Interim Results to 30.6.2000

The interim results to 30 June 2000 are announced today, the press release is attached
September 20,2000


BRIT Insurance Holdings PLC, the specialist insurance and reinsurance group, today announces its interim results for the six months to 30 June 2000.
HIGHLIGHTS
Rates in core areas improving significantly - expected premium income for 2000 up by 33%
Estimated Gross Written Premium for 2001 up 86.6% over 1999
Capital utilisation a priority - key to success in a hardening market
First year of annual accounting
Sale of third party Capital Management business and closure of Names Agency
RESULTS6 months to 30June 2000(unaudited)6 months to 30June 1999(unaudited)Loss before tax£13.7m
£13.1mBasic EPS(3.87p)(6.17p)Operating EPS(1.95p)(8.94p)Interim Dividend1.0p3.5p** Final
Jo Welman, Chairman, said:
The first half has provided further evidence that our markets are recovering and we are increasingly confident that we have the opportunity to generate greatly improved underwriting returns. There is evidence also that our reserving policy will prove to have been an early acknowledgement of the truly awful underwriting conditions in our core markets in 1998 and 1999...
Both Wren and BRIT Insurance Limited have made encouraging starts to the year. Our non-marine and motor syndicates have announced significant pre-emptions for 2001 and BRIT Insurance's premiums continue to grow, reflecting an improved rating scenario within the catastrophe reinsurance business and a number of significant deals completed by the financial risk team.
We look forward to the future with growing confidence.'
For further information, please contact:
Neil Eckert (Chief Executive)/Jo Welman, BRIT Insurance Holdings PLC 020 7984 8511
David Haggie, Haggie Financial Limited 020 7417 8989

CHAIRMAN'S STATEMENT

The first half has provided further evidence that our markets are recovering and we are increasingly confident that we have the opportunity to generate greatly improved underwriting returns. There is evidence also that our reserving policy will prove to have been an early acknowledgement of the truly awful underwriting conditions in our core markets in 1998 and 1999.
Your Board has decided to close the Lloyd's Names agency and sell our third party capital management business. Both fall outside the strategic aim of the Group to focus on implementing the optimum management and capital structures to support our own insurance businesses. It is estimated that the cost of withdrawal from these activities should not exceed £350,000 and there will be significant ongoing cost savings.
For the first time we are recognising an underwriting result at the interim stage as we have now adopted annual accounting for our managed syndicates. The three-year funded basis is still used with respect to non-managed syndicates, as we have no detailed underwriting information on these syndicates as at 30 June. The comparatives for the previous year have also been restated to reflect the results for the six-month period to 30 June 1999 and not the period to 30 September 1999. We have also adopted the long-term rate of investment return on the investment assets of BRIT Insurance Limited, our funds at Lloyd's portfolio and our share of syndicate investments.
The results for the six months ended 30 June 2000 show an operating loss of £6.9 million compared with a loss of £19 million (restated). Operating earnings per share have improved to a loss of 1.95p from a loss per share of 8.94p (restated).
Your Board has declared an interim dividend of 1p per share which will be paid on 8 November 2000 to shareholders on the register at the close of business on 6 October 2000.
Over the first half a recovery on the technical account to a profit of £1.6 million has been offset by a negative return of £10.6 million from short-term fluctuations in our equity portfolios and our remaining insurance investments. Both have made significant recoveries since 30 June.
Both Wren and BRIT Insurance Limited have made encouraging starts to the year. Our non-marine and motor syndicates have announced significant pre-emptions for 2001 and BRIT Insurance's premiums continue to grow, reflecting an improved rating scenario within the catastrophe reinsurance business and a number of significant deals completed by the financial risk team.
We look forward to the future with growing confidence.
Jo Welman
19 September 2000

CHIEF EXECUTIVE'S REPORT
The hardening market that we have been forecasting for some time is now firmly upon us. We expect that the coming renewal season for 2001 will therefore be one of the most challenging that brokers and their customers have faced for a decade. Parts of the insurance market are now suffering disastrous results causing the withdrawal of capacity. It is disappointing that rates had to fall so far below an economic level and so much financial damage had to be done before the market turned. I now believe that we are approaching the market conditions for which we have planned and from which we will profit. In our last report and accounts we published estimated gross premium levels for 1999 and 2000. We have updated this chart to include estimates for 2001. This demonstrates our ability to achieve strong organic growth in a hardening market.
Comparison of estimated gross premium written by BRIT underwriting operations

