Important information about Syndicate Reports and Accounts

Transcription

1 Important information about Syndicate Reports and Accounts Access to this document is restricted to persons who have given the certification set forth below. If this document has been forwarded to you and you have not been asked to give the certification, please be aware that you are only permitted to access it if you are able to give the certification. The syndicate reports and accounts set forth in this section of the Lloyd s website, which have been filed with Lloyd s in accordance with the Syndicate Accounting Byelaw (No. 8 of 2005), are being provided for informational purposes only. The syndicate reports and accounts have not been prepared by Lloyd s, and Lloyd s has no responsibility for their accuracy or content. Access to the syndicate reports and accounts is not being provided for the purposes of soliciting membership in Lloyd s or membership on any syndicate of Lloyd s, and no offer to join Lloyd s or any syndicate is being made hereby. Members of Lloyd s are reminded that past performance of a syndicate in any syndicate year is not predictive of the related syndicate s performance in any subsequent syndicate year. You acknowledge and agree to the foregoing as a condition of your accessing the syndicate reports and accounts. You also agree that you will not provide any person with a copy of any syndicate report and accounts without also providing them with a copy of this acknowledgment and agreement, by which they will also be bound.

2 Sportscover Syndicate Syndicate Annual Accounts For the t year ended 31st December 2011

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4 Syndicate 34 Sportscover Syndicate Managing agent Sportscover Underwriting Limited PO Box HQ 420 St Helen s, 1 Undershaft London EC3P 3DQ Registered in England number Joint active underwriters Christopher Nash Murray Anderson (from 1 January 2011) Syndicate auditors Mazars LLP Tower Bridge House St Katharine s Way London E1W 1DD Syndicate bankers Barclays Bank PLC 1 Churchill Place Canary Wharf London E14 5HP Citibank N.A. Citigroup Centre 33 Canada Square Canary Wharf London E14 5LB Royal Trust Corporation of Canada Royal Trust Tower Toronto Ontario M5W 1P9 Canada Commonwealth Bank of Australia 385 Bourke Street Melbourne, Victoria Australia Australia and New Zealand Bank 614 Burke Road Camberwell Victoria 3124 Australia Actuaries Towers Watson Limited Saddlers Court East Street Epsom Surrey KT17 1HB 1

5 Contents of Report and Accounts Page Report of the managing agent 3 Report of the independent auditors 10 Profit and loss account: technical account 12 Profit and loss account: non-technical account 13 Balance sheet 14 Cash flow statement 16 Notes to the accounts 17

6 Syndicate 34 Report of the Managing Agent The managing agent presents its report for the year ended 31st December Sportscover Underwriting Limited (SCU) is currently responsible for managing the affairs of Syndicate only. Statement ent of Managing Agent s responsibilities The managing agent is responsible for preparing the syndicate annual accounts in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice. The Insurance Accounts Directive (Lloyd s Syndicate and Aggregate Accounts) Regulations 2008 ( the Regulations ) require the managing agent to prepare syndicate annual accounts for Syndicate at 31st December each year which give a true and fair view of the state of affairs of the syndicate and of the profit or loss of the syndicate for that period. In preparing these syndicate annual accounts, the managing agent is required to: select suitable accounting policies which are applied consistently, with the exception of changes arising on the adoption of new accounting standards in the year; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material differences disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that there will be future years of account of the syndicate. The managing agent is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the syndicate and enable it to ensure that the syndicate annual accounts comply with the Regulations. It is also responsible for safeguarding the assets of the syndicate and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Directors The names of the persons who were directors of the managing agent at any time during the year are set out below: Robert Wallace Non-executive Chairman Dominic Ford Director of Compliance & Risk Management and Company Secretary Christopher Nash Joint Active Underwriter Syndicate Murray Anderson Joint Active Underwriter Syndicate, appointed 1 January 2011 Peter Nash Director of Underwriting & Claims Matthew Riley Chief Executive Officer Belinda Taylor Director of Finance Bryan Murphy Non-executive Director Timothy Seymour Non-executive Director Review of the business Syndicate is a specialist insurer of sport and leisure risks providing personal accident, public liability, property, contingency and directors and officers cover as well as bloodstock and travel insurance. It is the only dedicated sports and leisure syndicate in the Lloyd s market, with a primary focus on amateur sports risks. However, carefully selected professional and semi-professional sporting activities and targeted leisure risks are also accepted at the appropriate pricing levels. As a specialist insurer with considerable experience in its field, Syndicate is able to tailor its products to meet the particular needs of its sports and leisure clients. 3

