Interim results Six months to 30 June 2006
Disclaimer This document and the presentation to which it relates ( Presentation ) do not constitute or form part of, and should not be construed as, an issue for sale or subscription of, or solicitation of any offer or invitation to subscribe for, underwrite or otherwise acquire or dispose of, any securities of Novae Group PLC ( Novae ) nor should they or any part of them form the basis of, or be relied on in connection with, any contract or commitment whatsoever which may at any time be entered into by the recipient or any other person, nor do they constitute an invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000 ( FSMA ). This document and the Presentation do not constitute an invitation to effect any transaction with Novae or to make use of any services provided by Novae. This Presentation may contain forward looking statements in relation to certain of Novae s plans and current goals and expectations, in particular but not limited to its future financial condition, performance and results. By their very nature, all forward looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Novae s control, including but not limited to insurance pricing, interest and exchange rates, inflation, competition and market structure, acquisitions and disposals, and regulation, tax and other legislative changes in those jurisdictions in which Novae, its subsidiaries and affiliates operate. As a result, Novae s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set out in any forward looking statement made by Novae. Novae has no obligation to update any forward looking statement contained in this document or the Presentation or any other document or any other forward looking statement Novae may make. Past performance cannot be relied upon as a guide to future performance. No representation or warranty, express or implied, is or will be made in relation to the accuracy, fairness or completeness of the information or opinions made in this document and the Presentation, which information and opinions should not be relied or acted on, whether by persons who do not have professional experience in matters relating to investments or persons who do have such experience. The information and opinions contained in this document and the Presentation have not been audited nor have they been subject to formal or independent verification. The information and opinions contained in this document and Presentation are provided at the date of this document and the Presentation and are subject to change without notice. No responsibility or liability whatsoever is or will be accepted by Novae, its subsidiaries or affiliates or by any of its officers, directors, employees or agents for any loss howsoever arising, directly or indirectly, from any use of this document or its contents or attendance at the Presentation. This document is for distribution only in the United Kingdom and the Presentation is being made only in the United Kingdom to persons falling within Articles 19, 43, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, to persons who have professional experience in matters relating to investments or to persons in the United Kingdom to whom this document may otherwise be lawfully distributed. This document is being supplied and the Presentation made to you solely in that capacity for your information. This document may not be reproduced, redistributed or passed on to any other person, nor may it be published in whole or in part, for any purpose. By accepting this document and Presentation, you agree to be bound by the foregoing limitations, undertakings and restrictions and agree that you have solicited the information contained in this document and Presentation. Novae Group plc Interim Results to 30 June 2006 2
