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 18 MSF Report and Accounts 31 December Pritchard Syndicate 318

3 MSF Pritchard Syndicate 318 has traded continuously at Lloyd s for over quarter of a century. In that time the Syndicate has grown and evolved to meet the changing demands of its clients and is well positioned to take advantage of the opportunities seen in today s increasingly volatile marketplace. Over time, the Syndicate has built up longstanding relationships with, and offered continuity to, its brokers, clients and capital providers alike. The combination of its experienced team of underwriting, claims and support personnel, and the ability to make the best use of increasingly sophisticated statistical techniques in support of its decisions, maximises the offering it presents to each of its counterparties. Annual accounts 1 Financial highlights 2 Underwriter s report 6 Corporate information 7 Managing agent s report 10 Review of business 16 Independent auditor s report 18 Profit and loss account 20 Balance sheet 22 Statement of cash flows 23 Notes to the financial statements 2011 Underwriting year of account 39 Financial highlights 40 Managing agent s report 44 Independent auditor s report 46 Profit and loss account 48 Balance sheet 50 Statement of cash flows 51 Notes to the accounts 63 Seven year summary

4 Financial highlights 318 calendar year 148.6m (2012: 163.0m) gross premiums written 29.2m (2012: 34.1m) profit for year 0.6% annual investment yield 234.8m capacity 78.9% (2012: 77.2%) Combined ratio including managing agency fee and profit commission Syndicate 318 results on an annual accounting basis MSF Pritchard Syndicate 318 1

5 Underwriter s report for the year ended 31 December Introduction The Syndicate s results have been reported in accordance with UK Generally Accepted Accounting Practice ( UK GAAP ). These report and accounts are reported on an annual accounting basis. However, since the Syndicate benefits from a diverse capital base of traditional Names, as well as corporate members, where possible and appropriate, we have endeavoured to explain the events of the calendar year in the context of the underlying years of account. Managing agents are also required to prepare a managing agent s report, financial statements and related notes, and supporting disclosure for members participating on the 2011 underwriting year of account, which closed at 31 December. These are incorporated into this document on pages 39 to 62. ReinsurancetoClose( RITC ) The RITC provides the basis of risk transfer from one set of underwriting members to another, upon closure of an underwriting year of account after a minimum of 36 months. The members on the 2011 year of account have paid an RITC premium to the members on the 2012 year of account, as part of this process. DetailsoftheRITCpremiumcanbefoundin 2011 underwriting year of account report on page 46. Profit for the Calendar Year I am delighted to report that the profit for the calendar year under UK GAAP was 29.2m (2012: profit of 34.1m), and the combined ratio 78.9% (2012: 77.2%) Underwriting Year of Account (Profit for the closing year) The 2011 underwriting year of account has closed with a profit of 9.3% after standard personal expenses to a traditional name. As previously noted, this is reported in more detail on pages 39 to 62. Key Events of Calendar Year The rating environment for the International Property account was relatively flat in. The overall level of premiums written in the year has fallen. This has largely resulted from increased competition on open market business which has diluted the amount of business written by the Syndicate in many areas of the book. It has been a relatively benign year for natural catastrophe losses, with the largest exposures coming from Hurricanes Manuel and Ingrid which made landfall in Mexico. The other significant losses to impact on the Syndicate in the year were caused by tornado losses in the Midwest region of the US. Overall, the level of losses arising from natural catastrophes has been much lower than in previous years. The Aviation account has continued to suffer from pressure on ratings, with the level of premiums falling for a successive year. However, the Aviation account makes up a relatively small proportion of the Syndicate s book of business. Overall, we have been very pleased with the underwriting performance, and it has been another profitable year for the Syndicate. This is generally owing to the combination of a lack of 2 MSF Pritchard Syndicate 318

