NEWS RELEASE. 5 August 2015 For immediate release. Novae Group plc Interim results for the six months ended 30 June 2015

Transcription

1 NEWS RELEASE 5 August 2015 For immediate release Novae Group plc Interim results for the six months ended 30 June 2015 Novae Group plc ( Novae or the Group ), the specialist insurance group, today announces its interim results for the six months ended 30 June Gross written premium of million (H1 2014: million) - 7.7% like for like growth from existing units at constant rates of exchange % growth from investment in new underwriting teams Claims ratio improved to 47.8% (H1 2014: 48.9%) - Attritional loss ratio of 51.1% (H1 2014: 51.0%) Combined ratio improved to 89.8% (H1 2014: 91.8%) Underwriting contribution increased by 57.6% to 27.9 million (H1 2014: 17.7 million) Net investment income of 3.8 million (H1 2014: 7.4 million) Profit before tax and foreign exchange of 29.0 million (H1 2014: 22.6 million) Weighted average rates on renewal premium reduced by 3.3% Interim dividend up 10.6% to 7.3p per share (H1 2014: 6.6p per share) Matthew Fosh, Group Chief Executive, today said: Novae has achieved a strong performance in the first half of Investment in underwriting has produced disciplined growth in targeted classes, delivering a record underwriting contribution. Novae s agility and expertise, together with ongoing improvements to the business, enables us to find and exploit good opportunities in a challenging market. There will be a presentation for analysts only at 11:00 am today in the Auditorium, Lloyd s Register of Shipping, 71 Fenchurch Street, London EC3M 4HH. Invitees are requested to go to the Main Entrance of 71 Fenchurch Street where they will be provided with a pre-prepared pass. For further information: Matthew Fosh/Charles Fry : Novae Group plc David Haggie/Rebecca Young : Haggie Partners

2 Results overview Novae has delivered another good set of results for the first half of 2015, continuing the strong progress made in recent years. Despite the challenging rating environment, the Group achieved record underwriting profits on the back of growth from the existing portfolio and excellent contributions from new underwriting teams. The Group has also made good progress on a number of key corporate initiatives, including establishing a presence in Bermuda and finalising an amended strategy for investment asset allocation for the business. Reported gross written premium of million (H1 2014: million) represents an increase of 23.4% at constant rates of exchange. Growth in written premium was 7.7% on a like for like basis, excluding business written by new underwriting teams. The Group s commitment to underwriting discipline and robust approach to reserving has enabled it to deliver a net claims ratio of 47.8% (H1 2014: 48.9%). The combined ratio improved to 89.8% (H1 2014: 91.8%). Underwriting contribution increased by 57.6% to 27.9 million (H1 2014: 17.7 million), a record level of performance for Novae in the first half of any year. Net investment income was 3.8 million (H1 2014: 7.4 million) generating a yield on average invested assets of 0.3% (H1 2014: 0.6%). Profit before tax and foreign exchange increased by 28.3% to 29.0 million (H1 2014: 22.6 million). Adverse foreign exchange movements on retranslation of the balance sheet of 12.1 million (H1 2014: 1.3 million adverse) reduced profit before tax to 16.9 million (H1 2014: 21.3 million). Return on average shareholders funds for the six month period was 5.0%. Net tangible asset value per share was 500.2p (December 2014: 522.0p), reflecting profits in the period and the impact of paying final and special dividends of 18.2p and 20.0p respectively in May this year. Dividend The Board is pleased to declare an interim dividend of 7.3p, an increase of 10.6% on the 2014 interim dividend. The dividend will be paid on 1 October 2015 to shareholders on the register at the close of business on 4 September Underwriting performance overview Premiums Gross written premium for the first half of the year was million (H1 2014: million) an increase of 27.7% (23.4% at constant rates of exchange). Ongoing investment in the business, including new underwriting hires in 2014 and 2015, has made a significant contribution to growth in the first six months. Reported gross written premium has also benefitted both from the strengthening of sterling against the US dollar and from Novae being the sole capital provider to Syndicate 2007 for the 2015 underwriting year of account. Excluding the impact of these factors, underlying growth was 7.7%. Strong growth was achieved in the Property division with gross written premium of million (H1 2014: million) representing an increase of 36.4% at constant rates of exchange. Very strong growth in the US property and UK & European facilities units, where rates remained broadly flat, was supplemented by growth from international and US open market business and the international binding authority unit. Partly offsetting this growth has been a reduction in property reinsurance.

