TIDMGAH
RNS Number : 2914E
Gable Holdings Inc
15 July 2016
15 July 2016
This announcement contains inside information
Gable Holdings Inc.
("Gable" "the Company" or "the Group")
Final Results for the year ended 31 December 2015
Gable (AIM: GAH), the European non-life insurance company
("Gable", "the Group" or "the Company"), announces its results for
the year ended 31 December 2015 and an update on the strategic
review of the Group's business model.
Re-alignment of Gable's business model to meet Solvency II
requirements
- Strategic review of the Group's existing business and
operations:
-- Evaluating a broad range of strategic options for the Company;
-- Assessed impact and costs of meeting historical Solvency I targets;
-- Evaluating different business models for Solvency II ("SII") regulatory capital compliance;
-- Objective to achieve accelerated SII compliance; and
-- Engaging with potential partners to evaluate their
capabilities across a range of possible solutions.
- Whilst the strategic review is an ongoing process, the Board
is initially implementing a Strategic Restructuring Plan for Gable
that will enable it to:
-- Implement a new business model with supporting commercial
arrangements in order to deliver a profitable future business under
the SII regulatory environment;
-- Continue to support its existing policyholders through
leveraging off the strength and capabilities of larger insurance
partners; and
-- Write niche lines of business (on a significantly smaller
scale) which will be fully SII compliant, with the balance being
transferred to SII compliant multi-national insurance carriers.
Current Trading and Outlook
- Momentum of new business opportunities has continued into 2016
driving GWP;
- Profitable trading in the first quarter of 2016;
- Continued good cash generation, current cash and investment
balances of GBP74.5m as at 30 June 2016; and
- Passporting into Europe is unaffected by the UK's exit from
the EU due to Gable's Liechtenstein location.
Business Overview 2015
- GBP100m of business written in the year;
- Reported Gross Written Premiums of over GBP91.1m, representing
a 14% increase over the prior year;
- Retention rates and new referrals continued to drive strong
growth in GWP across all markets;
- Pre-tax loss for the group of GBP24.3 million which includes
the following previously announced non-recurring adjustments:
-- GBP7.5 million provision to eliminate the remaining balance
of the pre-2012 historical reserving gap;
-- Increased GBP7.9 million provision (from GBP6.0 million) to
fully write off the debtor relating to an after the event ("ATE")
insurance policy;
-- Provisions for claims arising from the significant floods
experienced in the UK and Europe in December 2015, the impact of
which is limited by reinsurance arrangements amounted to a net loss
of GBP2.0million; and
-- In addition, the goodwill of GBP4.25 million relating to the
acquisition of Gable Insurance AG in 2005 has been written off to
recognise the impact of the restructuring required as a result of
the strategic review;
- Cash and liquid investment balances have increased by over 45%
in the financial year and were GBP61.6m as at the year end.
Commenting, William Dewsall, Chief Executive, said: "Over the
ten years since start up in 2005, we have grown a significant
business in terms of written premiums, commercial reach and
capability, underwriting across a core of customers and strategic
niche classes of business in nine European countries and building a
strong brand of trust with SMEs.
"Following the announcement of a strategic review of Gable's
business, I can confirm that, after consultation with our
regulator, the FMA, we are taking steps to implement a solution
which will operate under the new Solvency II regime.
"The regulatory landscape since we started the business has
changed dramatically which has necessitated the strategic review
and we are now proceeding with discussions with a range of parties
which will require a significant restructuring of the Group's
business and scale of underwriting operations in order to provide a
solution to ensure compliance with Solvency II across all lines of
business."
Enquiries:
Gable Holdings Inc. Tel: +44(0) 20
William Dewsall, Chief Executive 7337 7460
Michael Hirschfield, Group
Finance Director
Justine James / John Bick,
Investor Relations
Zeus Capital Limited Tel: +44(0) 20
Nicholas How, Andrew Jones 3829 5000
- Corporate Finance
Adam Pollock - Corporate Broking
Haggie Partners LLP Tel : +44(0)
Peter Rigby 20 7562 4444
About Gable Holdings Inc.
Gable is a European non-life insurance company underwriting a
comprehensive range of specialist policies for the commercial
sectors in the UK, Denmark, France, Germany, Italy, the
Netherlands, Norway, Spain and Sweden. Gable benefits from a
low-cost online underwriting platform and the Company has continued
to develop its business geographically whilst simultaneously
exploiting a range of niche insurance segments which exist across
the EU, which is delivered through the EU passporting
mechanism.
Gable Holdings Inc. is quoted on the London Stock Exchange's AIM
market (ticker: GAH.L GAH.LN). For further information please visit
www.gableholdings.com.
Chairman's Statement
2015 has been a mixed year for Gable. We have delivered strong
organic growth, with Gross Written Premiums exceeding GBP90
million, for the first time. However, we have needed to take
decisive action in dealing with a number of significant
non-recurring items that have severely impacted the profitability
of the business in the 2015 financial year.
In the ten years since start-up, a great deal has been achieved
and the management team has built selected distribution channels
into our chosen European markets, providing bespoke commercial
insurance products for small and medium sized enterprises across
numerous market segments.
We are adapting our business model to meet the challenges of the
new regulatory environment brought about by the introduction of
Solvency II. This will require a considerable reorganisation of our
business and we are actively working with potential partners to
bring about a Solvency II compliant solution.
Whilst significant changes in Gable's business and scale of
underwriting operations will be implemented during the current
financial year, trading to date has started well, with the first
quarter demonstrating continued growth compared with the first
quarter of 2015.
Once again I would like to thank all of Gable's stakeholders for
their continued support and we look forward to updating you further
as we progress the reorganisation of the business.
Jost Pilgrim
Chairman
15 July 2016
Chief Executive's Review
Strategic Review
Gable was established to grow a niche insurance business which
could develop quickly by providing bespoke market products across a
number of EU countries with a focus on high levels of service to
meet the requirements of a range of market segments for SMEs in
Europe. We have achieved this goal and created a business with over
GBP90 million of annualised gross written premiums and cash
balances of over GBP60 million at the end of 2015. Since inception
ten years ago we have written cumulative premium income exceeding
GBP350 million and during that time have managed the Group's
financial resources to sustain the challenges of adverse claims
activity in any single trading year.
The Gable business model under the Solvency I framework allowed
the Company to write premiums at approximately five times its
capital base calculated broadly in accordance with generally
accepted accounting principles. Under this model Gable quickly
expanded with the objective of achieving a scale necessary to
enable it to withstand the impact of major claims. Gable now
carries full reserves at actuarial best estimate as supported by
peer review undertaken by Grant Thornton.
Notwithstanding the recent result of the UK's Referendum on its
membership of the European Community, European Member states and
Regulators have been given considerable discretion as to when and
how they implement Solvency II as in 2015 the Chairman of EIOPA
announced that member states should have a further 5-year period in
which to implement the European Directive into local law. This
effectively defers harmonisation of the Solvency II regime across
Europe. For those countries that have already encapsulated the
Solvency II Directive within local law, which includes
Liechtenstein, the Solvency II regime commenced on 1 January
2016.
The rules of Solvency II require the retention of capital at
levels that are at a multiple of that under Solvency I. Our
actuarial team has calculated that the business written in 2015
would have required an additional GBP47 million of capital under
Solvency II. On a forward looking basis for 2016 and 2017, with an
unchanged business plan, the Solvency II rules indicate potentially
an additional capital requirement of over GBP100 million, a capital
to GWP ratio of nearly one to one. In recent announcements we have
made it clear that raising such a sum is unrealistic.
In May, we announced that a strategic review of the group's
business and operations was underway. This review includes
investigating a range of potential options for the business and has
led to the development of the Board's Strategic Restructuring Plan.
Accordingly, we engaged in discussions with a number of different
parties in order to develop a solution which best fits the
requirements of our Strategic Restructuring Plan moving
forward.
Regulatory Capital
As previously announced on 25 May, the Company was looking at
the provision of additional regulatory capital
amounting to GBP10 million and we examined various mechanisms to
address that regulatory capital shortfall which included:
- additional retrospective reinsurance facilities; together
with
- a transfer of the renewal rights for a small component of our
UK business; and finally
- a guarantee/cash injection which I offered to provide.
These mechanisms would only provide Solvency I capital, would be
costly to implement and would not address the ultimate requirement
for the Group to comply with the requirements of Solvency II. In
addition, the retrospective
reinsurance facility would need to be unwound and replaced with
an alternative structure under our Strategic
Restructuring Plan. Although a change of approach to that
indicated in our announcements in March and May, we
have decided to move directly to the Solvency II regime and
complete the implementation of our Strategic Restructuring Plan in
as short a timeframe as possible.
Strategic Restructuring Plan
The business model developed under the Strategic Restructuring
Plan is intended to:
- Provide support from multi-national insurance carriers for
Gable's historical written premium base in the UK and Europe
including the possibility of a risk transfer of the historical
book;
- Facilitate the transfer of existing business to these rated
insurance carriers via managing general agents (MGA), a specialised
type of insurance agent/broker that, unlike traditional
agents/brokers, is vested with underwriting and claims handling
authority from an insurer;
- Retain sufficient capital to enable Gable to operate as a
niche and profitable business (on a significantly smaller scale)
under Solvency II moving forward; and
- Realign the costs to fit the needs of the restructured
business.
There remains significant uncertainty regarding the
implementation of the Strategic Restructuring Plan and there is no
guarantee that, following its implementation, the group will retain
sufficient capital to enable it to support the proposed retained
business. The Board has made good progress in its discussions with
third parties regarding the implementation of the Strategic
Restructuring Plan and on this basis, the Directors have a
reasonable expectation that the Company will be able to continue in
operational existence for the foreseeable future. Whilst our
negotiations with third parties provide the basis for the Board's
view on Going Concern, this forms insufficient evidence for the
auditors to form an opinion on the Group accounts. However,
accounts for our insurance subsidiary, GIAG, were approved by the
auditors and filed and
accepted in Liechtenstein on 4 July 2016.
Full details of the preferred solution and partners will be
announced once the Company has concluded the discussions which are
currently ongoing.
We have already commenced implementing the Strategic
Restructuring Plan and have instructed our broker network to cease
writing new business with immediate effect, subject to local
jurisdictions and laws.
The Board has taken the decision that it would not be prudent to
continue writing new business within Gable when we are aware that
with effect from 1 October 2016 we will be introducing this
business to our new carriers. We will be working with our brokers
and policyholders to ensure a seamless transfer.
Trading Results
Throughout 2015 and continuing for the year to date in 2016,
Gable has experienced robust renewal business alongside growth in
new business in the UK and Europe, reflecting the excellent
relationships that Gable enjoys with its growing network of brokers
across Europe and the very strong core of policyholders that have
built-up during the ten years of trading for the Group.
The overall performance of the insurance business was impacted
at the year-end by the severe December storms and floods, and we
were once again quick to respond to our customers' requirements in
getting many businesses back in action following the storms, whilst
Gable was also well protected through its reinsurance arrangements,
limiting the ultimate financial impact.
Subsequent to the year end, we also received an update regarding
the settlement of an ATE litigation insured by Gable. The update
received suggested that prospects of successful recovery within
previously anticipated amounts and timescales was reduced.
