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Abonner Alea Group Holdings (Bermuda) Ltd.

Alea Group Holdings (Bermuda) Ltd.

Alea Group Holdings (Bermuda) Ltd: Preliminary Results for the Year Ended 31 December 2004

Bermuda (ots/PRNewswire)

- Alea Comprehensive Reserve Study Completed In-Line With
Expectations
Reserve study
  • Comprehensive reserve study completed in-line with guidance of 5-7 point second half increase in combined ratio (H1 2004: 95.7%)
  • Reserve increases of $72.5 million in the second half (H1 2004: $21.2 million; 2003: $19.2 million) add 6.1 points to combined ratio
Financial performance
  • Combined ratio(1) of 104.2% (2003: 96.8%) in-line with guidance of 103-105%
  • Underlying combined ratio(2) of 93.9% (2003: 94.5%) reflecting strong performance from core business
  • Net asset value of $4.05 per share (GBP2.10 at 31 December 2004 exchange rate of $1.93 = GBP1)
  • Second half storm losses of $51.4 million, lower than $55 million forecast originally
  • Gross premiums up 22% to $1,583 million (2003: $1,300 million)
  • Profit before tax of $10.9 million (2003: $54.5 million), including unrealised investment losses of $7.1 million (2003: $29.2 million)
  • Tax charge of $16.6 million (2003: $13.5 million) reflecting limited tax relief on reserve additions and one-off US withholding tax charge of $4 million
  • Fully diluted after tax loss per share of $0.03 (2003: profit of $0.42) - fully diluted operating EPS $0.06 (2003: $0.54)
  • Annualised operating return on equity(3) of 2%
  • Final 2004 dividend of $0.07 per share recommended, to give total dividend of $0.10 per share
Outlook and prospects
  • Growing insurance portfolio with a combined ratio of 89.1% (2003: 104.1%): reinsurance combined ratio of 110.9% (2003: 93.5%).
  • Strong underwriting conditions continue: rate increases equal to claims inflation. Profitability consistent with target RoE
  • Net unearned premium reserve increased 17% to $660 million(4) (2003: $563 million) representing tangible future revenue
  • Pre-tax loss estimate from Windstorm Erwin in January 2005 of between $20 million and $25 million.
Management
- Kirk H. Lusk (44) becomes interim Group Chief Financial Officer,
effective 15 March, upon the departure of Amanda J. Atkins, who has
resigned, on agreed terms, from her post as Group Chief Financial
Officer and as a Director and will leave Alea on 5 April. A search
for a London - or Continental European-based replacement has been
initiated.
Comments of Mark L. Ricciardelli, Group Chief Executive:
"We have completed our rigorous global reserve review, which led
to a second half reserve increase of $73 million, in-line with our
previous guidance. This action, combined with the unusually high
natural catastrophe losses experienced brought our combined ratio to
104.2%. We believe we have a rigorous approach to reserving, and that
prospectively our risks and opportunities are balanced. We are
particularly pleased with our growing insurance portfolio which has
contributed to our underlying combined ratio(2) of 93.9%, reinforcing
our belief in Alea's core strategy of focussing on small and mid-size
clients and low to medium volatility risks.
2004 was a year of significant and positive change for Alea. We
strengthened our management team, realigned our US operations,
instituted more rigorous strategic planning processes, including a
metrics-driven operating culture, and implemented a new leadership
team structure. In addition, we continued to grow our business,
principally on the insurance side, bringing that segment into closer
balance with our reinsurance portfolio.
We remain committed to our long-term goal of a 12-15% cross-cycle
return on equity(5). I believe this underlying performance, along
with our reserve actions, place us in a stronger position as we move
towards this goal in 2005."
Notes
(1) Combined ratio is the aggregate of the expense and loss ratio.
Expense ratio is the aggregate of acquisition and administrative
expenses and includes other technical charges net of reinsurance,
less technical income as a percentage of net earned premiums. The
loss ratio is claims incurred net of reinsurance as a percentage of
net earned premiums.
(2) Underlying combined ratio is reported ratio excluding storm
losses and prior year reserve additions. It is not a reflection of
Alea's long-term forecast combined ratio.
(3) Operating profit after tax as a percentage of average
equity shareholders' funds.
(4) Excludes $57 million of unearned premiums relating to
Bristol West.
(5) On a post-tax operating basis
Summarised Profit and Loss Account
                                                             Year ended
                                                         31 Dec 04 31 Dec 03
                                                                $m        $m
    Gross premiums written                                 1,582.6   1,300.2
    Net premiums written                                   1,338.1   1,028.7
    Earned premiums, net of reinsurance                    1,182.1     858.5
    Claims incurred, net of reinsurance                    (832.6)   (528.7)
    Net operating expenses                                 (386.5)   (285.5)
    Other technical income, net of reinsurance                 4.2       2.4
    Other technical charges, net of reinsurance             (16.8)    (19.0)
    Underwriting result before longer term rate of return   (49.6)      27.7
    Longer term rate of return allocated to the technical
    account                                                   87.8      57.8
    Underwriting result                                       38.2      85.5
    Movement in claims equalisation provision                  0.6     (3.8)
    Balance on the technical account - general business       38.8      81.7
    Gross investment income                                   76.4      56.3
    Net realised gains on investments                          2.6      12.1
    Net unrealised losses on investments                     (7.1)    (29.2)
    Other investment expenses                                (4.7)     (4.0)
    Actual investment return                                  67.2      35.3
    Allocated investment return transferred to the          (87.8)    (57.8)
    technical account - general business
    Debt interest                                            (5.1)     (4.7)
    Amortisation of capitalised loan expenses                (2.2)         -
    Profit on ordinary activities before tax                  10.9      54.5
    Comprising:
    Operating profit                                          30.9      80.8
    Short-term fluctuations in investment return            (20.6)    (22.5)
    Movement in claims equalisation provision                  0.6     (3.8)
                                                              10.9      54.5
    Tax charge on profit on ordinary activities             (16.6)    (13.5)
    (Loss)/profit on ordinary activities after tax           (5.7)      41.0
    Minority interest - gain on subordinated preferred
    shares issued by subsidiaries
                                                                 -       7.5
    Dividends payable                                       (17.4)         -
    Retained (loss) profit for the period                   (23.1)      48.5
Senior management will brief analysts at 10.00 am GMT at the
London Underwriting Centre. The presentation will be available by
webcast at www.aleagroup.com.
CHAIRMAN'S STATEMENT
The past year was notable for the strong financial and operational
steps taken both by the Board and by the management, including the
injection of new management talent and a thorough evaluation of claim
reserves leading to a substantial increase of such reserves. We
believe these actions advance the Group on a path towards fulfilling
the inherent promise of the Alea business strategy.
Market environment
From an operating standpoint, 2004 was a challenging year for the
industry and for the Group. Storms in the Caribbean, South Eastern US
and the Pacific combined to produce record catastrophe losses for the
industry estimated at between $35 billion and $40 billion. In
addition, the industry continued to recognise claims development in
US casualty business written between 1997 and 2002. Alea was not
immune to either of these trends. In addition, the industry is faced
with the reality of a low US interest rate environment, with its
consequential effects on returns on assets held, which further
emphasises the importance of underwriting profitability.
As a partial offset, continued advances in technology have led to
improved risk selection and risk management. Taken together, these
market environment factors - storms, adverse development, low
interest rates and improved technology - are producing a moderation
in the anticipated decline in rates as we move through the
underwriting cycle.
Outlook for 2005
Alea continues to benefit from the current rate environment,
although we expect to see some pressure on terms and conditions.
Underwriting conditions in our target markets continue to provide
opportunities for returns above our hurdle rates. I believe this rate
environment, combined with the actions taken by management in 2004,
leaves Alea well placed to deliver a solid performance for
shareholders in 2005 and beyond.
Dividend
I am pleased to report that Alea is recommending a final dividend
of $0.07 per share which, when added to the interim dividend of $0.03
per share will bring the total dividend for 2004 to $0.10 per share,
or $17.4 million in aggregate. This dividend policy is indicative of
the Board's belief in Alea's long-term ability to generate
significant returns for shareholders. Subject to shareholder
approval, this dividend will be paid on 10 June 2005 to those
shareholders on the share register at close of business on 13 May
2005.
Board changes
In June of 2004, Mark L. Ricciardelli succeeded Dennis Purkiss as
Group CEO. I would like to thank Dennis for his contribution to Alea.
Mark, who was appointed Group CEO in June of last year, is an
industry veteran of 29 years and has made significant progress in his
first six months.
Kirk Lusk was appointed interim Group Chief Financial Officer to
fill the post vacated by Amanda Atkins who resigned from this
position and from the Board on agreed terms, with effect from 15
March, and will leave Alea on 5 April.
In informing the Board of her decision, Amanda noted that Alea
has successfully established itself as a competitor in the global
marketplace, and she now feels comfortable in moving on to seek other
professional challenges.
Amanda has played a key role at Alea since joining the Group in
1999. On behalf of the Board of Directors, we wish to thank her for
her service and to wish her well in her future endeavours.
Mr. Lusk, currently Alea's Chief Administrative Officer, is a
seasoned veteran of the insurance industry, has extensive experience
in corporate finance, including both GAAP and statutory reporting,
and has served as CFO for US and Bermuda based businesses. His
finance experience includes responsibility for capital allocation and
investment management. Mr. Lusk's background also includes
underwriting and business planning and development. Prior to joining
Alea, he was Manager of Finance for Global Casualty, of GE's
Employers Reinsurance Corporation. He holds a Bachelors degree in
Economics from The Colorado College and a Masters of Business
Administration from the University of Connecticut.
Alea has begun a search for a Group Chief Financial Officer
who is expected to be based in London or Continental Europe.
In September 2004, Edward B. Jobe was appointed to the Board as an
independent director and member of the Audit Committee. Ed brings a
wealth of market experience and relationships to Alea, having served
as Chairman and CEO of American Re until he retired in 1996.
Finally, I wish to thank my fellow directors, management and staff
for their commitment and effort during a difficult year. This,
combined with the support of brokers, customers and shareholders, has
allowed the Group to achieve notable progress in 2004. I am confident
that Alea is well positioned to build value in the year ahead.
CHIEF EXECUTIVE OFFICER'S REPORT
I am pleased to report that our comprehensive global reserve
review is complete. We are confident we have taken the necessary
steps to ensure our reserving approach is sufficiently rigorous.
Although this exercise has impacted 2004 financial performance, I
believe it enables us to focus on our core strategy and enhance
shareholder value.
2004 initiatives
During 2004 the business has implemented a number of initiatives
to strengthen Alea and position the Group for profitable growth:
Management
  • recruiting management talent to strengthen strategic planning, marketing communications, investor relations, and actuarial pricing and reserving.
  • supplementing our technical skill base adding underwriting and actuarial talent in the growth areas of our business.
  • realigning our North American operations to streamline decision-making, improve productivity and provide greater resources to our growing insurance portfolio.
Operations
  • developing and implementing an advanced metrics-driven performance management system that allows us to monitor and respond to our business proactively.
  • enhancing the planning processes bringing greater transparency to our global business.
  • enhancing controls and operating infrastructure across enabling functions.
Business review
  • conducting an in-depth product line review and initiating a process of portfolio segmentation to facilitate cycle management
  • identifying $97 million of strategic exits, primarily in US casualty reinsurance.
  • initiating a comprehensive review of our expense base to improve productivity.
  • completing a global, in-depth reserve study in cooperation with claims staff and legal counsel.
Alea has experienced significant change and progress in 2004. We
will continue to improve and strengthen Alea in 2005.
Reserve review
The review has resulted in an increase in reserves during the
second half of the year of $72.5 million, in line with the January
2005 estimate of $60 million to $80 million. This increase was the
result of higher claims activity, an in-depth evaluation of actual
and expected claims, which included site visits at a number of ceding
companies, and the global application of actuarial processes,
procedures and policies.
In aggregate the Group recorded net post discount prior year total
reserve additions of $93.7 million in 2004, producing a 104.2%
combined ratio. Of the $93.7 million, 98% is attributable to US and
European reinsurance business and includes first half adverse reserve
development of $21.2 million.
US casualty reinsurance accounted for $58.8 million of the reserve
development, and of this, approximately two-thirds was attributable
to five reinsurance contracts written between 1999 and 2002. These
contracts have subsequently not been renewed.
European reinsurance accounted for $33.2 million of the adverse
reserve development, relating to accounts written by Rhine Re in 2000
and prior. Reserve increases in Alea Europe reflect a decision to
apply more conservative estimates of long-term development to the
overall paid claims projections. This gives greater weight to
outstanding claims data than in previous years. Actual cash flows on
this business remain largely within expectations.