3 Gross written premium in the Casualty division grew by 27.7% at constant rates of exchange to million (H1 2014: 78.5 million). This was driven by growth from the General Liability and Motor Reinsurance units who responded to favourable underwriting opportunities in the first quarter. In addition, the division s recently established Cyber unit continues to make good progress and is well positioned to capitalise on the increasing demand for this class. The division discontinued writing motor insurance business during the first half of the year and took steps to reduce its exposure to professional indemnity risks due to continued concerns about the rate adequacy in these classes. The Marine, Aviation & Political Risk ( MAP ) division saw the most challenging rating environment overall and as a consequence grew by 2.8% at constant rates of exchange to million (H1 2014: million). Growth was achieved across marine classes and political risks. This was offset by reductions in energy, where rating pressure was most severe. Aviation reinsurance premiums also decreased as a result of increased cedent retentions and the failure of the rating environment to respond to recent loss activity. Net earned premium increased to million (H1 2014: million), equating to approximately 45% of anticipated full year net earned premium. The Group has reduced its net exposures in peak catastrophe exposed zones, primarily the US, by capitalising on the favourable reinsurance rating environment. As a consequence, reinsurance ceded has increased to million (H1 2014: 75.6 million). Rating environment Across the syndicate rates on renewal business declined 3.3% on a risk adjusted basis in the first half of the year. Rating pressure was felt most heavily in energy and property reinsurance classes with the Group reducing its exposures accordingly. Market conditions were more favourable in property insurance lines, where rates on renewals were mostly stable, affording opportunities for growth in the UK, US and internationally. Claims Six months Six months Year ended ended ended % % % Attritional claims Catastrophe claims and large losses Reserve movements (9.0) (6.9) (6.5) Strong attritional claims experience, favourable reserve developments and a stable level of catastrophe claims contributed to the improvement in the total claims ratio to 47.8% (H1 2014: 48.9%). Net claims incurred were million (H1 2014: million). Catastrophe experience remained relatively benign in the period with first half natural disaster losses below the recent ten year average. The only loss of note for the Group arose from the Sydney hailstorms. The contribution from catastrophe events to the reported claims ratio in H was 1.5% (H1 2014: 2.3%). Large losses arose from the Pemex oil platform fire, the BW Offshore energy explosion and the loss of Germanwings flight These contributed 4.2% to the overall loss ratio (H1 2014: 2.5%) and were in line with the Group s risk appetite.

4 The Group s attritional loss ratio was comparable to last year at 51.1% (H1 2014: 51.0%). This is testament to Novae s focus on maintaining underwriting discipline, as growth in more profitable classes broadly offset the softening rating environment. Favourable claims experience on previously reserved years contributed 9.0% to the claims ratio (H1 2014: 6.9%). Overall reserve strength was improved in the period with the margin held over best estimate net reserves equivalent to 9.4% (December 2014: 9.3%), demonstrating Novae s continued prudent reserving. Acquisition costs Acquisition costs for the half year were 72.1 million (H1 2014: 55.0 million) producing an acquisition cost ratio of 26.4% (H1 2014: 25.3%). This increase is a result of changes to the business mix, most notably the growth in delegated underwriting arrangements and a reduction in reinsurance. Operating expenses Total operating expenses for the first half of the year were 42.4 million (H1 2014: 38.2 million). The absolute increase in operating expenses is principally driven by continued investment in underwriting. This is reflected in the net earned premium growth, resulting in a lower expense ratio of 15.6% (H1 2014: 17.6%). H also saw investment in infrastructure, including the establishment of our presence in Bermuda. Novae continues to invest in the business to support profitable growth, while maintaining a disciplined approach towards expense management. Divisional Performance Total reportable Unallocated Property Casualty MAP (1) segments by segment Total Six months ended 30 June 2015 Gross written premium Net earned premium Net claims incurred (47.3) (43.3) (39.6) (130.2) - (130.2) Policy acquisition costs (33.4) (15.5) (23.2) (72.1) - (72.1) Operating expenses (12.0) (8.1) (8.4) (28.5) (13.9) (42.4) Underwriting contribution (13.9) 27.9 Net investment income Fees and commission income Net foreign exchange loss (12.1) (12.1) Financing costs (3.3) (3.3) Profit/(loss) before income taxes (27.7) 16.9 Claims ratio 41.6% 61.2% 45.0% 47.8% % Expense ratio 39.9% 33.3% 35.8% 36.9% 5.1% 42.0% Combined ratio 81.5% 94.5% 80.8% 84.7% 5.1% 89.8% (1) Marine, Aviation and Political Risk