7 Report of the Managing Agent continued Review of the business continued The syndicate commenced underwriting for the 2006 account with allocated capacity of 8 million. This was increased to 15 million for 2007 and maintained in 2008 as a prudent response to a market that was continuing to soften. In addition to the capital support from the holding company of the two key coverholders, the 2007 and 2008 years of account are also supported by third party capital providers sourced by certain of the Lloyd s members agents. This capacity was offered on a limited tenancy basis with the right to participate limited until the end of Capacity for 2009 was increased to 20 million and a further increase to 25 million was put into place for 2010 to enable the continued growth, diversification and territorial expansion of the syndicate s underwriting activities. Capacity for 2011 increased further to 35 million and has been offered on a new limited tenancy basis with the right to participate until the end of The capacity for 2012 is 45 million. The expansion and diversification of the syndicate over the past five years of operation has followed a carefully constructed plan for sustainable growth in various niche market segments. These segments have been selected to achieve the greatest return from the significant underwriting expertise within the syndicate. During the second half of 2009, the syndicate introduced a complementary book of travel business in order to further diversify the underwriting portfolio. This was an existing profitable book of business placed with another insurer. The book is limited to Australian and New Zealand travellers only but with plans to expand beyond these countries in due course. The critical mass achieved by this portfolio has allowed the syndicate to offer a sports travel product for the existing client base to provide a more complete suite of products. The travel book of business has achieved higher volumes than initially forecast due primarily to the favourable Australian dollar exchange rate which has encouraged travel from Australia, a position which continued from 2010 in to During the calendar year 2011 the travel book of business accounted for 42% of the stamp gross written premiums (2010: 41%); the premiums having been spread across two binders attaching to the 2010 and 2011 years of account. The majority of business written by the syndicate to the risk codes of personal accident, public liability, property and directors and officers still comes from binding authorities granted to two underwriting agencies, namely Sportscover Australia Pty Ltd and Sportscover Europe Ltd, within the same group as one of the major capital providers to the syndicate. These binding authorities are for a 12 month period currently commencing in August, and the individual risks attach to the year of account in which the binding authorities commence. This means that much of the business written in 2011 is allocated to the 2010 year of account enabling the syndicate to more fully utilise its capacity. The same will apply for the 2011 year of account, which will continue to be written during During 2011 the above-mentioned binding authorities were supplemented by direct underwriting on business falling within the stated profit targets of the syndicate. The business has been written through established cover-holders and also in the open market. The new travel book is also written through an established third party cover-holder with many years of experience in this segment. The employment of a dedicated contingency underwriter in June 2010 has resulted in a significant increase in high quality, short tail open market business being written by the syndicate. This business accounted for 7% of the calendar year 2011 stamp gross written premiums (2010: 5%). The syndicate further diversified in 2011 due to the employment of an experienced bloodstock underwriter. The conditions for this market have been difficult during 2011 and business has been turned away where rates have been too low to enable the business to be written profitably. As a consequence income development in this line of business will now be over a longer period. The syndicate continues to expand territorially and now underwrites business in the UK, Ireland, Norway, Sweden, Denmark, Australia, New Zealand, the Pacific Islands, China, Singapore, Hong Kong, South Africa, Canada, the USA and the Caribbean. Further geographical expansion will occur in the future, with particular focus being given to underwriting in Germany, Eastern Europe and other parts of Asia. On an annually accounted basis the result for calendar year 2011 is a loss of 2,543,000 (2010: loss of 398,000). This is made up of a loss on the technical account of 3,160,000 (2010: loss of 673,000) plus an investment return of 617,000 (2010: return of 275,000). At the end of 2011 the syndicate had written 19.9 million of gross premium net of brokerage & commissions to the 2009 year of account, 24.4 million to the 2010 year of account and 14.7 million to the 2011 year of account. These premium volumes are consistent with the syndicate s expectations at this time. The 2009 year of account closed on 31 December 2011 with a loss of 1.7 million. This comprised a pure year profit of 1.6 million less back year movements of 3.3 million.