6 318 major catastrophe events, a relatively low frequency of large losses, and a reserve release from prior years and beyond The performance of the Syndicate over the last few years has been very positive and we have been encouraged by our ability to remain profitable in spite of some significant market losses. However, we anticipate the market in 2014 will be competitive, with no significant improvements in the ratings environment. The absence of a market changing natural catastrophe event during the year is likely to put pressure on rates in most segments of the Property book. Whilst, the market for primary insurance continues to be challenging, there appears to be no shortage of capacity in the market. Aviation Premium income written in the year has fallen by around a fifth from the level written in The Aviation market for both airlines, and general aviation business continues to be extremely competitive, with rating at the lower end of the cycle. There has been a relatively high frequency of large losses in the year, particularly on the Airline account, which has had a negative effect on the result, combined with falling premium rates. Year of Account (Aviation) The underwriting year has incurred major losses from Lao Airlines, and CHC Helicopter during the year. The aggregate of these claims is estimated at US$4.5m. The Aviation market is expected to remain difficult in the foreseeable future, owing to the lack of major market losses for a number of years. However, in spite of expected pressures on the rating environment, we remain confident that our underwriting skill in both Property and Aviation classes, will allow us to continue to generate returns to our capital providers in the future. Finally, we are extremely positive about the prospects for purchasing reinsurance in 2014, and anticipate being able to achieve much greater economic value when we buy our reinsurance programme for both classes of business. I will now review in more detail each area of the account Year of Account (Aviation) There have been two major airline losses in the year on the 2012 year of account. They were incurred on Lion Mentari Airlines, and Merpati Nusantara Airlines, and have resulted in a combined loss to the Syndicate of US$5.5m. The cumulative result for the 2012 year of account is currently anticipated to produce an underwriting loss to the Syndicate on the Aviation account Year of Account and Prior (Aviation) There have been no new large loss advices in the calendar year, and the account has benefitted from improvement on some prior year claims. MSF Pritchard Syndicate 318 3

7 Underwriter s report for the year ended 31 December continued International and US Property The International and US Property account continues to be the largest class of business written by the Syndicate. The level of premiums written during the year has decreased by around ten percent, with the majority of the reduction originating from a decrease in open market business. One of the key drivers of the decrease has emanated from agreements between brokers and insurance companies, which has reduced the amount of business written in Lloyd s in certain classes. Other factors include general competition in the Lloyd s market, as well as changes in risk selection by the Syndicate. Once again, it has been a very good year for the Property account, which has benefitted from a quiet US Windstorm season, as well as relatively low loss experience on large risk losses. Our reserving of Superstorm Sandy hasproventoberobust,withonlyasmall increaseintheestimatewemadelastyear. There has also been favourable development on prior year reserves, which has permitted a healthy release on last year s RITC. Year of Account (International and US Property) The underwriting year has so far experienced a relatively low incidence of losses, in terms of both natural catastrophe events, as well as large risk losses. The only named storms to have any significant impact on the account were Hurricanes Manuel and Ingrid. The table below illustrates the current estimates for Hurricanes Manuel and Ingrid. Loss Net US$ (m)... Hurricane Manuel 7.0 Hurricane Ingrid 2.5 Total 9.5 Overall, the losses from natural catastrophes in the year were below our modelled expectations Year of Account (International and US Property) The Property account has performed extremely well in the calendar year, with a low frequency of large risk losses, as well as limited exposure to natural catastrophe losses in the year. The most significant exposure to these types of losses was from a small number of tornados in the US. The aggregate quantum of these losses to the Syndicate was $4.9m Year of Account and Prior (International and US Property) The reserves set at 31 December 2012 have againprovedtoberobust,andwehavebeen encouraged by improvements on prior year claims and a release overall has been possible. 4 MSF Pritchard Syndicate 318

8 318 Conclusion I am pleased to report another very good result for the Syndicate, in my first year as Active Underwriter.Iwouldliketothankalltheteam for their continued dedication and support in what has been a transitional period for the Syndicate following the departure of Michael Pritchard. We look forward to meeting the future challenges in the market, and will continue to endeavour to provide positive returns for our capital providers for many years to come. D. C. Eales Active Underwriter 17 March 2014 MSF Pritchard Syndicate 318 5

9 Corporate information MANAGING AGENCY: DIRECTORS AND ADMINISTRATION Beaufort Underwriting Agency Limited is the Managing Agent for Syndicate 318 and is authorised and regulated by the Financial Conduct Authority ( FCA ), Prudential Regulation Authority ( PRA ) and Lloyd s. Directors: R.G. Carter (non-executive chairman) M.J. Cox (non-executive) C.J.W. Czapiewski (non-executive) A.S. Dawe D.C. Eales A. Hoffmann (appointed 16/12/) C.A.A. Niebuhr (non-executive) M.S.F. Pritchard (resigned 30/06/) G.M. Tuck Company secretary P. Langridge The registered office of Beaufort Underwriting Agency Limited is One Minster Court, Mincing Lane, London EC3R 7AA. The registered number of Beaufort Underwriting Agency Limited is Syndicate: Active underwriter Derek Eales was appointed Active Underwriter of Syndicate 318 on 1 July. Bankers Citibank, N.A. Royal Bank of Canada Lloyds Banking Group Plc Investment managers Amundi (UK) Ltd (previously known as Credit Agricole Asset Management (UK) Limited) Actuaries Lane Clark & Peacock LLP Syndicate auditors Mazars LLP 6 MSF Pritchard Syndicate 318