5 Property division Six months Six months Year ended ended ended Gross written premium Net earned premium Net claims incurred (47.3) (46.6) (93.0) Acquisition costs (33.4) (25.5) (59.7) Operating expenses (12.0) (9.2) (18.3) Underwriting contribution Claims ratio 41.6% 53.1% 45.4% Expense ratio 39.9% 39.6% 38.0% Combined ratio 81.5% 92.7% 83.4% Gross written premium in the Property division of million (H1 2014: million) represents an increase of 36.4% at constant rates of exchange. Growth was achieved across all insurance classes in the division, most notably US property facilities and the UK & European units as they continued to increase participation on selected risks and develop new business opportunities. Property reinsurance remains under considerable pressure and the division has experienced premium reductions across these classes. Organic growth within established insurance classes has been complemented by new US and International open market and binding authority property units. These were only established towards the end of 2014 but are already making valuable contributions to growth within the division in On a risk-adjusted basis rates on renewals within the Property division declined by 2.7%, driven principally from reinsurance classes. Property insurance renewals experienced marginal rate reductions of 0.9%. Agriculture reinsurance saw rate reductions of 2.9%. On average, property reinsurance business renewed at a reduction of 6.6%. Claims experience was favourable delivering an H1 loss ratio of 41.6% (H1 2014: 53.1%). This benefitted from the continued relatively benign claims environment in catastrophe exposed classes. Insurance and reinsurance classes achieved an underlying attritional claims ratio in line with expectations. Reserve redundancy, particularly in international property reinsurance, made a noteworthy contribution to the claims ratio in the period. The reported expense ratio remains similar to the same period last year although marginally up from the expense ratio for the full year in The influence of property insurance facilities business is resulting in an increase in the acquisition cost ratio attributed to the division. The operational cost ratio remains flat period on period.

6 Casualty division Six months Six months Year ended ended ended Gross written premium Net earned premium Net claims incurred (43.3) (29.5) (79.3) Acquisition costs (15.5) (13.7) (29.1) Operating expenses (8.1) (7.1) (14.2) Underwriting contribution Claims ratio 61.2% 48.8% 64.3% Expense ratio 33.3% 34.4% 35.2% Combined ratio 94.5% 83.2% 99.5% Gross written premium in the Casualty division was million (H1 2014: 78.5 million), an increase of 27.7% at constant rates of exchange. The division achieved positive growth in the first half of the year with its motor reinsurance and general liability reinsurance units responding agilely to a limited number of profitable underwriting opportunities. The cyber unit continues to develop positively, delivering premium growth and investing in underwriting talent to strengthen its market presence. This growth has more than offset the division discontinuing direct motor business and reducing exposures to poorer performing business within the professional indemnity and international liability units. Casualty renewal rates were down 1.5% on a risk-adjusted basis. Specialty liability renewals reduced by 2.0%, financial institutions rates reduced on average by 5.4% and professional indemnity and medical malpractice rates were broadly neutral. Cyber insurance negated some of these reductions by exhibiting rate increases of 2.7% on renewal following increased awareness and appetite from buyers of this class. Claims experience in H was less favourable than in the corresponding period in 2014, with a reported loss ratio of 61.2% (H1 2014: 48.8%). This variance is driven principally by the positive reserve development experienced in H following the favourable settlement of two historic financial institutions claims. These benefitted the prior year ratio by 12.1 percentage points. The Group has strengthened reserves in classes including international liability and professional indemnity. Reserve improvements were experienced in certain specialty liability insurance classes, which continue to develop favourably, including financial institutions and medical malpractice. The reported expense ratio for the division of 33.3% improved marginally when compared to the same six month period last year (H1 2014: 34.4%). The operational cost ratio for the division remained broadly flat period on period.

7 Marine, Aviation and Political Risk ( MAP ) division Six months Six months Year ended ended ended Gross written premium Net earned premium Net claims incurred (39.6) (30.0) (65.0) Acquisition costs (23.2) (15.8) (39.2) Operating expenses (8.4) (8.1) (15.3) Underwriting contribution Claims ratio 45.0% 43.9% 41.9% Expense ratio 35.8% 34.9% 35.2% Combined ratio 80.8% 78.8% 77.1% Gross written premium in the MAP division was million (H1 2014: million), achieving growth of 2.8% at constant rates of exchange. Following a strong performance in 2014, the division continued to invest in core marine and political risk units, which were least affected by the adverse rating environment and where the division has a significant market presence. This growth was offset by reductions in energy where rating pressure was most severe. Aviation reinsurance exposures were also reduced as a result of increased cedent retentions and the failure of the rating environment to respond to recent loss activity. Risk adjusted rate change was most pronounced in the MAP division with a weighted average rate change of 6.3% in the reporting period. Renewal rates on marine and energy business declined by 7.4%, including energy rates reducing on average by 13.7%. More positively, marine hull rates showed improvements of 0.7% and specie and cargo were broadly neutral. The division reported a claims ratio of 45.0% (H1 2014: 43.9%) which was impacted by a number of large losses during the first half of the year. The aviation reinsurance unit incurred losses from Germanwings flight 9525 for which anticipated loss estimates remain within normalised risk appetite. The energy unit was impacted by losses arising from the Pemex oil platform complex fire in the Gulf of Mexico and BW Offshore explosion which, although large, remain within the unit s loss expectations. Outside of these events, claims performance for the MAP division was supported by a continued strong attritional loss ratio and favourable development from previously held reserves, most notably the positive development of the marine liability portfolio. The reported expense ratio for the MAP division of 35.8% has increased marginally from the 34.9% reported for the same six month period last year. While the underlying operational cost ratio has remained broadly static, there has been an increase in acquisition cost rate as the division has participated in a number of new facility arrangements.