Agenda Highlights Financial and underwriting review Outlook Matthew Fosh Oliver Corbett Matthew Fosh Novae Group plc Interim Results to 30 June 2006 3
Highlights Continuing business - underlying PBT 16.0m (H1 2005 27.7m) - H1 combined ratio 83.8% (H1 2005 71.9%) - encouraging outlook for full year - Group reorganisation - formation of NICL - rights issue/new bank facilities Discontinued business - provision usage 6.9m (H1 2005 12.4m) - loss reviews Novae Group plc Interim Results to 30 June 2006 4
Financial and underwriting review Oliver Corbett Novae Group plc Interim Results to 30 June 2006 5
Financial highlights income statement (1) m June 2006 June 2005 December 2005 Gross premium revenue (2005: incl. Fusion) 147.6 154.2 366.6 Net premium revenue 114.8 111.4 270.6 Investment return 12.8 13.4 25.8 Net claims incurred (60.9) (39.3) (187.7) Expenses (48.5) (48.9) (113.1) Other income 4.7 3.0 7.3 Operating profit 22.9 39.6 2.9 Combined ratio -100% level 83.8% 71.9% 95.2% Novae Group plc Interim Results to 30 June 2006 6
Financial highlights income statement (2) m June 2006 June 2005 December 2005 Operating profit 22.9 39.6 2.9 Financing costs (6.9) (11.9) (20.8) Non recurring professional costs (1.5) - - Profit on disposal of Fusion - - 4.0 Profit/(loss) before tax 14.5 27.7 (13.9) Tax (4.8) (8.5) (3.2) Minorities - (0.2) (0.1) Profit/(loss) after tax and minorities 9.7 19.0 (17.2) Novae Group plc Interim Results to 30 June 2006 7
Discontinued units financial drag 80 76.0m 70 60 m 50 40 40.0m 30 20 20.5m 18.6m 25.1m 10 6.9m 0 2001 2002 2003 2004 2005 2006 absorbed by exceptional loss provision Novae Group plc Interim Results to 30 June 2006 8
Balance sheet m June 2006 December 2005 Financial assets/cash 852.6 799.3 Reinsurance contracts 505.9 587.2 Insurance and other receivables 214.1 234.4 Deferred tax 36.6 41.4 All other assets 35.8 35.4 1,645.0 1,697.7 Insurance contracts 1,291.2 1,461.1 Financial liabilities 65.5 65.1 Insurance and other payables 45.4 43.8 All other liabilities 17.5 15.3 1,419.6 1,585.3 Shareholders funds 225.4 112.4 1,645.0 1,697.7 Novae Group plc Interim Results to 30 June 2006 9
Cash flow statement m June 2006 June 2005 December 2005 Net cash flow from operating activities (5.6) 31.9 25.1 Servicing of finance (2.8) (2.6) (5.2) Interest received 4.5 6.2 12.4 Capital expenditure (0.9) (2.6) (1.5) Tax paid - (0.7) (1.1) Financing 103.7 - - Net portfolio investment (111.9) (16.1) (23.6) Net cash flow for the period (13.0) 16.1 6.1 Novae Group plc Interim Results to 30 June 2006 10
Per share results June 2006 June 2005 December 2005 Earnings per share 2.5p 5.3p (4.8p) Net asset value per share 31.1p 40.7p 31.2p Net tangible asset per share 30.0p 38.2p 28.9p Novae Group plc Interim Results to 30 June 2006 11
Key asset classes Other 17% Financial assets/cash ( 852.6 million or 52%) Reinsurance contracts ( 505.9 million or 31%) All other assets ( 286.5 million or 17%) RI contracts 31% Financial assets 52% Novae Group plc Interim Results to 30 June 2006 12
