3)
acquisition
costs
Operating (9.4) (9.8) (0.2) (19.4) (7.6) Â (27.0)
expenses
Net foreign - - - - 4.0 Â 4.0
exchange
gains
Operating 14.8 8.8 (1.2) 22.4 (2.9) Â 19.5
profit/(loss)
Financing - - - - (4.6) Â (4.6)
costs
Profit/(loss) 14.8 8.8 (1.2) 22.4 (7.5) Â 14.9
before income
taxes
Income taxes - - - - (4.1) Â (4.1)
Profit/(loss) 14.8 8.8 (1.2) 22.4 (11.6) Â 10.8
after income
taxes
Included within operating expenses are:
Depreciation 0.3 0.3 - 0.6 - Â 0.6
The segment results for the six months ended 30 June 2009 are as follows:
 Property/ Liability/ Discontinued Total Unallocated
Total
short-tail long-tail units reportable by segment
   segments
£m £m £m £m £m
£m
Gross written 109.2 111.0 0.1 220.3 -
220.3
premium
Gross premium 78.4 121.4 0.1 199.9 -
199.9
revenue
Net premium 58.8 86.4 0.2 145.4 -
145.4
revenue
Net claims (50.8) (50.7) 1.2 (100.3) -
(100.3)
incurred
Investment 2.5 6.5 1.3 10.3 0.6
10.9
income
Fees and - - - - 1.8
1.8
commission
income
Policy (16.2) (18.7) - (34.9) -
(34.9)
acquisition
costs
Operating (6.6) (10.1) (0.3) (17.0) (8.5)
(25.5)
expenses
Net foreign - - - - (18.9)
(18.9)
exchange
losses
Operating (12.3) 13.4 2.4 3.5 (25.0)
(21.5)
profit/(loss)
Financing - - - - 3.0
3.0
credit
Profit/(loss) (12.3) 13.4 2.4 3.5 (22.0)
(18.5)
before income
taxes
Income taxes - - - - 8.0
8.0
Profit/(loss) (12.3) 13.4 2.4 3.5 (14.0)
(10.5)
after income
taxes
Included within operating expenses are:
Depreciation 0.2 0.2 - 0.4 -
0.4
The segment results for the year ended 31 December 2009 are as follows:
 Property/ Liability/ Discontinued Total Unallocated  Total
short-tail long-tail units reportable by segment
   segments
£m £m £m £m £m £m
Gross written 165.6 215.5 3.0 384.1 - Â 384.1
premium
Gross premium 163.0 223.1 3.0 389.1 - Â 389.1
revenue
Net premium 131.5 169.1 3.0 303.6 - Â 303.6
revenue
Net claims (81.8) (106.2) (6.7) (194.7) - Â (194.7)
incurred
Investment 5.3 19.5 2.0 26.8 4.2 Â 31.0
income
Fees and - - - - 1.1 Â 1.1
commission
income
Policy (33.6) (37.3) 0.1 (70.8) - Â (70.8)
acquisition
costs
Operating (13.6) (21.7) (0.3) (35.6) (17.3) Â (52.9)
expenses
Net foreign - - - - (12.1) Â (12.1)
exchange
losses
---------------------------------------------------------------------------------
Operating 7.8 23.4 (1.9) 29.3 (24.1) Â 5.2
profit/(loss)
Financing - - - - (1.0) Â (1.0)
costs
---------------------------------------------------------------------------------
Profit/(loss) 7.8 23.4 (1.9) 29.3 (25.1) Â 4.2
before income
taxes
Income taxes - - - - 22.2 Â 22.2
---------------------------------------------------------------------------------
Profit/(loss) 7.8 23.4 (1.9) 29.3 (2.9) Â 26.4
after income
taxes
---------------------------------------------------------------------------------
Included within operating expenses are:
Depreciation 0.3 0.7 - 1.0 - Â 1.0
---------------------------------------------------------------------------------
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 Property/short-tail Liability/ Discontinued Total Unallocated
30 June 2010  long-tail units reportable  by segment Total
 segments
 £m £m £m £m £m £m
Reinsurers' 59.2 294.6 14.9 368.7 - 368.7
share of
claims
outstanding
Investment 235.8 719.7 104.1 1,059.6 8.3 1,067.9
assets
Other assets - - - - 464.0 464.0
----------------------------------------------------------------------------------------
 Total assets 295.0 1,014.3 119.0 1,428.3 472.3 1,900.6
----------------------------------------------------------------------------------------
Gross 168.7 850.1 80.3 1,099.1 - 1,099.1
provision for
claims
outstanding
Other - - - - 482.7 482.7
liabilities
Shareholders' - - - - 318.8 318.8
funds
----------------------------------------------------------------------------------------
Total 168.7 850.1 80.3 1,099.1 801.5 1,900.6
liabilities
----------------------------------------------------------------------------------------
As at Property/short-tail Liability/ Discontinued Total Unallocated
30 June 2009  long-tail units reportable  by segment Total
 segments
 £m £m £m £m £m £m