8 Investments Investment return for the period was 3.8 million (H1 2014: 7.4 million), equivalent to a total return net of management fees of 0.3% (H1 2014: 0.6%) on average invested assets of 1,221.3 million (H1 2014: 1,195.5 million). The second quarter of 2015 was a difficult period for investments with a significant sell-off in government bonds in late April, followed by a further drift higher in yields over the rest of the quarter. Corporate bond valuations also suffered and many bond indices indicated negative returns for the six months to 30 June Novae s short duration position protected it somewhat and while returns performed in line with the market, on an absolute basis they were low for the first half of the year. Novae moved to full implementation of its investment strategy on 1 July This features a more diversified risk profile, including a modest exposure to growth assets with higher return potential, it has been designed with the flexibility to manage periods of market turbulence. The portfolio s duration will be managed actively with the aim of identifying opportunities and avoiding unattractive investment risks that are present in more volatile markets. As previously stated, it is anticipated that the Group s new investment strategy will be able to increase investment return while maintaining a similar level of risk within the portfolio. At 30 June 2015 the average duration across the Group s portfolio was 1.1 years (H1 2014: 1.0 year). The Group continues to target a return on investment assets for the full year of between % as the new investment strategy is fully implemented. The profile of the Group s investment portfolio at 30 June 2015 was as follows: Corporate Government Government agencies Certificate of deposits / floating rate notes Securitised RMBS / ABS Covered bonds Supranational Investment cash Other , ,048.2 The investment portfolio can be analysed by rating as follows: Government / AAA rated AA rated A rated BBB+ or below Unrated Financial assets 1, ,048.2

9 Foreign exchange Novae reported a loss on foreign exchange of 12.1 million (H1 2014: loss of 1.3 million), including losses on non-monetary items of 8.2 million (H1 2014: gains of 0.5 million). The Group s principal trading exposure is to the US dollar with a significant amount of dollar denominated new business written in the first half of the year. US dollar business now accounts for 54% of gross written premium (H1 2014: 47%). Other significant trading exposures include the euro (9%), Australian dollar (4%) and Canadian dollar (3%). Regulatory funding requirements, principally in respect of the Canadian dollar contribute to the reported loss on monetary items of 3.9 million. The Group does not speculate on foreign currency movements and seeks to match foreign currency assets and liabilities, maintaining a broadly neutral position where practical. Tax Novae s tax charge for the period is 0.6 million (H1 2014: 3.9 million). The carrying value of the Group s deferred tax asset is 9.8 million (H1 2014: 15.1 million), valued at the enacted rate of 20% included in The Finance Act Earlier in the year, the Group established operations in Bermuda, which included an intra-group reinsurance arrangement. A consequence of this is the expectation of a reduction in the Group s effective tax rate going forward. The effective tax rate for the first half of the year of 4% (H1 2014: 18%) reflects the impact of the Bermudan operations and the timing of unwinding the deferred tax. The Group continues to expect the ongoing effective tax rate to be between 10% and 14%. Changes to the UK corporation tax rates were announced in the Chancellor's Budget on 8 July These included reductions in the main rate to 19% from 1 April 2017 and to 18% from 1 April As the changes had not been substantively enacted at the balance sheet date, their effects are not included in these interim financial statements. The overall effect of these changes, if they had been applied to the deferred tax balance at the balance sheet date, would be to reduce the deferred tax asset by an additional 1.0m, with a corresponding additional charge to the tax expense for the period of 1.0m. Capital structure Regulatory capital The table below sets out the Group s sources and uses of capital: Cash and investments at Lloyd's Free cash and investments at Group Pipeline profits Uncollateralised letter of credit Quota share reinsurer letters of credit Revolving credit facility (undrawn) Lloyd's economic capital assessment ("ECA") (414.6) (388.7) (402.5) Headroom Headroom % 29.1% 27.8% 35.8% 1 Pipeline profits represent the Group s share of undistributed syndicate profits available for Funds at Lloyd s provision 2 Headroom stated is exclusive of any distributions subsequent to the balance sheet date The Group s available capital for 2015 includes letters of credit held as collateral under quota share reinsurance arrangements underwritten by three large international reinsurers.