Following further consideration, we have taken the prudent decision
to make a full write-off (by set-off against GWP) against the
recoverable balance although we are taking action to investigate
and enforce the recovery that had previously been anticipated and
may yet be achieved.
In light of the Strategic Review, we have reviewed the
historical goodwill asset held on the Balance Sheet (which arose on
the acquisition of Gable Insurance AG in 2005) and it has been
determined appropriate to make a full write-off against the
carrying value of the goodwill to reflect the likely impact of
necessary changes to the business.
For the year ended 31 December 2015 reported Gross Written
Premiums were 14 per cent higher at GBP91.1 million (2014: GBP80.0
million). The reported loss before tax of GBP24.3 million is stated
after a number of material non-recurring items, as already
highlighted, the most significant of which are the final additional
reserve set aside of GBP7.5 million, a write-off of GBP7.9 million
against the ATE debtor and a write- off of the GBP4.25 million
goodwill balance. The loss per share is 17.89p (2014 loss per
share: 3.57p).
Total cash, cash equivalents and investments at the year-end was
45 per cent higher at GBP61.6 million (2014: GBP42.4 million).
Convertible Loan Note Instrument
On 21 December 2015 Gable announced the issue of a Convertible
Loan Note Instrument with a term of three years led by myself under
which GBP3.96m of Loan Notes were issued immediately. We
subsequently announced on 31 March 2016 that no further Notes would
be issued under the Instrument.
Dividend Policy
To date the growth of our capital base has been our primary
objective and, for this reason, the Board has been of the view that
the retention of earnings within the business is in the current
interests of shareholders. The requirements of SII and impact of
the strategic review are unlikely to change this status in the
short to medium term.
Board and Management
In February 2015, we announced the appointment to the Gable
Holdings Inc. board of Andrew Trott as a Non- Executive Director.
Andrew, who is Chairman of Gable's Remuneration Committee, is an
experienced and respected insurance liability lawyer in the London
Insurance Market. Additional non-executive director appointments
were made with the appointment of Julian Connerty, who is a partner
at Signature Litigation LLP, one of Britain's leading litigation
and insurance legal practices, in July 2015 and Kevin Alcock in
December 2015. Kevin is a Chartered Accountant and management
consultant by background with a focus on the investment management
industry. He is a non-executive director of a number of UK and
South African financial services companies. Kevin is Chairman of
the Audit Committee.
Our Customers, Brokers and People
I would like to thank all of our customers and brokers across
our countries of operation for their support during the last year.
It is also a credit to my team that we have been able to deliver
excellent service in a highly competitive business environment
during challenging economic conditions. Despite these conditions,
we have been able to respond extremely quickly to our clients'
needs, most notably following the storms and floods in late
2015.
Current Trading and Outlook
The regulatory landscape since we started the business has
changed dramatically which has played a fundamental part in
prompting a Strategic Review and which will require a significant
restructuring of the Group's operations. We are now proceeding with
necessary actions to enable this significant restructuring of the
Group's business and downscaling of underwriting operations, but
should provide a solution to ensure compliance with Solvency II
across all lines of business.
William Dewsall
Chief Executive
15 July 2016
GROUP INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2015
2015 2014
Note GBP000s GBP000s
Gross written premiums 91,128 79,992
Change in provision for
gross unearned premiums 13 (18,534) (22,753)
----------------------------------- ------- --------- ---------
Gross earned premiums 4 72,594 57,239
Reinsurance written premiums (25,088) (7,949)
Change in provision for
unearned premiums - reinsurers'
share 13 12,175 2,101
----------------------------------- ------- --------- ---------
Net earned premiums 59,681 51,391
Net investment return 6 673 99
Total revenue from operations 60,354 51,490
Gross claims paid (34,175) (27,845)
Movement in gross technical
provisions (30,467) (17,795)
----------------------------------- ------- --------- ---------
Gross claims incurred (64,642) (45,640)
Reinsurers' share of gross
claims paid 171 7,058
Movement in reinsurers'
share of technical provisions 13 14,293 3,200
----------------------------------- ------- --------- ---------
Reinsurers' share of claims
incurred 14,464 10,258
Net claims incurred (50,178) (35,382)
Expenses incurred in insurance
activities 4 (24,072) (15,612)
Other operating expenses 4 (6,110) (5,933)
----------------------------------- ------- --------- ---------
Total operating charges
(excluding impairment charges) (30,182) (21,545)
Impairment charges 4,10 (4,250) -
(Loss)/profit from operations
and before taxation 4 (24,256) (5,437)
Taxation 8 47 615
----------------------------------- ------- --------- ---------
(Loss)/profit for the year
attributable
to shareholders (24,209) (4,822)
----------------------------------- ------- --------- ---------
(Loss)/earnings per share
- basic 9 (17.89)p (3.57)p
(Loss)/earnings per share
- diluted 9 (17.89)p (3.57)p
All operations are continuing.
No statement of Comprehensive Income is presented as there is no
other comprehensive income.
GROUP STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2015
2015 2014
Notes GBP000s GBP000s
Assets
Intangible assets 10 - 4,250
Property, plant and equipment 12 444 442
Deferred acquisition
costs 13 16,231 13,153
Provision for unearned
reinsurance premium 13 15,197 3,022
Reinsurers' share of
technical provisions 13 17,452 3,200
Financial Investments 3 15,100 -
Prepayments and accrued
income 14 659 126
Trade and other receivables 15 61,944 66,374
Cash and cash equivalents 16 46,509 42,358
-------------------------------- -------- --------- ---------
Total assets 173,536 132,925
-------------------------------- -------- --------- ---------
Equity
Share capital 17 338 338
Share premium account 17 16,190 16,190
Share based payment reserve 18 876 950
Other reserves 18 3,875 3,875
Retained earnings 18 (18,253) 5,956
-------------------------------- -------- --------- ---------
Total equity attributable
to shareholders 3,026 27,309
Liabilities
Technical provisions 13 70,670 40,685
Provision for unearned
premium 13 65,841 47,307
Reinsurers' share of
deferred acquisition
costs 13 2,776 -
Accruals and deferred
income 244 654
Current taxation 292 542
Deferred taxation 8 41 -
Loan notes and derivatives 19 3,966 -
Trade and other payables 20 26,680 16,428
-------------------------------- -------- --------- ---------
Total liabilities 170,510 105,616
Total liabilities and
equity 173,536 132,925
-------------------------------- -------- --------- ---------
Net asset value per ordinary
share 9 2.24p 20.18p
-------------------------------- -------- --------- ---------
The financial statements have been signed by the Board and
authorised for issue on 15 July 2016.
William Dewsall Mike Hirschfield
Chief Executive Group Finance Director
GROUP STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2015
Group Group
2015 2014
Notes GBP000s GBP000s
------------------------------- -------- --------- ---------
Cash flows from operating
activities
Cash generated from
operations 24 14,904 15,387
Interest received 673 99
Tax paid (162) (414)
------------------------------- -------- --------- ---------
Net cash flows from
operating activities 15,415 15,072
------------------------------- -------- --------- ---------
Cash flows from investing
activities
Purchase of tangible
fixed assets 12 (125) (70)
Purchase of investments 3 15,100 -
------------------------------- -------- --------- ---------
Net cash flows from
investing activities (15,225) (70)
Cash flows from financing
activities
Shares issued - 335
Share issue costs - -
Loan notes issued net
of costs 19 3,966 -
Net cash flows from
financing activities 3,966 335
------------------------------- -------- --------- ---------
Net increase/(decrease)
in cash and cash equivalents 4,156 15,337
Cash and cash equivalents
at beginning of year 42,358 27,021
Exchange movements on (5) -
cash and cash equivalents
------------------------------- -------- --------- ---------
Cash and cash equivalents
at end of year 16 46,509 42,358
------------------------------- -------- --------- ---------
GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2015
Share
Share Share based Other Retained
Note Capital Premium payment reserves earnings Total
reserve Equity
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 1 January
2014 334 15,859 958 3,875 10,638 31,664
Comprehensive
Income
Profit for the
period - - - - (4,822) (4,822)
Total Comprehensive
Income - - - - (4,822) (4,822)
Transactions
with Owners
Shares subscribed
during the year 4 331 - - - 335
Share issue costs - - - - - -
Share based payments - - 132 - - 132
Transfer on exercise
of options - - (140) - 140 -
Total Transactions
with Owners 4 331 (8) - 140 467
At 31 December
2014 17,18 338 16,190 950 3,875 5,956 27,309
Comprehensive
Income
Profit for the
period - - - - (24,209) (24,209)
Total Comprehensive
Income - - - - (24,209) (24,209)
Transactions
with Owners
Shares subscribed - - - - - -
during the year
Share issue costs - - - - - -
Share based payments - - (74) - - (74)
Transfer on exercise - - - - - -
of options
Total Transactions
with Owners - - (74) - - (74)
At 31 December
2015 17,18 338 16,190 876 3,875 (18,253) 3,026
---------------------- ------ ---- ------- ----- ------ --------- ---------
Notes to the Group Financial Statements
For the year ended 31 December 2015
1. Basis of preparation
The Company was incorporated as a Corporation in the Cayman
Islands which does not prescribe the adoption of any particular
accounting framework. The Board had previously resolved that the
Group would follow IFRS and voluntarily apply the UK Companies Act
2006 when preparing its annual financial statements.
These financial statements have been prepared under the
historical cost convention and in accordance with the requirements
of International Financial Reporting Standards ("IFRS") endorsed by
the European Union ("EU").
The Group financial statements consolidate the financial
statements of Gable Holdings Inc. and subsidiary undertakings made
up to 31 December 2015. Subsidiaries are entities over which the
Group has control. Control is the power to govern the financial and
operating policies of the entity so as to obtain benefits from its
activities. The Group obtains and exercises control through voting
rights.
Inter-company transactions, balances and unrealised gains on
transactions between the Group companies are eliminated. Amounts
reported in the financial statements of subsidiaries have been
adjusted where necessary to ensure consistency with the accounting
policies adopted by the Group.
In relation to the preparation of these financial statements,
the Directors have been cognisant of the particular uncertainties
outlined in note 3. The financial statements have been prepared on
a going concern basis and it is the opinion of the Directors, based
upon the information available and the information set out in the
statement as to Going Concern in the Directors' Report, that Gable
Insurance AG and the Group will be able to maintain its solvency
requirements and meet its liabilities when they fall due.
While a number of new or amended IFRS and IFRIC standards have
been issued there are no new standards that have a material impact
on the Group.
The Board believes that the Company and all of its subsidiaries
currently have Sterling as a functional currency. The financial
statements are presented in Sterling. It is likely that the
functional currency will change to Euros for the reporting period
of 31 December 2016 and beyond.
2. Principal accounting policies
Business combinations
Business combinations are accounted for using the acquisition
method of accounting. The cost of an acquisition is measured as the
fair value of the assets given, equity instruments issued and
liabilities incurred at the date of exchange. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair value
at
the acquisition date. The excess of the cost of acquisition over
the fair value of the net assets acquired is recorded as
goodwill.
Goodwill
Goodwill is recognised in the statement of financial position at
cost less any impairment.