This review reinforced our belief in Alea's business model as our
core insurance and reinsurance portfolios continue to perform in line
with expectations. Our growing insurance business generated a
combined ratio for 2004 of 89.1%, which contributed to our strong
underlying combined ratio of 93.9%. The review also reaffirmed our
belief in the high quality of our underwriting and reserving systems.
Storms
Our previously announced initial estimate of ultimate pre-tax net
loss for the third quarter hurricanes was $55 million, based on our
extensive database and internal modelling capabilities as well as
on-site evaluations. We are now lowering our loss estimate to $51.4
million, including $41.9 million relating to the hurricanes. On 26
December 2004, the South Asian earthquake and tsunami resulted in a
significant loss of life and destruction; however, the Group's
exposure to this disaster is minimal.
Windstorm Erwin hit northern Europe and Scandinavia in early
January 2005 and was one of the most severe storms to have affected
the region in the past 15 years. Industry estimates place total
losses between $1.3 billion and $1.7 billion. Alea's preliminary
pre-tax estimate of losses from this windstorm is between $20 million
and $25 million reflecting losses from five major programmes in
Denmark and Sweden.
Management
Alea continues to mature and is evolving into an increasingly
sophisticated global portfolio of businesses. A critical aspect of
this evolution is the need to transition from a
transaction-orientated management style to one that is more
strategically driven. To assist us in making this transition, we have
added to our intellectual capital by recruiting a number of talented
and experienced insurance industry professionals.
Renewals
The first quarter renewal season is important for Alea Europe,
although a significant proportion of our business renews in later
quarters. In 2005 the Group has declined renewals representing
approximately 18% of the portfolio due for renewal in the first
quarter. These strategic exits, representing $97 million of business,
were primarily in US casualty reinsurance. This business was not
renewed because it fell below our profitability hurdles, had
deterioration in terms and conditions, or was outside our core
strategy. In addition the 2001-2003 Bristol West contract was
commuted with effect from 1 January 2005. This contract performed in
line with our expectations.
On our core portfolio, rate increases are approximately equal to
claims inflation and consequently we expect the strong underwriting
conditions experienced in 2004 to continue. We have also seen a 6%
increase in new business and a 5% increase in our line share
reflecting the strength and increased recognition of our marketing
efforts.
Prospects
We continue to see selective growth opportunities in our insurance
and reinsurance businesses, with relatively higher growth expected
from insurance. Our primary focus remains small to medium size
businesses and low to medium volatility risks.
Looking ahead our renewals experience to date together with our
claims and expense initiatives leads us to anticipate steady growth
at acceptable rates and terms. We remain committed to our long-term
goal of a 12% to 15% post tax operating profit return on equity.
OPERATING REVIEW
The Group has experienced sound performance for the 2003 and 2004
underwriting years. This demonstrates the success of our core
strategy of providing insurance and reinsurance coverage for small to
mid market clients or divisions of larger companies in the US, Europe
and the UK.
                      Gross premiums written        Net premiums earned
                         Year ended                  Year ended
                     31 Dec 04 31 Dec 03  Growth 31 Dec 04 31 Dec 03  Growth
                            $m        $m       %        $m        $m       %
    Alea Alternative     445.6     261.1      71     234.1      97.9     139
    Risk
    Alea London(1)       581.8     566.1       3     496.6     407.7      22
    Alea Europe          238.5     190.1      25     216.1     163.6      32
    Alea North America   316.7     282.9      12     235.3     189.3      24
    Total(2)           1,582.6   1,300.2      22   1,182.1     858.5      38
(1) Including Bristol West. (2) Excluding Bristol West, gross
premiums written are $1,433.2 (2003: $1,141.7 million).
Insurance and reinsurance portfolios
The prospects for our growing insurance portfolio are promising.
In 2004 insurance represented 41% of the Group's gross written
premium, rising to 46% when amounts relating to the Bristol West
contract are excluded. The majority of this growth is from Alea
Alternative Risk, which distributes unbundled products in the US
through risk sharing partners. We expect our insurance business to
continue to grow faster than reinsurance, albeit at a slower pace
than in 2004.
                   Year ended 31 December 2004  Year ended 31 December 2003
    Gross premiums             $m           %             $m             %
    written
    Insurance                 653.7          41          432.4            33
    Reinsurance               928.9          59          867.8            67
    Total(1)                1,582.6         100        1,300.2           100
(1) Excluding Bristol West, 2004 GPW: 46% insurance (2003: 38%)
We commenced writing significant volumes of insurance business in
2001, with $56 million of gross written premiums in that year.
Consequently we have avoided most of the industry problems arising
from underwriting years 1997 to 2001. Insurance reserves continue to
develop in line with expectations, with the strong 2004 and 2003
underwriting years delivering a combined ratio of 89.1% (2003:
104.1%). Reinsurance business accounted for 98% of our adverse
reserve development and is reflected in the 110.9% combined ratio
(2003: 93.5%).
    Combined ratio  Year ended 31 December 2004 Year ended 31 December 2003
    Insurance                  89.1%                      104.1%
    Reinsurance               110.9%                       93.5%
Lines of business
We seek to write a balanced portfolio of property and casualty
business. The mix between property and casualty in 2004 was similar
to 2003 and we are not expecting significant changes in 2005. 74% of
insurance business is casualty (2003: 78%), falling to 72% for our
reinsurance business (2003: 67%).
                     Year ended 31 December 2004  Year ended 31 December 2003
    Gross premiums               $m           %             $m             %
    written
    Casualty                1,156.0          73          923.8            71
    Property                  399.6          25          324.4            25
    Other                      27.0           2           52.0             4
    Total(1)                1,582.6         100        1,300.2           100
(1) Excluding Bristol West: 2004, GPW: 70% casualty (2003: 68%)
Excluding the Bristol West motor reinsurance contract our casualty
portfolio in 2004 was 35% general liability, 28% motor, 22% workers'
compensation, 14% professional liability, and 1% other.
Insurance
Results
AAR is the Group's fastest growing segment, with growth due to a
high renewal rate (90% renewal retention ratio in 2004), an increased
number of opportunities in the sector and underlying growth within
existing programmes. Substantial premium volume is shared with
partners. The ratio of net earned to gross earned premiums is 58%
(2003: 48%) which is the result of an effort to retain a more
significant risk position. AAR's gross premiums written earns over
three financial years with approximately 25% being earned in year
one, 65% in year two and 10% in year three. In 2004 the benefits of
the growth in 2003 flowed into 2004 earnings.
The improvement in the loss ratio is due to price increases,
minimal adverse reserve development on prior years and an improving
mix of business. The 4.5 point improvement in the expense ratio
reflects increasing absorption of necessary infrastructure costs as
the business achieves scale.
                                                 Year ended
                                             31 Dec 04 31 Dec 03   Change
                                                    $m        $m
    Gross premiums written                       445.6     261.1     +71%
    Net premiums earned                          234.1      97.9    +139%
    Underwriting result after allocated           55.6       4.4   +1164%
    investment return
    Expense ratio                                31.8%     36.3%  +4.5pts
    Loss ratio                                   53.7%     72.1% +18.4pts
    Combined ratio                               85.5%    108.4%   +23pts
    Net reserves                                 146.8      74.6     +97%
AAR provides commercial programme insurance solutions to middle
market and small accounts within the US market. All programmes
include unbundled services and risk sharing by the client. AAR
partners with underwriting managers, typically Managing General
Agents (MGAs) or Managing General Underwriters (MGUs) third party
administrators and other service providers to deliver an unbundled
insurance product. All clients assume a risk position irrespective of
whether the programme is managed through a captive, rent-a-captive or
a structured loss-sharing mechanism. This ensures their interests are
aligned with ours.
AAR focuses on workers' compensation (49% of 2004 gross premiums
written), general liability (24%), auto liability (20%) and property
(7%) lines of business. Within these lines, AAR's preferred market
segments are retail, wholesale, service operations, artisan
contracting, light manufacturing, residential and automobile
businesses.
The business model includes a multi-disciplined approach to
underwriting, reflecting high transaction volumes and comprehensive
review and monitoring of the business. Nearly 200 compliance, claims,
loss control, finance, and underwriting audits were completed during
2004. In addition, AAR closely monitors the credit risk and
collateral posted on its behalf. By creating a strong control
environment, AAR can properly monitor its business partners and
products. Insurance processes are inherently more expensive than
reinsurance and, consequently, given AAR's relative growth rate we
anticipate this segment will increase the Group's 2005 expense ratio.
Outlook
Although the book is relatively young, AAR's underwriting team has
an average of 20 years experience in the insurance market, with
business first being written in 2001. Claims experience to date has
been in line with expectations. Management is confident of being able
to continue to grow the book profitably.
For business renewing in January 2005 rates were relatively flat
with US general liability and automobile business providing rate
increases of up to 3% and workers' compensation declining by up to
2%. Although deductions are also relatively flat, there is pressure
on terms and conditions.
Although the specialist insurance market will not grow as rapidly
as it has over the last few years, management are confident of being
able to grow the AAR book profitably as substantial opportunities
remain.
Alea London - Insurance and reinsurance
Results
Alea London is a non-syndicated London market operation, managing
an international book of business sourced through the London broker
market. Insurance business represented 53% of total gross premiums
written (excluding Bristol West) in 2004 (2003: 47%). Alea London's
insurance business is expected to grow faster than reinsurance,
albeit at a slower rate than previously noted. Its reinsurance
portfolio is expected to grow selectively in 2005.
Alea London writes the majority of the Group's property
catastrophe portfolio outside of continental Europe, and consequently
its 2004 operating performance was impacted by the second half
storms. Alea London also wrote 22% of the Group's US casualty
business in 2002 and earlier, including one of the five large
professional liability contracts which together contributed
two-thirds of the Group's US casualty development. The contract was
subsequently not renewed.
The storms and reserve development impacted Alea London's and the
Group's loss ratios by 13.9% and 5.8% respectively. Claims experience
on Alea London's insurance portfolio and on its non-US casualty
reinsurance lines of business are in line with expectations. The
expense ratio is 0.9 points lower than 2003 due to foreign exchange
effects and the inclusion of some non-repeating expenses.
                                                 Year ended
                                             31 Dec 04 31 Dec 03   Change
                                                    $m        $m
    Gross premiums written(1)                    581.8     566.0      +3%
    Net premiums earned                          496.6     407.7     +22%
    Underwriting result after allocated            4.3      68.1     -94%
    investment return
    Expense ratio                                32.4%     31.5%  -0.9pts
    Loss ratio                                   71.0%     55.2% -15.8pts
    Combined ratio                              103.4%     86.7% -16.7pts
    Underlying combined ratio(2)                 89.5%     86.1%  -3.4pts
    Net reserves                                 330.9     198.5     +67%
(1) Including Bristol West premiums of $149.4 million (2003:
$158.5 million)
(2) Combined ratio excluding storm losses and prior year reserve
additions
The growth in net premiums earned reflects the impact of the
increase in gross premium volumes in 2003 and 2004. Alea London's
gross premiums written earn approximately 55% in year one, 35% in
year two and 10% in year three.
Gross premiums written through the Bristol West contract were
$149.4 million (2003: $158.5 million). $56.5 million of unearned
premiums is carried forward into 2005; however as this contract was
commuted with effect from 1 January 2005 these premiums will be
recorded as a reduction to gross written premium in the 2005
financial statements with no impact on net earned premium or profit.
The contract performed in line with expectations generating $4.5
million of underwriting profit in 2004 (2003: $3.8 million).
In 2004 both the insurance and reinsurance portfolios (excluding
Bristol West) were approximately 60% casualty and 40% property. Alea
London writes a range of insurance business through strategic
relationships with MGAs and MGUs including general liability,
property and motor, including the previously announced partnerships
with Endsleigh Insurance Services and Kinetic Underwriting Concepts
to write specialist UK motor insurance. Over 50% of the casualty book
is general liability, with professional liability accounting for less
than 7%. A significant proportion of Alea London's insurance activity
is excess and surplus lines business. This is showing growth in a
favourable rate environment.
Outlook
2005 insurance rates have shown improvements of up to 5% and are
mainly flat net of claims inflation. Reinsurance casualty classes are
experiencing rate increases of up to 5% with the exception of non-US
general liability which is forecast to reduce by up to 5%. Property
catastrophe rates outside the US are down by between 5% to 10%,
excepting areas affected by the third quarter hurricanes where
increases are being seen. US property catastrophe pricing is flat.