8 Syndicate 34 Report of the Managing Agent continued Review of activities in the year continued Separate underwriting year accounts for the 2009 closed year have been prepared for the members of this year of account and a detailed review of the results of this particular year are included therein. The forecast result for the 2010 year of account at 31 December 2011 is for a profit of % of capacity. The 2011 year of account is at a very early stage of development. A forecast profit range is not required to be published at this time, but the book is tracking in line with expectations The syndicate has maintained a prudent approach to the purchase of reinsurance by keeping a comprehensive programme covering all lines. This is placed with security rated A or better by one of the major ratings agencies. In 2009, the syndicate increased the retention on the public liability programme to be excess of one loss otherwise recoverable. This recognised the relative infrequency of large losses in this account and represented a significant cost saving to the syndicate. The property catastrophe retention was also increased from 250,000 to 500,000, reflective of an increase in the syndicate s net risk appetite at that time and the achievement of a cost saving in this area. The property programme has been supplemented in 2011 with an increase in property catastrophe layers in Australia, recognising the greater probability of catastrophe incidents occurring there. Separate reinsurances have been purchased for the direct underwriting risk codes of travel, contingency and bloodstock. Key performance indicators 2011(Calendar Year) 2010 (Calendar Year) Capacity (underwriting year) 35.0 million 25.0 million Gross premiums written 63.3 million 52.3 million Earned premiums, net of reinsurance 57.8 million 44.3 million Loss for the year (2.5) million (0.4) million Claims ratio (gross) 45.0% 38.0% Claims ratio (net) 45.5% 37.5% Combined ratio 105.4% 101.5% Cash and investments 5.2 million 8.3 million Cash held in overseas deposits 7.2 million 4.6 million 2011 year of account GAAP loss of 0.5m for the CY 2011 (2009 YOA at this stage GAAP loss of 0.1m) Gross premiums written, net of acquisition costs: 14.6m; ultimate forecast 32.6m 2010 YOA at this stage had gross written premiums of 6.4m In prior years the bulk of the syndicate s underwriting has commenced at the renewal of the two core binding authorities in mid August of each calendar year. The renewal date for these binders remained the same for the 2011 year of account, except that the Active leisure binder moved renewal dates to mid August and is now aligned with the core sports binding authorities. The steps which have been taken to bring in income from other sources at an earlier stage in the calendar year now lessens the impact of starting core binders in the third quarter. The travel binder, which is writing in excess of expectations, was renewed in to the 2011 year of account on 1 August 2011 and in this five month period wrote 5.4m of gross premium income, net of acquisition costs. The employment of the contingency underwriter in June 2010 has resulted in a full twelve months of contingency premiums attaching to the 2011 year of account on a calendar year basis, this has contributed 2.7m to the 2011 year of account gross premiums written, net of acquisition costs. The direct bloodstock underwriter has brought in 0.9m of gross premiums written, net of acquisition costs. This has helped to fill additional capacity at an earlier stage in the year. The 2011 year of account gross premiums written, net of acquisition costs for 2011 is 45% of the forecast ultimate position compared to 25% for the 2010 year of account at the same stage. As many of the expenses are front loaded and earned premiums are only 46% of written premiums, a GAAP loss of 524,000 exists as at the year-end. All earnings and claims patterns are in line with the syndicate s expectations at this point in the 2011 year of account s development and are consistent with the expected ultimate profit outturn year of account GAAP profit of 0.3m for the CY 2010 (2009 YOA at this stage GAAP profit of 0.7m) Gross premiums written, net of acquisition costs: 24.3m; ultimate forecast 24.5m 5

9 Report of the Managing Agent continued Review of activities in the year continued As referred to above, the bulk of the syndicate s underwriting in prior years has commenced at the renewal of the two core binding authorities in mid August of each calendar year. The renewal date for these binders remained the same for the 2010 year of account. However steps have been taken to bring in income from other sources at an earlier stage in the calendar year to lessen the impact of starting core binding authorities in the third quarter. The travel binder, which is writing in excess of expectations, was renewed in to the 2010 year of account on 1 November 2010 and was cut off on 31 July 2011 having written 10.2m of gross premium income, net of acquisition costs. The employment of a contingency underwriter in June 2010 resulted in an additional 1.4m of contingency business not previously written being added to the 2010 year of account gross premiums written, net of acquisition costs. This helped fill additional capacity at an earlier stage in the year. All earnings patterns are in line with the syndicate s expectations at this point in the 2010 year of account s development. Claims patterns include a loss on the contingency business which suffered a number of large contract bonus claims at the year end, which are set against only five months of premiums attaching to this year of account. On a blended ratio the contingency business for 2010 and 2011 is still within stated profit targets. Overall earning patterns and claims ratios are consistent with the expected ultimate profit outturn year of account GAAP loss of 1.7m 2009 pure year of account Pure year profit of 1,612,000 Gross written premiums, net of acquisition costs: 19.1m Claims ratio (gross and net) 65.1% Prior years of account Prior year movements of 3,269,000 The syndicate has closed the 2009 year of account with a loss of 8.29% on capacity of 20.0 million or 1,657,000 cash equivalent. The result in this year has been adversely affected by the following factors: Deterioration in back year reserves, primarily a changing liability award landscape in Australia Continuing adverse movement in Australian dollar exchange rate against sterling Minimal investment income on deposits held in the UK due to financial environment The underlying result of the pure year of account was a satisfactory result in the prevailing market conditions. Over the course of the calendar year 2011 the syndicate implemented an extensive actuarial review on both an internal and external basis. This was in response to the increasingly volatile settlement landscape for liability claims in Australia. There have been a number of claims settled for significant values during 2011 which suggests a trend back towards pre-tort reform settlement values. However the claim count in the more recent years is far lower, partly as a result of tort reform, and therefore aggregate volatility is expected to reduce in these more recent years. The agency employed a new consultant actuarial analyst, who has worked on the syndicate s reserving since inception, having been employed previously by the external actuarial firm. His work in consultation with external consultants has led to a further critical review of open back year reserves, the knowledge gained from which has been used to inform closing reserves for the 2009 pure year of account. The service company in Australia has also responded to the volatility issue by recruiting an in-house lawyer in late She has gone through a significant number of newer, open claims and provided views and tactics to follow on these claims, this has resulted in some claims that were previously denied but ultimately ended up at mediation or trial being settled at an earlier stage. Post year end the claims department in Australia has been further enhanced by the appointment of two experienced liability claims handlers. Going forward this should reduce the amount that is spent on external solicitors in defence of a claim. The stated claims position has been exacerbated by the swing in the Australian dollar exchange rate from a period end rate of A$2.06: 1 at 31 December 2008 (closing of 2006 YOA), A$1.8: 1 at 31st December 2009 (closing of 2007 YOA) to a period end rate of A$1.52: 1 at 31st December 2011 (2010: $1.53). A more complete review of the 2009 underwriting year is provided to members of the 2009 year of account in the separate underwriting year accounts.