Financial assets m June 2006 December 2005 FAL assets 254.8 239.0 NICL assets 98.1 - Cash 16.4 31.5 PTF assets/overseas deposit/cash (Novae share) 483.3 528.4 Total financial assets 852.6 798.9 Managers weighted average FY06 return expectations - denominated: FAL / NICL PTF - $ denominated: FAL (annualised) PTF 4.3% 4.4% 4.9% 4.2% 4.9% 4.8% - 1.9% Novae Group plc Interim Results to 30 June 2006 13
Reinsurance contracts m June 2006 December 2005 Reinsurers share of claims notified not yet due 364.4 465.2 Bad debt provision (10.1) (11.7) Net reinsurers share of claims notified not yet due Reinsurers share of losses incurred but not reported 354.3 453.5 98.6 108.0 Reinsurance recoveries 452.9 561.5 Reinsurers share of UPR 53.0 25.7 Reinsurance contracts 505.9 587.2 Novae Group plc Interim Results to 30 June 2006 14
Underwriting performance 100% level m June 2006 June 2005 December 2005 Gross written premium 157.9 135.4 249.0 Net premium revenue 125.0 119.1 288.3 Net claims incurred 66.7 45.1 206.1 %age of net premium revenue 53.3% 37.9% 71.5% Expenses (incl. brokerage) 38.1 40.5 68.4 %age of net premium revenue 30.5% 34.0% 23.7% Combined ratio: earned basis 83.8% 71.9% 95.2% Novae Group plc Interim Results to 30 June 2006 15
Results by underwriting year m 1998 & prior 1999 2000 2001 2002 2003 2004 2005 H1 2006 Total Specialty (0.4) (0.8) 1.9 1.9 (4.7) (1.0) 7.0 11.4 (1.6) 13.7 Property (0.2) 0.2 0.4 (0.2) (0.3) (0.7) (0.9) 5.5 (0.4) 3.4 Liability (0.4) (0.2) 0.3-0.6 1.3 0.9 2.2 (1.2) 3.5 Aviation & Marine 0.6 0.2 (0.3) (0.5) (0.5) (0.2) 1.5 6.8 (1.6) 6.0 Continuing (0.4) (0.6) 2.3 1.2 (4.9) (0.6) 8.5 25.9 (4.8) 26.6 Discontinued (4.6) (5.5) 7.5 (3.7) (0.6) - - - - (6.9) Novae Group plc Interim Results to 30 June 2006 16
Specialty 100% level summary Gross written premium m Underwriting profit m As % net premium revenue 2006 half year 75.7 17.1 26.2% 2005 half year 38.5 4.4 9.2% 2005 full year 111.5 8.1 7.4% Novae Group plc Interim Results to 30 June 2006 17
Property 100% level summary Gross written premium m Underwriting profit m As % net premium revenue 2006 half year 32.6 3.2 13.6% 2005 half year 46.2 14.6 34.4% 2005 full year 71.0 (31.5) (33.1)% Novae Group plc Interim Results to 30 June 2006 18
Liability 100% level summary Gross written premium m Underwriting profit m As % net premium revenue 2006 half year 26.1 3.3 13.5% 2005 half year 33.7 7.4 36.3% 2005 full year 40.7 11.5 18.9% Novae Group plc Interim Results to 30 June 2006 19
Aviation & Marine 100% level summary Gross written premium m Underwriting profit m As % net premium revenue 2006 half year 23.5 6.0 50.8% 2005 half year 17.0 10.5 125.0% 2005 full year 25.8 14.7 64.2% Novae Group plc Interim Results to 30 June 2006 20
Capacity outlook for 2007 m 2006 managed capacity 2007 managed capacity * 2007 aligned capacity Aligned Syndicate 1007 120 - - - Syndicate 2147 240 - - - Merged syndicate (proposed) - 360 338 94% Total 360 360 338 94% * business plan as submitted to Lloyd s, June 2006 Novae Group plc Interim Results to 30 June 2006 21
Outlook Matthew Fosh Novae Group plc Interim Results to 30 June 2006 22
Overview Discontinued business - rolling review process - finality Ongoing business - outlook for the year - Novae Syndicates / Novae Insurance Company - market conditions Novae Group plc Interim Results to 30 June 2006 23
Discontinued business Exceptional loss provision m Q1 Q2 Q3 Q4 Year total 2004 12 28 8 28 76m 2005 5 8 6 21 40m 2006 2 5 Novae Group plc Interim Results to 30 June 2006 24