Terms and conditions remain stable.
In the first quarter renewal season Alea London recorded an 84%
renewal retention ratio reflecting strategic exits in US casualty.
Overall pricing for Alea London continues to be attractive and should
continue to be so through 2005.
Alea Europe - Reinsurance
Results
Alea Europe primarily reinsures property and casualty treaty
business, which represents 92% of total gross premiums written in
2004 (2003: 87%), of which property represents 57% and casualty 34%.
Within the casualty portfolio 62% is motor, 16% is professional
liability and 10% general liability. Typical customers are mutual
insurance companies with less than $500 million of capital.
                                                 Year ended
                                             31 Dec 04 31 Dec 03   Change
                                                    $m        $m
    Gross premiums written                       238.5     190.1     +25%
    Net premiums earned                          216.1     163.6     +32%
    Underwriting result after allocated            1.3      11.1     -88%
    investment return
    Expense ratio                                33.4%     37.6%  +4.2pts
    Loss ratio                                   75.3%     63.0% -12.3pts
    Combined ratio                              108.7%    100.6%  -8.1pts
    Underlying combined ratio(1)                 93.4%    100.6%  +7.2pts
    Net reserves                                 340.6     208.5     +63%
(1) Combined ratio excluding storm losses and prior year reserve
additions.
The increase in gross premiums written and net premiums earned is
primarily due to strong business retention, as a result of excellent
client relationships, and a significant amount of new business. The
majority of Alea Europe's business renews in the first quarter. The
renewal retention ratio in 2004 was 73%. This relatively low renewal
rate reflects Alea Europe's reduction in marine business at the end
of 2003. The renewal retention rate increased to 85% in 2005.
Approximately 90% of Alea Europe's business earns in year one.
The majority of the adverse development of $33.2 million related
to credit, (a business from which Alea Europe withdrew in 2002),
marine (materially withdrew in 2000, further withdrew in 2003) and
aviation (withdrew in 2001) written by Rhine Re in underwriting years
2000 and prior. The development taken is different in nature to our
US casualty development as it relates to a large number of small
accounts rather than any large single contracts. Driven by our visits
to primary companies we now anticipate claims will be paid over a
longer period than previously estimated. The reserve changes are not
being driven by new large claims. Instead we anticipate further
modest development as the claims are settled. The impact of the
development on Alea Europe's and the Group's loss ratio is 15.3
points and 2.8 points respectively.
Alea Europe's expense ratio has improved by 4.2 points.
Administrative expenses have increased by only $2 million in 2004
while net premiums earned have increased by over $50 million,
reflecting the focused expense management in place.
Key markets are Germany, France, Austria and Spain, which together
account for 68% of 2004 gross premiums written. Since 2001 focus has
been placed on increasing the number of contracts where a lead
position is taken, thereby providing greater control over terms and
conditions together with a deeper understanding of the customer base.
In order to develop a stronger relationship with cedants we have been
increasingly managing relationships directly rather than through
brokers. In 2004 59% of premium volume was direct (2003: 45%).
Outlook
For 2005, casualty rates across target European countries and
lines are mainly flat, or have improved by up to 5%. Deductions and
other terms and conditions are also relatively unchanged. European
property catastrophe rates are down by 5-10%. Alea Europe expects to
record selective growth in 2005.
Reinsurance
Results
ANA is the Group's main access point to the North American
reinsurance treaty market. ANA focuses on traditional reinsurance
solutions for small and mid-size insurance companies, specialty
insurers and specialty divisions of larger companies that provide
coverage to small and medium sized insurance companies. In 2004 ANA's
business was split between motor (38%), general liability (30%),
professional liability (20%), workers' compensation (6%) and property
(6%). ANA's strategy is to reduce earnings volatility by focussing on
working-layer business which is typically characterised by a shorter
duration and lower volatility than higher layer excess business. A
typical risk would be professional cover for suburban book-keepers,
or general cover for family-owned construction companies.
                                                 Year ended
                                             31 Dec 04 31 Dec 03   Change
                                                    $m        $m
    Gross premiums written                       316.7     282.9     +12%
    Net premiums earned                          235.3     189.3     +24%
    Underwriting result after allocated         (18.7)       5.0    -474%
    investment return
    Expense ratio                                37.1%     38.7%  +1.6pts
    Loss ratio                                   81.4%     68.7% -12.7pts
    Combined ratio                              118.5%    107.4% -11.1pts
    Underlying combined ratio(1)                101.2%     95.8%  -5.4pts
    Net reserves                                 289.4     190.4     +52%
(1) Combined ratio excluding storm losses and prior year
reserve additions.
The significantly higher growth in net earned over gross written
premiums is due to the volume of business written in the second half
of 2003 which predominantly earned in 2004. ANA's business earns
approximately 35% in year one, 60% in year two and 5% in year three.
For presentation purposes, ANA's operating result includes the
majority of Alea Bermuda's operating result (the remainder is in
AAR). In 2001 and earlier, when the Group did not have US licenses,
reinsurance business was written in Alea Bermuda. As these years
include the majority of the adverse development recorded in 2004, a
significant proportion of the loss has been recorded in Alea Bermuda.
Between 1999 and 2002 ANA, and Alea Bermuda wrote 78% of the
Group's US casualty portfolio. ANA's result includes the majority of
the Group's US casualty development of $58.8 million as it wrote four
of the five contracts which together accounted for approximately
two-thirds of the Group's aggregate reserve development for this line
of business. These accounts were cancelled between 1999 and 2002. The
main lines of business in ANA affected by the adverse development are
professional liability (primarily Errors and Omissions and Directors'
and Officers) and umbrella general liability. The development impacts
ANA and the Group's loss ratio by 17.3 points and 3.4 points
respectively. Excluding the results of Alea Bermuda and the 2001 and
2002 underwriting years the ANA combined ratio was 94.5% (2003:
92.3%).
ANA differentiates itself by focusing on service. A recent
independent survey ranked ANA as first amongst its target brokers for
strength of underwriting relationships, responsive service and timely
claims payments. ANA's renewal retention ratio for 2004 was 83%.
Outlook
2005 underwriting conditions in US casualty business remain
strong, with rates either flat or slightly increasing. Prospectively
ANA intends to focus on managing its existing portfolio and
consequently is not expected to grow as fast as the rest of the
Group.
FINANCIAL REVIEW
Combined ratio
The combined ratio for 2004, calculated on a net earned basis, was
104.2% (2003: 96.8%). The 7.4 point negative movement over 2003
includes a negative 8.8 point movement in the loss ratio to 70.4%
(2003: 61.6%) partially offset by a 1.4 point positive movement on
the expense ratio to 33.8% (2003: 35.2%) due to a reduction in
technical charges. The 2004 combined ratio can be analysed as below:
Year ended 31 December
                                                2004        2003
                                                   %           %
    Reported combined ratio                    104.2        96.8
    Catastrophes(1)                            (2.4)           -
    Combined ratio net of catastrophes         101.8        96.8
    Reserve increases
    US casualty reinsurance                    (5.0)       (2.8)
    European casualty reinsurance              (2.8)         0.8
    Other                                      (0.1)       (0.3)
    Underlying combined ratio                   93.9        94.5
(1) Includes impact of catastrophes on loss reserves and impact
of reinstatement premiums and net earned premiums.
Overall loss development for the 2003 and 2004 underwriting years
across our insurance and reinsurance portfolio remains in line with
expectations and has contributed to the underlying combined ratio of
93.9%. The underlying combined ratio is not indicative of long-term
reported performance.
Reserves and claims
2004 catastrophe activity
Alea's original reported estimate for net catastrophe losses was
$55 million, which it has subsequently revised to $51.4 million. The
Group's planned catastrophe provision was $21.3 million. Losses per
event net of reinsurance and after reinstatement provisions are
below.
Event                            Pre tax loss
                                             ($m)
    Caribbean and US hurricanes
    Charley                                   4.9
    Frances                                  12.2
    Ivan                                     20.6
    Jeanne                                    4.2
    Total hurricanes                         41.9
    Typhoon Songda                            9.5
    Total catastrophe losses                 51.4
BERMUDA, March 16 /PRNewswire/ --
The Group's Caribbean exposures were focused in Grand Cayman and
the Bahamas due to their superior building codes and strong pricing.
These areas suffered a Category 5 storm in September 2004 with
consequential disproportionate catastrophe losses.
Reserves
Total gross reserves before discount and claims handling
provisions at the end of 2004 are $1,971.3 million an increase of 35%
over 2003 ($1,463.7 million). On a net basis after reinsurance and
discount, this reduces to $1,114.7 million, (2003: $672.0 million).
During 2004, the Group increased its estimated reserves for prior
year business by $93.7 million, of which $72.5 million was added in
the second half of the year. Of the $93.7 million, $92.0 million
related to reinsurance business, with $58.8 million relating to US
casualty reinsurance underwritten during the 1999 through 2002
underwriting years and $33.2 million related to European reinsurance
underwritten in 2000 and prior underwriting years.
The below table analyses Alea's gross reserves between incurred
but not reported (IBNR) and case at 31 December 2004. The insurance
and reinsurance splits are in line with Alea's typical business tail
and the relative maturity of the respective books.
Insurance Reinsurance Total
    Case      34%       59%         53%
    IBNR      66%       41%         47%
Unpaid losses and loss expenses
When the Group earns premium for the underwriting risks it
assumes, it also establishes a corresponding estimate of the expected
ultimate losses. Loss reserves or unpaid losses and loss expenses are
established due to the significant periods of time that may lapse
between the occurrence, reporting and settlement of a loss. To
recognise liabilities for unpaid losses and loss expenses, the Group
estimates future amounts needed to pay claims and related expenses
with respect to insured events.
The process of establishing reserves for claims can be complex and
is subject to considerable variability as it requires the use of
informed estimates and judgements. These estimates and judgements are
based on numerous factors, and may be revised as additional
experience and other data become available. They are also reviewed as
new or improved methodologies are developed or as current laws
change. The Group's reserving practices and the establishment of any
particular reserve reflect management's judgement concerning sound
financial practice and does not represent any admission of liability
with respect to any claim.
The nature of certain portions of the Group's business can result
in loss payments that are both irregular and significant. These
portions include property catastrophe and casualty excess of loss
insurance and reinsurance. Similarly, adjustments to reserves for
individual years can be irregular and significant. Such adjustments
are part of the normal course of business for the Group. Conditions
and trends that have affected development of liabilities in the past
may not necessarily occur in the future. Accordingly, it is
inappropriate to extrapolate future redundancies or deficiencies
based upon historical experience.
The table below presents the aggregate prior year development for
unpaid loss and loss expense reserves net of reinsurance protection
in 2004, before and after application of the discount.
$'million          Pre discount   Post discount
    1999 and prior             17.4            18.5
    2000                       43.6            34.9
    2001                       49.3            40.1
    2002                        1.8             0.2
    2003                      (0.0)           (0.0)
    Total                     112.1            93.7
Under UK GAAP, categories of claims provision where the expected
average interval between the date of settlement and the balance sheet
date is in excess of four years may be discounted at a rate which is
not exceeding that expected to be earned by assets covering the
provisions. The application of the discount reduces the 2004 net
total prior year development by $18.4 million.
Basis for establishing loss reserves
The basis for establishing loss reserves for reinsurance business
is based on claims data reported to the Group by ceding companies
supplemented with relevant industry benchmark loss development
patterns used to project the ultimate incurred loss. Ultimate
incurred loss indications are calculated by the Group's actuaries
using several standard actuarial methodologies including paid and
incurred loss development and the Bornhuetter-Ferguson incurred and
paid loss methods.
The Group's actuaries utilise several assumptions in applying each
methodology, including loss development factors, expected loss ratios
based on pricing analysis, and actual reported claim frequency and
severity. These reviews and documentation are completed in accordance
with professional actuarial standards appropriate to the
jurisdictions where the business is written. The selected assumptions
reflect the actuaries judgement based on historical data and
experience combined with information concerning current underwriting,
economic, judicial, regulatory and other influences on ultimate claim
settlements.
Based on the actuarial indications, the Group selects and records
a single point estimate separately for each line of business for each
underwriting year. The single point reserve estimate is management's
best estimate which the Group considers to be one that has an equal
likelihood of developing a redundancy or deficiency as the loss
experience matures. On a quarterly basis the Group analyses and
records its loss reserve estimates across over 400 detailed lines of
business which reflect class of business, geographic location,
insurance versus reinsurance, proportional versus non-proportional,
and treaty versus facultative exposures. In addition, a limited
number of the Group's largest contracts are reviewed individually.