10 Syndicate 34 Report of the Managing Agent continued Trading conditions for r 2011 Trading conditions are applicable across all lines of business written by the syndicate, as most policies are sold on a package basis. Conditions are therefore dictated by territorial differences as outlined below for the key territories: Australia The Australian market continued to be extremely competitive with new insurers entering the market looking to gain market share. Nevertheless the syndicate is maintaining its underwriting discipline by keeping within its established rating structure on a sport by sport basis. In this environment the syndicate is able to keep market share by leveraging its long standing commercial relationships and strong reputation in the market which was further enhanced by Sportscover s Australian underwriting agency winning the Australian and New Zealand Insurance Awards for Underwriting Agency of the Year twice in a row. At the end of 2011 there was evidence of a flight to quality as some of the domestic competition suffered heavy losses from severe weather events. This should mean that Sportscover is well positioned with its strong Lloyd s security rating to take advantage of this trend. The travel book of business has exceeded expectations due primarily to the favourable Australian dollar exchange rate encouraging travel. UK and Europe The syndicate continues to see strong competition in these territories. As a result of the competition, the syndicate needs to create points of difference to secure business. It does this through a value added holistic approach to clients with long-term arrangements, low-level sponsorships, risk management solutions and providing information and research on trends and developments in sport. The continuing strategy of broadening the territorial scope of the syndicate s underwriting rather than solely going deeper into existing markets will allow for robust underwriting management over the insurance cycle. Cycle management Despite the challenging conditions of the worldwide insurance market, the syndicate is extremely well positioned to continue its policy of growth and diversification within its chosen segment. Sportscover has created the only sport and leisure specialist insurer in the world and it is this expertise that continues to provide excellent potential for underwriting profit throughout all insurance cycles. An underwriting data base coupled with rating structures developed over 25 years allows the syndicate to price business appropriately. The syndicate is quite prepared to remove underpriced business from its portfolio and the underwriting teams know the walk-away prices in all the sport and leisure disciplines that are underwritten. Risk management As an underwriting business, Syndicate is exposed to a variety of financial and non-financial risks. These risks, which form the basis of the risk management strategy adopted by SCU, are integral to the capital setting process that is undertaken to ensure that there is a high level of confidence that the obligations of the syndicate can be met over a 12 month time horizon. The risks impacting the business are grouped under various categories, key amongst which are: Insurance risk The underwriting profile of Syndicate is such that it is likely that claims will arise on the business underwritten. An expected level of claims in relation to attritional, large and catastrophe type losses has, therefore, been included in the business planning process. Other precautionary measures, in the form of internal controls, are used to preserve the syndicate s performance by limiting the exposure to wider underwriting, claims and reserving risks, such as: an unexpected level of attritional losses inappropriate premium rating levels inadequate levels of reserves failure to deliver the agreed business plan inappropriate aggregation of exposure inappropriate design of the reinsurance programme or failure of the programme to adequately protect underlying risk 7