10 Debt structure As at 30 June 2015 the Group had gross debt of million (H1 2014: million) senior notes subordinated notes US $ 2034 Dekania notes US $ letter of credit The Group holds a letter of credit facility with Lloyds Banking Group of US $76.0 million (H1 2014: US $60.0 million) until December The facility is uncollateralised and is in addition to an undrawn revolving credit facility of 30.0 million (H1 2014: 30.0 million), which is also available until December Outlook Novae s agility and underwriting expertise, together with ongoing improvements to the business, helped produced a strong performance in the first half of the year. Record first half underwriting profits and a 51.1% attritional loss ratio are testament to the discipline with which the business is growing. Maintaining this discipline is paramount. Market headwinds remain, with pressures on premium rates, low investment returns and an increasing regulatory burden all expected to persist. Nonetheless, there remain opportunities for Novae to continue to grow profitably. Absent any significant market event in the second half of the year, we anticipate the full year performance to reflect the progress we are making. Looking further forward, we remain confident of our ability to further improve performance as ongoing investment in the business continues to produce results.

11 RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF YEARLY FINANCIAL REPORT The directors' confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR and DTR 4.2.8, namely: an indication of important events that have occurred during the first six months 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 financial year; and material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report. The directors of Novae Group plc are listed in the Novae Group plc 2014 Annual Report. A list of current directors is maintained on the Novae Group plc website at By order of the Board, M K Fosh C A Fry Group Chief Executive Chief Financial Officer 4 August August 2015

12 CONDENSED CONSOLIDATED INCOME STATEMENT for the six months ended 30 June 2015 Six months Six months Year ended ended ended Note Gross written premium Outwards reinsurance premium (109.0) (75.6) (110.2) Net written premium Change in gross provision for unearned premium (133.6) (103.3) (52.0) Reinsurers share of change in the provision for unearned premium Net earned premium Net investment income Fees and commission income Total revenue (net of premium ceded to reinsurers) Gross claims incurred 5 (157.2) (118.8) (284.8) Reinsurers' share of claims incurred Net claims incurred (130.2) (106.1) (237.3) Policy acquisition costs (72.1) (55.0) (128.0) Operating expenses 6 (42.4) (38.2) (74.6) Foreign exchange (loss) / gain 8 (12.1) (1.3) 10.2 Financing costs 7 (3.3) (3.0) (6.1) Profit before income taxes Income taxes 9 (0.6) (3.9) (12.4) Profit for the period attributable to shareholders Earnings per share Basic earnings per share p 27.5p 79.0p Diluted earnings per share p 27.2p 78.2p CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the six months ended 30 June 2015 Six months Six months Year ended ended ended Note Profit for the period attributable to shareholders Items that will not be reclassified to the income statement: Defined benefit pension fund actuarial losses - (0.3) (0.6) Items that may be reclassified subsequently to the income statement: Changes in fair value of cash flow hedges (0.3) Tax relating to equity incentive schemes 0.2 (0.7) 0.1 Other comprehensive income, net of tax 0.4 (1.0) (0.8) Total comprehensive income recognised

13 CONDENSED CONSOLIDATED BALANCE SHEET as at 30 June 2015 Note Assets Intangible assets Property, plant and equipment Deferred acquisition costs Deferred tax assets Reinsurance contracts 11, Insurance and other receivables Financial assets 12,15 1, ,048.2 Cash and cash equivalents Total assets 2, , ,991.6 Liabilities Insurance contracts 16 (1,578.3) (1,523.9) (1,507.1) Financial liabilities 14,15 (75.1) (73.0) (75.1) Retirement benefit obligations (0.6) - (0.5) Insurance and other payables 17 (104.0) (74.8) (72.8) Total liabilities (1,758.0) (1,671.7) (1,655.5) Net assets Shareholders' equity Share capital Other reserves Retained earnings Total shareholders' equity Asset value per share Net asset value per share p 474.6p 527.6p Net tangible asset value per share p 468.3p 522.0p These financial statements were approved by the Board of Directors and authorised for issue on 4 August They were signed on its behalf by: M K Fosh Group Chief Executive C A Fry Chief Financial Officer

14 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2015 Share Other Retained capital reserves earnings Total Six months ended 30 June 2015 m Total recognised income for the period Total recognised in other comprehensive income for the period Total comprehensive income for the period Transactions with owners recorded directly in equity - Movement in equity incentive reserves - - (3.0) (3.0) - Movement in own share reserve - - (2.4) (2.4) - Dividends paid - - (24.4) (24.4) Net decrease in equity - - (13.1) (13.1) As at 31 December As at 30 June Share Other Retained capital reserves earnings Total Six months ended 30 June 2014 m Total recognised income for the period Total recognised in other comprehensive income for the - - (1.0) (1.0) period Total comprehensive income for the period Transactions with owners recorded directly in equity - Movement in equity incentive reserves - - (4.9) (4.9) - Movement in own share reserve Dividends paid - - (23.3) (23.3) Net decrease in equity - - (10.5) (10.5) As at 31 December As at 30 June Share Other Retained capital reserves earnings Total Year ended 31 December 2014 m Total recognised income for the year Total recognised in other comprehensive income for the - - (0.8) (0.8) year Total comprehensive income for the year Transactions with owners recorded directly in equity - Movement in equity incentive reserves - - (0.5) (0.5) - Movement in own share reserve Dividends paid - - (27.5) (27.5) Net increase in equity As at 31 December As at 31 December