During the loss settlement period, additional facts regarding
claims are reported. As this occurs it may be necessary to increase
or decrease the unpaid losses and loss expense reserves. The actual
final liability may be significantly different than prior estimates.
The Group reviews additional reported claim information on a monthly
basis. Actual claim experience is compared to that expected from the
most recent actuarial reserve review to highlight significant
variances. A complete actuarial analysis by detailed line of business
including selection of single point estimates is completed quarterly
and is reviewed by the Group's management.
Reinsurance reserves
The Group's adverse reserve deterioration during 2004 arose
primarily from its reinsurance business. Reinsurance operations by
their nature add further complications to the reserving process
particularly for casualty business, in that there is an inherent lag
in the timing and reporting of a loss event from an insured or ceding
company to the reinsurer. This reporting lag creates an even longer
period of time between the policy inception and when a claim is
finally settled. As a result, more judgement is required to establish
reserves for ultimate claims in the Group's reinsurance operations.
The following table presents the 2004 adverse/(favourable) prior
year loss development of the Group's loss and loss expense reserves
net of reinsurance protection before discount for each of the years
indicated. Alea's growing insurance book has not experienced any
significant reserve development. Of the 2004 reserve additions 98%
relates to our reinsurance portfolio. Our insurance portfolio
continues to develop in line with expectations. Further, 83% relates
to underwriting years 2000 and 2001, years which have caused problems
across the industry.
$'million       Insurance Reinsurance       Total
    1999 and prior        0.0        17.4        17.4
    2000                (0.2)        43.8        43.6
    2001                  2.9        46.4        49.3
    2002                  0.0         1.8         1.8
    2003                  0.0       (0.0)       (0.0)
    Total                 2.7       109.4       112.1
Casualty reinsurance business involves reserving methods that
generally include historical aggregated claim information as reported
by ceding companies, combined with the results of claims and
underwriting reviews of a sample of the ceding company's claims and
underwriting files. Therefore, the Group does not ordinarily receive
detailed claim information for this line of business.
The following table presents the prior year loss development of
the Group's gross reinsurance loss and loss expense reserves by major
product line, before reinsurance protection and discount:
Line of business                        %
    Professional lines                     43
    General liability including            33
    credit
    Motor                                  14
    Marine, aviation and                   10
    transport
    Workers' compensation                   6
    Property                              (6)
    Total                                 100
Professional lines are the largest single cause of the development
and include four of the five large contracts which caused two-thirds
of the US casualty reserve additions. The other contract was excess
umbrella general liability.
The following table presents the Group's booked gross loss and
loss expense reserves as of December 31, 2004 for the same classes of
business.
    $ million        General Motor Workers' Professional Property   MAT Total
                     liability
                                       Comp.
    1999 and prior       137    63       39            2       43    97   381
    2000                  51    16       20           33       16    29   165
    2001                  49    22       34           34       16    17   172
    2002                  49    47       15           67       19     9   206
    2003                  54   116       11           47       28    10   266
    2004                  42   142        8           43       99     1   335
    Total                382   406      127          226      221   163 1,525
    reinsurance
    reserves
    Insurance            153    59      168           32       34     0   446
    reserves
    Total reserves       535   465      295          258      255   163 1,971
In aggregate the reinsurance reserve development of $109.4 million
adds 8% to closing 2004 gross reinsurance reserves before discount
and claims handling provisions. Professional lines reinsurance
reserves have increased by 26% due to the development. The majority
of Alea's reinsurance growth has been in lines other than
professional liability, which accounts for only 12% of the total
Group US casualty premiums between 1999 and 2004. In aggregate the
2004 reserve additions add 21% to closing 2004 reinsurance IBNR.
Ultimate loss ratio (ULR)
The ULR is an actuarial estimate of total claims to the point of
final settlement as a percentage of gross ultimate premiums. It
excludes expenses. The table below shows the ULR at the end of 2004
for proportional and non-proportional US casualty reinsurance, gross
of reinsurance and prior to discounting The Group's US casualty ULR
is the total of Alea North America, Alea London and Alea Bermuda. The
table also shows aggregate ULR for Alea Europe.
    Underwriting    US casualty proportional             US casualty   Europe
    year                                            non-proportional
                                           %                       %        %
    1995                                   -                       -     61.4
    1996                                   -                       -     72.7
    1997                                   -                       -     88.7
    1998                                   -                       -     94.9
    1999                               148.2                   105.1    104.8
    2000                               112.1                   160.6     86.9
    2001                                77.1                   103.0     73.2
    2002                                67.3                    92.6     52.4
    2003                                67.3                    70.0     54.1
    2004                                65.5                    67.5     59.1
The majority of the US casualty adverse development occurred in
1999 to 2001 and is reflected in the relatively higher ULR. The 2002
relatively high non-proportional ULR is claim-specific and relates to
one of the five large contracts which together caused two-thirds of
the US casualty adverse development.
In total these five contracts have an aggregate ULR for the
relevant years of 149% ranging from a high of 182% in 2000 to a low
of 118% in 2002. All of these contracts have been non-renewed with
only one extending beyond 2002.
The majority of the higher ULR for Alea Europe are in 1999 and
prior years reflecting the years suffering the adverse development.
US casualty reinsurance claims
The Group's expected loss development is actuarially determined
based on historical claims analysis and projected trends. Actual
reported losses may vary from expected loss development from quarter
to quarter. Generally, as an underwriting year matures, the level of
newly reported claims decreases. In the second half of 2004, the
Group, in line with the rest of the industry, received a significant
increase in US casualty reported claims, which were in excess of
expected claims development.
This adverse development was due to several factors - competitive
market pressures on pricing during the 1999 to 2002 underwriting
years caused premium rates for casualty business to decline
industry-wide; an increase in the number and size of claims reported
in recent years as a result of increases in court filings, corporate
scandals, rising tort costs and settlement awards; and a material
slowing in the time required to reach final settlements due to the
nature of the claims as well as associated uncertainty with regard to
insurance policy coverage defences.
The Group has determined that its adverse development primarily
arose from a limited number of lines of business (specifically
Directors and Officers (D&O), Errors and Omissions, and excess
umbrella liability) and from a limited number of larger contracts. In
particular, the exposures for D&O legal activities relating to
capital market activities are a leading example of the current claims
environment for policies written during 1999 to 2002. In order to
obtain information to more accurately determine an estimate of the
ultimate loss reserves for this book of business, the Group conducted
a series of comprehensive claim audits for major contracts of ceding
companies which reflected potential future adverse development.
Ceding company information is limited for these types of claims due
to the need to resolve many coverage issues with the underlying
policyholders. Following the Group's claims audits the reserves were
increased to reflect its own detailed evaluation of the claim
settlement potential.
The claims audits included both internal and external claims and
legal resources, a review of open claims both reported and unreported
to the Group, and a review of loss ratios and reserve analysis
procedures. Additional potential loss exposures were identified
during the audits and upon completion of the fourth quarter actuarial
review in January 2005, the Group increased its loss reserves for
prior underwriting years.
European reinsurance
Adverse development in Alea Europe affected several lines of
business including credit, marine and aviation, and other multi-peril
business for underwriting years 2000 and prior written by Rhine Re.
20% related to 1997 and earlier, 14% to 1998, 47% to 1999 and 19% to
2000.
For these lines of business, the Group's historical development
patterns generally indicated that decreases in reported loss reserves
could be expected for these relatively mature underwriting years.
Decreases in loss reserves can result from several causes including
salvage recoveries, subrogation, and historically conservative
establishment of case basis claim reserves exhibited in some European
markets.
During 2004, the Group noted that actual versus expected claim
development was exhibiting an adverse result for some lines. In order
to obtain information to more accurately determine an estimate of the
ultimate loss reserves for these lines, the Group scheduled a series
of claim audits for major ceding companies with larger amounts of
outstanding reported loss reserves. As a result of the information
obtained in the claim audits, the Group increased its loss reserves
to reflect the ultimate settlement values determined by its analysis
of the samples of claims reviewed.
Profit and loss account
Gross and net earned premiums
Gross premiums written increased 22% to $1,582.6 million
reflecting growth in all operations. Excluding the Bristol West
contract in Alea London which was commuted with effect from 1 January
2005, gross premiums written were $1,433.2 million, 26% higher than
2003.
The level of net earned premiums increased by 38% to $1,182.1
million (2003: $858.5 million) reflecting the earning patterns of the
Group and the impact of relative premium growth in 2003 and 2004 and,
to a lesser extent, 2002.
Premiums written generally take three years to earn through the
profit and loss account. These patterns differ by business class and
operational unit and are indicated in the Operating review. Overall,
they currently approximate to 55% in the first year, 30% in the
second and 15% in the third. The strong underwriting conditions in
2003 and 2004 will continue to be recognised in the 2005 and 2006
profit and loss accounts. Going forward we are expecting some growth
opportunities across all our operations, however we do not expect the
growth rate to be as high as in the recent past.
Our net unearned premium reserve has increased 17% to $660 million
(2003: $563 million) and reflects a significant tangible future
income. The net unearned premium reserve excludes $56.5 million
relating to the Bristol West contract which was commuted with effect
from 1 January 2005.
Expenses
The 1.4% improvement in the Group expense ratio to 33.8% primarily
reflects the impact of increases in other technical income and
reductions in other technical charges on the expense ratio. Other
technical charges represent the interest charged on collateral posted
by Overseas Partners Limited and Inter-Ocean on aggregate excess
reinsurance contracts and is attributable to them. As claims are paid
against these contracts the collateral balance reduces and
consequently so do the technical charges.
Excluding other technical income and charges the expense ratio is
32.7% (2003: 33.3%). In 2005, Alea is continuing to invest in
infrastructure development and risk management. This will be
primarily in AAR and is essential to achieve controlled growth and
prospectively, a stable loss ratio.
While average headcount increased year on year from 367 to 392,
this primarily reflected the low starting point in 2003. Year end
headcount increased by only four from 390 to 394. Growth was focused
in compliance, claims and technical accounting reflecting the growth
in AAR's business.
In 2005, Alea has initiated a review of its cost base with a goal
of improving efficiency and productivity. Savings identified to date
include the closure of the Manhattan office, as well as increasing
utilisation of the Group's global purchasing capabilities in relation
to expenses such as travel. Other scale efficiencies are anticipated
to emerge as the Group matures.
Underwriting profit
Underwriting loss before allocated investment return was $49.0
million in 2004 (2003: profit of $23.9 million). The reduction
reflects the net impact of catastrophes and prior year reserve
increases. Excluding these items the underlying underwriting profit
was $74.8 million, 74% higher than the $43.1 million recorded in
2003. This reflects the continued growth in earned premiums and the
favourable underwriting conditions experienced in 2004 and 2003.
Underwriting profit after allocated investment return of $38.8
million (2003: $81.7 million) was 52% lower than 2003. Allocated
investment return was $87.8 million (2003: $57.8 million) with the
36% growth experienced reflecting invested asset growth. The Group
has complied with the ABI SORP for UK listed companies to allocate
investment return to the technical account based on the longer-term
rate of return, which the Group has calculated as 4.5%. The
longer-term rate of return is an estimate of long-term investment
performance. Actual average investment return for the five years
ended 31 December 2004 was 5.3%.
Operating profit
Operating profit, defined as underwriting profit after allocated
investment return and debt interest but before changes to the claims
equalisation provision ('CEP'), decreased by 62% to $30.9 million for
2004 (2003: $80.8 million) due to the lower underwriting profit. Debt
interest was $5.1 million (2003: $4.7 million). The write off of
previously capitalised loan expenses amortisation cost $2.1 million
(2003: nil) and relates to the refinancing of the Group's bank loans.
The CEP has been established in accordance with UK law for the
purposes of mitigating exceptionally high loss ratios in future
years. The amounts provided are not liabilities as they are in
addition to the provisions required to meet the anticipated ultimate
cost of settlement of outstanding claims at the balance sheet date.
The release from the provision in 2004 was $0.6 million, compared to
an increase in 2003 of $3.8 million. The balance on the provision at
31 December 2004 was $6.2 million.
Profit before tax
Profit before tax for 2004 was $10.9 million (2003: $54.5
million). The decrease reflects the reduction in operating profit
partially offset by a favourable $31.9 million movement in the actual
investment return. The actual investment return includes gross
investment income, net realised gains and losses and unrealised gains
and losses as well as investment expenses. Gross investment income in
2004 grew by 36% to $76.4 million (2003: $56.3 million) reflecting
the Group's strong positive cash flows.