Goodwill is tested annually for impairment. Where there is any
reduction in the carrying amount, this would be recognised in the
income statement for the period in which the reduction is
determined.
Foreign currency translation
Transactions in foreign currencies are translated into sterling
at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated into sterling at the exchange rate ruling
at the end of the reporting period, and the resulting foreign
exchange gain or loss is recognised in the income statement.
Non-monetary assets and liabilities are translated using the
exchange rate at the date of the transaction; no exchange
differences therefore arise.
Underwriting transactions
The results for all classes of insurance business are determined
on an annual basis whereby the incurred cost of claims, commission
and related expenses are charged against the earned proportion of
insurance, net of reinsurance as follows:
1. Premiums written comprise the premiums on contracts incepting
in the financial year, together with any differences in premiums
between booked premiums for prior years and those previously
accrued, and include estimates of premiums due but not yet
receivable or notified, less allowance for cancellations;
2. Unearned premiums represent the proportion of the premiums
written in that year that relate to unexpired terms of policies in
force at the end of the reporting period. For ATE business, premium
of 75% is earned at inception (after a 25% early settlement
discount) where the premium is fixed, or on the determination of
the event where the premium is variable and dependent on the
outcome of such a future event such as a court award of damages.
Where the amount of such a premium is variable, a best estimate of
the amount expected to be received is recognised;
3. Reinsurance premiums and any related reinsurance recoveries
are accounted for in the same accounting period as premiums and
claims incurred. Reinsurance premiums are earned over the period in
which premiums on the related policies are earned;
4. Acquisition costs, which represent commission and other
related expenses, are deferred and recognised over the period in
which premiums from the related policies are earned;
5. Claims incurred represent claims and related expenses paid in
the year and changes in the provisions for outstanding claims,
including provisions for claims incurred but not reported (IBNR)
and
related expenses, together with any adjustments to claims from
prior years. Where applicable, recoveries due from reinsurers are
disclosed separately;
6. Claims outstanding represent the estimated ultimate cost of
settling all claims (including direct and indirect claims
settlement costs) arising from events that
have occurred up to the end of the reporting period, including
provisions for claims incurred but not reported, less any amounts
paid in respect of those claims; and
7. Provision for the cost of handling future claims is only made
if this cost materially exceeds future investment income from the
claims fund maintained.
Expenses incurred in insurance activities and other operating
expenses
Expenses incurred in insurance activities and other operating
expenses are recognised on an accruals basis.
Taxation
The tax expense represents the sum of the tax currently payable
and any deferred tax provided. The tax payable is based on the
taxable income for the year. Taxable profit differs from profit for
the year as reported in the income statement because it excludes
items of income and expense that are taxable or deductible in other
years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated
using tax rates applicable at the end of the reporting period.
Deferred income tax is generally provided on temporary
differences arising between the tax bases of assets
and liabilities and the carrying value in the financial
statements. However, if the deferred income tax arises from the
initial recognition of goodwill, or of an asset or liability in a
transaction other than a business combination that at the time of
the transaction affects neither accounting nor taxable profit or
loss, it is not accounted for.
Deferred income tax is determined using tax rates enacted or
substantively enacted at the end of the reporting period and
expected to apply when the related deferred tax asset or liability
is realised or settled.
Deferred income tax assets are recognised to the extent that
future taxable profit will be available against which the temporary
differences can be used.
Deferred income tax is provided on the temporary differences
arising on the investments in subsidiaries, except where the Group
controls the timing of the reversal of the temporary difference and
it is probable that the temporary difference will not reverse in
the foreseeable future.
Deferred tax assets and liabilities are offset only where there
is a legal right of offset and the deferred taxes relate to the
same fiscal authority.
Leasing and hire purchase commitments
Rentals payable under operating leases are charged in the Income
Statement on a straight line basis over the lease term. Lease
incentives are recognised over the lease term on a straight line
basis.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and any impairment. Depreciation is
calculated to write off the cost of tangible
fixed assets over the estimated useful lives as follows:
IT systems and software: 20% per annum
Motor vehicles: 20% per annum
Furniture and fittings: 20% per annum
Leasehold improvements remaining term of lease, up to a maximum of 10 years
The gain or loss arising on the disposal of an item of property,
plant or equipment is determined as the difference between the
sales proceeds and the carrying amount of the asset and is
recognised in the income statement.
Impairment of assets
At the end of each reporting period, the Group reviews the
carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the assets is estimated in order to determine the extent
of the impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Group
estimates the recoverable amount of the cash-generating unit to
which the asset belongs. Impairment reviews are carried out more
frequently if there is an indication that the asset may have been
impaired.
The recoverable amount is the higher of fair value less cost to
sell and value in use. In assessing value in use, the current
estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset for which the estimates of future cash flows have not
been adjusted.
If the recoverable amount of an asset (or cash generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash generating unit) is reduced to its
recoverable amount. An impairment loss is recognised in the income
statement immediately. Except for goodwill where impairment losses
cannot be reversed, where an impairment loss subsequently reverses,
the carrying amount of the asset (or cash generating unit) is
increased to the revised estimate of its recoverable amount, but so
that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been
recognised for the asset (or cash generating unit) in prior years.
A reversal of the impairment loss is recognised immediately.
Investments
The Group has designated on initial recognition its financial
assets held for investment purposes (investments) at fair value
through profit or loss. Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. The fair value of financial assets and liabilities traded in
active markets are based on quoted market bid and ask price for
both financial assets and financial liabilities respectively.
Financial instruments
Financial assets comprise solely trade and other receivables and
cash and cash equivalents. Financial liabilities comprise solely
trade and other payables (classified as held at amortised cost) and
loan notes with their associated embedded derivatives.
Trade receivables and payables are initially recognised at fair
value and subsequently measured at amortised cost using the
effective interest method, less provision for impairment in the
case of receivables. Cash and cash equivalents are carried in the
consolidated balance sheet at amortised cost and include cash in
hand, deposits held on call with banks and other short-term highly
liquid investments with a maturity of three months or less at the
date of purchase.
Provisions and contingencies
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation and a reliable estimate of the amount can be made. Where
a reimbursement is expected, this is recognised only when it is
virtually certain that the reimbursement will take place and the
amount to be reimbursed is known.
Contingent liabilities are liabilities that represent a possible
obligation arising from a past event whose existence is dependent
on one or more uncertain future events not within the control of
the Group or a present obligation where it is not probable that an
outflow will be required for settlement of the obligation.
Contingent liabilities are not disclosed where the likelihood of
the uncertain future event is remote, unless the disclosure of the
contingent liability adds clarity to the financial statements.
Contingent assets, which relate to possible assets and depend on
the outcome of uncertain future events, are not recognised. Such an
asset is disclosed only where the inflow of economic benefit is
virtually certain.
Segment information
A business segment is a component of an entity whose results are
regularly reviewed by the entity's chief operating decision maker
and for which discrete financial information is available.
Share based payments
Options
The Group issues equity-settled share-based awards to certain
employees (including directors). Equity-settled share-based awards
are measured at fair value at the date of grant. The fair value
determined at the grant date of the equity-settled share-based
awards is expensed on a straight-line basis over the vesting
period, together with a corresponding increase in equity, based
upon the Group's estimate of the shares that will eventually vest.
Fair value is measured using the Black-Scholes model.
The expected life used in the model has been adjusted, based on
management's best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations. No adjustment
is made to the expense recognised in prior periods if fewer share
options are ultimately exercised than originally estimated. The
cumulative expense recognised for equity-settled transactions at
each reporting date until the vesting date reflects the extent to
which the vesting period has expired and the Group's best estimate
of the number of equity instruments that will ultimately vest. The
credit in the statement of profit or loss represents the movement
in cumulative expense recognised as at 31 December 2014 as a result
of vesting conditions not being likely to be met. Upon exercise of
share options, the proceeds received net of any directly
attributable transaction costs up to the nominal value of shares
issued are allocated to share capital with any excess being
recorded as share premium.
Warrants
The Group has also issued equity settled share-based awards in
respect of services provided. The share-based award is measured at
fair value of the services provided at the grant date. The expense
is allocated on a straight- line basis over the vesting period.
Loan Notes and Embedded derivatives
On 18 December 2015 the Company issued Loan Notes with a base
value of GBP3.96 million for cash. IAS39 requires the Loan Notes to
be considered as containing a hybrid instrument with an embedded
derivative "conversion feature" within the host instrument. The
value of this embedded derivative has been calculated using the
Black Scholes method as having a value of
GBP68,000 (2014: GBPNil) and this is disclosed separately on the
Group Statement of Financial Position. The embedded derivative will
be re-measured at fair value at each reporting date. The liability
host component (being the balancing amount of GBP3,982,000 (2014:
GBPNil)) was recorded as a liability at the date of issue of the
Loan Notes. Between the date of issue and the year end IAS39
requires the Loan Notes to be amortised over their expected life
with a corresponding charge to the Income statement. This charge
amounted to GBP6,000 during the period (2014: GBPNil) with a
corresponding liability being added to the carrying value of the
Loan Note liability (hence increasing the value to GBP3,988,000
(2014: GBPNil). On conversion the company will recognise a gain or
loss determined by reference to the fair value of the shares
issued, effectively reversing the charges recognised in 2015.
Critical accounting estimates and judgements in applying
accounting policies
The preparation of financial information requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities. Estimates and judgements are continually
evaluated and based on historical experience and other factors
including expectations of future events that are believed to be
reasonable under the circumstances.
The most critical accounting estimate made by the Group is the
estimate of the ultimate claims liability under insurance contracts
underwritten. The estimation of the liability considers historical
data, with most relevance given to recent data, of claims
experience. The ultimate cost of outstanding claims is estimated
based on experience and current business conditions. Whilst claims
need to be notified without delay, the settlement of claims and
accordingly the ultimate cost of such claims cannot be known with
certainty at the end of the reporting period. In particular,
estimates of technical provisions inevitably contain inherent
uncertainties because significant periods of time may elapse
between the occurrence of an insured loss, the reporting of that
claim, payment of the claim and the receipt of reinsurance
recoveries. While the Directors consider that the estimate of
claims is fairly calculated, on the basis of the information
currently available to them, the ultimate liability remains
inherently uncertain and may change as a result of subsequent
information and events which may result in the eventual cost of
settling these liabilities being higher or lower than the amount
calculated. When estimating the required level of provisions,
management will consider the results of a variety of actuarial
techniques. The projections given by the various methodologies
assist in setting the range of possible outcomes and facilitate
management's selection of the most appropriate estimation technique
taking into account the development of the Group's book of
business. Any subsequent inadequacies or surpluses are adjusted and
recognised in the income statement in the year in which they
occur.
Over the last few years, GIAG has launched a number of new
products in Europe, which remain at early stages of development,
both in premium written and claims experience. In respect of the
former in relation to ATE business, the Directors make assumptions
as to the best estimate of any variable premium, which in the
future may be higher or lower than the amounts recognised.