Reinsurers' 44.1 295.2 26.6 365.9 - 365.9
share of
claims
outstanding
Investment 215.4 638.7 115.4 969.5 41.6 1,011.1
assets
Other assets - - - - 318.6 318.6
----------------------------------------------------------------------------------------
 Total assets 259.5 933.9 142.0 1,335.4 360.2 1,695.6
----------------------------------------------------------------------------------------
Gross 147.7 775.7 117.0 1,040.4 - 1,040.4
provision for
claims
outstanding
Other - - - - 375.5 375.5
liabilities
Shareholders' - - - - 279.7 279.7
funds
----------------------------------------------------------------------------------------
Total 147.7 775.7 117.0 1,040.4 655.2 1,695.6
liabilities
----------------------------------------------------------------------------------------
As at Property/short-tail Liability/ Discontinued Total Unallocated
31 December  long-tail units reportable  by segment Total
2009 Â segments
 £m £m £m £m £m £m
Reinsurers' 29.5 308.4 22.4 360.3 - 360.3
share of
claims
outstanding
Investment 199.8 737.0 75.0 1,011.8 21.6 1,033.4
assets
Other assets - - - - 294.5 294.5
----------------------------------------------------------------------------------------
 Total assets 229.3 1,045.4 97.4 1,372.1 316.1 1,688.2
----------------------------------------------------------------------------------------
Gross 133.9 801.8 101.1 1,036.8 - 1,036.8
provision for
claims
outstanding
Other - - - - 337.7 337.7
liabilities
Shareholders' - - - - 313.7 313.7
funds
----------------------------------------------------------------------------------------
Total 133.9 801.8 101.1 1,036.8 651.4 1,688.2
liabilities
----------------------------------------------------------------------------------------
3)Â Â Â 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 insurance contracts. 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 June 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 some 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 assessed by reviewing the following performance
measures:
 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
2009 220.3 163.8 384.1 69.0 59.7 64.1 145.4 158.2 303.6
4)Â Â Premium revenue
 Six months ended Six months ended Year
ended
 30 June 30 June 31 December
 2010 2009 2009
 £m £m £m
Gross written premium 333.4 220.3 384.1
Change in the gross provision for (91.5) (20.4) 5.0
unearned premiums
--------------------------------------------------------------------------------
Gross premium revenue 241.9 199.9 389.1
--------------------------------------------------------------------------------
Outward reinsurance premiums (72.4) (78.2) (86.1)
Change in reinsurers' share of 20.4 23.7 0.6
provision for unearned premiums
--------------------------------------------------------------------------------
Premium ceded to reinsurers (52.0) (54.5) (85.5)
--------------------------------------------------------------------------------
Net premium revenue 189.9 145.4 303.6
--------------------------------------------------------------------------------
5)Â Â Â Investment income
 Six months ended Six months ended Year
ended
 30 June 30 June 31 December
 2010 2009 2009
 £m £m £m
Interest income on financial 15.0 11.5 28.6
assets designated at fair value
through the income statement
Net fair value gains/(losses) 1.8 (0.3) 3.2
Investment management expenses (0.4) (0.3) (0.8)
--------------------------------------------------------------------------------
 16.4 10.9 31.0
--------------------------------------------------------------------------------
6)Â Â Â Operating expenses
 Six months ended Six months ended Year
ended
 30 June 30 June 31 December
 2010 2009 2009
 £m £m £m
Underwriting expenses 19.4 17.0 35.6
Distribution company expenses - 1.3 -
Central expenses 7.6 7.2 17.3
---------------------------------------------------------------------------
 27.0 25.5 52.9
---------------------------------------------------------------------------
7)Â Â Â Foreign exchange
The net foreign exchange gains and losses for the period comprise the following
amounts:
 Six months ended Six months ended Year
ended
 30 June 30 June 31 December
 2010 2009 2009
 £m £m £m
Foreign exchange gains/(losses) 2.7 (2.5) 1.4
(excluding non-monetary items)
Foreign exchange gains/(losses) on 1.3 (16.4) (13.5)
non-monetary items
--------------------------------------------------------------------------------
Net foreign exchange 4.0 (18.9) (12.1)
gains/(losses)
--------------------------------------------------------------------------------
The Board believes that the pattern of profits from year to year can be
confusing if it is considered without separation of the notional foreign
exchange gain/(loss) on non-monetary items. This is because IFRS requires
different treatments of:
      1)   The unearned premium reserve, reinsurers' share of unearned premium
reserve and deferred acquisition costs, which are treated as non-monetary items
and carried at historical exchange rates; and
      2)   Investment assets and claims reserves, which are treated as monetary
items and translated at closing exchange rates
Therefore the underlying profit before the notional foreign exchange gain/(loss)
on non-monetary items is stated 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 Jun 2010 +------------------+------------------
 | | 30 June 2009 | 31 December 2009
------------------+---------+--------+---------+--------+---------+--------
 | Period | Period | Period | Period | Year | Year
------------------+---------+--------+---------+--------+---------+--------
 | average | end | average | end | average | end
------------------+---------+--------+---------+--------+---------+--------
US dollar | 1.53 | 1.50 | 1.50 | 1.65 | 1.57 | 1.61
------------------+---------+--------+---------+--------+---------+--------
Euro | 1.15 | 1.22 | 1.12 | 1.17 | 1.12 | 1.13
------------------+---------+--------+---------+--------+---------+--------
Canadian dollar | 1.58 | 1.59 | 1.80 | 1.91 | 1.78 | 1.69
8)Â Â Â Financing costs/(credit)
 Six months ended Six months ended Year
ended
 30 June 30 June 31 December
 2010 2009 2009
 £m £m £m
Cost of 2017 subordinated notes 3.1 3.8 6.9
Cost of 2034 loan notes 0.8 0.7 1.3
Other financing 0.7 0.2 0.5
--------------------------------------------------------------------------------
 4.6 4.7 8.7
Less: gain on purchase and - (7.7) (7.7)
cancellation of 2017 subordinated
notes
--------------------------------------------------------------------------------
 4.6 (3.0) 1.0
--------------------------------------------------------------------------------
9)Â Â Â Income taxes
 Six months ended Six months ended Year
ended
 30 June 30 June 31
December
 2010 2009 2009
 £m £m £m
Current tax expense:
Current period - 1.3 2.9
Overseas tax expense:
Current period 1.3 - -
Deferred tax (see note 11):
Deferred tax asset 2.8 (9.3) (25.1)
de-recognised/(recognised)
--------------------------------------------------------------------------------
Total income tax expense/(credit) 4.1 (8.0) (22.2)
--------------------------------------------------------------------------------
Reconciliation of effective tax
rate:
Profit/(loss) before income taxes 14.9 (18.5) 4.2
Income tax at the standard UK 4.2 (5.2) 1.2
corporation tax rate (28%) (June
2009: 28%; December 2009: 28%)
Effect of disallowable 2.8 (10.2) 1.7
expenditure/timing differences
Effect of tax losses (2.9) 7.4 (25.1)
de-recognised/(recognised)
------------------------------------------------------------------------------
 4.1 (8.0) (22.2)
------------------------------------------------------------------------------
10)Â Â Earnings, net assets and net tangible assets per share
Basic earnings per share
The calculation of earnings per share of 14.9p (June 2009: losses of 14.6p;
December 2009: earnings of 36.8p) is based on a profit attributable to equity
shareholders of the parent company of £10.8 million (June 2009: loss of £10.5
million; December 2009: profit of £26.4 million) and on 72.4 million shares
(June 2009: 71.9 million shares; December 2009: 71.8 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 2010.