The investment return also includes net unrealised losses of $7.1
million (2003: $29.2 million) and net realised gains of $2.6 million
(2003: $12.1 million). Unrealised investment gains and losses
represent the difference between the mark-to-market valuation of the
investments at the balance sheet date and their purchase price. The
movement in unrealised gains and losses comprises the net increase or
decrease in the period in the value of investments held at the
balance sheet date together with the reversal of previously
recognised unrealised gains and losses on investments sold during the
period. All unrealised gains and losses are included in the profit
and loss account. As at the end of February 2005 unrealised losses
were $14 million. Realised investment gains and losses are calculated
as the difference between net proceeds on disposal of investment and
their purchase price.
Over the duration of the portfolio investment income is expected
to increase to offset losses recorded from movement in yields. The
Group matches assets and liabilities for currency and duration and is
expected to have strong future cash inflows and thus overall
increases in interest rates are expected to have a positive impact on
the income statement in due course. There were no investment
write-downs during 2003 or 2004.
Taxation
The effective tax rate is 151.8% compared to 24.8% recorded for
2003. The ratio is not meaningful given the extent of the
underwriting losses for 2001 and prior which were recorded primarily
in Alea Bermuda where they do not receive tax relief. The tax charge
was $16.6 million, (2003: $13.5 million) and also included a one-time
US withholding tax charge of $4 million associated with repatriating
$90 million of capital from US to Bermuda.
The Group's tax, regulatory and investment strategies are designed
to maximise investors' long term return. This is enhanced by
accumulating assets in Bermuda and by utilising Bermudian capacity to
support our other insurance entities. The tax charge in any one
period is dependent upon the geographic incidence of profits in the
Group's operations.
The table below analyses the tax rate by type of exposure for 2004
and 2003 and illustrates the relatively low tax rates achieved on the
Group's invested asset base as a result of this strategy. In both
2004 and 2003 this positive benefit was offset by the adverse loss
development which was primarily in our Bermudian entity. US business
was underwritten 100% in Bermuda in 2001 and prior. For 2002 to 2004
approximately 70% of North America's business was reinsured to
Bermuda via intra group quota shares and in 2005 consideration will
be given to reducing this percentage to 50% along with other
alternatives.
                                2004    Tax Effective   2003    Tax Effective
                                                 rate                    rate
                                 $'m    $'m         %    $'m    $'m         %
    Underwriting profit(1)    (49.0)    1.5         3   23.9  (5.3)        22
    Investment income less      71.7 (14.9)        21   52.4 (10.8)        21
    expenses
    Debt interest and          (7.3)    0.0         0  (4.7)    0.0         0
    amortisation of loan
    expenses
    Realised and unrealised    (4.5)    0.8        19 (17.1)    2.6        16
    gains and losses
    Subtotal                    10.9 (12.6)       115   54.5 (13.5)        25
    US withholding tax charge(2)   -  (4.0)         -      -      -         -
    Profit before tax           10.9 (16.6)       152   54.5 (13.5)        25
(1) Excluding allocated investment return and after CEP
(2) Exceptional tax charge relating to $100 million issue of
trust preferred securities in 2004
Excluding the adverse reserve development and US withholding
tax charge the effective tax rate was 23% (2003: 18%).
Earnings per share
Fully diluted operating EPS was $0.06 per share (2003: $0.54).
Fully diluted loss per share was $0.03 (2003 earnings of $0.42)
reflecting the adverse loss development and storm losses recorded.
Dividend
The Board is recommending a final dividend of $0.07 per share to
be paid on 10 June 2005 to those shareholders on the share register
at close of business on 13 May 2005. This dividend together with the
interim dividend of $0.03 per share paid on 19 November 2004 brings
the total expected dividend for 2004 to $0.10 per share or $17.4
million. The company declares dividends in US Dollars but
shareholders have the option to receive their dividend in US Dollars,
Swiss Francs, or British Pounds.
Balance sheet
Total assets
Total assets as at 31 December 2004 increased by 20% to $4,158
million from $3,477 million at 31 December 2003.
Net assets
Net assets (shareholders' funds attributable to equity interests)
at 31 December 2004 were $706.4 million. Net assets per share are
$4.05 (2003: $4.15). At the 31 December 2004 exchange rate of US$1.93
= GBP1 net assets per share are GBP2.10.
Invested assets
The Group's investment strategy emphasises a high quality
diversified portfolio of liquid investment grade fixed income
securities as a method of preserving equity capital and prompt claim
payment capability. The investment portfolio does not currently
consist of equity or real estate investments, but the Group may
invest in the future in additional asset classes on a modest basis as
part of a continuing conservative investment strategy. The Group
utilises recognised external expert investment managers to invest its
assets. The Group's Investment Committee establishes investment
policies and creates guidelines for external investment managers.
These guidelines specify criteria on the overall credit quality and
liquidity characteristics of the portfolio and include limitations on
the size of certain holdings as well as restrictions on purchasing
certain types of securities.
At 31 December 2004, fixed income securities and deposits at
credit institutions comprised $2,147.6 million, an increase of 36%
since 31 December 2003 ($1,582.4 million). The increase primarily
reflects positive operating cashflow after financing of $552.6
million, which has increased by 19% (2003: $466.0 million). Of total
invested assets $1,986.4 million is managed by third-party fund
managers with the asset mix shown below. The remaining invested
assets of $161.2 million include deposits with credit institutions
and mutual funds invested in fixed income securities.
    Asset class                             31 December 2004     31 December
                                                                        2003
                                                           %               %
    US government                                         27              41
    US mortgage                                           18              17
    EU & Switzerland government and                       16              14
    corporate
    US corporate                                          11              11
    US municipalities                                     10               2
    Asset backed securities                                6               6
    Canadian government and provinces                      3               4
    Cash and other                                         9               5
                                                         100             100
All of the Group's fixed income portfolio was rated A or better
and 98.4% was rated AA or better by either Standard & Poor's or
Moody's. The portfolio had a weighted average rating of AAA based on
ratings assigned by Standard & Poor's or Moody's. Other than with
respect to US, Canadian and European Union government and agency
securities, the Group's investment guidelines limit its aggregate
exposure to any single issuer to 5% of its portfolio. All securities
must be rated A or better at the time of purchase and the weighted
average rating requirement of the Group's portfolio is AAA. There
were no investment write-offs in either 2003 or 2004.
Depending upon the duration of the liabilities supported by a
particular portfolio, the Group's portfolio investment duration
targets may range from three to five years. The duration of an
investment is based on the maturity of the security and also reflects
the payment of interest and the possibility of early principal
payment of such security. The Group seeks to utilise investment
benchmarks that reflect this duration target. The Investment
Committee periodically revises the Group's investment benchmarks
based on business and economic factors including the average duration
of the Group's potential liabilities. At 31 December 2004, the
Group's investment portfolio had an effective duration of 3.1 years,
which approximates the duration of its liabilities.
The Group's invested assets are subject to interest rate risk. The
Group's interest rate risk is concentrated in the US and Europe and
is sensitive to many factors, including governmental monetary polices
and domestic and international economic and political conditions.
Based on invested assets of $2,147.6 million as at 31 December 2004,
a 100 basis point increase/decrease in interest rates across the
yield curve would result in an approximate $65 million unrealised
loss/profit respectively.
In 2004 the Group achieved a total gross return on the investment
portfolio of 3.6% (2003: 3.0%). The investment return comprised 3.9%
investment income (2003: 4.4%), 0.1% realised gains (2003: 0.9%) and
0.4% unrealised losses (2003: 2.3%) on average invested assets of
$1,951 million (2003: $1,294 million). The total return for an
investment portfolio is a combination of price and income return.
Price return is affected by movements in interest rates whereas
income return is affected by the level of interest rates. The higher
total return year-on-year was a result of lower negative price
returns due to lower increases in US long term interest rates for
2004 compared to 2003 on a portfolio weighted basis and a lower
income return due to reinvestment of maturities and investment of
significant new cash flows at lower levels of interest rates during
2004 compared to rates available in prior years.
In 2004 in conformity with the ABI SORP, the Group has allocated
an assumed longer-term investment return rate to the underwriting
result in respect of both 2004 and 2003. The return rate chosen is
4.5% (2003: 4.5%). The average investment return for the five years
ending 31 December 2004 was 5.3%.
Re-financing
The Group has negotiated a new unsecured $250 million
revolver/term loan facility. This facility, which does not include
operating subsidiary guarantees, closed in September 2004 and was
used primarily to refinance the previous secured bank agreements,
under which a total of $176.9 million was outstanding as at 30 June
2004. The new non-amortising loan facility includes certain covenants
and matures after three years. As at year-end 2004 $200 million had
been drawn under this new banking facility primarily to replace the
bank agreements cancelled in September.
The more favourable terms of this new facility are expected to
result in annual interest savings of at least $1.5 million based on
the existing amount borrowed. However, the replacement of the old
facility has crystallised a one-off charge of capitalised expenses of
$2.1 million which has been taken as an expense in 2004. The interest
margin under the new facility is tied to a credit ratings grid, but
will remain at a minimum level of 90 basis points over LIBOR until 1
June 2005 and is further subject to a minimum of 57.5 basis points
over LIBOR thereafter.
Subsequent to the revolver/term loan facility noted above the
Group raised $100 million of hybrid capital in December and a further
$20 million in early January 2005. This capital is in the form of
30-year pooled trust preferred securities priced at LIBOR plus 285
basis points. We have committed to AM Best that we will not exercise
our call rights, which begin after the fifth year, unless such
redemption would not negatively affect our AM Best ratings or the
outlook thereon. The transaction triggers a one-time tax charge of
$4.0 million in 2004 and has a net positive impact on the Group's tax
position over time.
As of the end of February, 2005, the term loan has been reduced by
$50 million, which was funded out of the $50 million unused revolver.
This repayment was agreed to as part of an amendment to the facility.
Capital management
Liquidity and cashflow
Cash inflows from operating activities primarily consists of
premiums collected, investment income and collected reinsurance
recoverable balances, less paid claims, retrocession payments,
operating expenses and tax payments. Net cash flow from operating
activities was $461.9 million (2003: $251.0 million) with the growth
reflecting the growth in the business.
Total net cashflows were $552.6 million (2003: $466.0). The 2004
net cashflow is after cash inflows of $113.8 million from financing
activities. The 2003 net cashflow is after $268.4 million of inflows
from the November 2003 Initial Public Offering and $42.5 million of
contemporaneous outflows relating to its purchase of subordinated
debt from subsidiaries.
Of the $552.6 million of net inflows $516.7 million (2003: $453.1
million) was invested in debt securities and other fixed income
securities with the remaining $35.9 million (2003: $12.9 million) was
invested in deposits with credit institutions, or invested in listed
unit trusts and cash.
Legal and regulatory developments
US broker and agent compensation arrangements
In November 2004, Alea North America Insurance Company ("ANAIC")
received a subpoena from the Attorney General of New York and,
together with Alea North America Specialty Insurance Company
("ANASIC"), received inquiries from certain U.S. state insurance
departments (which inquiries were only for information purposes). The
subpoena and inquiries relate to the on-going industry-wide
investigations into U.S. producer compensation practices and
arrangements. No allegations of wrongdoing have been made against
ANAIC, ANASIC nor any of their employees, nor do we have reason to
believe any of them are specific targets of any investigation.
ANAIC and ANASIC have cooperated fully with these inquiries. After
concluding their internal investigations in connection with these
matters, the companies have reported to these regulatory authorities
that they have identified no transactions or information causing
concern, nor are they are aware of any improper conduct.
International Financial Reporting Standards
Alea is preparing to produce its accounts under International
Financial Reporting Standards ("IFRS") from 1 January 2005.
The Group has worked to ensure that its accounting systems are
able to produce accounting statements under IFRS as well as
maintaining the ability to report under the local Generally Accepted
Accounting Principles (GAAP) and Statutory Accounting Principles
(SAP) of the Group's subsidiaries. In addition, the Group has
completed the work of revising its accounting policy documents to
make specific reference to IFRS requirements and of establishing its
training and communication programme to ensure key personnel are
conversant with the implications of the new accounting regime.