Comparative six monthly moving averages of net claims incurred movement by year of account 35.0 30.0 25.0 20.0 'm 15.0 10.0 '04 '02 '01 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 5.0 - (5.0) '03 '00 '99 '98 '97 '96 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 Quarter Novae Group plc Interim Results to 30 June 2006 25
Ongoing business 2006 published combined ratios 100% 90% 80% 70% 60% 50% Advent Amlin BRIT Novae Catlin Chaucer Wellington Kiln Beazley Hiscox Highway Novae Group plc Interim Results to 30 June 2006 26
Rate index (2000 = 100) 2000 2003 2004 2005 2006 6 months Change 6 months (%) Specialty 100 281 292 Property 100 165 158 Liability 100 196 207 Aviation & Marine 100 304 295 266 249 156 196 204 203 281 285-6% +26% n/c +1% Whole account 100 228 230 217 223 +3% Novae Group plc Interim Results to 30 June 2006 27
Conclusion One company, two platforms NICL Business outlook Novae Group plc Interim Results to 30 June 2006 28
Appendices Novae Group plc Interim Results to 30 June 2006 29
Managed and aligned capacity at Lloyd s 600 m 500 400 300 200 100 0 2003 2004 2005 2006 2007 Managed capacity Aligned capacity Novae Group plc Interim Results to 30 June 2006 30
Lloyd s capital stack 350 m 300 279m 296m Lloyds TSB LOC Everest Re LOC 250 Own FAL 200 150 100 50 0 Jan - June 2006 Following June 2006 coming into line Novae Group plc Interim Results to 30 June 2006 31
NICL capital stack 120 m 100 100m NICL capital 80 60 40 20 0 01/07/2006 Novae Group plc Interim Results to 30 June 2006 32
2007 business plan 100% level Segmental income m Lloyd s NICL Total Specialty 129.4 40.3 169.7 Property 60.6-60.6 Liability 34.3 10.4 44.7 Aviation & Marine 42.5-42.5 Total 266.8 50.7 317.5 Novae Group plc Interim Results to 30 June 2006 33
2003, 2004 and 2005 track record published combined ratios 2003 100% 90% 80% 70% Kiln Atrium Hardy SVB ongoing Beazley Amlin Chaucer Wellington Catlin Hiscox BRIT Goshaw k ALEA ongoing Highw ay 110% 100% 90% 80% 2004 70% Amlin Atrium SVB ongoing Kiln Wellington Chaucer Catlin Beazley BRIT Hiscox Hardy ALEA ogoing Highw ay Goshaw k 2005 210% 190% 170% 150% 130% 110% 90% 70% Amlin Hardy Omega SVB ongoing Highw ay Hiscox Chaucer Catlin Beazley BRIT Atrium Kiln Wellington ALEA Advent Novae Group plc Interim Results to 30 June 2006 34
All syndicates : gross incurred loss ratio development Year Syndicates At 18 months At 36 months July 2006 [stage] 1993 1007, 575 19.7% 37.9% 45.7% [163 months] 1994 1007, 1212, 575 18.3% 38.3% 50.3% [151 months] 1995 1007, 1212, 575 19.5% 43.9% 69.4% [139 months] 1996 1007, 1212, 575 20.0% 51.2% 67.8% [127 months] 1997 1007, 1212, 575, 2147 24.1% 70.3% 117.9% [115 months] 1998 1007, 1212, 575, 2147 44.8% 100.4% 158.0% [103 months] 1999 1007, 1212, 1241, 575, 2147 57.7% 99.9% 164.1% [ 91 months] 2000 1007, 1212, 1241, 575, 2147 36.6% 97.4% 168.4% [ 79 months] 2001 1007, 1212, 1241, 575, 2147 54.5% 93.5% 163.1% [ 67 months] 2002 1007, 1241, 2147 9.7% 42.2% 61.0% [ 55 months] 2003 1007, 2147 11.7% 31.6% 33.7% [ 43 months] 2004 1007, 2147 23.6% 43.7%[31 months] 2005 1007, 2147 59.8% 61.4%[19 months] 2006 1007, 2147 1.2% [ 7 months] Exchange rates used are 1 = $1.79 and 1 = C$2.20 Novae Group plc Interim Results to 30 June 2006 35
All Novae syndicates : gross incurred loss ratio 180% 160% 140% 120% 100% 80% 60% 40% 20% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 0% 1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97 103 109 115 121 127 133 139 145 151 157 163 Novae Group plc Interim Results to 30 June 2006 36