10 Managing agent s report for the year ended 31 December 318 The Managing Agent presents its report for the period ended 31 December. Statement 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 318 at 31 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: a) select suitable accounting policies which are applied consistently, with the exception of changes arising on the adoption of new accounting standards in the year; b) make judgements and estimates that are reasonable and prudent; c) state whether applicable accounting standards have been followed, subject to any material differences disclosed and explained in the financial statements; and d) 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 that 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. Syndicate Annual General Meeting The Managing Agent does not propose holding an annual meeting for the Syndicate and the agency has written to members agents in this regard on 19 February Key Risks The Syndicate is exposed to a variety of risks when undertaking the activities associated with the running of the business. The Board has policies and procedures in place to identify and manage the risks to the Syndicate. The key risks to the Syndicate are: Insurance risk; Credit risk; Liquidity risk; Market risk and Operational risk. Corporate Governance and Risk Management The Board has appointed six sub-committees each with written terms of reference which consider, monitor and report on aspects of the Managing Agency s business. The Board is represented on each committee and retains overall responsibility for the Syndicate s business. The Managing Agency maintains a risk framework for the identification, assessment, MSF Pritchard Syndicate 318 7

11 Managing agent s report for the year ended 31 December continued management and monitoring of the risks which it is exposed to across all aspects of its day to day business operations and maintains a risk register based on the output of this framework. The risk framework encompasses all core risk areas including insurance, investment, liquidity, market, concentration and operational risk. Various controls operate in respect of these risk areas and their performance and continued suitability are monitored via the Managing Agency Board and/or relevant sub-committee (as detailed overleaf) and through the use of key risk and control indicators. Audit Committee The Audit Committee has the delegated authority of the Board to consider all aspects and matters pertaining to the external audit and internal audit of the managing agency and managed syndicates, including an assessment of the performance, effectiveness and suitability of these functions. measures for each managed syndicate; for assessing the performance, effectiveness and continued suitability of the investment managers; and for ensuring compliance with relevant prudential rules. The Investment Committee has specific responsibility for the consideration of market, liquidity and concentration risk relating to the investment of managed syndicate assets. Risk Committee The Risk Committee has the delegated authority of the Board to consider all aspects and matters pertaining to the identification, assessment, monitoring and mitigation of risk within the Managing Agency and managed syndicates including an assessment of the performance, effectiveness and suitability of the risk management function and risk framework. The Risk Committee is responsible for the consideration of operational risk issues and maintains the Managing Agency s risk register. General Business Committee The General Business Committee has the delegated authority of the Board to consider any matters that do not require consideration by the full Board. In general the Committee considers the more day-to-day administrative and operational issues relating to the Managing Agency and managed syndicates. Investment Committee The Investment Committee has the delegated authority of the Board to recommend, implement and monitor an appropriate investment policy, investment guidelines and performance Syndicate Management Committee The Syndicate Management Committee has the delegated authority of the Board to consider, monitor and review all aspects of the underwriting strategy, management and performance of each managed syndicate. The Syndicate Management Committee has specific responsibility for the consideration of insurance, reserving, reinsurance and claims risk. To assist it in fulfilling its obligations, the Syndicate Management Committee has constituted two sub-committees which address 8 MSF Pritchard Syndicate 318

12 318 specific areas of the managed syndicate operations in more detail: Claims & Reserving Committee The Claims & Reserving Committee is a sub-committee of the Syndicate Management Committee and has responsibility for reviewing and monitoring all aspects of the managed syndicates claims performance and claims service delivery. Reinsurance Operations Group The Reinsurance Operations Group is a sub-committee of the Syndicate Management Committee and has responsibility for reviewing and monitoring all aspects of the managed syndicates reinsurance arrangements and for ensuring effective communication between the underwriting, claims and reinsurance areas. Remuneration Committee The Remuneration Committee is a sub-committee of the Board of MSP Underwriting Limited. MSP Underwriting Limited is the intermediate holding company of Beaufort and employs all Managing Agency and managed syndicate staff. The Remuneration Committee is responsible for the determination of the remuneration, benefits and bonus arrangements of the senior executives and officers of the Managing Agency and managed syndicates; for the review and approval of the general level of remuneration and benefits for other staff; ensuring compliance with parent company remuneration policy and guidelines; and ensuring that remuneration arrangements are consistent with principles of sound risk management and corporate governance. MSF Pritchard Syndicate 318 9