11 Report of the Managing Agent continued Insurance risk (continued) SCU manages these risks within an agreed risk appetite. The framework of systems and controls is designed for the purpose of either reducing the likelihood of, or detecting, such risks occurring and to mitigate the impact on the overall business of the syndicate Operational risk Operational risk spans all risk categories and control procedures are used to proactively address the risks associated with SCU s business processes, systems and other resources which might otherwise be detrimental to performance. Business continuity is considered key under this heading. SCU has developed an effective plan that provides for the syndicate to be operational within a 48 hour period in the event that its current offices are no longer available. The two key cover-holders, Sportscover Australia Pty Ltd and Sportscover Europe Ltd, similarly have developed comprehensive disaster recovery plans. As a regulated business, SCU is fully aware of its regulatory obligations to the FSA, Lloyd s and overseas regulators. The procedures adopted by SCU in this regard rigorously monitor compliance with the regulatory standards and, through continuous assessment, highlight any developments that might impact the business. Capital risk Syndicate is supported by third party capital providers whose ongoing support is crucial to the syndicate continuing to be able to trade as a going concern. SCU is committed to the controlled growth of the syndicate and discussions with current and prospective capital providers are an ongoing process. Liquidity risk The liquidity of the syndicate is influenced by a number of factors that have the potential to arise from across the business. Management information is used to enable the effective monitoring of the liquidity risk framework in line with the agreed procedures and governance arrangements. Robust procedures are in place for the monitoring of cash flow and credit control. Claims activity is closely scrutinised and the movement of existing claims is reported at regular intervals. Underwriting figures are verified by independent actuarial review. Credit risk Credit risk is inherent to the business conducted with brokers and reinsurers. The potential for credit risk losses arising from a counterparty failing to fulfil its contracted payment obligations is managed by strict control procedures. Aged debt in respect of the payment of premiums and reinsurance recoveries is closely monitored and actively managed accordingly. The SCU Security and Counterparty Executive approve the brokers, cover-holders and reinsurers with whom the syndicate may conduct its business. There is no appetite to deal with counterparties who have not been approved or whose performance fails to adhere to the strict service standards which are monitored on a regular basis. Investment managers and policy Throughout 2011 any surplus cash held on behalf of Syndicate was generally invested in bank deposits and a mutual fund. Due to the relatively low level of funds available for investment, no fund manager has as yet been appointed. The overall objective is to target a return in excess of LIBOR and remain 99.5% confident of avoiding an overall investment loss. The return for 2011 is consistent with SCU s risk appetite, albeit that the overall returns on Sterling and Euro funds have been diminished by the reduction in interest rates on offer. The return on dollar deposits has increased during the year due primarily to the increase in the Australian base rate, which averaged 4.75% in Surplus funds are held in a premium trust fund which attracts a return of 5.0%, helping maximise returns. A substantial amount of Australian dollar deposits are held within the Lloyd s Australian Trust Fund, this generates both interest and capital returns. The capital return was generally favourable across the four quarter ends of 2011 helping push the overall return up above the base rate.

12 Syndicate 34 Report of the Managing Agent continued Investment performance The investment return for the year and the average funds available for investment were as follows: Average amount of syndicate funds available for investment during the year ( average funds ) 12.6 million 8.9 million Split: Sterling/Euros 2.0 million 2.2 million Dollars (primarily Australian dollars) 10.6 million 6.7 million Investment return 616, ,302 Calendar year investment yield: % % Sterling/Euros Dollars Post balance sheet events Post balance sheet events are discussed in Note 14 to the accounts. Statement as to disclosure of information to auditors The directors of the managing agent at the date of this report have individually taken all the necessary steps to make themselves aware, as directors, of any relevant audit information and to establish that the syndicate auditors are aware of that information. As far as the directors are aware, there is no relevant audit information of which the syndicate auditors are unaware. Auditors Mazars LLP has signified its willingness to continue in office as the independent auditors to the syndicate and a resolution to reappoint Mazars LLP will be put at the syndicate annual meeting. Annual general meeting of syndicate members Notice is hereby given that the 2011 syndicate annual meeting will take place at the registered offices of SCU at 3.45 pm on Monday 14 th May Matthew Riley Director Approved by the board of Sportscover Underwriting Limited on 15th March

13 Report of the Independent Auditors to the Members of Syndicate We have audited the syndicate annual accounts of Syndicate for the year ended 31st December 2011 which comprise the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement and the related notes 1 to 15. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the members of the syndicate, as a body, in accordance with the Insurance Accounts Directive (Lloyd s Syndicate and Aggregate Accounts) Regulations Our audit work has been undertaken so that we might state to the syndicate s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the syndicate members as a body, for our audit work, for this report, or for the opinion we have formed. Respective responsibilities of the managing agent and auditors As explained more fully in the Statement of Managing Agent s Responsibilities set out on page 3, the managing agent is responsible for the preparation of syndicate annual accounts which give a true and fair view. Our responsibility is to audit and express an opinion on the syndicate annual accounts in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s ( APB s ) Ethical Standards for Auditors. Scope of the audit of the syndicate annual accounts A description of the scope of an audit of financial statements is provided on the APB s website at Opinion on the syndicate annual accounts In our opinion the syndicate annual accounts: give a true and fair view of the state of affairs of Syndicate as at 31 December 2011 and of its loss for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of The Insurance Accounts Directive (Lloyd s Syndicate and Aggregate Accounts) Regulations Opinion on the other matter prescribed ribed by The Insurance Accounts Directive (Lloyd s Syndicate and Aggregate Accounts) Regulations 2008 In our opinion the information given in the Managing Agent s Report for the financial year for which the syndicate annual accounts are prepared is consistent with the syndicate annual accounts.