Judgement is also required in selecting an appropriate accounting
policy for fixed premiums on ATE business which only become payable
when the underlying litigation is resolved. The group takes the
view that these premiums are earned when the policy is written
because the risk that is being insured has already occurred. If a
different policy were applied, for example treating such premiums
as earned only when the underlying litigation is resolved, premiums
and associated profits would be recognised in later periods and net
assets would be reduced. With regard to claims experience, the
Directors have made a number of assumptions as to what the ultimate
claims experience might be. Estimates of potential future
settlements levels for open claims are based on the experience of
the underwriting years to date. Taking these factors into account
there is the potential that the amount at which claims will be
settled in the future may be substantially higher or lower than the
amounts currently provided in the financial statements. Having
regard to this significant uncertainty inherent in the business of
the insurance subsidiary and in the light of the information
presently available, in the opinion of the Directors the provisions
for outstanding claims and IBNR in the Group financial statements
are fairly stated.
3. Risk management
The principal activity of the Group is that of an insurance
company. As such, there are a number of specific risks that attach
to such an undertaking. Insurance in its simplest form is the
acceptance by an insurer of the risk to pay future claims, the
compensation for which is an insurance premium. As such, the
insurer must manage its risk in a number of specific areas.
Of the risks identified and managed by the Group, those of most
significance at the current stage of the Group's development as
identified by the Board and company management are underwriting,
claims reserving and operational risks.
Underwriting risk
Definition
Underwriting risk concerns the uncertainty inherent within
insurance business and the potential for both profit and loss
emergence that is outside of expectation.
Risk effects
Underwriting risk affects GIAG by way of losses arising from
claims; particularly where they are either individually significant
or where there is an aggregation of many smaller claims.
Unprofitable expansion of existing lines of business or the
introduction of new lines of business at unprofitable rates, can
lead to significant business model strain.
Having completed an own risk assessment during the year;
underwriting risk, and specifically the risk of aggregation of
smaller claims, has been identified as GIAG's most significant risk
over the three-year planning period.
Risk management considerations
The management of underwriting risk includes the use of pricing,
policy wording, claim limits and reinsurance protection to enable
an acceptable return on capital deployed. Experience monitoring is
used to trigger management actions when necessary.
Pricing and policy wording
The key focus of the underwriting team is to manage the downside
risks of writing insurance, in particular by focusing on securing
business at rate that will, over a long term average, enable
insurance profits.
To the greatest extent possible, GIAG uses underwriting limits
and policy wording to reduce the potential exposure to large or
catastrophic losses; however the risk of such loss events is
inherent in writing some classes of business.
Reinsurance
Excess of loss ("XL") reinsurance is used to further manage
GIAG's exposure to large losses. XL reinsurance is also used in a
positive manner to enable GIAG to underwrite better quality but
larger risks providing considerable benefits to the business whilst
limiting exposure to large losses. In certain circumstances
facultative insurance is purchased to protect GIAG against specific
exposures.
Our XL reinsurance programme means that GIAG's exposure to any
one loss is limited to GBP1 million or EUR1million (2014: GBP2
million or EUR2 million).
Quota share ("QS") reinsurance is used to reduce the volatility
of the claims experience. QS reinsurance works to reduce the impact
of attritional losses on GIAG, allowing for more risks to be
underwritten, increasing diversification within the portfolio. The
effect of this diversification should be to stabilise net claims
experience over time.
Experience monitoring
The second aspect of managing the claims element of underwriting
risk is the protection from the effects of the aggregation of a
large number of small claims, which on their own are not considered
troublesome to GIAG, but collectively amount to claim levels in
excess of those expected at the time of pricing the business.
GIAG monitors both frequency and severity of claims over time,
assessing change and adjusting underwriting policies accordingly.
One example of such risk management has been an identification of
risk and potential losses within the Danish portfolio which was
addressed through the implementation of premium increases which has
led to an improvement in the profitability of the book in 2015.
Risk ownership
Chief Executive Officer/Chief Underwriting Officer.
Claims reserving risk
Definition
Reserving risk involves the possibility that the value of
provisions set aside for the payment of future claims is materially
different to the eventual value of claims payments that are made in
due course.
Risk effects
Reserving risk is, for most insurance firms, one of the largest
risks within the business and has exposure both to the upside and
downside, meaning that the emergent experience may be either
favourable or adverse.
Risk management considerations
Management of reserving risk not only includes the holding of
provisions but also the development and understanding of an
internally agreed appetite towards reserving risk that complements
the company's strategic aims.
Holding provisions
One approach to managing reserving risk is to set claims
provisions at a high level to reduce the likelihood of the eventual
claims payments being greater than expected and so can lead to
holding excess levels of provisions. Whilst this method of
mitigation is effective in reducing downside reserve risk, it
increases the likelihood that reserve run off will be favourable to
expectation and
thus the likelihood of reserves having been held unnecessarily.
Setting the level of reserves is therefore more complex than just
ensuring the firm has set aside enough to pay all claims, it
requires a balanced approach to ensure that its resources are
applied in the best possible manner for the ongoing success of the
business.
Experience monitoring
GIAG monitors the claims development of all products from their
respective launch and uses this analysis and the management
expertise available to it to develop what the directors believe to
be a reasonable reserving
position at each year end. Continued monitoring of the position
has been and will be carried out for each underwriting year
Risk appetite development
Historically, Gable has favoured accepting higher levels of
downside reserving risk, due to the niche nature of its business
and to the significant opportunity cost of capital. In accepting
higher levels of downside reserving risk Gable selected to target
held reserves below the actuarial best estimate, although always
within the actuarially assessed range of possible outcomes.
In more recent years, Gable has experienced significant growth,
in terms of the number of territories business is written in, the
variety of products written and in premium volume. As a result of
having a larger number of relatively immature accounts, the
uncertainty within the actuarially assessed reserves increased,
making for a wider range of possible outcomes and increasing the
potential impact from both upside and downside reserving risk.
Whilst maintaining carried reserves at a consistent level compared
to the actuarial best estimate, the widening of the range of
possible outcomes risks being considered as an inadvertent increase
of the level of reserving risk Gable is subject to.
As a response to this development in risk profile, in 2013 Gable
reassessed its appetite to reserving risk and implemented a plan to
strengthen reserves to eliminate the gap between the carried
reserve and the actuarial best estimate. During the year GIAG made
additional provisions amounting to GBP7.5 million (2014: GBP6.3
million) and as at 31 December 2015 GIAG holds claims provisions
that are at least equal to the actuarial best estimate.
As the business moves into its next phase, it is appropriate
that the Group re-evaluates its processes and conventions to ensure
they remain appropriate in the changing market. This does not mean
that historical risk appetites were incorrect, nor does it
necessarily mean that management believe that the underlying
performance of the accounts has changed; but reflects only the
changing business environment, regulatory environment and maturity
of Gable's book of business.
Continuing Uncertainty
In assessing the actuarial best estimate it should be noted that
at the date of these financial statements, GIAG's claims experience
for all products, even those launched in the UK in 2006 following
the foundation of the business, has been developed over a short
period of time. For those launched more recently the claims
development experience carries an even higher degree
of uncertainty. For any insurance entity, it takes a number of
years, not just to determine an actual result for a particular
underwriting year but, and more importantly, to develop an
experience of a particular book of business. Understanding the
experience is essential so that claims reserving trends can be
identified and applied. Whilst specific underwriting years may be
close to establishing a result (i.e. 2006), it takes a much longer
period to draw definitive conclusions against which future
underwriting years may be judged. This feature of insurance
business adds to the uncertainty of the actuarial best estimate,
potentially widens the range of possible outcomes and increases the
level of reserve risk, both upside and downside, that GIAG is
subject to.
The Directors believe that a reasonable approach has been taken
to reserving, as described in Note 13, for each of GIAG's
underwriting years but in doing this, acknowledge that the
significant uncertainty outlined above will remain with the Group's
reserving conclusions for the immediate future. The conclusions
drawn by the Directors rely on a number of assumptions. These,
inter alia, include an assumption that future claim settlements
will follow a similar trend to those experienced on settled claims
to date. In addition, the performance of new products launched is
dependent on a future claims development profile. Whilst the
Directors believe that a reasonable approach has been taken in the
early periods of account for these products, the ultimate claims
experience will have a high degree of uncertainty until the claims
experience has developed further. A 1% movement in the net loss
ratio for the current underwriting year will increase/decrease
profit by GBP596,800 (2014: GBP513,900).
Claims development
Claims development information is disclosed in order to
illustrate the sources of significant uncertainty outlined above.
The table compares ultimate claims estimates with the payments made
to date. The first section of the table shows current estimates of
cumulative claims and demonstrates how these claims have developed
in subsequent years. The table below has been presented using
actuarial best estimate figures for each period to show how the
account has developed over time on a basis consistent with the
management's long term objectives. Given that 2015 is only the
tenth year of underwriting and volume and business mix has changed
as the Group has grown, users of the financial statements are
cautioned against extrapolating the below as representative of
future claims development.
3. Risk management continued
The Board believes that the estimate of total claims outstanding
at 31 December 2015 is adequate. The reserving methodologies used
are outlined in note 13.
Analysis
of ultimate
claims
development
- gross,
business
written
in relevant
year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
------------- -------- -------- -------- -------- -------- -------- -------- --------- --------- --------- ---------
Initial
estimate
of gross
ultimate
claims 1,679 1,835 2,319 4,779 7,217 13,835 13,474 23,039 39,863 70,249 178,289
One year
on 127 119 (231) (1,432) 2,306 1,478 (1,068) 8,539 1,899 11,737
Two years
on (396) 122 792 4,588 (777) (2,325) 700 224 0 2,928
Three years
on 168 690 413 726 679 (1,871) 1,175 0 0 1,980
Four years
on 513 360 (294) 520 1,166 1,566 0 0 0 3,831
Five years
on (166) (816) 821 974 116 0 0 0 0 928
Six years
on (223) (33) (901) 451 0 0 0 0 0 (706)
Seven years
on (17) 9 405 0 0 0 0 0 396
Eight years
on 41 (27) 0 0 0 0 0 14
Nine years
on (22) (22)
------------- -------- -------- -------- -------- -------- -------- -------- --------- --------- --------- ---------
Current
estimate
of total
gross
ultimate
claims 1,703 2,259 3,324 10,605 10,708 12,682 14,280 31,802 41,762 70,249 199,374
Cumulative
payments
to date (1,721) (2,467) (2,811) (8,579) (7,975) (8,414) (7,739) (23,227) (16,558) (6,265) (85,756)
Unearned
portion
of net
ultimate
claims (44,177)
Uplift
for
unallocated
loss
adjustment
expenses
and other
items 1,229
------------- -------- -------- -------- -------- -------- -------- -------- --------- --------- --------- ---------
Claims
outstanding
at 31
December
2015 70,670
Less current
estimate
of future
reinsurance
recoveries (1,250) (2,713) (13,489) (17,452)
------------- -------- -------- -------- -------- -------- -------- -------- --------- --------- --------- ---------
Net claims
outstanding
as at 31
December
2015 53,218
------------- -------- -------- -------- -------- -------- -------- -------- --------- --------- --------- ---------
Risk ownership
Board of Directors
Operational risk
Definition
Operational risk is the risk of losses to GIAG arising from
inadequate or failed internal processes, personnel or systems, or
from external events.