13 Review of business for the year ended 31 December Underwriting Activities The Syndicate underwrites in two core business areas of International and US Property, and Aviation. The composition of the account is broadly consistent with last year, although Property now makes up a slightly larger proportion of the total premium written. The level of gross written premiums has decreased during the year to 148.6m in from 163m in The reduction in premium income is largely owing to the increase in competition on the International and US Property account, where new markets have led to a reduction in the proportion of the premium signed by the Syndicate. The Aviation account has also been subjected to rating pressures, and has witnessedareductioninpremiumsintheyear. Result for the Calendar Year For the year ended 31 December, Syndicate 318 has generated an overall profit of 29.2m (2012: profit of 34.1m), and a combined ratio of 78.9% (2012: 77.2%). An analysis of the contribution to the overall result made by the individual underwriting years of account is as follows: 2011 and Prior Years of Account 2012 Year of Account Year of Account Calendar Year Combined 2012 Calendar Year Combined Gross Earned Premium 1,043 71,985 82, , ,496 Reinsurers Share (1,812) (3,537) (17,356) (22,705) (20,415) Net Earned Premium (769) 68,448 64, , ,081 Gross Claims Paid (58,371) (44,438) (9,472) (112,281) (90,035) Reinsurers Share 8,990 1, ,350 4,402 Net Claims Paid (49,381) (43,256) (9,294) (101,931) (85,633) Change in provision for gross claims 70,558 12,911 (37,291) 46,178 22,980 Change in provision for reinsurers share (10,105) 1,376 1,888 (6,841) (3,800) Change in provision for net claims 60,453 14,287 (35,403) 39,337 19,180 Net Operating Expenses (2,550) (19,634) (19,640) (41,824) (41,745) Balance on Technical Account 7,753 19, ,910 31,883 Net Investment Income (26) 1,305 2,215 Profit for the financial year 8,638 20, ,215 34,098 Currency translation differences on foreign currency (1,300) (1,182) (408) (2,890) (1,294) Total recognised gains and losses since last annual report 7,338 19,109 (122) 26,325 32, MSF Pritchard Syndicate 318

14 318 Technical Result The calendar year technical result before investment return comprises of profits on the open and closing years of account. The largest contribution to profit for the calendar year has come from the 2012 year of account, owing to the underwriting performance of the International and US Property account, as well as a positive result from the Aviation account. We have also experienced reserve improvements on 2011 and prior years of account, as the reserves set at the end of last year have proven to be robust. The absence of major catastrophe losses in has meant that there has been a very strong underwriting performance to date on the year of account. The investment return has fallen during the year, which was anticipated in view of the difficult market conditions. Although current/continuing performance of the portfolio is disappointing, when compared to historic returns, we are pleased to have made a positive return in an extremely difficult investment environment for Lloyd s entities. Contribution of year of account to the calendar year result The year of account has contributed a profit for the calendar year before investment income of 0.3m. The result is an improvement on the 2012 year of account calendar result which produced a loss of 7.6m. The calendar year has not been as severe a year for natural catastrophes as the 2012 calendar year was. The Syndicate incurred losses from Hurricanes Manuel and Ingrid, but in aggregate, losses from catastrophe events have been below modelled business plan expectations. It has been a difficult year for the Aviation account, which has incurred a number of large losses in the calendar year as well as suffering from a declining rating environment. The Syndicate continues to earn its acquisition costs in line with gross earned premium, whilst administration expenses and Names expenses are earned as they are incurred. Managing agent s profit commission is earned in line with cumulative profits to a year of account, when there is reasonable certainty of payment, after allowances for the potential impact of deficit clauses within the Agency Agreement. There was no calendar year investment return attributable to the underwriting year, as investment manager s fees exceeded returns. Currency translation differences arising from conversion of the calendar year result from average to closing rates of exchange have reduced the balance on the open year by 407,220, resulting in an overall deficit of 121,565. Contribution of 2012 year of account to the calendar year result The 2012 year of account has contributed a profit for the calendar year before investment income of 20.3m. The calendar year has been profitable, with a low incidence of losses, particularly on the International and US Property account. It has generally been a benign year for catastrophe events, although the 2012 underwriting year was exposed to losses from MSF Pritchard Syndicate