15 CONDENSED CONSOLIDATED CASH FLOW STATEMENT for the six months ended 30 June 2015 Six months Six months Year ended ended ended Profit before tax Adjustments for: Foreign exchange on financial assets (10.7) Financing costs Amortisation charge Investment income (3.8) (7.4) (14.3) Depreciation charge Employee equity incentives Changes in operating assets and liabilities Change in insurance contract liabilities Change in insurance receivables (102.2) (58.1) (19.6) Change in other receivables (0.1) (2.7) (1.3) Change in deferred acquisition costs (31.7) (20.7) (17.3) Change in reinsurance contract assets (23.7) (6.3) 6.7 Change in insurance payables (0.6) Change in other/trade payables (6.9) (5.4) 5.1 Change in market value of financial liabilities (0.1) (0.6) 1.4 Change in market value of financial assets Income taxes paid (0.7) (1.1) (2.2) Cash generated from operations (6.9) Cash flow from investing activities: Purchase of tangible fixed assets (1.2) - (0.6) Interest received Purchase of financial assets (503.1) (328.3) (662.5) Proceeds from sale of financial assets Net cash from investing activities Cash flow (used in) financing activities: Interest paid (5.6) (5.3) (7.6) Acquisition of own shares (8.6) (5.8) (5.8) Dividends paid (24.4) (23.3) (27.5) Net cash (used in) financing activities (38.6) (34.4) (40.9) Net (decrease)/increase in cash and cash equivalents (34.6) Opening cash and cash equivalents Effect of exchange rates on cash and cash equivalents (2.0) - (1.1) Closing cash and cash equivalents

16 NOTES TO THE INTERIM FINANCIAL INFORMATION 1. 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 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 Group plc within the meaning of Section 435 of the Companies Act Statutory accounts for Novae Group plc for the year ended 31 December 2014 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 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 the income statement. 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 cash flows. 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 16). 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 accounting policies applied in the consolidated interim financial statements are the same as those applied in the Group s consolidated financial statements as at, and for, the year ended 31 December Any changes in the policies will be reflected in the financial statements as at, and for, the year ending 31 December The following is a list of standards effective from 1 January 2015 in the EU; IAS 19: Amendment: Defined benefit plans (1 February 2015) annual improvements to IFRSs cycle (1 February 2015) annual improvements to IFRSs cycle (1 January 2015) The implementation of the above new standards did not have a material impact on the condensed consolidated financial statements of the Group. Principal risks and uncertainties There are a number of risks and uncertainties which could impact upon the Group s performance over the remaining six months of the financial year and cause actual results to differ materially from current expectations, and from historical results. The Directors consider that the principal risks and uncertainties described on pages 40 to 41 and explained in detail in the risk disclosures

17 note on pages 96 to 111 of the 2014 Annual Report continue to reflect the principal risks and uncertainties of the Group over the remaining six months of the financial year. Novae categorises risks closely to those laid out by the PRA. A summary of each of the Group s principal risks and uncertainties (as described in the Annual Report) is provided below: Insurance risk: Insurance risk is the principal risk to which Novae is exposed. Insurance risk is defined as fluctuations in the timing, frequency and severity of insured losses, relative to expectations at the time of underwriting. The three major components of insurance risk are underwriting risk (including catastrophe risk), reserving risk and claims risk. Credit risk: Credit risk is the risk that the Group becomes exposed to loss if a reinsurance, intermediary or investment counterparty fails to meet its obligations. The Group is exposed to credit risk through its investment portfolio, its outwards reinsurance coverages and contractual arrangements with policyholders and intermediaries relating to (re)insurance. Market risk: Market risk is the risk of loss arising from fluctuations in investment markets (principally interest rates, foreign exchange rates and equity markets) that may have an adverse financial impact on the Group. Liquidity risk: Liquidity risk is the risk that the Group, although solvent, either does not have available sufficient financial resources to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost. Capital risk: Capital risk arises where capital resources are inadequate to support regulatory capital requirements. This may arise where: 1) available resource is insufficient to support regulatory capital requirements of historic, current or future business plans; or 2) increased requirements arising out of regulatory change or intervention (including specific risk relating to the implementation of Solvency II). Regulatory and operational risk: Regulatory risk arises from failing to discharge regulatory and legal obligations. Operational risk arises where there are inadequate or failed processes/systems, people, or external events. A specific component of this is Conduct risk, which is the reputational, business and regulatory risk arising from Novae or its business partners actions causing detriment to our customers resulting in poor outcomes for those customers. Strategy and reputational risk: Strategy risk is the risk that the strategy is not delivered against, not clearly communicated, or not appropriate. Reputational risk is the risk of loss from reputational damage arising from both underwriting and non-underwriting activities. Enterprise risk: Under certain conditions, the outcome with respect to one risk category can be expected to influence another. Novae monitors a number of specific interactions and considers the results of stress and scenario testing to ensure that these dependencies are managed appropriately. Going concern The directors have a reasonable expectation, given the principal risks and uncertainties above, that the Group has adequate resources to enable it to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the condensed consolidated interim financial statements of the Group.