Risk effects
As part of the own risk assessment of operational risks, the
Board and management have identified the loss of a key function
holder and the occurrence of a significant cyber-attack as those
with greatest potential impact to GIAG, similar to that of market
risk.
Risk management considerations
Gable manages its operational risks though streamlined
processes, implementation of policies, functional terms of
reference, compliance controls and appropriate staff training.
Gable has engaged external expert consultants to review and advise
it on its policies and controls.
Risk ownership
General Managers of GIAG
Claims settlement risk
Definition
Claims settlement risk is the potential for GIAG to incur
unnecessary claims cost due to settlement of invalid claims, or
settlement of claims at inappropriately high levels.
Risk effects
Increased costs to GIAG drive the Group's profit down.
Additionally, the occurrence of this risk can increase reserving
risk, with either claims provisions being insufficient due to this
risk, or being set at levels in excess of true requirement having
based future claims expectations on claims settled at
inappropriately high levels in the past.
Risk management considerations
GIAG works to ensure that processes are in place such that only
valid claims are paid and at appropriate settlement levels.
Enforcing rapid notification
Under each insurance contract the insured is required to notify
GIAG (by way of its appointed agent in the relevant jurisdiction)
of any event, which may give rise to a claim. Such notification
must be made within a specific period of the event.
Using experts wisely
Upon receipt of a claim, GIAG makes an initial determination of
its contractual liability and, where relevant, engages external
experts to provide it with loss information.
Quick settlement
It is recognised that claims that are settled quickly incur less
cost. As such GIAG seeks to agree and settle a claim as
expeditiously as possible.
Risk ownership
General Managers of GIAG
Credit risk
Definition
Credit risk for the Group comprises:
- non-payment of insurance premium by insured, including for ATE
business where the majority of premiums only become payable when
the underlying litigation is resolved:
- non-payment of reinsurance recoveries: for Gable's reinsurance
programmes,
Risk effects
Non-payment of amounts owed results in losses for GIAG, reducing
profit and solvency.
Risk management consideration
Ongoing monitoring
Premium outstanding is monitored on a regular basis and each
insurance contract contains a specific warranty as to requisite
payment period. Cover may be voided should premium not be paid.
The Group has insurance receivables that are past due but not
impaired at the reporting date. An aged analysis of the carrying
amounts of these receivables net of provisions is disclosed
below:
More
Less than than
30-60 60-90 90-365 365
30 days days days days days Total
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
--------------- ---------------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------
31 December
2015
Amounts due
from
policyholders 12,156 2,287 3,676 11,402 1,796 31,317
---------------- ---------------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------
31 December
2014
Amounts due
from
policyholders 10,719 2,017 3,242 10,054 2,993 29,025
---------------- ---------------------- ----------------------- ----------------------- ---------------------- ----------------------- ------------------------
The ageing of debtors reflects the payment terms on the products
offered. As part of its debtor management procedures, the Directors
monitor past due debtors and undertake all requisite actions to
recover these amounts (see note 15). The Directors have, therefore,
made certain assumptions in respect of the recoverability of
long-term debtors, which they consider to be reasonable. In respect
of premiums receivable the Group holds an impairment provision of
GBP0.4m (2014:GBP1.1m). In order to mitigate counterparty risk on
bank deposits, the Group maintains a policy of holding not more
thanGBP15.0m (2014: GBP7.5m) in any one banking group where
practical. The following table shows movements in impairment
provisions in the year:
2015 2014
GBP000s GBP000s
================================= ======== ========
Opening bad debt provision 1,052 966
Strengthening in the year (570) 118
Net foreign exchange differences (49) (32)
================================= ======== ========
Closing bad debt provision 433 1,052
================================= ======== ========
Quality of reinsurance
GIAG's annual reinsurance programme in general runs from 1 July
to 30 June and is placed with international and global reinsurers
that have a credit rating of A or above. The reinsurance programmes
are placed by our brokers AON and Arthur J. Gallagher.
The Group recognises that its reinsurance arrangements do not
relieve it of its ultimate liability to policyholders and as such
the Group is exposed to credit risk to the extent that any
reinsurer is unable to meet obligations assumed under such
reinsurance arrangements. As at 31 December 2015 the balance due
from reinsurers in respect of recoveries on quota share
arrangements was GBP10.1 million (2014: GBP0.1 million). As at 31
December 2015 the balance due from reinsurers in respect of amounts
recoverable on flood claims was GBP2.8m. As the reinsurance
arrangements are made with a panel of rated insurers, the Board is
comfortable that there is no material concentration of credit risk
within reinsurance assets.
Risk ownership
Group Head of Finance
Currency risk
Definition
Currency risk is the risk of losses to the company that result
from adverse movements in foreign exchange rates.
Risk effects
Changes in foreign exchange rates can result in a reduction of
the net assets of the Group. This has adverse impacts of solvency.
The movement of exchange rate between GBP and other currencies
poses an exchange rate risk to GIAG.
In addition, indirect foreign currency exposure exists from
policies where the insured events are settled in other
currencies.
Risk management considerations
Currency matching
GIAG retains its policy income and settles claims in the
currency in which the contract is made and, therefore, mitigates
currency risk by regularly reviewing currency assets and
liabilities and converting excess assets or liabilities into
Sterling to leave, as far as possible, a matched currency
position.
For the year ended 31 December 2015 and 2014, all premium income
was denominated in GBP, Euro, Danish Kroner or Norwegian Kroner and
claims arising therefrom will be settled in each relevant currency.
Due to Gable Insurance AG being a Liechtenstein registered company,
certain monetary assets are denominated in Swiss Francs.
The sterling equivalent of monetary assets and liabilities held
by the Group denominated in Euro, Norwegian Kroner, Swiss
Francs, Danish Kroner and United States Dollar at the year-end
were as follows:
2015 2014
GBP000s GBP000s
===================== ======== ========
Euro 16,101 17,216
Norwegian Kroner 4,781 4,327
Swiss Francs 5,103 5,832
Danish Kroner 5,023 2,339
United States Dollar 5,984 -
===================== ======== ========
36,992 29,714
===================== ======== ========
A 10% increase/decrease in the exchange rates applied to convert
the currencies above against GBP would impact the value of the
Group's net assets and its profit as at 31 December 2015 by
approximately GBP3,363,000 (2014: GBP2,701,000).
Risk ownership
Group Head of Finance
Interest rate risk
Definition
Interest rate risk is the risk of losses to the Group arising
from unfavourable movements in interest rates.
Risk effects
The Group's main exposure to fluctuations in interest rates
arises in its effect on the yield that is received on its short
term deposits. This is not a significant risk to the Group.
Risk Management Considerations
When placing funds, consideration is given to achieving a
competitive return on the amount invested. An increase or decrease
of 10% in interest rates would decrease/increase Group profit by
less than GBP67,000 (2014: GBP10,000).
Risk ownership
Group Head of Finance
Liquidity risk
Definition
Liquidity risk is the risk that Gable is unable to realise
investments and other assets in order to settle its financial
obligations when they fall due.
Risk effects
The impact of a liquidity risk event includes adverse impacts on
the Group's reputation should obligations not be met when they fall
due. When considered alongside the other risks faced by the Group,
liquidity risk is not a significant risk.
Risk Management Considerations
Investing in liquid assets
Net premium income received by GIAG is retained in its base
currency and placed on short term deposit with recognised banking
institutions. As the business develops, premium is written and
claims experience develops, the Group will seek to extend the
period of its deposits, whilst retaining a range of maturity dates
to ensure that financial resources are available to meet its known
financial requirements and provide the ability to meet efficiently
potential loss liabilities.
Considering the link to other risks
As part of its annual risk assessment, GIAG has considered the
relationship between underwriting risk and liquidity risk. Whilst
liquidity risk is not a significant risk for GIAG there is
potential that it becomes so should significantly lower than
expected levels of premium income occur simultaneously to adverse
claims experience and result in greater levels of cash outflows
compared to inflows.
Loan Notes and Embedded derivatives
On 18 December 2015 the Company issued Loan Notes with a base
value of GBP3.96 million for cash. These loan notes are
due to be repaid in December 2018, but it is open to the Company
to convert these into new ordinary shares to be issued at prices
between 10p and 15p, therefore reducing liquidity risk.
In managing underwriting risk the Board and management are
therefore cognisant of its potential links to liquidity risk.
Risk ownership
Group Head of Finance
Regulatory and Capital risk management
GIAG is regulated by the Financial Market Authority in
Liechtenstein and is subject to its regulatory requirements.
Failure to comply may lead to sanctions being placed on GIAG and,
therefore, affect its ability to conduct business. GIAG is also
reliant on the continued existence of legislation allowing EEA
based companies to passport into the EU. The UK held a referendum
on continuing membership of the European Union ("EU") and voted to
exit from the EU. Accordingly, there is some uncertainty relating
to the mechanism under which EU and EEA based companies will
conduct their business in the UK. The business currently undertaken
by Gable in non-UK countries will not be affected.
The Directors have overall responsibility for managing the
Group's capital base with the principal objective of maintaining
sufficient capital to satisfy regulatory requirements. The
Directors also recognise the need to maintain a strong capital base
that provides the necessary protection to policyholders and
creditors and at the same time generating sufficient returns to
create shareholder value.
GIAG is a regulated insurance company in Liechtenstein.
Liechtenstein regulations require insurance companies to meet the
solvency requirements in that jurisdiction and to hold reserves set
at an actuarial best estimate or otherwise be in technical breach
of the regulations.
GIAG holds claims reserves set at or above actuarial best
estimate. In past years, GIAG held reserves set at a management
best estimate which, over time, had diverged from the actuarial
estimate for the reasons set out elsewhere in these accounts.
Throughout that historical period the carried reserves were
accepted by the regulator. As explained earlier in this note, the
Company made additional provisions in 2013, 2014 and 2015 to
eliminate this historical gap. Whilst this has had a material
adverse impact on the reported result for the current year and that
of the comparative period, uncertainties relating to the financial
performance and position arising from carrying a reserve different
from that determined by actuarial assessment have been
significantly reduced.
The significant growth in business enjoyed by the group in
recent years has resulted in an accelerating regulatory capital
requirement. The ability of GIAG to build its capital base through
the retention of profits has been materially restricted by the
additional claims provisions set aside since 2013 amounting to some
GBP15.2 million and the impact of adverse claims experience in 2014
and flood claims in December 2015. Gable increased its regulatory
capital partly through the injection of new capital into GIAG and
partly through the use of a Quota Share reinsurance policy which is
effective for the 2015 calendar year. However, the impact of the
additional provision against an ATE debtor announced earlier this
year has reduced GIAG's own funds to below the required level. As
discussed earlier in these accounts, whilst the Board examined a
variety of mechanisms to address this situation under Solvency I,
the Board, after consultation with its regulator, the FMA, is
taking action to move directly into the Solvency II regime.
The company meets with the regulator on a regular basis and is
constantly updating capital plans for future years. With the
implementation of Solvency II with effect from 1 January 2016, the
Board recognises that its historical business plan under which a
GBP100 million business has been built from scratch in 2006, is no
longer appropriate and a Strategic Restructuring Plan has been
developed. The Board has reasonable expectation that the
implementation of this plan will enable GIAG to meet its regulatory
capital requirements under Solvency II within the required
timetable. Further details are provided in the comment on going
concern below.