Diluted earnings per share
Diluted earnings per share are calculated by adjusting the weighted average
number of shares outstanding to assume conversion of all potentially dilutive
shares. Novae's potentially dilutive shares relate to LTIP awards/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.
 Six months ended Six months ended Year
ended
 30 June 2010 30 June 31 December 2009
2009
 £m £m £m
Profit/(loss) used to 10.8 (10.5) 26.4
determine diluted earnings
per share
--------------------------------------------------------------------------------
Weighted average number of 72.4 71.9 71.8
shares in issue (millions)
excluding treasury shares
Adjustments for LTIPs and 0.6 2.0 1.3
deferred bonuses payable in
shares (millions)
--------------------------------------------------------------------------------
Weighted average number of 73.0 73.9 73.1
shares for diluted earnings
per share
--------------------------------------------------------------------------------
Diluted earnings/(losses) per 14.8p (14.6)p 36.1p
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 2010.
 Six months ended Six months Year
ended ended
 30 June 30 June 31 December 2009
2010 2009
 £m £m £m
   Net assets 318.8 279.7 313.7
   Intangible assets (9.0) (10.4) (9.7)
   Net tangible assets 309.8 269.3 304.0
   Number of shares in issue 72.1 71.9 71.9
(millions) excluding treasury
shares
   Net asset value per share 441.9p 389.0p 436.2p
   Net tangible asset value per 429.4p 374.6p 422.7p
share
11)Â Â Deferred tax
 30 June 30 June 31 December
 2010 2009 2009
 £m £m £m
Recognised deferred tax assets
Temporary differences 2.6 2.4 14.0
Underwriting profits earned and taxed in future (6.4) (3.7) (10.6)
periods
Unutilised tax losses 46.3 30.8 41.9
--------------------------------------------------------------------------------
 42.5 29.5 45.3
--------------------------------------------------------------------------------
Unrecognised deferred tax assets
Trading losses - 28% (2009: 28%) of gross - 24.5 -
unrecognised losses
The Emergency Budget on 22 June 2010 announced that the UK corporation tax rate
will reduce from 28% to 24% over a period of four years from 1 April
2011. These changes will only be recognised when they are substantially enacted
and will have the effect of reducing the deferred tax asset.
The Group also has accumulated gross capital losses of £45.8 million. No asset
has been recognised in respect of these losses.
12)Â Â Reinsurance contracts
 30 June 30 June 31 December
 2010 2009 2009
 £m £m £m
Reinsurance contracts 423.5 421.2 388.7
Less: reinsurers' share of provisions for unearned (54.8) (55.3) (28.4)
premium
--------------------------------------------------------------------------------
Reinsurers' share of claims outstanding 368.7 365.9 360.3
Less: reinsurers' share of provision for losses (125.4) (97.4) (87.0)
incurred but not reported ("IBNR")
--------------------------------------------------------------------------------
Balance 243.3 268.5 273.3
--------------------------------------------------------------------------------
Being:
Recoveries on claims notified not yet due 246.7 272.4 281.2
Provision for bad debt (3.4) (3.9) (7.9)
--------------------------------------------------------------------------------
Net recoveries on claims notified not yet due 243.3 268.5 273.3
--------------------------------------------------------------------------------
13)Â Â Financial assets
 30 June 30 June 31 December
 2010 2009 2009
 £m £m £m
Fixed interest securities 733.2 642.1 736.7
Equities - 0.3 -
--------------------------------------------------------------
 733.2 642.4 736.7
--------------------------------------------------------------
Financial assets comprise:
Syndicate 329.9 293.2 333.8
Corporate 403.3 349.2 402.9
--------------------------------------------------------------
 733.2 642.4 736.7
--------------------------------------------------------------
All financial assets are listed and they are all held at fair value through
profit or loss.