All Novae Syndicates : gross incurred loss ratio for the good years 80% 70% 60% 50% 40% 30% 20% 1993 1994 1995 1996 2002 2003 2004 10% 0% 1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97 103 109 115 121 127 133 139 145 151 157 163 Novae Group plc Interim Results to 30 June 2006 37
Summary segmental performance m Specialty Property Liability Aviation & Marine Total H1 2006 Gross written premium 75.7 32.6 26.1 23.5 157.9 Net written premium 53.2 12.9 16.0 11.6 93.7 Net premium revenue 65.2 23.5 24.5 11.8 125.0 Technical profit 17.1 3.2 3.3 6.0 29.6 Attributable to SVB 13.7 3.4 3.5 6.0 26.6 At 30 June 2006 Gross technical reserves 520.4 111.4 137.8 67.1 836.7 Attributable reinsurance assets 288.3 37.7 13.5 36.3 375.8 Attributable PTF investment assets 126.1 44.9 8.0 9.7 188.7 Novae Group plc Interim Results to 30 June 2006 38
Attributable results by syndicate by year m 1998 & prior 1999/ 2000 2001 2002 2003 2004 2005 2006 Total 1007 (1.1) 0.3 1.3 (0.6) (0.8) 4.3 9.8 (1.5) 11.7 2147 0.4 0.2 (0.8) - 0.2 4.2 16.1 (3.3) 17.0 1241 (4.3) 3.2 (3.0) (4.9) - - - - (9.0) Total (5.0) 3.7 (2.5) (5.5) (0.6) 8.5 25.9 (4.8) 19.7 Novae Group plc Interim Results to 30 June 2006 39
Reinsurance recoveries : status of reinsurers As a general rule we grade reinsurers based on an AM Best rating for companies domiciled in the USA or Bermuda and S&P rating for companies domiciled elsewhere. We then use standard descriptions as shown below. In this table we have excluded recoveries anticipated on IBNR and we have confined the analysis to the reinsurance asset attributable to Novae. The overall security profile shown does not change materially as a consequence of this change. AM Best S&P June 2006 June 2005 December 2005 Superior A++, A+ AAA 13.7% 11.8% 13.1% Excellent A, A- AA 22.9% 36.8% 32.7% Good (incl Lloyd s) B++, B+ A 57.0% 45.6% 44.6% Other 6.4% 100.0% 5.8% 100.0% 9.6% 100.0% Novae Group plc Interim Results to 30 June 2006 40
Willingness to lose and realistic disaster scenarios figures converted into sterling at 1 = $1.79 Scenario WTL m Net RDS impact on Novae m (01/08/06) Florida Windstorm ($60bn insured loss) 42 39 Californian Earthquake ($50bn insured loss) 42 24 New Madrid Earthquake ($40bn insured loss) 42 14 UK Flood (1953 type event) 37 29 UK/European Windstorm ( 17bn insured loss) 30 24 Japanese Earthquake ( 28bn insured loss) 30 23 Japanese Typhoon ( 8bn insured loss) 30 20 Aviation Event ($3.5bn insured loss) 30 29 Syndicate 1007 Liability Corporate Collapse * 25 16 Syndicate 2147 Occurrence Liability 20 20 Syndicate 1007 Political Risks (various scenarios) * 15 13 Marine and Energy Events (various scenarios) 15 15 * Syndicate 1007 scenarios shown above reflect Novae ownership percentage Novae Group plc Interim Results to 30 June 2006 41
Realistic disaster scenarios : Lloyd s specific US scenarios figures converted into sterling at 1 = $1.82 Scenario (market loss x event code) Net impact on Novae m (01/08/06) Windstorms Florida west coast ($100bn insured loss RMS 450475) 40.8 Florida east coast ($100bn insured loss RMS 443334) 21.6 Gulf-Texas/Louisiana ($100bn insured loss RMS 444103) 23.3 North east USA ($65bn insured loss RMS 438394) 38.3 As a second event : Carolinas ($30bn insured loss RMS 440744) 9.8 Earthquakes Los Angeles ($65bn insured loss RMS 469087) 19.8 San Francisco ($65bn insured loss RMS 446938) 20.2 New Madrid ($40bn insured loss RMS 159577) 13.2 New Madrid extreme stress ($90bn insured loss RMS 159009) 18.7 Novae Group plc Interim Results to 30 June 2006 42