Going concern
The Directors have assessed going concern from both a financial
and regulatory aspect, as outlined in the Report of the
Directors.
Gable has prepared a financial model comprising a detailed
projection and budget for the year ahead plus a further two-year
premium projection prepared on a line-by-line basis for each
business class. All financial models contain a great deal of
uncertainty as they are based on assumptions which may prove
inaccurate. Factors outside of the control of the Company such as
changes in the economic environment, foreign exchange movements,
competitor actions, regulatory changes and tax law changes can
render a financial model inaccurate. In addition, whilst
projections are based on expected future developments from
historical experience, there is no guarantee that the past
experience proves to be an accurate predictor of the future.
With regards to the non-financial assessment of going concern,
the Company's ability to continue to trade is dependent on
maintaining its licences to write business across Europe. Gable's
insurance operations are based in Liechtenstein and its ability to
trade in Europe is conditional on the maintenance of the
Passporting mechanism allowing EEA based business to trade within
the European Union.
The Company must also maintain sufficient regulatory capital for
the level of business written. The calculation of the required
level of capital under Solvency II is based on a complex standard
model which is poorly understood by the markets and is widely
criticised. Whilst the Board is supportive of the move towards a
more risk based approach to regulatory capital, Gable believes that
the Solvency II approach adopted by Europe is deeply flawed.
Small changes to assumptions input to the Solvency II model can
provide large changes to the required capital. In addition, as
Gable is a small company operating in niche areas it is not able to
materially benefit from diversification. The key risks involved in
determining the regulatory capital position include unexpected
growth in premiums driving an excess capital requirement, changes
in the mix of business which has an adverse impact on the capital
requirement and any financial impact which depletes own funds such
as large claims, bad debts or financial impairment of assets. In
addition, the Board's Strategic Restructuring Plan involves the
transfer of all UK business plus the majority of its European
business to multi- national insurance carriers via MGAs, the
implementation of reinsurance products or a risk transfer to
provide Solvency II cover for the historical book of business and
the retention of sufficient capital to provide Solvency II support
for its retained Europe based business.
There remains significant uncertainty regarding the
implementation of the Strategic Restructuring Plan. The insurance
carriers with whom we are currently in negotiation are conducting
an independent assessment of our insurance book and related assets
and liabilities. The outcome of this assessment will determine the
pricing of the risk transfer or reinsurance product and there is no
guarantee that the group will retain sufficient capital to enable
it to support the retained business.
The Board has made good progress in its discussions with third
parties regarding the implementation of the Strategic Restructuring
Plan and on this basis, the Directors have a reasonable expectation
that the Company will be able to continue in operational existence
for the foreseeable future. Whilst our negotiations with third
parties provide the basis for the Board's view on Going Concern,
this forms insufficient evidence for the auditors to form an
opinion on the Group accounts. However, accounts for our insurance
subsidiary, GIAG, were approved by the auditors and filed and
accepted in Liechtenstein on 4 July 2016.
Financial Investments
Financial investments are carried in the statement of financial
position at fair value. The carrying amount of financial
investments at the date of the statement of financial position was
GBP15.1m (2014: nil).
The Group value investments using designated methodologies,
estimations and assumptions. These securities, which are reported
at fair value on the statement of financial position, represent the
majority of the invested assets. The measurement basis for assets
carried at fair value is categorised into a 'fair value hierarchy'
in accordance with the valuation inputs and consistent with IFRS 13
'Fair Value Measurement'. The fair value hierarchy gives the
highest priority to quoted prices in active markets for identical
assets and liabilities (level one); the middle priority to fair
values other than quoted prices based on observable market
information (level two); and the lowest priority to unobservable
inputs that reflect the assumptions that we consider market
participants would normally use (level three). At 31 December 2015,
Financial investments amounting to GBP15.1m (2014: nil) were
classified as level two.
The classification within the fair value hierarchy is based on
the lowest level of significant input to its valuation. Any change
to investment valuations may affect our results of operations and
reported financial condition.
4. Segment information
International Financial Reporting Standard 8 'Operating
Segments' ("IFRS 8") requires that segments represent the level at
which financial information is reported to the Board, being the
chief operating decision maker as defined in IFRS 8. The reportable
segments have been identified as follows:
-- Insurance activities, which comprises the Group's insurance subsidiary
-- Administration activities, which comprises all other activities of the Group
Segment information - segment result
2015 2014
GBP000s GBP000s
------------------------------------- --------- ---------
Insurance activities
Gross earned premiums 72,593 57,239
Outward reinsurance premiums (12,913) (5,848)
Net claims incurred (50,178) (35,382)
Net investment return 673 99
Expenses incurred in insurance
activities (24,072) (15,612)
Other operating expenses (4,580) (4,289)
(Loss)/profit before taxation
from insurance activities (18,477) (3,793)
-------------------------------------- --------- ---------
Group and administrative
activities
Other operating expenses (1,530) (1,644)
Impairment of goodwill (4,250) 0
Loss before taxation from Group and
administrative expenses (5,780) (1,644)
---------------------------------------- --------- ---------
(Loss)/profit before
taxation (24,257) (5,437)
---------------------------------------- --------- ---------
Transactions between reportable segments include management fees
that are set on a commercial basis intended to provide a small
profit on management services provided but subject to the overall
group result and affordability.
Group
Insurance admin Consolidation
Activities activities adjustments Total
GBP000s GBP000s GBP000s GBP000s
------------------------ --- ------------ ------------ -------------- ---------
As at December 2015
Segment assets 172,991 16,384 (15,838) 173,536
Segment liabilities 166,336 4,119 41 170,496
Capital expenditure 126 0 0 126
Depreciation 122 0 0 122
------------------------ --- ------------ ------------ -------------- ---------
As at December 2014
Segment assets 123,164 14,366 (4,605) 132,925
Segment liabilities 102,280 642 2,694 105,616
Capital expenditure 70 0 0 70
Depreciation 118 0 0 118
------------------------ --- ------------ ------------ -------------- ---------
4. Segment information continued
2015 2014
Gross earned premium GBP000s GBP000s
---------------------- --------- --------------------------
UK 31,448 32,484
Europe 41,145 24,755
72,593 57,239
---------------------- --------- --------------------------
2015 2014
Net insurance result GBP000s GBP000s
---------------------- --------- --------------------------
UK (18,799) (2,505)
Europe 4,229 2,902
(14,569) 397
---------------------- --------- --------------------------
No single customer represents more than 10% of total
revenue.
5. Profit on ordinary activities
The profit on ordinary activities was derived from the principal
activities of the Group. The profit on ordinary activities is
stated after charging:
2015 2014
GBP000s GBP000s
--------------------------------------- -------- --------
Depreciation of property,
plant & equipment 122 118
Foreign exchange 938 572
Investment charges 443 -
Fees payable to Company's
auditor, Ernst & Young
LLP
Statutory audit of the
Group accounts 192 173
Fees payable to other auditors (audit
of overseas subsidiary) 88 93
------------------------------------------ -------- --------
6. Net investment return
2015 2014
GBP000s GBP000s
--------------------------- -------- --------
Investment income
- short term investments 382 -
-Bank and other
interest receivable 291 99
673 99
--------------------------- -------- --------
7. Directors and employees
2015 2014
GBP000s GBP000s
------------------------------------ -------- --------
The average number of employees
(including Directors) employed by
the Group was: 13 14
--------------------------------------- -------- --------
The total wages, salaries and staff costs incurred (including
Directors' fees) in the year ended 31 December 2015 were
GBP1,906,000 (2014: GBP1,719,000). Details of the Directors'
emoluments are set out in the Report on Remuneration.
8. Taxation
The tax charge for the period arises from local taxation in
Liechtenstein (where the ordinary tax rate is 12.5%) and the UK
(where the applicable tax rate for the year is 20.25%), payable in
Gable Insurance AG and Gable Services (London) Limited
respectively. Gable Holdings Inc., the group's holding company is
resident in the Cayman Islands and therefore subject to an expected
tax rate of 0%.
2015 2014
GBP000s GBP000s
-------------------------------------- -------- --------
Tax on profits
Current tax
(Credit)/Charge for
the year (47) (4)
Adjustment in respect
of prior years - 14
Deferred tax
Origination and reversal
of temporary differences in
the current year - (625)
Adjustment in respect of
prior years - -
---------------------------------------- -------- --------
Tax (credit)/charge on (loss)/profit
for the period (47) (615)
---------------------------------------- -------- --------
The following table provides a reconciliation of the expected
tax charge for Gable Holdings Inc. to the tax charge of the
group:
2015 2014
GBP000s GBP000s
-------------------------------------- --------- --------
(Loss)/profit before
taxation (24,257) (5,437)
--------------------------------------- --------- --------
Profit before taxation multiplied
by standard rate of tax of
0% (2015:0%) - -
Effect of:
Overseas taxation payable
UK - (5)
Liechtenstein (47) 1
Adjustment in respect of prior
years
Current tax - (625)
Deferred tax - 14
Movements in temporary differences
arising - (625)
---------------------------------------- --------- --------
Tax charge/(credit) on (loss)/profit
for the period 47 (615)
---------------------------------------- --------- --------
A deferred tax liability as at 31 December 2015 of GBPnil (2014:
GBPnil) has been recognised in the financial statements in respect
of consolidation adjustments for temporary differences between
Liechtenstein GAAP and IFRS. As at 31 December 2015, a deferred tax
asset of GBPnil (2014: GBPnil) has been recognised for the impact
of the prior year restatements in Gable Insurance AG. A deferred
tax asset of GBP1,363,000 relating to tax losses recorded by Gable
Insurance AG has not been recognised.
9. Earnings and net asset value per share
The calculation of the basic and diluted earnings per share is
based on the loss for the year of GBP24,209,000 (2014: loss of
GBP4,822,000) divided by the weighted average number of shares in
issue during the year of 135,319,833 (2014: 135,022,347). Option
and warrant shares are not considered dilutive in 2015 due to
recorded losses for the year.
The net asset value per share is calculated by dividing the
total equity of GBP3,026,000 (2014: GBP27,309,000) by the number of
shares in issue at the end of the period, 135,319,833 (2014:
135,319,833).
Details of the potentially dilutive instruments utilised in the
calculations above are set out in note 17.
10. Intangible assets
2015 2014
Group GBP000s GBP000s
------------------------ -------- --------
Goodwill
At 1 January 4,250 4,250
Arising in the period 0 0
Impairment of goodwill (4,250) 0
At 31 December 0 4,250
---------------------------- -------- --------
The goodwill brought forward from 1 January 2014 arose from the
acquisition of the Group's insurance subsidiary, Gable Insurance
AG. An impairment review has been carried out on this asset in
light of the proposed strategic restructuring referred to in the
CEO report and it has been determined appropriate to make a full
provision against the carrying value of the goodwill to reflect the
impact of the significant restructuring of the business under the
Strategic Restructuring Plan.
The recoverable amount of the cash generating unit to which the
goodwill impairment charge has been allocated is GBPnil. The
methods applied to determine the recoverable amount is disclosed in
note 2.