14 Syndicate 34 Report of the Independent Auditors to the Members of Syndicate continued Matters on which we are required to report by exception We have nothing to report in respect of the following matters where The Insurance Accounts Directive (Lloyd s Syndicate and Aggregate Accounts) Regulations 2008 requires us to report to you if, in our opinion: the managing agent in respect of the syndicate has not kept adequate accounting records; or the syndicate annual accounts are not in agreement with the accounting records; or we have not received all the information and explanations we require for our audit. Andrew Goldsworthy (Senior Statutory Auditor) For and on behalf of Mazars LLP, Chartered Accountants and Statutory Auditor Tower Bridge House St Katharine s Way London E1W 1DD 15 th March

15 Profit and Loss Account for the year ended 31st December 2011 Technical account general business Notes Earned premiums, net of reinsurance Gross premiums written 2 63,305 52,317 Outward reinsurance premiums (2, ) (2,013) Change in the provision for unearned premiums Gross amount (2,645 2,645) (6,120) Reinsurers share (244) ,834 44,302 Allocated investment return, transferred from the non-technical account Claims incurred, net of reinsurance Claims paid - Gross amount (22,012 22,012) (11,984) - Reinsurers share (21,893 21,893) (11,878) Change in the provision for claims Gross amount (4, ) (4,830) Reinsurers share (4, ) (4,770) Claims incurred, net of reinsurance (26,337 26,337) (16,648) Net operating expenses 3 (34,656 34,656) (28,327) Balance on the technical account for general business (2,543) (398) All items relate to continuing operations.

16 Syndicate 34 Profit and Loss Account for the year ended 31st December 2011 continued Non-technical account Notes Balance on the general business technical account (2,543) (398) Investment income Allocated investment return transferred to the general business technical account ( ) (275) (Loss)/profit for the financial year 9 (2,543 2,543) (398) There are no recognised gains or losses in the accounting period other than those dealt with in the technical and nontechnical accounts. 13

17 Balance Sheet as at 31st December 2011 Assets Notes Investments Other financial investments 7 1,303 1,467 Reinsurers share of technical provisions Provision for unearned premiums 2, ,414 Claims outstanding ,741 2,617 Debtors Debtors arising out of direct insurance operations 8 15,842 11,706 Other debtors ,340 11,810 Other assets Cash at bank and in hand 3,890 6,801 Overseas deposits 7,277 4,627 11, ,428 Prepayments and accrued income Deferred acquisition costs 9,970 8,891 Other ,652 9,466 Total assets 42,203 36,788

18 Syndicate 34 Balance Sheet continued as at 31st December 2011 Liabilities Notes Capital and reserves Members balances 9 (2,112 2,112) (801) Technical provisions Provision for unearned premiums 21,394 17,785 Claims outstanding 16,807 11,953 38,201 29,738 Creditors Creditors arising out of direct insurance operations 10 3,432 4,832 Creditors arising out of reinsurance operations Other creditors including taxation and social security ,580 6,461 Accruals and deferred income 1,535 1,390 Total liabilities 42,203 36,788 The syndicate annual accounts were approved by the Board of Sportscover Underwriting Limited on 15th March 2012 and were signed on its behalf by Matthew Riley Director 15

19 Cash Flow Statement for the year ended 31st December 2011 Notes Reconciliation of loss to net cash (outflow)/inflow from operating activities Loss for the financial year (2,543 2,543) (398) Realised/unrealised gains on cash & investments, including foreign exchange (40 40) (1,074) Increase in insurance debtors, prepayments and accrued income (5,716 5,716) (6,829) Increase in net technical provisions 8,339 12,948 Increase in creditors (1,737) 2,640 Net cash (outflow)/inflow from operating activities (1,697) 7,287 Net cash (outflow)/inflow from operating activities (1,697) 7,287 Returns on investments and servicing of finance: Distribution to members 1,296 (431) Financing: Distribution costs 4 - Members agents fees (68 68) (81) 11 (465) 6,775 Cash flows were invested as follows: Increase/(decrease) in cash holdings 11 (2,871) 6,165 Net portfolio investment 11 2, Net investment of cash flows (465) 6,775

20 Syndicate 34 Notes to the Accounts 1. Basis of preparation and accounting policies Basis of preparation The financial statements have been prepared in accordance with the Insurance Accounts Directive (Lloyd s Syndicate and Aggregate Accounts) Regulations 2008 ( the Regulations ) and applicable Accounting Standards in the United Kingdom. They comply with the Statement of Recommended Practice issued by the Association of British Insurers in December 2005 as revised in December 2006 ( the ABI SORP ), except as follows. Exchange gains and losses have been included in the technical account as they are considered to arise only in respect of technical account transactions. The ABI SORP recommends that they should be included in the non-technical account. Accounting policies (a) Basis of accounting The financial statements have been prepared on an annual basis of accounting, whereby the incurred cost of claims, commission and related expenses are charged against the earned proportion of premiums, net of reinsurance as follows: (i) Premiums written Premiums written comprise premiums on contracts incepted during the financial year. They also include estimates for pipeline premiums, representing amounts due to the syndicate not yet notified. Premiums are shown gross of brokerage payable and exclude taxes and duties levied on them. (ii) Unearned premiums Written premium is earned according to the risk profile of the policy. Unearned premiums represent the proportion of premiums written in the year that relate to the unexpired terms of policies in force at the balance sheet date, calculated on the basis of established earnings patterns or time apportionment as appropriate. (iii) Reinsurance premium ceded Outwards reinsurance premiums are accounted for in the same accounting period as the premiums for the related direct or inwards business being reinsured. (iv) Claims incurred Claims incurred comprise claims and settlement expenses (both internal and external) paid in the year and the movement in provision for outstanding claims and settlement expenses, including an allowance for the cost of claims incurred by the balance sheet date but not reported until after the year end. 17