The Group made reference to its early evaluation of the impact of
IFRS in the 2003 annual report and reported that the change was
expected to have little impact on the net asset position of the Group
compared to that produced under current UK GAAP. With the exception
of IFRS 2 Share-based payment, this continues to be the Board's view
following the publication of, the new and revised standards that now
form the more stable platform of Accounting Standards that has been
established throughout 2004, in particular IFRS 4 Insurance
contracts. The Board has also determined that the requirements of the
Standards IAS32 and IAS39, in their current guise, do not affect the
net asset valuation of the Group. The effect of IFRS2, and its UK
GAAP equivalent FRS 20, on the Group's various employee share option
schemes has not yet been fully quantified pending the agreement of
the valuation model and the assumptions to be used
The Board is proposing to publish the quantitative effects of the
move to IFRS later in the year once the audit of the restated current
year financial statements is complete.
The Board also continues to review the developments of Phase II of
the IASB's Insurance Contracts project and welcomes moves that work
towards advancing the accounting for Insurance and Reinsurance so as
to reflect the economics and management of the business. Although the
outcome of Phase II is inherently uncertain, as Alea already manages
its insurance and reinsurance contracts on a true economic basis it
does not expect the impact to be material.
Dividend currency election
Dividends are declared in US Dollars but shareholders have the
option to receive their dividends in US Dollars, British Pounds or
Swiss Francs. Shareholders may make currency elections by returning a
currency election form to the paying agent, Capita IRG plc, by 13 May
2005. A currency election form can be obtained from Capita IRG plc.
If no election is made, shareholders will receive their dividend in
US Dollars. If a shareholder submitted a currency election form in
connection with the payment of the interim dividend, they will
continue to be paid in accordance with that election unless they
submit a new form to Capita IRG plc prior to 13 May 2005. The British
Pound or Swiss Franc equivalent of the final dividend will be
calculated by reference to an exchange rate prevailing on 20 May
2005.
2005 Financial Calendar
11 May: Ex-dividend date for final ordinary dividend
13 May: Record date for final ordinary dividend
2 June: Annual General Meeting
10 June: Dividend payment date
8 July: Pre-close trading statement(+)
8 September: Interim results for 6 months ending 30 June 2004(+)
(+) Provisional
Notes to editors:
1. Alea is a global specialty insurance and reinsurance company
with expertise in a wide range of property and casualty products and
services. For more information on Alea, see www.aleagroup.com.
2. The trust preferred securities will not be registered under the
United States Securities Act of 1933, as amended, and may not be
offered or sold in the United States absent registration or an
applicable exemption from such registration requirements.
3. Exchange rate at 31 December 2004: US$1.93 = GBP1. Average
exchange rate in 2004: US$1.83 = GBP1
Certain statements made in this press release that are not based
on current or historical facts are forward-looking in nature
including, without limitation, statements containing words
"believes," "anticipates," "plans," "projects," "intends," "expects,"
"estimates," "predicts," and words of similar import. All statements
other than statements of historical facts including, without
limitation, those regarding the Group's financial position, business
strategy, plans and objectives of management for future operations
(including development plans and objectives relating to the Group's
products and services) are forward-looking statements. Such
forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual
results, performance or achievements of the Group to be materially
different from future results, performance or achievements expressed
or implied by such forward-looking statements. In particular,
forecasting of reserves for future losses is based on historical
experience and future assumptions. As a result they are inherently
subjective and may fluctuate based on actual future experience and
changes to current or future trends in the legal, social or economic
environment. Such forward-looking statements are based on numerous
assumptions regarding the Group's present and future business
strategies and the environment in which the Group will operate in the
future. These forward-looking statements speak only as at the date of
this press release or other information concerned. Alea Group
Holdings (Bermuda) Ltd expressly disclaims any obligations or
undertaking (other than reporting obligations imposed on us in
relation to our listing on the London Stock Exchange) to disseminate
any updates or revisions to any forward-looking statements contained
herein to reflect any changes in the Group's expectations with regard
thereto or any change in events, conditions or circumstances on which
any such statement is based. References in this paragraph to the
Group are to Alea Group Holdings (Bermuda) Ltd. and its subsidiaries
from time to time.
    Alea Group Holdings (Bermuda) Ltd
    Consolidated Profit and Loss Account
    Year ended 31 December 2004
                                                               2004      2003
    Technical Account - General Business            Notes     $'000     $'000
    Gross premiums written                            2,3 1,582,640 1,300,182
    Outward reinsurance premiums                        3 (244,491) (271,471)
    Net premiums written                                3 1,338,149 1,028,711
    Change in provision for unearned premiums -           (114,046) (185,907)
    gross amount
    Change in provision for unearned premiums -
    reinsurers' share                                      (41,994)    15,677
    Change in the net provision for unearned              (156,040) (170,230)
    premiums
    Net premiums earned                                 3 1,182,109   858,481
    Allocated investment return transferred from the    7
    Non-Technical Account                                    87,792    57,811
    Other technical income, net of reinsurance                4,203     2,364
    Total technical income                                1,274,104   918,656
    Claims paid - gross amount                              616,542   468,537
    Claims paid - reinsurers' share                       (195,148) (114,987)
    Net claims paid                                         421,394   353,550
    Change in the provision for claims - gross              407,615   249,743
    amount
    Change in the provision for claims - reinsurers'          3,558  (74,643)
    share
    Change in the net provision for claims                  411,173   175,100
    Claims incurred, net of reinsurance                 4   832,567   528,650
    Net operating expenses                              5   386,508   285,499
    Other technical charges, net of reinsurance              16,829    19,004
    Total technical charges                               1,235,904   833,153
    Balance on the Technical Account - General
    Business before claims equalisation provision       3    38,200    85,503
    Change in claims equalisation provision            19       617   (3,771)
    Balance on Technical Account - General Business          38,817    81,732
    Consolidated Profit and Loss Account
    Year ended 31 December 2004
                                                  2004                 2003
    Non-Technical Account                Notes   $'000                $'000
    Balance on Technical Account
     - General Business                         38,817               81,732
    Gross investment income                7    76,415               56,337
    Net realised gains on investments      7     2,573               12,146
    Net unrealised losses on investments   7    (7,082)             (29,173)
    Other investment expenses              7    (4,730)              (3,975)
    Actual investment return               7    67,176               35,335
    Allocated investment return transferred to the
    Technical Account - General Business   7   (87,792)             (57,811)
    Debt interest                         23    (5,127)              (4,718)
    Amortisation of capitalised loan
    expenses                              23    (2,145)                    -
    Profit on ordinary activities before
    tax                                  2, 6   10,929               54,538
    Comprising:
    Operating profit                            30,928               80,785
    Short-term fluctuations in investment
    return                                 7   (20,616)             (22,476)
    Change in claims equalisation provision        617              (3,771)
                                                10,929               54,538
    Tax charge on profit on ordinary
    activities                             9   (16,593)             (13,528)
    (Loss)/profit on ordinary activities
    after tax                                   (5,664)               41,010
    Minority interest - gain on purchased
    subordinated preferred shares issued
    by                                    12         -                7,500
    (Loss)/profit for the financial year
    attributable to equity shareholders   10    (5,664)               48,510
    Dividends                             18   (17,440)                    -
    Retained (loss)/profit transferred
    (from)/to
    reserves                              17   (23,104)               48,510
    The results in each of the financial years are derived from the Group's
    continuing activities.
Earnings per Share Attributable to Shareholders
Year ended 31 December 2004
Operating profit is based on longer-term investment returns
excluding changes in claims equalisation provision and gain on
purchase of subordinated preferred shares issued by subsidiaries.
                                                              2004      2003
                                        Notes            Per share Per share
    (Loss)/earnings - basic ($)         10               (0.03)      0.42
    (Loss)/earnings - fully diluted ($) 10               (0.03)      0.42
    Operating earnings - basic ($)      10                 0.06      0.55
    Operating earnings - fully
     diluted ($)                        10                 0.06      0.54
    Consolidated Statement of Total Recognised Gains and Losses
    Year ended 31 December 2004
                                                              2004      2003
                                         Notes                $'000     $'000
    (Loss)/profit for the financial year
    attributable to equity shareholders                     (5,664)    48,510
    Exchange differences                 15,17                5,917   (1,893)
    Total recognised gains and losses
    arising in the year                                         253    46,617
    Consolidated Balance Sheet
    As at 31 December 2004
                                                               2004      2003
    Assets                                          Notes     $'000     $'000
    Intangible assets
    Licences                                           11     9,778     9,968
                                                              9,778     9,968
    Investments
    Other financial investments                        12 2,147,646 1,582,357
    Deposits with ceding undertakings                  12   143,687   105,513
                                                          2,291,333 1,687,870
    Reinsurers' share of technical provisions
    Provision for unearned premiums                          91,809   123,606
    Claims outstanding - aggregate excess
    reinsurance                                        19   428,707   473,569
    Claims outstanding - other reinsurance             19   308,496   252,992
    Claims outstanding                                 19   737,203   726,561
                                                            829,012   850,167
    Debtors
    Debtors arising out of insurance operations        13   117,947    66,931
    Debtors arising out of reinsurance operations      13   520,419   531,635
    Amounts due from reinsurance operations not
    transferring significant insurance risk                  40,842    44,385
    Other debtors                                      15    50,010    55,693
                                                            729,218   698,644
    Other assets
    Tangible assets                                    14    13,603    12,212
    Cash at bank and in hand                                 61,633    44,307
                                                             75,236    56,519
    Prepayments and accrued income
    Accrued interest and rent                                20,504    14,968
    Deferred acquisition costs                              197,307   153,243
    Other prepayments and accrued income                      5,915     5,680
                                                            223,726   173,891
    Total Assets                                          4,158,303 3,477,059
    Consolidated Balance Sheet
    As at 31 December 2004
                                                               2004      2003
    Liabilities                                     Notes     $'000     $'000
    Capital and reserves
    Called up share capital                         16,17     1,744     1,747
    Share premium account                              17   631,522   633,053
    Profit and loss account                            17   (2,229)    14,958
    Capital reserve                                    17    75,381    75,644
    Shareholders' funds attributable to
    equity interests                                        706,418   725,402
    Technical provisions
    Provision for unearned premiums                         808,907   686,935
    Claims outstanding                                 19 1,851,893 1,398,551
    Claims equalisation provision                      19     6,242     6,408
                                                          2,667,042 2,091,894
    Deposits received from reinsurers                  19   123,743   199,903
    Creditors
    Creditors arising out of insurance and
    reinsurance operations                             22   278,373   196,371
    Liabilities from reinsurance operations
    not transferring significant insurance
    risk                                                     34,858    44,319
    Amounts owed to credit institutions                23   198,438   178,375
    Trust preferred securities                         24    97,953         -
    Other creditors including taxation and
    social security                                    25    20,339     2,995
                                                            629,961   422,060
    Accruals and deferred income                       26    31,139    37,800
    Total Liabilities                                     4,158,303 3,477,059
    Approved by the Board of Directors on 15 March 2005 and signed on its
    behalf
    by:
    Amanda J Atkins
    Group Chief Financial Officer
    Company Balance Sheet
    As at 31 December 2004
                                                                    Restated
                                                                   (Note 20)
                                                              2004      2003
                                            Notes            $'000     $'000
    Fixed assets
    Tangible assets                                             21         -
    Investments in Group undertakings          12          916,126   808,514
                                                           916,147   808,514
    Current assets
    Amounts due from Group undertakings                     39,235     7,402
    Cash at bank and in hand                                   287    17,932
    Other prepayments and accrued income                        30       274
                                                            39,552    25,608
    Creditors: Amounts falling due within one year
    Amounts due to Group undertaking                       (2,929)     (325)
    Dividend payable                           18         (12,202)         -
    Accruals and deferred income                           (1,513)   (8,395)
                                                          (16,644)   (8,720)
    Net current assets                                      22,908    16,888
    Total assets less current liabilities                  939,055   825,402
    Creditors: Amounts falling due after more
    than one year
    Demand note payable to Group undertakings  22         (34,199) (100,000)
    Amounts owed to credit institutions                  (198,438)         -
                                                         (232,637) (100,000)
    Net assets                                             706,418   725,402
    Capital and reserves
    Called up share capital                16, 17            1,744     1,747
    Share premium account                      17          631,522   633,053
    Capital reserve                            17           16,098    16,361
    Revaluation reserve                        17         (21,236)    74,241
    Profit and loss account                    17           78,290         -
    Shareholders' funds attributable to
    equity interests                                       706,418   725,402
    Approved by the Board of Directors on 15 March 2005 and signed on its
    behalf
    by:
    Amanda J Atkins - Group Chief Financial Officer
.