Gross Written Premium% IncreaseClass of business2001200019992000/20011999/2000Reinsurance97,98666,16642,64848.0955.14Motor62,00050,08042,90023.8016.74Space24,03719,93419,35020.583.02Marine22,00016,60114,60032.5213.71Aviation19,47912,25811,76358.914.21Property17,28911,4951,91650.40499.95Financial Risks17,1009,5001,80580.00426.32Professional Indemnity15,00111,49913,87930.45-17.15Liability11,2397,9517,86341.351.12Financial Institutions8,0165,5003,85045.7542.86Personal Accident7,6406,1552,15024.13186.28Directors' & Officers7,0354,5003,50056.3328.57Life5,3633,5653,04550.4317.08Miscellaneous3,0811,65074886.73120.59War1,25362869899.52-10.03Total318,519227,482170,71540.0233.25
BRIT Insurance Limited
The company's performance has exceeded our expectations. The financial risks team has firmly established a presence in this specialist market concluding a number of significant transactions for major counterparties. Deal flow is strong from a variety of sources, although a large number have been declined as BRIT has a highly focused underwriting discipline.
A prudent approach is being adopted both in terms of capital allocation and earnings pattern. Due to the long-term nature of financial risks the earnings pattern has to reflect the time lag of the risk maturity. Accordingly the impact in terms of earned premiums on the profit and loss account is low in the short-term but there is a significant level of embedded value being created in the financial risks portfolio.
Written premium levels for financial risks for 2000 are estimated to be £8 million, broken down by category as follows:
Ground up Mortgage Indemnity Guarantee50.0%Excess of Loss16.5%Residential Property15.0%Consumer Credit12.5%Other6.0%Total100.0%
A number of the deals written are on a multi-year basis and there is approximately £4 million of committed
premiums due to be written in 2001 and beyond. Additionally contracts that are on an annual renewal basis could potentially account for a further £5 million of written premiums per annum.
In view of the encouraging response BRIT Insurance has received from the market there is a definite need for their specialist financial risks capacity. Forecasts for written premiums in 2001 are expected to be approximately £17 million.
The catastrophe account has had a good half year with a notable absence of significant losses. As I write we are in the middle of a hurricane season and this should temper our optimism as to the full year result. However, the underlying trends are positive and we expect them to continue. The company continues to attract high quality personnel as demonstrated by the recent arrival of David Jordan to head up the catastrophe team. He is joined by Andrew Cunningham. They have a long and profitable track record in a leading capacity in the reinsurance market and will work with Simon Woodage in the expanded catastrophe division.
Wren
Most areas of the company are growing satisfactorily as evidenced by the projected premium forecast. Lloyd's has now approved the pre-emptions of stamp capacity (the permitted level of premium income that can be written) for non-marine Syndicate 250 from £50 million in 2000 to £100 million in 2001 and for motor Syndicate 1202 from £50 million in 2000 to £70 million in 2001. Our Life Syndicate won the British Insurance Industry award for the 'Lloyd's syndicate of the year 2000'. Our space account is progressing satisfactorily and the withdrawal of several competitors from this class will create an upward pressure on pricing. Aviation and marine have been two of the most depressed areas of our account, but are showing early signs of an upturn. A cursory study of recent results in these sectors supports our contention that pricing has been woefully inadequate and a further doubling of rates may be required for the market to stand a realistic chance of achieving an appropriate return on capital in the marine and aviation arenas.
We have nearly completed a disposal program for all third party Lloyd's underwriting activity during this year's auction process and will continue to increase our support for our own managed syndicates. Auction trading activity will make a positive contribution to profits for the current year.
Our challenge has been to preserve our balance sheet during the soft part of the cycle and be positioned for the upturn. As we get closer to completing the transition from underwriting agency to insurance company, it is likely that we will move to a composite syndicate model which promises to provide a more efficient capital structure and should further enhance BRIT's earnings as the market hardens. This evolution will be handled with great care as the market has seen some high profile defections in other operations that have undertaken this process of consolidation. However, we have the support of our key underwriters and will be discussing this move and its timing with capital providers and market regulators. From a management, cost and policyholder perspective, the rationale for this change appears compelling. We are planning to announce further details on timing and implementation before the year end.
Group Structure
The planned reorganisation will allow further focus on our future business aims. The group will operate two distinct business divisions with an emphasis on our customers and products rather than the regulatory environment:
a) The wholesale division encompassing reinsurance, financial risk and large commercial lines.
b) The retail division encompassing our retail lines, small commercial lines and our distribution businesses.
Having both FSA and Lloyd's operations we are well placed to direct the business to the most efficient division from a regulatory, rating and licensing perspective.
We want to become more product/brand orientated and this will be achieved more effectively in the proposed new structure than it would be under the existing syndicate model. Also, it will facilitate a co-ordinated approach to group risk management
The process has already started with the appointment of a Group Reinsurance Co-ordinator and the licensing of the ReMetrica II. This is a high powered risk evaluation tool that has also been adopted by several other market leaders. The implementation will also involve an improvement of our actuarial capabilities.
Most importantly, this structure will lead to substantial cost savings.
Other Investments
We wish to either own, control or dispose of our remaining unquoted and third party insurance investments in the medium-term. The Lloyd's insurance sector's share prices have staged a modest recovery since April and during the period under review there was an all cash offer by QBE for Limit, the largest company in the Lloyd's quoted sector. We have made some modest disposals from our portfolio but still want to see valuations well above current levels before we make further significant sales.
Our other investments are focused mainly in distribution activities. We continue to consolidate this portfolio and have recently secured an option to purchase a controlling stake in Peoples Choice, a rapidly growing telesales business. It is our long-term strategy to develop a strong and profitable presence in areas of distribution to diversify and improve the quality of our earnings.
In summary, we now believe that the short term outlook for the company has improved substantially. This is, of course, somewhat dependent on catastrophe claims activity but underlying trends and ratings are now moving firmly in our favour. The balance sheet is strong and conservatively positioned and our open year loss provisions remain at the levels set out in the year end accounts. We continue to progress in our aims to rationalise the company's activities, focus on costs and further develop the specialist core areas of our business.
Neil Eckert
Chief Executive
19 September 2000
 
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