14)Â Â Cash and cash equivalents
 30 June 30 June 31 December
 2010 2009 2009
 £m £m £m
Cash 251.6 289.2 218.4
Overseas deposits 83.1 79.5 78.3
-----------------------------------------------------
 334.7 368.7 296.7
-----------------------------------------------------
Of the total cash and cash equivalents £264.2 million (June 2009: £291.0
million; December 2009: £259.7 million) is held by the syndicates in Premium
Trust Funds to meet policyholder liabilities and £16.2 million (June 2009: £1.8
million; December 2009: £2.6 million) is held by Novae's service company
subsidiary on behalf of policyholders.
15)Â Â Insurance contract liabilities
  30 June
2010
 £m £m £m
 Gross Reinsurance Net
Unearned premiums 273.4 54.8 218.6
IBNR 451.1 125.4 325.7
Notified claims 648.0 243.3 404.7
-------------------------------------------------------------
Total insurance liabilities 1,372.5 423.5 949.0
-------------------------------------------------------------
  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
-------------------------------------------------------------
  31 December 2009
 £m £m £m
 Gross Reinsurance Net
Unearned premiums 173.2 28.4 144.8
IBNR 353.4 87.0 266.4
Notified claims 683.4 273.3 410.1
------------------------------------------------------------------
Total insurance liabilities 1,210.0 388.7 821.3
------------------------------------------------------------------
Claims development tables
 2002 & 2003 2004 2005 2006 2007 2008 2009 2010 Total
prior
Underwriting £m £m £m £m £m £m £m £m £m £m
year
Gross claims:
Estimate of
ultimate gross
claims:
- at end of 2,596.5 219.2 273.3 311.4 185.6 257.3 328.1 253.9
underwriting
year
- one year 3,121.2 221.8 259.8 289.9 172.2 252.9 376.8
later
- two years 3,346.0 201.6 259.9 266.5 170.7 237.4
later
- three years 3,560.2 184.8 258.2 258.1 157.7
later
- four years 3,566.1 179.9 229.0 261.4
later
- five years 3,575.7 168.4 217.1
later
- six years 3,621.1 161.4
later
- seven years 3,612.7
later
- position at 3,587.3 159.1 215.5 259.3 169.7 236.7 386.5 283.7 348.5
30 June 2010
--------------------------------------------------------------------------------
Gross claims
paid
- at end of 1,382.7 4.9 13.1 28.7 3.9 9.3 20.2 7.5
underwriting
year
- one year 1,758.9 38.5 68.0 110.5 21.7 54.9 93.2
later
- two years 2092.9 67.4 127.5 161.0 50.3 96.4
later
- three years 2,400.7 87.5 149.7 198.4 80.3
later
- four years 2,628.6 107.5 175.7 213.5
later
- five years 2,895.3 118.8 181.1
later
- six years 3,014.3 123.6
later
- seven years 3,139.7
later
- position at 3,217.4 126.3 185.8 218.0 84.1 114.7 118.3 30.4 0.6
30 June 2010
--------------------------------------------------------------------------------
Gross ultimate 369.9 32.8 29.7 41.3 85.6 122.0 268.2 253.3 347.9 1,550.7
claims reserve
Gross unearned          (346.6)
claims reserve
Third party          (105.0)
participation
on syndicates
--------------------------------------------------------------------------------
Gross claims          1,099.1
reserve
--------------------------------------------------------------------------------
 2002 & 2003 2004 2005 2006 2007 2008 2009 2010 Total
prior
Underwriting £m £m £m £m £m £m £m £m £m £m
year
Net claims:
Estimate of
ultimate net
claims
- at end of 1,527.1 153.5 209.4 210.4 146.3 196.5 222.9 193.0
underwriting
year
- one year 1,745.6 154.7 198.9 191.0 143.7 196.4 250.8
later
- two years 1,923.5 137.6 184.9 172.8 135.5 183.8
later
- three years 2,010.9 131.6 182.2 173.5 128.9
later
- four years 2,020.8 129.1 170.3 173.4
later
- five years 2,018.9 123.2 167.2
later
- six years 2,031.9 119.9