15 Review of business for the year ended 31 December continued tornados in the US during the first half of the year on the International Property account. There have also been two large Aviation losses on airline business written by the Syndicate. Overall, the loss experience has been very good. The investment return for the calendar year attributable to the 2012 underwriting year of account has been small but positive, producing net investment income of 0.45m. Currency translation losses following retranslation of opening balances and the calendar year result to closing rates of exchange are 1.2m. Members balances currently stand at an overall surplus of 11.8m, after standard personal expenses. We remain positive about the result Operating Expenses of the 2012 year of account, and are forecasting a profit in a range of 2.5% 7.5% upon closure. Contribution of 2011 year of account to the calendar year result The 2011 year of account has contributed a profit for the calendar year before investment income of 7.7m. In there has been an improvement of 9.1m on closed year reserves, which has been the most significant contributor to the calendar year result. The investment return for the year of 0.9m has increased the profit for the year to 8.6m. After currency translation losses following retranslation of opening balances and the calendar year result to closing rates of exchange, the total recognised gains for the year are 7.3m and Prior Years of Account 2012 Year of Account Year of Account Calendar Year Combined 2012 Calendar Year Combined Acquisition Costs (Brokerage) (236) (14,843) (11,542) (26,621) (26,776) Acquisition Costs (Other) (190) (1,406) (4,175) (5,771) (4,580) Administrative Expenses (444) (243) (1,147) (1,834) (1,820) Profit/(loss) on Exchange 157 (155) (53) (51) 42 Standard Personal Expenses (34) (2,723) (2,757) (2,878) Managing Agents Profit Commission (1,837) (2,953) (4,790) (5,733) Net Operating Expenses (2,550) (19,634) (19,640) (41,824) (41,745) As in previous years, acquisition costs (brokerage) represent the largest single expense item in, which has decreased in line with gross premiums. Other operating expenses under the control of the managing agency have stayed relatively consistent in the calendar year. The Syndicate has made a small loss on exchange during the year. Profit commission has been accrued on the 2011 and 2012 years of account. 12 MSF Pritchard Syndicate 318

16 318 Investment Performance % 000 % Average Amount of Syndicate Funds 203, ,819 Investment Return 1, % 2, % By Currency: Sterling: Average Funds 11,675 14,185 Investment Return % % US Dollar: Average Funds US$275,605 US$271,650 Investment Return US$1, % US$2, % Canadian Dollar: Average Funds Can$24,776 Can$20,649 Investment Return Can$ % Can$ % Investment Policy The Investment objective is to invest the Premiums Trust Funds in a manner calculated to maximise return within agreed restraints and in line with policies approved by the Managing Agency. In consideration of this policy, portfolios are predominantly invested in short-term, high quality fixed income securities. The investment managers have been instructed to invest for the highest total return consistent with maintaining adequate liquidity and security. They also have discretion to invest in private sector securities for a limited proportion of the portfolio and within diversity limits for individual credits. Limiting the target duration of the overall portfolio controls the exposure of the investments to adverse price conditions. An investment committee and formal procedures for monitoring investments exist in line with guidance from Lloyd s. benchmark, and above that of the range estimated at the start of the year. Returns continued to show stability in volatile markets the Bank of America Merrill Lynch 1-3 year US Government Index returned 0.36% for the year with monthly swings as high as +/- 16bp. Global growth continued to improve during. Many of the risks which loomed at the start of the year were successfully navigated: the US debt ceiling, the Cyprus bail-in, Italian elections and further reform in Japan. Growth was driven largely by the US, but the UK also surprised positively, and peripheral Europe by year-end was emerging from recession. Unemployment fell, and with it central banks toned back Forward Guidance and the Federal Reserve started to reduce the pace of bond buying in its Quantitative Easing programme. Review of Calendar Year The investment portfolio showed resilient performance in with returns above The combined USD portfolio returned 0.62% during, significantly above both the Bank of America Merrill Lynch 1-month LIBID and 1-3 MSF Pritchard Syndicate