    Consolidated Cash Flow Statement
    Year ended 31 December 2004
                                                                2004     2003
                                                     Notes     $'000    $'000
    Net cash inflow from operating activities        33(a)   461,904  250,977
    Servicing of finance
    Interest paid                                            (5,127)  (4,718)
    Net amounts outstanding for securities                     1,687        -
    Taxation
    Taxation paid                                            (7,191)  (1,672)
    Capital expenditure
    Purchase of tangible assets                              (7,226) (10,266)
    Proceeds on disposal of tangible assets                       20    5,977
    Equity dividends paid
    Dividends paid                                           (5,238)        -
    Financing
    (Repurchase)/issue of common share capital               (1,534)  291,968
    Purchase of subordinated preferred shares issued
    by subsidiaries                                                - (42,500)
    Capital raising expenses                                   (263) (23,723)
    Repayment of previous bank facility                    (180,788)        -
    Raising of new bank facility                             200,000        -
    Raising expenses of new bank facility                    (1,562)        -
    Issue of trust preferred securities                      100,000        -
    Raising expenses of trust preferred securities           (2,047)        -
                                                             552,635  466,043
    Cash flows were invested as follows:
    Increase in cash holdings                        33(b)    15,837   13,752
    Net portfolio investments
    Shares and other variable yield securities       33(d)         -    (331)
    Debt securities - unit trusts - listed           33(d)     7,585    6,973
    Debt securities and other fixed income
    securities                                       33(d)   516,682  453,123
    Deposits with credit institutions                33(d)    12,531  (7,474)
                                                             536,798  452,291
    Net investment of cash flows                             552,635  466,043
1 Accounting policies
Basis of preparation
The financial information is prepared in accordance with
applicable United Kingdom accounting standards and under the
historical cost accounting rules as modified by the revaluation of
investments. The principal accounting policies, which have all been
applied consistently throughout the periods covered by this report,
with the exception of the policy for the valuation in the Company's
balance sheet of investments in Group undertakings explained below,
and which comply with the recommendations of the United Kingdom
Statement of Recommended Practice on Accounting for Insurance
Business issued by the Association of British Insurers in November
2003 (the ''ABI SORP'') are set out below.
The Company is a registered Bermuda company. As such it is obliged
to prepare its financial information in accordance with the Bermuda
Companies Act 1981, which permits the Company to prepare its
financial information under generally accepted accounting principles
of the United Kingdom (''UK GAAP''). Accordingly, the financial
information has been prepared in accordance with Bermuda Law.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and all of its subsidiary undertakings.
Reporting currency
The financial information is prepared in United States Dollars
($).
Basis of accounting
The annual basis of accounting is applied to all classes of
business.
Reinsurance arrangements which do not involve significant transfer
of insurance risk are accounted for to reflect their economic
substance. Premiums and claims relating to such arrangements are not
recognised in the technical account but are accounted for as deposits
due from, or liabilities due to, reinsurers or cedants.
Premiums
Written premiums comprise the total premiums receivable for the
whole period of cover under contracts incepting during the financial
year, together with adjustments arising in the financial year to
premiums receivable in respect of business written in previous
financial years. Written premiums include estimates of pipeline
premiums due but not yet notified to the Group.
All premiums are shown gross of commission payable to
intermediaries and are exclusive of taxes and duties levied thereon.
The amount of taxes and duties due but not yet paid is included in
''Other creditors including taxation and social security'' in the
balance sheet. Commissions incurred are included within net operating
expenses.
Other technical income and charges
Other technical income and charges represent income arising on
finite risk reinsurance and insurance contracts without significant
transfer of insurance risk and expense related to deposits received
from reinsurers.
Investment income and expenses
Investment return, comprising investment income and realised and
unrealised investment gains and losses, and investment expenses are
included within the Non-Technical Account. Dividends (exclusive of
tax credits) are included as investment income. Rents and interest
income are recognised on an accruals basis, as are investment
expenses.
Realised investment gains and losses are calculated as the
difference between net proceeds on disposal of investments and their
purchase price.
Unrealised investment gains and losses represent the difference
between the valuation at the balance sheet date and their purchase
price. The movement in unrealised investment gains and losses
therefore comprises the increase or decrease in the year in the value
of investments held at the balance sheet date together with the
reversal of previously recognised unrealised gains and losses of
investments disposed of in the current year. Unrealised investment
gains and losses are recognised in the profit and loss account. The
only exception is with regard to the Company's investments in Group
undertakings explained below and stated in notes 12 and 20.
Longer-term rate of return
The Group complies with the ABI SORP's recommendation for United
Kingdom listed companies of allocating investment return to the
technical account based on the longer-term rate of return, which the
Group has selected as 4.5% (2003: 4.5%).
Investment return on all investments is reported in the
Non-Technical Account. An allocation of net investment return is made
from the Non-Technical Account to the Technical Account - General
Business and is based on the longer-term rate of return applied to
managed funds and invested capital supporting the underwriting
business. The longer-term rate of return is an estimate of the
long-term trend of investment performance taking into account the
Group's past and current performance along with relevant trends in
the financial markets.
Investments
Investments, consisting of listed investments, units in authorised
listed unit trusts and deposits with credit institutions, are stated
at their market values at the balance sheet date.
Investments in Group undertakings
Investments in Group undertakings are reported at net asset value
with any movement taken to the Company's revaluation reserve. This is
a change in acounting policy as explained below and stated in notes
12 and 20.
Licences
Capitalised licences represent the cost of licences acquired to
conduct business in the United States. The Directors believe these
licences have indefinite useful lives. Licences are granted for an
indefinite period and are essential to carry on business. An
impairment review is completed annually and any impairment is
recorded as appropriate following this review.
Taxation
Current tax, including United Kingdom corporation tax and foreign
tax, is provided at amounts expected to be paid or recovered using
the tax rates and laws that have been enacted or substantively
enacted at the balance sheet date, and takes into account timing
differences.
Deferred taxation is provided in full on all timing differences
which result in an obligation at the balance sheet date to pay more
tax, or a right to pay less tax at a future date, at rates expected
to apply when they crystallise based on current rates and law. Timing
differences arise from the inclusion of items of income and
expenditure in taxation computations in periods different to those in
which they are included in the financial statements. Deferred tax
assets are recognised to the extent that it is regarded as more
likely than not that they will be recovered. Deferred tax assets and
liabilities are not discounted.
Deferred taxation is not provided on timing differences arising
from the revaluation of fixed assets where there is no commitment to
sell the asset, or on unremitted earnings of subsidiaries where there
is no commitment to remit those earnings.
Unearned premiums provision
Written premiums are recognised as earned income over the period
of the policy on a time apportionment basis, having regard, where
appropriate, to the incidence of risk. The provision for unearned
premiums is calculated on a daily pro rata basis.
Claims
Claims incurred comprise the estimated cost of all claims
occurring prior to the balance sheet date, whether reported or not,
and include related internal and external direct and indirect claims
handling costs and adjustments to claims outstanding from previous
years.
The provision for claims outstanding is made on an individual case
basis and is based on the estimated ultimate cost of all claims
notified but not settled by the balance sheet date, together with the
provision for related claims handling costs and net of salvage and
subrogation recoveries. The provision also includes the estimated
cost of claims incurred but not reported at the balance sheet date
based on statistical methods.
The Directors consider that the gross technical provision for
claims and the related recoveries are fairly stated on the basis of
the information currently available to them. Estimates of technical
provisions inevitably contain significant inherent uncertainties
because significant periods of time may elapse between the occurrence
of an insured loss, the claim triggering the insurance, the reporting
of that claim to the Group and the Group's payment of the claim and
the receipt of reinsurance recoveries. Accordingly the ultimate cost
of such claims cannot be known with certainty at the balance sheet
date. Subsequent information and events may result in the ultimate
liability being less than, or greater than, the amount provided.
Adjustments to the amount of the provisions 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.
Certain categories of claims provisions, where the expected
average interval between the date of claim settlement and the balance
sheet date is in excess of four years, have been identified by
management to be discounted at a rate of 4.5% which reflects a rate
not exceeding that expected to be earned by assets covering the
provisions in accordance with the statutory regulations of the
European Union.
The gross discount is established based on the mean term of the
gross liabilities exceeding four years as determined at the reserving
group level based on the underlying claims settlement pattern. This
discount is reduced on a net basis to reflect the change in duration
which results from the application of the reinsurance contracts.
Previously the Group used 5% for loss reserves attributable to 31
December 2001 and prior and 4% for subsequent periods. As at 31
December 2004, the newly applied rate increased the amount of
discount compared to the previous estimate by $6.0 million of which $
3.9 million is estimated to relate to the current financial year.
Certain reserves arising from the provisions of the Inter-Ocean
reinsurance contract will continue to be discounted at 6%.
Outward reinsurance recoveries
Outward reinsurance recoveries are accounted for in the same
accounting period as the claims for the related inward insurance and
reinsurance business being covered. Provision is made for potentially
non-collectable reinsurance recoveries.
Deferred acquisition costs
Acquisition costs comprise all direct and indirect costs arising
from the acquisition of new insurance and reinsurance contracts.
Deferred acquisition costs represent the proportion of acquisition
costs incurred to the extent that they are attributable to premiums
unearned at the balance sheet date.
Unexpired risks
Provision is made where the cost of claims and expenses arising
after the end of the financial year from contracts concluded before
that date is expected to exceed the provision for unearned premiums
net of deferred acquisition costs and premiums receivable. The
assessment of whether a provision is necessary is made on the basis
of information available as at the balance sheet date, after
offsetting surpluses and deficits arising on products which are
managed together. Investment income is taken into account in
calculating the provision.
Tangible fixed assets
Expenditure on computer equipment, computer software, fixtures and
fittings, office equipment and other tangible fixed assets is
capitalised and depreciated over the estimated useful economic lives
of the assets on a straight line basis to their estimated residual
values.
The periods used are as follows:
Computer equipment                                     3 years
    Computer software                                      5 years
    Other assets                                           8 years
    Fixtures, fittings and office equipment               10 years
BERMUDA, March 16 /PRNewswire/ --
Depreciation is charged to the Technical Account - General
Business, and is included in administrative expenses.
Pension costs
The Group only operates defined contribution pension arrangements.
Contributions are charged to the profit and loss account as they
become payable in accordance with the rules of each scheme.
Operating leases
Rental costs are recognised in the profit and loss account in
equal annual amounts over the periods of the leases.
Foreign currencies
The profit and loss account includes transactions denominated in
foreign currencies which are translated into US Dollars at the
average rate for the year. At the balance sheet date monetary assets
and liabilities denominated in foreign currencies are retranslated at
the rate of exchange ruling at that date. Retranslation exchange
differences are taken directly to reserves.
Foreign currency rates used as follows:
2004    2004    2003    2003
                  Average Closing Average Closing
    British Pound  0.5472  0.5191  0.6101  0.5613
    Swiss Franc    1.2404  1.1316  1.3437  1.2378
    Euro           0.8032  0.7337  0.8866  0.7946
BERMUDA, March 16 /PRNewswire/ --
Claims equalisation provision
An equalisation provision has been established for the UK
subsidiary in accordance with UK Company Law for the purposes of
mitigating exceptionally high loss ratios in future years as required
by Schedule 9A. The amounts provided are not liabilities because they
are in addition to the provisions required to meet the anticipated
ultimate cost of settlement of outstanding claims at the balance
sheet date.
Employee share schemes
The cost of awards to employees that take the form of shares or
rights to shares is charged to the profit and loss account on a
straight line basis over the period to which the employee's
performance relates. The charge is based on intrinsic value, being
the fair value of the shares at the date of grant, reduced by any
consideration payable by the employee, and a reasonable expectation
of the extent to which performance criteria will be met.
Change in accounting policies
The Company has determined that it is appropriate to value
investments in Group undertakings at net asset value. In 2003 these
investments were valued at historical cost. This is a change in
accounting policy and the effect thereof on the accounts of the
Company is shown in note 20. This change has no effect on the
consolidated financial statements.
    2 Segmental information - geographical analysis
                                                           2004          2003
    Geographical analysis of gross premiums written by
    location of insured                                   $'000         $'000
    Europe                                              295,495       258,650
    Africa                                                  806         1,203
    Near and Middle East                                  8,489        10,249
    Far East                                              8,989         9,375
    Australia and Oceania                                 6,122         4,279
    North America                                     1,240,755       988,238
    Latin America                                        21,984        28,188
                                                      1,582,640     1,300,182
                                                 Gross          Profit/(loss)
                                            premiums written      before tax
                                            2004      2003    2004      2003
    Geographical analysis by location of
    legal entity                           $'000     $'000   $'000     $'000
    Bermuda                                3,777   (4,477) (40,472) (32,559)
    Jersey                                   166       745      948      716
    United Kingdom                       581,448   564,220  (6,058)   36,657
    United States                        758,522   548,539   21,462  (6,240)
    Switzerland                          238,727   191,155   35,049   55,964
                                       1,582,640 1,300,182   10,929   54,538
Gross premiums written are analysed on a legal entity basis and
therefore reflect London contact office business in Switzerland of
$0.2 million in the year ended 31 December 2004 (2003: $1.1 million).