11. Investments
The following companies
are part of the Group:
Name Country of Incorporation % owned Activity
======================== ========================== ========= ==========
Gable Insurance AG Liechtenstein 100% Insurance
======================== ========================== ========= ==========
Gable Services (London) UK 100% Services
Limited
======================== ========================== ========= ==========
Gable Management Limited UK 100% Dormant
======================== ========================== ========= ==========
12. Property, plant and equipment
Fixtures
and
fittings
and
IT systems leasehold Motor
and software improvements vehicles Total
Group GBP000s GBP000s GBP000s GBP000s
------------------------- ------------- ------------- --------- --------
Cost
At 1 January 2014 295 477 110 882
Additions 45 25 0 70
Disposals 0 0 0 0
FX movement (2) 0 0 (2)
At 1 January 2015 338 502 110 950
Additions 64 16 45 125
Disposals 0 0 (68) (68)
FX movement 2 0 (1) 1
At 31 December 2015 404 518 86 1,008
--------------------------- ------------- ------------- --------- --------
Depreciation
At 1 January 2014 79 238 75 392
Charge for the year 49 47 22 118
Elimination on disposal 0 0 0 0
FX movement (2) 0 0 (2)
At 1 January 2015 126 285 97 508
Charge for the year 55 50 17 122
Elimination on disposal 0 0 (67) (67)
FX movement 2 (1) 0 1
At 31 December 2015 183 334 47 564
--------------------------- ------------- ------------- --------- --------
Net book value
31 December 2015 221 184 40 445
31 December 2014 212 217 13 442
--------------------------- ------------- ------------- --------- --------
Depreciation is charged to other operating expenses.
13. Insurance assets and liabilities
2015 2014
GBP000s GBP000s
-------------------------------------- ---------- ---------
Insurance assets
Deferred acquisition and reinsurance
costs 16,231 13,153
Provision for unearned reinsurance
premium 15,197 3,022
Reinsurers' share of technical
provisions 17,452 3,200
--------------------------------------- ---------- ---------
48,880 19,375
-------------------------------------- ---------- ---------
2015 2014
GBP000s GBP000s
-------------------------------------- ---------- ---------
Insurance liabilities
Technical provisions 70,670 40,685
Provisions for unearned premium 65,841 47,307
Reinsurers' share of deferred
acquisition costs 2,776 0
--------------------------------------- ---------- ---------
139,287 87,992
-------------------------------------- ---------- ---------
2015 2014
GBP000s GBP000s
-------------------------------------- --------- -----------
At 1 January 37,485 24,465
Net claims notified and reserved
in year 37,924 33,851
Claims paid in the year net
of reinsurance recoveries (34,004) (20,787)
Incurred but not reported movement
in year - net of reinsurers'
share 11,850 490
Exchange movement (38) (534)
--------------------------------------- --------- -----------
At 31 December 53,218 37,485
--------------------------------------- --------- -----------
At 31 December 2015 the Group has set reserves at the actuarial
best estimate as set by our in-house Actuary on a basis subject to
independent peer review by Grant Thornton.
Historically, since inception, the Group used a consistent,
simplified formulaic approach to calculate reserves in respect of
its insurance liabilities at the balance sheet date. The approach
was based on a fixed percentage of premiums across the entire
portfolio. This is not uncommon in the absence of directly
comparable and relevant empirical data, which is often the case for
insurance portfolios at a relatively early stage of development. In
keeping with best practice, the Group prepares an actuarial best
estimate (which is subject to an independent actuarial peer review)
of its reserves which has provided a "best estimate". Historically,
in the absence of its own mature experience, this assessment has
necessitated the use of certain market level benchmark data, hence
such reviews can never fully capture the impact of the Group's
"niche underwriting" strategy, tight policy wording and beneficial
impact of a proactive and efficient claim handling process.
For the current year and beyond, Gable carries reserve at
actuarial best estimate and will apply a reserving policy based on
an internal, class-specific actuarial assessment prepared by
Gable's in house actuary on an ongoing basis. The internal
assessment is based on a more granular, bottom-up approach, taking
into account coverage, claims reporting patterns and wording
restrictions. The Board fully believes that its niche underwriting
strategy will demonstrate loss ratios which outperform the wider
market.
13. Insurance assets and liabilities continued
Group 2015 2014
GBP000s GBP000s
Movement in reinsurers' share of
technical provisions
At 1 January 3,200 0
Movement in provision for the year 14,293 3,200
Exchange movement (41) 0
At 31 December 17,452 3,200
======== ========
Group 2015 2014
GBP000s GBP000s
Movement in provision for unearned
premium (gross)
At 1 January 47,307 24,554
Movement in provision for the year 18,534 22,753
Exchange movement
At 31 December 65,841 47,307
======== ========
Group 2015 2014
GBP000s GBP000s
Movement in deferred acquisition
costs
At 1 January 13,153 6,948
Movement in provision for the year 3,078 6,205
At 31 December 16,231 13,153
======== ========
Group 2015 2014
GBP000s GBP000s
Movement in provision for unearned
reinsurance premium
At 1 January 3,022 921
Movement in provision for the year 12,175 2,101
At 31 December 15,197 3,022
======== ========
Group 2015 2014
GBP000s GBP000s
Movement in reinsurers' share of
deferred acquisition costs
At 1 January 0 0
Movement in provision for the year 2,776 0
At 31 December 2,776 0
======== ========
-
The insurance reserves carried by the Group are calculated using
a number of methods to project gross and net insurance
liabilities:
-- a case by case review of notified claims; and
-- actuarial techniques such as the chain-ladder method and the
Bornhütter-Ferguson method.
The Group has undertaken an actuarial assessment of its reserves
which has been independently peer reviewed by Grant Thornton, to
ensure that the reserves included in the year end results are
within a range of possible outcomes.
13. Insurance assets and liabilities continued
The major assumptions underlying the reserves established by the
Group are:
-- The Group's claims experience for the ten years ended 31
December 2015 can be used to project future claims development
factors; and
-- Benchmarking exercises used in the assessment of ultimate
claims provide a reasonable basis to compare against the Group's
reserve position (after adjusting for differences in the business
underwritten and the relevant factors).
The aim of these assumptions is to arrive at an estimate of the
possible future obligations and cash outflow of the Group. The
estimates selected and disclosed in the financial statements are
sensitive to various factors including:
-- Future cost inflation of loss adjusters and the advisors who
assist the Group with the settlement of claims; and
-- The development of the Group's claims experience as it
develops its presence in the market. Whilst there is the potential
for claims experience to deviate from that estimated this is kept
under constant review by management.
The assumption that has the greatest effect on the measurement
of the insurance contract provisions is the expected loss ratios.
The expected loss ratio is the ratio of expected claims to
premiums.
As at 31 December 2014 the estimated gross reserve on an
underwriting year basis (that is encompassing both business that is
earned and business that his unearned at the time of valuation) was
GBP74.2m. In the year ending 31 December 2015, an amount equal to
33.3% of this reserve was paid out as claims settlements for claims
relating to underwriting years 2014 and prior.
An analogous review undertaken as at 31 December 2014 indicated
that just over 20% of the estimated gross reserve as at 31 December
2013 was paid out as claims in the year ending 31 December 2014.
Taking these two assessments, we might expect in excess of 20% of
the technical provisions as at 31 December 2015 to be settled by 31
December 2016.
14. Prepayments and accrued income
2015 2014
GBP000s GBP000s
Prepayments 659 126
659 126
15. Trade and other receivables
2015 2014
GBP000s GBP000s
=================================== ======== ========
ATE premiums not yet due 21,933 30,512
Non-ATE premiums due 32,830 30,208
=================================== ======== ========
Receivable from direct insurance
operations 54,763 60,720
Balances held by brokers as claims
provisions 544 643
Other debtors 6,637 5,011
=================================== ======== ========
61,944 66,374
=================================== ======== ========
Following the receipt of new information in respect of an ATE
Insurance policy relating to a US litigation case, the Board have
determined to write off in full the premium not yet due of GBP7.9
million, which was shown in the 2014 report and accounts.
Previously the premium receivable by the Group for this policy
consists of an initial fixed premium (which has been collected)
plus a variable element calculated on a fixed percentage of the
award receivable by the plaintiff. The US Court initially awarded
damages in 2012 for breach of contract and the Group recognised a
recoverable balance of $5.5m based on this initial award. Since
that court ruling substantial further information on quantum of
this settlement was discovered and in light of this information,
Management revised its best estimate of the amount likely to be
recovered through further judicial process to the US$12.6 million
(GBP7.9m) historically recorded in the financial statements.
15. Trade and other receivables continued
Both parties to the litigation raised appeals against certain
aspects of the original ruling, all of which were rejected by the
courts in a hearing in April 2015. A hearing to finally determine
quantum was set for October 2015 but the parties reached a private
settlement immediately prior to the hearing taking place. The Board
took steps to determine the nature of the private agreement and the
quantum agreed and, at the end of May 2016, obtained information
that the settlement had been agreed at an amount substantially
below that of even the initial award. Accordingly, and after
further consultation, the Board has decided it will be prudent to
write down the recoverable amount to GBPnil (2014: GBP7.9 million)
to reflect this new information. Management is dissatisfied with
the outcome of this case, not least because the terms of the policy
required the parties to consult the Group on any proposed
settlement and this did not occur. The Group is taking steps to
seek additional recoveries for, amongst other reasons, breach of
contract but there remains uncertainty regarding the amount and the
timing of any additional premium recoverable by the Group.
The amount and timing of receipt of other ATE premiums not yet
due is dependent on factors outside of the Company's control and is
therefore uncertain and a significant portion of this balance could
become recoverable after more than one year. ATE Insurance policies
are no longer being written.
All other trade and receivables are due within one year.
16. Cash and cash equivalents
Group Group
2015 2014
GBP000s GBP000s
-------------- -------- --------
Cash at bank 46,509 42,358
46,509 42,358
-------------- -------- --------
17. Share capital and premium
Number
of Ordinary Share
shares shares premium
No. GBP000s GBP000s
---------------- ------------ --------- --------
At 1 January
2014 133,404,833 334 15,859
Shares issued
in the year 1,915,000 4 331
Share issue
costs 0
At 1 January
2015 135,319,833 338 16,190
------------------ ------------ --------- --------
Shares issued
in the year
Share issue
costs 0
At 31 December
2015 135,319,833 338 16,190
------------------ ------------ --------- --------
The total authorised number of shares is 4,000 million (2014:
4,000 million), with a nominal value of 0.25 pence each. All issued
shares are fully paid.
Share options
On 9 July 2010 share options were granted to directors,
management and key employees (the "2010 Options"). All 2010
Options had vested as at 31 December 2014. On 25 June 2014 share
options were issued to directors and management
(the "2014 Options") which will vest, subject to performance
conditions, on 25 June 2017. The performance conditions were not
met during the year and the Board consider it unlikely that these
options will ever vest, accordingly the charge made in the prior
year has been reversed. Subject to vesting, options can be
exercised from after three years from the date of grant until ten
years from the date of grant. Options are settled in equity once
exercised.