17 Review of business for the year ended 31 December continued year government bond benchmarks. Performance was driven by corporate bond and ABS holdings which provided additional carry and benefitted from a narrowing of spreads during the year. European corporate bonds and agency paper denominated in USD also continued to perform well as US investors returned to this market. Outlook for 2014 Global growth is expected to pick up significantly in 2014 to above-trend levels in most countries, with major regions recoupling driven by rising trade and financial flows. Consumption will be the initial driver but investment will take over by year-end. Private equity and M&A activity will increase, as will securitisation as regulatory incentives are rolled back. Disinflation is expected to reverse and inflation will reappear as a theme in the US. Forward guidance is increasingly being questioned by the market and central bankers are moving to softer forms to avoid being seen to be behind the curve. No rate hikes or asset sales are expected in 2014, but preparatory steps will be made and more nuanced communication policies will be adopted. Eurozone growth will surprise positively this year, policy integration will claw forward, and peripheral spreads will continue to tighten. Emerging markets will remain under pressure with investor preference for developed markets, and the benefits of stronger global growth take time to broaden. Regional tensions will flare up periodically but are not expected to boil over into full conflict. Yields remain low and credit spreads are narrow leaving limited scope for generating excess returns. With growth improving, and a pulling back from extraordinary liquidity from Central Banks, there is a real possibility of yield rises which could generate losses for fixed income portfolios. To counter this risk the portfolios remain positioned short duration, relative to benchmarks. Corporate bonds will continue to be used to enhance portfolio yields: negative supply and continued hunt for yield ensure spreads remain contained, and default rates are still very low with companies able to refinance at historically low rates. The short dated nature of the portfolios and a buffer of government and sovereign-related bonds ensures there will be ample liquidity to meet potential cashflows. Auditors Mazars LLP has signified its willingness to continue in office as the independent auditor to the Syndicate, and the Directors of the Managing Agent propose the reappointment of Mazars LLP as auditors to the Syndicate for a further year with effect from 1 May MSF Pritchard Syndicate 318

18 318 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. A. S. Dawe Managing Director Beaufort Underwriting Agency Limited One Minster Court London EC3R 7AA Approved by the Board of Beaufort Underwriting Agency Limited on 12 March 2014 MSF Pritchard Syndicate

19 Independent auditor s report to the Members of Syndicate 318 We have audited the Syndicate annual accounts of Syndicate 318 for the year ended 31 December which comprise the Profit and Loss Account, the Statement of Total Recognised Gains and Losses, the Balance Sheet, the Cash Flow Statement, and the related notes 1 to 21. 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). Respective responsibilities of the Managing Agent and Auditor As explained more fully in the Statement of Managing Agent s Responsibilities set out on page 7, 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. 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 matterswearerequiredtostatetotheminan auditor s report and for no other purpose. To thefullestextentpermittedbylaw,wedonot accept or assume responsibility to anyone other than the Syndicate s members as a body, for our audit work, for this report, or for the opinion we have formed. Scope of the audit of the Syndicate annual accounts A description of the scope of an audit of financial statements is provided on the Financial Reporting Council 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 318 as at 31 December and of its profit 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 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. 16 MSF Pritchard Syndicate 318

20 318 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. Raymond Tidbury (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 17 March 2014 MSF Pritchard Syndicate

21 Profit and loss account for the year ended 31 December Technical account general business Note Earned premiums, net of reinsurance Gross premiums written 3 148, ,983 Outward reinsurance premiums (24,065) (20,905) Change in the provision for unearned premiums Gross amount 6,421 (2,487) Reinsurers share 1, , ,081 Allocated investment return transferred from the non-technical account 1,305 2,215 Claims incurred, net of reinsurance Claims paid Gross amount (112,281) (90,035) Reinsurers share 10,350 4,402 (101,931) (85,633) Change in the provision for claims Gross amount 46,178 22,980 Reinsurers share (6,841) (3,800) 39,337 19,180 (62,594) (66,453) Net operating expenses 4 (41,824) (41,745) Balance on the technical account for general business 29,215 34,098 All items relate only to continuing operations. The notes on pages 23 to 37 form part of these accounts. 18 MSF Pritchard Syndicate 318

22 318 Non-technical account Balance on the general business technical account 29,215 34,098 Note 2012 Income from investments 2,998 2,942 Realised gains on investments 22 Unrealised gains on investments 341 Realised losses on investments (873) (799) Unrealised losses on investments (666) (159) Investment expenses and charges (154) (132) Allocated investment return transferred to general business technical account (1,305) (2,215) Profit for the financial year 13 29,215 34,098 Statement of Total Recognised Gains and Losses Profit for the financial year 29,215 34,098 Currency translation differences on foreign currency 13 (2,890) (1,294) Total recognised gains since last annual report 26,325 32,804 Note 2012 The notes on pages 23 to 37 form part of these accounts. MSF Pritchard Syndicate