18 2. Segmental information Segmental information is presented in respect of reportable segments. This is based on the Group s management and internal reporting structure and represents the level at which financial information is reported to the Executive Committee, being the chief operating decision maker as defined by IFRS 8. Segment results, assets and liabilities include items that can be allocated on a reasonable basis. Unallocated items comprise certain employee incentive costs, foreign exchange movements, insurance working capital and the deferred tax asset. a) Segmental income statement Total reportable Unallocated Property Casualty MAP segments by segment Total Six months ended 30 June 2015 Gross written premium Net earned premium Net claims incurred (47.3) (43.3) (39.6) (130.2) - (130.2) Policy acquisition costs (33.4) (15.5) (23.2) (72.1) - (72.1) Operating expenses (12.0) (8.1) (8.4) (28.5) (13.9) (42.4) Underwriting contribution (13.9) 27.9 Net investment income Fees and commission income Net foreign exchange loss (12.1) (12.1) Financing costs (3.3) (3.3) Profit/(loss) before income taxes (27.7) 16.9 Claims ratio 41.6% 61.2% 45.0% 47.8% % Expense ratio 39.9% 33.3% 35.8% 36.9% 5.1% 42.0% Combined ratio 81.5% 94.5% 80.8% 84.7% 5.1% 89.8% Total reportable Unallocated Property Casualty MAP segments by segment Total Six months ended 30 June 2014 Gross written premium Net earned premium Net claims incurred (46.6) (29.5) (30.0) (106.1) - (106.1) Policy acquisition costs (25.5) (13.7) (15.8) (55.0) - (55.0) Operating expenses (9.2) (7.1) (8.1) (24.4) (13.8) (38.2) Underwriting contribution (13.8) 17.7 Net investment income Fees and commission income Net foreign exchange loss (1.3) (1.3) Financing costs (3.0) (3.0) Profit/(loss) before income taxes (17.5) 21.3 Claims ratio 53.1% 48.8% 43.9% 48.9% % Expense ratio 39.6% 34.4% 34.9% 36.5% 6.4% 42.9% Combined ratio 92.7% 83.2% 78.8% 85.4% 6.4% 91.8%

19 Total reportable Unallocated Property Casualty MAP segments by segment Total Year ended 31 December 2014 Gross written premium Net earned premium Net claims incurred (93.0) (79.3) (65.0) (237.3) - (237.3) Policy acquisition costs (59.7) (29.1) (39.2) (128.0) - (128.0) Operating expenses (18.3) (14.2) (15.3) (47.8) (26.8) (74.6) Underwriting contribution (26.8) 43.3 Net investment income Fees and commission income Net foreign exchange gain Financing costs (6.1) (6.1) Profit/(loss) before income taxes (21.6) 62.6 Claims ratio 45.4% 64.3% 41.9% 49.1% % Expense ratio 38.0% 35.2% 35.2% 36.4% 5.5% 41.9% Combined ratio 83.4% 99.5% 77.1% 85.5% 5.5% 91.0% All revenues are from external customers. b) Segmental balance sheet Total reportable Unallocated Property Casualty MAP segments by segment Total As at 30 June 2015 Total assets , ,081.0 Total liabilities (357.4) (830.0) (477.5) (1,664.9) (93.1) (1,758.0) Net assets (39.8) Total reportable Unallocated Property Casualty MAP segments by segment Total As at 30 June 2014 Total assets , ,974.5 Total liabilities (310.2) (842.5) (429.1) (1,581.8) (89.9) (1,671.7) Net assets (24.5) Total reportable Unallocated Property Casualty MAP segments by segment Total As at 31 December 2014 Total assets , ,991.6 Total liabilities (254.8) (853.8) (444.0) (1,552.6) (102.9) (1,655.5) Net assets (14.0) 336.1