21 Notes to the Accounts continued 1. Accounting policies continued (v) Claims provisions and related recoveries The provision for claims comprises amounts set aside for claims notified and claims incurred but not yet reported (IBNR). Notified claims are estimated on a case by case basis with regard to the circumstances as reported, any information available from loss adjusters and previous experience of the cost of settling claims with similar characteristics. The amount included in respect of IBNR is based on statistical techniques of estimation applied by the syndicate s staff and reviewed by external consulting actuaries. These techniques generally involve projecting from past experience for the relevant classes of business the development of claims over time to form a view of the likely ultimate claims to be experienced for more recent underwriting, having regard to variations in the business accepted and the underlying terms and conditions. For the most recent years, where a high degree of volatility arises from projections, estimates may be based in part on output from rating and other models of the business accepted and assessments of underwriting conditions. The provision for claims includes amounts in respect of internal and external claims handling costs. Reinsurers shares of gross claims are based on gross claims paid and calculated amounts of gross outstanding claims and projections for gross IBNR, net of estimated irrecoverable amounts, having regard to the reinsurance programme in place for the class of business and the claims experience for the year and the current security rating of the reinsurance companies involved. The syndicate uses a number of statistical techniques to assist in making these estimates. The two most critical assumptions as regards claims provisions are that the past is a reasonable predictor of the likely level of claims development and that the rating and other models used for current business are fair reflections of the likely level of ultimate claims to be incurred. The directors consider that the provisions for gross claims and related reinsurance recoveries are fairly stated on the basis of the information currently available to them. However, ultimate liability will vary as a result of subsequent information and events and this may result in significant adjustments to the amounts provided. Adjustments to the amounts of claims provisions established in prior years are reflected in the financial statements for the period in which the adjustments are made. The methods used, and the estimates made, are reviewed regularly. (b) Unexpired risks provision A provision for unexpired risks is made where claims and related expenses likely to arise after the end of the financial period in respect of contracts concluded before that date, are expected to exceed the unearned premiums and premiums receivable under these contracts, after the deduction of any acquisition costs. The provision for unexpired risks is calculated separately by reference to classes of business which are managed together. No account is taken of any future investment return.

22 Syndicate Accounting policies continued (c) Acquisition costs Acquisition costs, comprising commission and other internal and external costs related to the acquisition of new insurance contracts are deferred to the extent that they are attributable to premiums unearned at the balance sheet date. (d) Foreign currencies Transactions in US dollars, Canadian dollars, Australian dollars and Euros are translated at the average rates of exchange for the period. Underwriting transactions denominated in other foreign currencies are included at the rate of exchange ruling at the date the transaction is processed. Monetary assets and liabilities are translated into sterling at the rates of exchange at the balance sheet dates unless contracts to sell currency for sterling have been entered into prior to the year end, in which case the contracted rates have been used. Non-monetary assets and liabilities at the balance sheet date, primarily deferred acquisition costs and unearned premiums, are translated at the rate of exchange ruling when the insurance contract was entered into (or an approximate average rate). Differences arising on the translation of foreign currency amounts are included in the technical account under net operating expenses. Amounts transferred to members are translated at the rate of exchange ruling at the date of payment except for the payment of closed year profits which are translated at the rate of exchange ruling at the previous balance sheet date. (e) Investments Investments are stated at current value at the balance sheet date. For this purpose listed investments and overseas deposits are stated at mid-market value and deposits with credit institutions are stated at cost. Unlisted investments for which a market exists are stated at the average price at which they were traded on the balance sheet date or the last trading day before that date. (f) Investment return Investment return comprises all investment income, realised investment gains and losses and movements in unrealised gains and losses, net of investment expenses, charges and interest. Realised gains and losses on investments carried at market value are calculated as the difference between sale proceeds and purchase price. Movements in unrealised gains and losses on investments represent the difference between their valuation at the balance sheet date and their purchase price or, if they have been previously valued, their valuation at the last balance sheet date, together with the reversal of unrealised gains and losses recognised in earlier accounting periods in respect of investment disposals in the current period. Investment return is initially recorded in the non-technical account. A transfer is made from the non-technical account to the general business technical account to reflect the investment return on funds supporting underwriting business. All investment return is considered to arise on such funds. 19

23 Notes to the Accounts continued 1. Accounting policies continued (g) Taxation Under Schedule 19 of the Finance Act 1993 managing agents are not required to deduct basic rate income tax from trading income. In addition, all UK basic rate income tax deducted from syndicate investment income is recoverable by managing agents and consequently the distribution made to members or their members agents is gross of tax. Capital appreciation falls within trading income and is also distributed gross of tax. No provision has been made for any other overseas tax payable by members on underwriting results. (h) Pension costs SCU operates a defined contribution pension scheme and its recharges to the syndicate in respect of staff costs include an element for pension costs. These pension costs are expensed in full in the period to which the recharge relates.