23 Balance sheet as at 31 December Note Assets Investments Other financial investments 8 172, , Reinsurers share of technical provisions Provision for unearned premiums 3,671 2,435 Claims outstanding 15,643 22,453 19,314 24, , ,698 Debtors Debtors arising out of direct insurance operations 9 26,178 32,967 Debtors arising out of reinsurance operations 10 14,793 10,700 Other debtors 11 1,428 1,988 42,399 45,655 Other assets Cash at bank and in hand Other 12 9,493 12,907 10,327 12,966 Prepayments and accrued income Deferred acquisition costs 13,740 14,615 Other prepayments and accrued income 1,682 1,363 15,422 15,978 Total assets 259, ,297 The notes on pages 23 to 37 form part of these accounts. 20 MSF Pritchard Syndicate 318

24 318 Note Liabilities Capital and reserves Members balances 13 32,707 15, Technical provisions Provision for unearned premiums 61,102 68,612 Claims outstanding 147, , , ,478 Creditors Creditors arising out of direct insurance operations 14 1,055 1,543 Creditors arising out of reinsurance operations 15 8,808 4,720 Other creditors including taxation and social security Accruals and deferred income 8,353 6,799 18,245 13,178 Total liabilities 259, ,297 The financial statements on pages 18 to 37 were approved by the Board of Beaufort Underwriting Agency Limited on 12 March 2014 and were signed on its behalf by D. C. Eales Active Underwriter A. S. Dawe Managing Director 17 March 2014 The notes on pages 23 to 37 form part of these accounts. MSF Pritchard Syndicate

25 Statement of cash flows for the year ended 31 December Reconciliation of operating profit to net cash (outflow)/inflow from operating activities Note 2012 Operating profit on ordinary activities 29,215 34,098 Realised and unrealised investments losses 17 6,098 9,184 Income from investments (2,844) (2,810) Decrease in net technical provisions (49,116) (26,891) Decrease in debtors 3,812 4,141 Increase in creditors 5, Currency translation on differences in foreign currency net investments (2,890) (1,294) Net cash (outflow)/inflow from operating activities (10,658) 17,402 Net cash (outflow)/inflow from operating activities (10,658) 17,402 Returns on investment and servicing of finance: Investment charges (154) (132) Interest received 2,998 2,942 Transfer to members in respect of underwriting participations 13 (9,259) (22,558) (17,073) (2,346) Cash flows were invested as follows: Increase/(decrease) in cash holdings 775 (424) Decrease in deposits (3,143) (3,883) Decrease in shares and other variable yield securities (16,672) (28,770) Netsaleofinvestments 1,967 30,731 Net investment of cash flows 17 (17,073) (2,346) The notes on pages 23 to 37 form part of these accounts. 22 MSF Pritchard Syndicate 318

26 Notes to the financial statements for the year ended 31 December Basis of preparation These 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 amended in December 2006 ( the ABI SORP ). 2. Accounting policies 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: (a) Premiums written Premiums written comprise premiums on contracts which incepted during the financial year. Premiums are shown gross of brokerage payable and exclude taxes and duties levied on them. Estimates are made for pipeline premiums, representing amounts due to the Syndicate not yet notified, as well as adjustments made in the year to premiums written in prior accounting periods. (b) 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 unexpired terms of policies in force at the balance sheet date, calculated on the basis of established earnings patterns or time apportionment as appropriate. (c) 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. (d) 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. (e) Claims provisions and related recoveries The provision for claims comprises amounts set aside for claims notified and claims incurred but not yet reported (IBNR). The amount included in respect of IBNR is based on statistical techniques and underwriting judgements applied by the Active Underwriter and the Managing Agency s management and reviewed by external consulting actuaries. These techniques generally involve projecting from past experience of the development of claims over time to form a view of the likely ultimate claims to be MSF Pritchard Syndicate