20 3. Seasonality of operations Gross written premium is recognised on the inception of insurance contracts. For many classes of business this has historically been weighted towards the first half of the year. Premium revenue is earned separately for each insurance contract in line with the risk exposure profile. Consequently for some catastrophe exposed contracts, for example those exposed to the US hurricane season, the majority of income is recognised in the second half of the year. There may also be a similar seasonal pattern to the incidence of claims, with the Group more likely to experience large catastrophe losses from the US hurricane season, which runs from June to November. This may materially affect the Group s result for the second half of the year. Movements in foreign exchange rates may also affect seasonality. This may be accentuated as the Group s catastrophe exposed units transact business primarily in US dollars. This seasonality can be assessed by reviewing the following performance measures: Gross written premium Net earned premium Claims ratio H1 H2 Total H1 H2 Total H1 H2 Total Calendar year % % % n/a n/a n/a n/a 47.7 n/a n/a 4. Net investment income Interest income on financial investments at fair value through the income statement Realised (losses) on financial investments at fair value through the income statement Unrealised (losses) on financial investments at fair value through the income statement Six months Six months Year ended ended ended (0.6) (0.6) (2.2) (3.5) (1.5) (2.9) Investment income from financial investments Fair value gains on derivative financial instruments Investment income Investment management expenses (0.8) (0.9) (1.6) Net claims incurred Six months Six months Year ended ended ended Claims paid Movement in gross claims provision (20.0) (30.7) (19.6) Gross claims incurred Reinsurers' share of claims paid (27.2) (21.1) (42.3) Movement in reinsurers' share of claims provision (5.2) Reinsurers' share of claims incurred (27.0) (12.7) (47.5)

21 6. Operating expenses Six months Six months Year ended ended ended Underwriting expenses Central expenses Non-recurring items Non-recurring items in 2014 include costs associated with a potential acquisition in the first half of There were no non-recurring items incurred in the first half of Financing costs Six months Six months Year ended ended ended 2017 Senior notes subordinated notes Dekania notes Letter of credit, fees and other bank charges Foreign exchange Six months Six months Year ended ended ended Foreign exchange (loss) on monetary items (3.9) (1.8) (1.4) Foreign exchange (loss) / gain on non-monetary items (8.2) (12.1) (1.3) 10.2 Profit for the year includes a foreign exchange loss of 8.2 million (H1 2014: gain of 0.5 million; year to 31 December 2014: gain of 11.6 million) on non-monetary items; comprising deferred acquisition costs and gross and ceded unearned premium. Principal exchange rates (versus sterling) applied are as follows: Six months ended Six months ended Year ended 30 June June December 2014 Period average Period end Period average Period end Year average Year end US dollar Euro Canadian dollar Australian dollar

22 9. Income taxes Six months Six months Year ended ended ended Current tax expense: Current year Adjustments for prior years - - (1.1) Total current tax (0.5) Overseas tax expense: Current year Total overseas tax Deferred tax: Current year (0.3) Impact of rate change - (0.2) (0.8) Prior year - - (0.6) Total deferred tax (0.3) Total income tax expense Reconciliation of effective tax rate: Profit before income taxes Income tax at the standard UK corporation tax rate (20.25%) (June & December 2014: 21.50%) Non-deductible or non-taxable items (2.8) (0.5) 1.5 Prior period adjustments - - (1.8) Impact of rate of change - (0.2) (0.8) Earnings and net assets per share a) Basic earnings per share Profit attributable to equity shareholders of the parent company ( millions) Six months Six months Year ended ended ended Weighted average number of shares in issue (1) (millions) Basic earnings per share 25.6p 27.5p 79.0p (1) Net of shares held in the employee benefit trust which are earmarked for the Group s LTIP and deferred bonuses payable in shares

23 b) Diluted earnings per share Diluted earnings per share is 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 potential number of 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 Six months Year ended ended ended Profit attributable to equity shareholders of the parent company ( millions) Weighted average number of shares in issue, excluding treasury shares (millions) Adjustments for LTIPs and deferred bonuses payable in shares (millions) Weighted average number of shares for diluted earnings per share (millions) Diluted earnings per share 25.4p 27.2p 78.2p c) 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 and earmarked for the Group s LTIP and deferred bonuses payable in shares) at 30 June Net assets Intangible assets (3.4) (4.0) (3.6) Net tangible assets Adjusted number of shares in issue (millions) Net asset value per share 505.5p 474.6p 527.6p Net tangible asset value per share 500.2p 468.3p 522.0p 11. Reinsurance contracts Reinsurance contracts Less: reinsurers' share of provisions for unearned premium (71.0) (49.7) (24.1) Reinsurers' share of claims outstanding Less: reinsurers' share of provisions for losses (114.5) (91.0) (109.9) incurred but not reported ("IBNR") Comprising: Recoveries on claims notified not yet due Provision for bad debt (1.8) (1.8) (2.0) Net recoveries on claims notified not yet due