later
- seven years 2,048.5
later
- position at 2,042.1 118.7 167.3 170.7 131.1 181.1 253.6 209.0 301.5
30 June 2010
--------------------------------------------------------------------------------
Net claims paid
- at end of 883.0 4.9 13.0 11.6 3.9 6.3 18.9 6.1
underwriting
year
- one year 1,080.9 24.7 54.4 51.1 21.3 50.0 75.5
later
- two years 1,279.2 45.9 87.5 93.0 46.5 87.2
later
- three years 1,442.7 62.3 107.5 117.7 70.5
later
- four years 1,539.7 77.1 125.0 133.0
later
- five years 1,648.2 87.8 137.9
later
- six years 1,707.7 93.7
later
- seven years 1,792.2
later
- position at 1,813.0 96.0 142.1 137.1 73.6 98.3 96.4 24.8 0.7
30 June 2010
--------------------------------------------------------------------------------
Net ultimate 229.1 22.7 25.2 33.6 57.5 82.8 157.2 184.2 300.8 1,093.1
claims reserve
Net unearned          (300.1)
claims reserve
Third-party          (62.6)
participation
on syndicates
--------------------------------------------------------------------------------
Net claims          730.4
reserve
--------------------------------------------------------------------------------
The information shown above is prepared on an underwriting year basis and it
therefore relates the expected cost of claims to the level of ultimate premiums.
Changes in the projected level of ultimate premiums will contribute to the
movement in claims costs shown above. Across all prior years net of reinsurance
and excluding the business of the discontinued units, that component of claims
development that relates to settlement of claims at levels different from
reserves carried or reassessment of reserves required in respect of claims that
remain unsettled amounted in aggregate to a credit of £23.8 million at the
Group's ownership level.
16) Financial liabilities
++
++
(a) 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.
(b) Revolving credit facility
Novae Group has available a revolving credit facility from Lloyds TSB of £15.0
million, none of which was drawn at 30 June 2010 (June 2009 and December 2009:
none).
(c) 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 2010 £30.0 million nominal value (June 2009 and December 2009: £30.0
million) had been bought at market value of £19.0 million plus accrued interest
and cancelled (June 2009 and December 2009: £19.0 million).
17)Â Â Â Â Share capital
 Ordinary shares Preference
of £1 shares
of £1
 Number £ Number £
Authorised
31 December 2009 and 30 June 2010 349,950,000 349,950,000 50,000 50,000
Issued and fully paid
31 December 2009 and 30 June 2010 73,221,346 73,221,346 - -
18)Â Â Â Â Dividends per share
 Six months ended Six months ended Year
ended
 30 June 30 June 31 December
 2010 2009 2009
 £m £m £m
Special dividend of 4.0p per share - 2.9 2.9
Final dividend for the year ended - 5.4 5.4
31 December 2008 of 7.5p per share
Interim dividend for the year - - 2.2
ended 31 December 2009 of 3.0p per
share
Second interim dividend for the 5.8 - -
year ended 31 December 2009 of
8.0p per share
 5.8 8.3 10.5
A second interim dividend of 8.0p per ordinary share was paid on 31 March 2010.
An interim dividend of 3.3p (2009: 3.0p) per ordinary share is payable on 4
October 2010 to shareholders registered on 10 September 2010. This interim
report does not provide for the interim dividend as a liability.
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
2010 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 2010 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
5 August 2010
[HUG#1435946]
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Source: Novae Group plc via Thomson Reuters ONE