27 Notes to the financial statements for the year ended 31 December continued 2 Accounting policies continued (e) Claims provisions and related recoveries continued experienced for more recent underwriting, having regard to variations in the business accepted and the underlying terms and conditions. The provision for claims also includes amounts in respect of internal and external claims handling costs. The reinsurers share of provisions for claims is based on calculated amounts of outstanding claims and projections for IBNR, net of estimated irrecoverable amounts, having regard to the reinsurance programme in place for the class of business, 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. Accordingly the most critical assumption as regards claims provisions is that the past is a reasonable predictor of the likely level of claims development. It is considered that the provisions for gross claims and related reinsurance recoveries are fairly stated on the basis of the information currently available. 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. (f) Unexpired risks provision A provision for unexpired risks is made where claims, related expenses and deferred acquisition costs, 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 deferred. The provision for unexpired risks is calculated separately by reference to classes of business which are written together, after taking into account relevant investment return. (g) Acquisition costs Acquisition costs, comprising commission and other costs related to the acquisition of new and renewal insurance and reinsurance contracts, are deferred to the extent that they are attributable to premiums unearned at the balance sheet date. (h) Foreign currencies Income and expenditure in US dollars and Canadian dollars are translated into Sterling 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. 24 MSF Pritchard Syndicate 318

28 318 2 Accounting policies continued (h) Foreign currencies continued Syndicate assets and liabilities are translated into Sterling at the rates of exchange at the balance sheet dates. Differences arising on translation of foreign currency amounts are included in the statement of recognised gains and losses. (i) Investments Investments are stated at current value at the balance sheet date. For this purpose listed investments are stated at bid market value and deposits with credit institutions and overseas deposits are stated at cost. ( j) Investment return Investment return comprises investment income, realised investment gains and losses and movements in unrealised gains and losses, net of investment expenses and charges. Investment return arising in each calendar year on all the Syndicate s investments is allocated to open years of account in proportion to the average funds available for investment attributable to those years. Investment returns in respect of overseas deposits are allocated to the year of account which funded these deposits. 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 the valuation at the 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. (k) 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 United States Federal Income Tax payable on underwriting results or investment earnings. No provision has been made for any other overseas tax payable by members on underwriting results. MSF Pritchard Syndicate

29 Notes to the financial statements for the year ended 31 December continued 2 Accounting policies continued (l) Pension costs The intermediate parent company of the Managing Agent operates a defined contribution pension scheme. Pension contributions relating to syndicate staff are charged to the Syndicate and included within net operating expenses. (m) Operating lease rentals Amounts recharged by the Managing Agent include costs arising from the use of assets in the period. These rental costs are expensed in full in the period to which the charge relates. (n) Net operating expenses Where expenses are incurred by the Managing Agent or on behalf of the Managing Agent on the administration of the Syndicate, the amounts in question are apportioned using varying methods depending on the expense type. Expenses which are incurred jointly for the Managing Agent and Syndicate are apportioned depending on the amount of work performed, resources used and the volume of business transacted. Net operating expenses are allocated to the year of account for which they are incurred. 26 MSF Pritchard Syndicate 318

30 318 3 Particulars of business written An analysis of the underwriting result before investment return is set out below: Gross premiums written Gross premiums earned Gross claims incurred Net operating expenses Reinsurance balance Direct insurance: Motor (other classes) (281) (93) (11) (124) Marine aviation and transport 4,972 6,615 (4,018) (1,741) (99) 757 Fire and other damage to property 79,440 79,065 (39,601) (21,702) (4,918) 12,844 84,626 85,941 (43,900) (23,536) (5,028) 13,477 Reinsurance acceptances 63,986 69,092 (22,203) (18,288) (14,168) 14,433 Total 148, ,033 (66,103) (41,824) (19,196) 27,910 Total 2012 Gross premiums written Gross premiums earned Gross claims incurred Net operating expenses Reinsurance balance Direct insurance: Motor (other classes) (29) (33) 30 Marine aviation and transport 7,061 6,892 (3,863) (1,768) (1,852) (591) Fire and other damage to property 81,176 74,223 (38,072) (19,261) (6,149) 10,741 88,486 81,207 (41,964) (21,062) (8,001) 10,180 Reinsurance acceptances 74,497 79,289 (25,091) (20,683) (11,812) 21,703 Total 162, ,496 (67,055) (41,745) (19,813) 31,883 All premiums were written in the UK. All net assets and profits are derived from UK business. Geographical analysis by destination Gross premiums written Total 2012 Gross premiums written UK 12,186 19,558 US 72,819 65,193 Other 63,607 78,232 Total 148, ,983 MSF Pritchard Syndicate