17. Share capital and premium continued
The movements in the number of share options and their related
exercise price are as follows:
Weighted
average
Fair exercise
value price
Group Number pence pence
-------------- -------------- ------------ -------- ---------
At 1 January 2014 (2010
Options) 10,703,912 7.3078 17.5
Options granted during
the year (2014 options) 2,000,000 26.5084 82.5
Options exercised during
the year (2010 options) (1,915,000) 7.3078 17.5
------------------------------ ------------ -------- ---------
At 1 January
2015: 2010 Options 8,788,912 7.3078 17.5
2014 options 2,000,000 26.5084 82.5
----------------------------- ------------ -------- ---------
No options or warrants were either granted or exercised during
the year
At 31 December
2015: 2010 Options 8,788,912 7.3078 17.5
2014 options 2,000,000 26.5084 82.5
------------------------------- ----------- -------- -----
10,788,912
------------------------------- ----------- -------- -----
The share based payment charges recognised in the accounts are
not, and never will be, a cash cost to the Group but are merely an
accounting charge to the income statement. The purpose of such a
charge is to represent an estimate of the theoretical cost to the
Group if options are exercised in the future where the receipts
from exercise are lower than if the same number of shares had been
issued at the then prevailing market value.
For those options granted to employees and directors, the fair
values were calculated using the Black-Scholes model. The inputs
for the model were as follows:
Risk free rate 2.10% (set at the 5 year Government gilt
rate)
Share price volatility 45% (based on historical experience and
peer review)
Expected life 3 years (based on a variety of economic and
behavioural considerations) Share price at date of grant 82.5p
(mid-market closing price on day prior to grant)
Warrants
On 2 September 2013, warrants were issued to David Coles on his
appointment as Group Financial Controller for 500,000 shares,
250,000 of which vested after 12 months and the balance vested
after 24 months subject to performance conditions. These warrants
have an exercise price of 65.75p (the closing mid-market price on
the day prior to grant was 66p) and will lapse on 9 July 2020
unless exercised prior to that date. For the purposes of share
based payment charges these have been valued using the Black
Scholes model utilising the same inputs as for options except that
the share price on date of grant was 65.75p and the expected life
is 12 or 24 months respectively. No warrants were either granted or
exercised during the year and the existing warrants can be
summarised as follows:
Weighted
average
Fair exercise Number
value price of warrants
pence pence No.
-------------------------------- -------- ---------- -------------
At 1 January 2014: Granted
warrants 7.9427 25.125 2,000,000
Warrants which vested after
12 months 12.431 65.75 250,000
Warrants with a vesting period
of 24 months 17.6270 65.75 250,000
--------------------------------- -------- ---------- -------------
At 31 December 2014 and 2015:
Granted warrants 7.9427 25.125 2,000,000
Warrants which vested after
12 months 12.431 65.75 250,000
Warrants with a vesting period
of 24 months 17.6270 65.75 250,000
---------------------------------- -------- ---------- -------------
Total 2,500,000
---------------------------------- -------- ---------- -------------
18. Other reserves
Share
based
payment Other Retained
Reserve reserves earnings
Group GBP000s GBP000s GBP000s
At 1 January 2014 958 3,875 10,638
Retained profit for
the period (4,822)
Share based payment 132
Transfer on exercise
of options (140) 140
At 31 December 2014 950 3,875 5,956
-------- --------- ---------
At 1 January 2015 950 3,875 5,956
Retained profit for
the period (24,209)
Currency translation
differences
Share based payment
charge (74)
Transfer on exercise
of options 0
At 31 December 2015 876 3,875 (18,253)
-------- --------- ---------
Share based payment reserve
The share based payment reserve relates to share options issued
in 2010 and 2014, and warrants issued in 2012 and 2013, full
details of which are provided in note 17. During the year no
options were exercised (2014: options were exercised over
1,915,000 shares). During 2014, the accumulated share based
payment reserve represented by shares issued on exercise of options
amounting to GBP186,000 was transferred to retained earnings.
The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date reflects
the extent to which the vesting period has expired and the Group's
best estimate of the number of equity instruments that will
ultimately vest.
The credit in the statement of profit or loss represents the
movement in cumulative expense recognised as at 31 December 2015 as
a result of vesting conditions not being likely to be met.
Other reserves
On 23 December 2005, 31,000,000 ordinary shares of 0.25p each
were issued as consideration to the vendors of Brown Duke AG
(subsequently renamed Gable Insurance AG) at a valuation of 12.75p
per share. The Company took advantage of Merger Relief available at
the time and the difference between the total value of the shares
issued of GBP3,952,500 and the nominal value of the shares issued
of GBP77,500 was credited to other reserves (GBP3,875,000).
19. Loan notes and derivatives
2015 2014
GBP000s GBP000s
===================== ======== ========
Loan notes 3,898 -
Embedded derivatives 68 -
===================== ======== ========
At 31 December 3,966 -
===================== ======== ========
On 18 December 2015 the Company issued Loan Notes with a base
value of GBP3.96 million for cash. IAS39 requires the Loan Notes to
be considered as containing a hybrid instrument with an embedded
derivative "conversion feature" within the host instrument. The
value of this embedded derivative has been calculated using the
Black Scholes method as having a value of
GBP68,000 (2014: GBPNil) and this is disclosed separately on the
Group Statement of Financial Position. The embedded derivative will
be re-measured at fair value at each reporting date. The liability
host component (being the balancing amount of
GBP3,982,000 (2014: GBPNil)) was recorded as a liability at the
date of issue of the Loan Notes. Between the date of issue and the
year end IAS39 requires the Loan Notes to be amortised over their
expected life with a corresponding charge to the Income statement.
This charge amounted to GBP6,000 during the period (2014: GBPNil)
with a corresponding liability being added to the carrying value of
the Loan Note liability (hence increasing the value to GBP3,988,000
(2014: GBPNil). On conversion the company will recognise a gain or
loss determined by reference to the fair value of the shares
issued, effectively reversing the charges recognised in 2015.
The Convertible Loan Note Instrument has a term of three years
under which Loan Notes may be issued up to a maximum aggregate
value of GBP10 million. A coupon of 7.5% p.a. is payable on a six
monthly basis. The Loan Notes may be converted into new ordinary
shares at any time as follows:
-- At the noteholder's request at the lower of prevailing market price or 15p;
-- At the Company's request at the lower of a 10% discount to
prevailing market price or 15p; or
-- At the Company's request if triggered by an external factor
(such as a regulatory change) at the lower of a 20% discount to the
prevailing market price and 15p.
In each of the situations above there is a minimum conversion
price of 10p.
As noted above, the Company has issued Loan Notes amounting to
GBP3.96 million under this Loan Note Instrument. The subscribers
for the Loan Notes include existing investors in Gable as well as
certain directors of Gable as disclosed in note 23.
20. Trade and other payables
2015 2014
GBP000s GBP000s
========================== ======== ========
Trade payables 22,339 12,716
Other taxation (including
insurance taxes) 3,907 3,371
Other payables 434 341
========================== ======== ========
At 31 December 26,680 16,428
========================== ======== ========
Included in trade payables above is GBP5.554m (2014: GBP6.033m)
relating to commissions payable on ATE policies. All trade and
other payables are due within one year.
21. Contingent liabilities
Other than the provision for insurance claims (note 13), there
were no contingent liabilities as at 31 December 2015
22. Capital commitments
There were no capital commitments as at 31 December 2015 (2014:
nil).
23. Related party transactions
During the year, the Group traded with Hogarth Underwriting
Agencies Limited ("HUAL"), a company wholly-owned by its sole
director, William Dewsall, Chief Executive of Gable. HUAL acts as
an insurance intermediary for the Group's UK construction account
and routinely collects premiums and settles claims under a
delegated authority from Gable. HUAL will assist Gable in the
transfer of business to new carriers as part of the implementation
of the Strategic Restructuring Plan.
The net commission and administration costs payable for services
provided by HUAL for 2015 were set in an agreement reached in 2013
on a commercial basis and amounted to GBP1,897,000 (2014:
GBP1,816,000). The balance outstanding due from HUAL at 31 December
2015, which is not subject to interest charges, was GBP3.996m
(2014: GBP3.445m). On 28 June 2013, as part of the audit for the
2012 Report and Accounts, the HUAL director provided a letter of
guarantee relating to the debt due from HUAL. As part of
implementing the Strategic Review Plan, debt and related service
arrangements between HUAL and Gable will be reviewed. In addition
to this balance due from HUAL, at 31 December 2015 HUAL held an
amount of GBP0.86m (2014: GBP0.58m) in a statutory trust in favour
of Gable which represents premiums collected on behalf of Gable and
liquid resources which HUAL utilise to settle claims on behalf of
Gable.
During the year the Group paid GBP36,000 (2014: GBP48,000) to
Kitwell Consultants Limited, a company beneficially owned by Mike
Hirschfield and his family, for Company Secretarial, advisory and
accountancy services. These services terminated in September 2015
and no further transactions have been conducted. No amounts remain
outstanding between the parties at the end of the year (2014:
GBPNil).
During the year Company issued Loan Notes with a base value of
GBP3.96 million for cash as outlined in note 19. The subscribers to
the loan notes included William Dewsall, Chief Executive of Gable
(GBP1,000,000), plus Kevin Alcock (GBP400,000) and Andrew Trott
(GBP100,000), both Non-Executive directors of Gable.
24. Cash generated from operations
Group Group
2015 2014
GBP000s GBP000s
------------------------------------ --------- --------
(Loss) profit before tax for the
year (24,256) (5,437)
Interest received (673) (99)
Depreciation of property, plant
and equipment 122 118
Amortisation of derivatives 6 0
Share based payments (74) 132
Impairment of goodwill 4,250 0
Increase in insurance liabilities 48,519 38,973
Increase in reinsurers share of
technical provisions (14,252) (3,200)
Increase in deferred acquisition
and reinsurance costs (3,078) (6,205)
Increase in reinsurers' share of
deferred acquisition costs 2,776 0
Increase in provision for unearned
reinsurance premium (12,175) (2,101)
Increase in receivables 3,897 (9,622)
Increase in payables 9,842 2,828
Cash generated from operations 14,904 15,387
------------------------------------ --------- --------
25. Obligations under leases and hire purchase contracts
Operating lease agreements where the Group is lessee.
The Group has entered into commercial leases on certain
properties and items of office equipment. These leases have an
average duration of between three and ten years. Only the property
lease agreements contain an option for renewal at rentals based on
market conditions at the time of exercising such an exercise. There
are no restrictions placed upon the lessee by entering into these
leases. During 2015 the Group's lease on offices in Lime Street,
London was subject to a rent review under which the annual rent
increased from GBP225,000 per annum to GBP260,000 per annum and, in
return for not exercising a break clause, the Group will benefit
from a six month rent free period in 2016. The lease on the
property expires on 20 April 2020.
Future minimum rentals payable under non-cancellable operating
leases are as follows:
2015 2014
GBP000s GBP000s
---------------------------------- -------- --------
Not later than one year 173 289
After one year but not more than
five years 867 962
After five years - 225
---------------------------------- -------- --------
1040 1476
---------------------------------- -------- --------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FMGMNKKRGVZG
(END) Dow Jones Newswires
July 15, 2016 02:00 ET (06:00 GMT)
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