24 Syndicate Particulars of business written Type of business An analysis of the technical account balance before investment return is set out below: Gross Gross Gross Gross Repremiums premiums claims operating insurance 2011 written earned incurred expenses balance Total Direct insurance: Accident and health 39,378 39,237 (15,063) (25,711) (405) (1,942) Fire and other damage to property 6,828 5,226 (3,087) (2,202) (1,162) (1,225) Third party liability 13,474 12,239 (6,718) (5,474) (753) (705) Pecuniary loss 3,625 3,958 (1,892) (1,269) (83) ,305 60,660 (26,760) (34,656) (2,403) (3,159) Gross Gross Gross Gross Repremiums premiums claims operating insurance 2010 written earned incurred expenses balance Total Direct insurance: Accident and health 35,294 31,659 (10,223) (21,422) (245) (241) Fire and other damage to property 3,945 3,684 (2,414) (1,794) (368) (892) Third party liability 10,980 10,152 (3,901) (4,858) (1,090) 303 Pecuniary loss 2, (266) (253) (26) ,317 46,197 (16,814) (28,327) (1,729) (673) Geographical analysis by origin Gross premiums written Loss Net technical provisions UK Direct/reinsurance accepted 63,305 52,317 (3,159) (674) (25,489) (18,230) 21

25 Notes to the Accounts continued 2. Particulars of business written continued Geographical analysis by destination UK 8,543 5,877 EU 2,150 1,214 Other European 1,887 2,009 North America 2,737 1,569 Other 47,988 41,648 63,305 52, Net t operating expenses Acquisition costs 30,521 27,657 Change in deferred acquisition costs (572) (3,170) Administrative expenses 4,208 3,523 Loss on exchange ,656 28,327 Administrative expenses include: Auditors remuneration Audit services Other services 3 3 Standard personal expenses Total commissions for direct insurance accounted for in the year amounted to 29,226,000 (2010: 26,868,000). 4. Staff numbers and costs a) All staff are employed by the managing agency or by the main cover-holders, Sportscover Australia Pty Ltd and Sportscover Europe Limited. The following amounts were recharged to the syndicate in respect of salary costs: Salary costs 1,497 1,213 Pensions ,659 1,330

26 Syndicate Staff numbers and costs continued b) The average numbers of employees employed by the managing agency but working for the syndicate during the year was as follows: No. No. Administration, compliance and finance 6 6 Underwriting Directors emoluments a) Emoluments of the directors of Sportscover Underwriting Limited and of the Joint Active Underwriter SCU charged the syndicate the following amounts in respect of emoluments paid to its directors including the joint active underwriters of the syndicate: Emoluments b) Emoluments of the Active Underwriter The Joint Active Underwriters received the following aggregate remuneration charged to the syndicate: Emoluments The Joint Active Underwriters of the syndicate in 2011 were Mr Christopher Nash and Mr Murray Anderson (2010 relates to Mr Christopher Nash as the Active Underwriter). 23

27 Notes to the Accounts continued 6. Investment income Income from investments Gains on the realisation of investments Loss on the realisation of investments - (14) Financial investments Cost Market value Cost Market value Deposits with credit institutions Shares and other variable yield securities 1,303 1,303 1,467 1,467 1,303 1,303 1,467 1,467 The breakdown of investments by currency is set out below: 2011 US$ C$ Total Deposits with credit institutions Shares and other variable yield securities ,229 1, ,229 1, Debtors arising out of direct insurance operations Amounts falling due within one year: Intermediaries 15,842 11,706

28 Syndicate Reconciliation of members balances Members balances brought forward at 1st January (801) 109 Loss for the financial year (2,543) (398) Members agents fees (68) (81) Transfers to members personal reserves funds 1,296 (431) Distribution costs 4 - Members balances carried forward at 31st December (2,112) (801) Members participate on syndicates by reference to years of account and their ultimate result, assets and liabilities are assessed with reference to policies incepting in that year of account in respect of their membership of a particular year. 10. Creditors arising out of direct insurance and reinsurance operations Amounts falling due within one year: Direct insurance operations 3,432 4,832 Reinsurance operations ,059 5, Movement in opening and closing portfolio investments net of financing Net cash (outflow)/inflow for the year (2,871) 6,165 Cash flow portfolio investments 2, Movement arising from cash flows (465) 6,775 Changes in market value and exchange rates 40 1,074 Total movement in portfolio investments net of financing (425) 7,849 Balance brought forward at 1 st January 12,895 5,046 Balance carried forward at 31 st December 12,470 12,895 At 1st January 2011 Cash flow Changes to market value & currencies At 31st December Cash at bank and in hand 6,801 (2,871) (40) 3,890 Shares and other variable yield securities 1,467 (164) - 1,303 Deposits with credit institutions Overseas deposits 4,627 2, , ,895 (465) 40 12,470