                                                               2004      2003
    Operating equity and shareholders' equity interests       $'000     $'000
    Alea Europe Ltd                                         180,103   153,525
    Alea (Bermuda) Ltd (1)                                  499,801   453,768
    Alea US                                                 261,579   245,477
    Amounts held in Holding Companies                        30,760    27,868
    Amounts held in non-insurance subsidiaries                3,566     6,139
    Capital provided by Alea London Limited to Alea US     (10,000)  (20,000)
    Note provided by Alea Group Holdings AG to Alea US       20,000    20,000
    Note provided by Alea Europe Ltd to Alea US              17,000    17,000
                                                          1,002,809   903,777
    Amounts owed to credit institutions                   (198,438) (178,375)
    Trust preferred securities                             (97,953)         -
    Shareholders' funds attributable to equity interests    706,418   725,402
    (1) The entities wholly owned by Alea (Bermuda) Ltd have net assets as
    follows:
                                                               2004      2003
                                                              $'000     $'000
    Alea London Ltd                                         180,158   195,009
    Alea Global Risk Ltd                                     10,130    11,984
    Alea Jersey Ltd                                           2,056     4,512
3 Segmental information
Underwriting results by operating segment before intra-group quota
share arrangements
The Group's business is composed of four operating segments,
consisting of Alea London, Alea Alternative Risk, Alea North America
and Alea Europe.
The following tables summarise the underwriting results for the
Group's business segments. All data is presented for the years ended
31 December 2004 and 31 December 2003 prior to intra-group quota
share arrangements. The impact of quota share arrangements on these
pre-quota segmental results is presented separately.
The newly created non-allocated column represents stewardship
expenses incurred in Alea Group Holdings (Bermuda) Ltd. In 2003 the
Group had included these non-allocated administrative expenses within
Alea North America since it also absorbs an immaterial amount of
business underwritten in Bermuda. This allocation method has been
revised in order to present more accurate disclosure for Alea North
America. The 2003 comparative has been restated accordingly.
                   Alea        Alea      Alea      Alea      Non-
                          Alternative     North
                   London        Risk   America    Europe allocated     Total
    2004            $'000       $'000     $'000     $'000     $'000     $'000
    Gross premiums
    written       581,817     445,581   316,719   238,523         - 1,582,640
    Outward
    reinsurance
    premiums     (46,693)   (174,715)   (5,578)  (17,505)         - (244,491)
    Net premiums
    written       535,124     270,866   311,141   221,018         - 1,338,149
    Gross premiums
    earned        574,388     401,751   256,193   236,261         - 1,468,593
    Net premiums
    earned        496,619     234,148   235,291   216,051         - 1,182,109
    Allocated
    investment
    return         21,098      21,613    24,826    20,255         -    87,792
    Claims
    incurred, net
    of re-
    insurance   (352,551)   (125,706) (191,566) (162,744)         - (832,567)
    Total net
    expenses
    comprise:
    Acquisition
    costs       (122,280)    (49,092)  (63,745)  (39,687)         - (274,804)
    Administrative
    expenses     (35,685)    (24,543)  (24,069)  (23,154)   (4,253) (111,704)
    Fee income      2,824       (801)       935     1,245         -     4,203
    Other
    technical
    charges       (5,718)        (44)     (420)  (10,647)         -  (16,829)
    Total net
    expenses    (160,859)    (74,480)  (87,299)  (72,243)   (4,253) (399,134)
    Underwriting
    result (1)      4,307      55,575  (18,748)     1,319   (4,253)    38,200
                 Alea        Alea       Alea        Alea   Non-
                         Alternative
                 London      Risk     North America Europe allocated   Total
    2003
    (Restated)    $'000     $'000      $'000        $'000  $'000       $'000
    Gross premiums
    written     566,042   261,141    282,921      190,078       -  1,300,182
    Outward
    reinsurance
    premiums   (78,198) (129,172)   (33,222)     (30,879)       -  (271,471)
    Net premiums
    written     487,844   131,969    249,699      159,199          1,028,711
    Gross premiums
    earned      482,701   205,062    228,361      198,151       -  1,114,275
    Net premiums
    earned      407,656    97,856    189,324      163,645       -    858,481
    Allocated
    investment
    return       13,995    12,681     19,022       12,113       -     57,811
    Claims
    incurred, net
    of re-
    insurance (224,988)  (70,556)  (130,024)    (103,082)       -  (528,650)
    Total net
    expenses
    comprise:
    Acquisition
    costs      (92,521)  (19,654)   (55,268)     (27,958)       -  (195,401)
    Administrative
    expenses   (32,122)  (15,880)   (17,917)     (21,112) (3,067)   (90,098)
    Fee income    1,654         -        545          165       -      2,364
    Other
    technical
    charges     (5,611)      (24)      (700)     (12,669)       -   (19,004)
    Total net
    expenses  (128,600)  (35,558)   (73,340)     (61,574) (3,067)  (302,139)
    Underwriting
    result (1)   68,063     4,423      4,982       11,102 (3,067)     85,503
    (1) Balance on the Technical Account - General Business before claims
    equalisation provision
Intra-group quota share arrangements
For the years ended 31 December 2004 and 31 December 2003
intra-group quota share arrangements comprised: a 35% quota share of
Alea London business to Alea Europe, a 50% quota share of certain
2000 and prior underwriting year business from Alea Europe to Alea
Bermuda, a 70% quota share of Alea North America to Alea Bermuda and
an intra-group aggregate excess contract from Alea Europe to Alea
Bermuda. The aggregate effect of these arrangements are detailed
below:
                                  Alea    Alea      Alea    Alea
                                  London  Bermuda   US      Europe     Total
    2004                          $'000   $'000     $'000   $'000      $'000
    Net premiums earned         496,619    5,353   464,086 216,051 1,182,109
    Intercompany reinsurance  (173,447)  326,153 (323,533) 170,827         -
    Net premiums earned after
    intercompany reinsurance    323,172  331,506   140,553 386,878 1,182,109
    Underwriting result
    Before intercompany
    reinsurance                   4,307 (47,227)    79,801   1,319    38,200
    After intercompany
    reinsurance                   7,923 (18,648)    30,439  18,486    38,200
                                   Alea  Alea      Alea    Alea
                                 London  Bermuda   US      Europe     Total
    2003                          $'000    $'000   $'000   $'000      $'000
    Net premiums earned         407,656    2,520   284,660 163,645   858,481
    Intercompany reinsurance  (142,397)  203,005 (197,151) 136,543         -
    Net premiums earned after
    intercompany reinsurance    265,259  205,525    87,509 300,188   858,481
    Underwriting result
    Before intercompany
    reinsurance                  68,063 (10,841)    17,180  11,101    85,503
    After intercompany
    reinsurance                  45,468  (5,046)   (1,168)  46,249    85,503
Underwriting results by product group before intra-group quota
share arrangements
The Group's business is also composed of two primary product
lines, consisting of reinsurance and insurance.
                                                          Non-
                                  Reinsurance Insurance allocated     Total
    2004                                $'000     $'000     $'000     $'000
    Gross premiums written            928,949   653,691     -     1,582,640
    Outward reinsurance premiums     (52,694) (191,797)     -     (244,491)
    Net premiums written              876,255   461,894     -     1,338,149
    Gross premiums earned             886,118   582,475     -     1,468,593
    Net premiums earned               798,257   383,852     -     1,182,109
    Allocated investment return        59,285    28,507     -        87,792
    Claims incurred, net of         (624,973) (207,594)     -     (832,567)
    reinsurance
    Total net expenses comprise:
    Acquisition costs               (178,956)  (95,848)     -     (274,804)
    Administrative expenses          (69,616)  (37,835)   (4,253) (111,704)
    Fee income                          4,665     (462)     -         4,203
    Other technical charges          (16,785)      (44)     -      (16,829)
    Total net expenses              (260,692) (134,189)   (4,253) (399,134)
    Underwriting result (1)          (28,123)    70,576   (4,253)    38,200
                                                             Non-
             Reinsurance        Insurance        allocated            Total
    2003           $'000            $'000            $'000            $'000
    Gross premiums
    written      867,781          432,401                -        1,300,182
    Outward
    reinsurance
    premiums   (161,441)        (110,030)                -        (271,471)
    Net premiums
    written      706,340          322,371                -        1,028,711
    Gross premiums
    earned       787,315          326,960                -        1,114,275
    Net premiums
    earned       627,464          231,017                -          858,481
    Allocated
    investment
    return        42,254           15,557                -           57,811
    Claims incurred,
    net of
    reinsurance(389,667)        (138,983)                -        (528,650)
    Total net
    expenses
    comprise:
    Acquisition
    costs      (125,880)         (69,521)                -        (195,401)
    Administrative
    expenses    (54,850)         (32,181)          (3,067)         (90,098)
    Fee income     2,374             (10)                -            2,364
    Other technical
    charges     (19,200)              196                -         (19,004)
    Total net
    expenses   (197,556)        (101,516)          (3,067)        (302,139)
    Underwriting
    result (1)    82,494            6,076          (3,067)           85,503
    (1) Balance on the Technical Account - General Business before claims
    equalisation provision
2004      2003
    Gross premiums written                   $'000     $'000
    Insurance
    Casualty                               484,075   339,342
    Property                               167,681    92,226
    Marine, aviation & transport             1,935        88
    Other                                        -       745
    Total insurance                        653,691   432,401
    Reinsurance
    Casualty                               671,992   584,463
    Property                               231,925   232,198
    Marine, aviation & transport             4,382    32,414
    Other                                   20,650    18,706
    Total reinsurance                      928,949   867,781
    Total                                1,582,640 1,300,182
                                              2004      2003
    Gross premiums earned                    $'000     $'000
    Insurance
    Casualty                               451,718   243,787
    Property                               130,757    82,466
    Marine, aviation & transport                 -        88
    Other                                        -       619
    Total insurance                        582,475   326,960
    Reinsurance
    Casualty                               624,144   481,901
    Property                               236,289   250,377
    Marine, aviation & transport             8,879    40,176
    Other                                   16,806    14,861
    Total reinsurance                      886,118   787,315
    Total                                1,468,593 1,114,275
                                              2004      2003
    Net premiums written                     $'000     $'000
    Insurance
    Casualty                               324,206   239,077
    Property                               137,688    82,557
    Marine, aviation & transport                 -        88
    Other                                        -       649
    Total insurance                        461,894   322,371
    Reinsurance
    Casualty                               660,508   482,394
    Property                               195,632   188,541
    Marine, aviation & transport             (328)    16,242
    Other                                   20,443    19,163
    Total reinsurance                      876,255   706,340
    Total                                1,338,149 1,028,711
                                              2004      2003
    Net premiums earned                      $'000     $'000
    Insurance
    Casualty                               269,116   152,211
    Property                               114,736    78,195
    Marine, aviation & transport                 -        88
    Other                                        -       523
    Total insurance                        383,852   231,017
    Reinsurance
    Casualty                               586,161   383,498
    Property                               194,769   204,064
    Marine, aviation & transport               729    24,600
    Other                                   16,598    15,302
    Total reinsurance                      798,257   627,464
    Total                                1,182,109   858,481
4 Movement in prior year provision for claims outstanding net of
reinsurance
The table below presents amounts included in incurred claims
arising from the movement in the prior year provision for claims
outstanding net of reinsurance. An increase is an adverse run-off
deviation and a decrease is a positive run-off deviation to the
provision for claims outstanding, net of reinsurance held at the
previous balance sheet date.
2004     2003
    Increase/(decrease) in claims outstanding net
    of reinsurance before discount                   $'000    $'000
    Underwriting years 1999 and prior               17,395   19,998
    Underwriting year 2000                          43,647   18,170
    Underwriting year 2001                          49,351  (7,374)
    Underwriting year 2002                           1,789    (684)
    Underwriting year 2003                            (42)        -
                                                   112,140   30,110
    Claims outstanding net of reinsurance at
    prior period end before discount               716,482  514,141
    Discount                                      (44,492) (25,992)
                                                   671,990  488,149
5 Net operating expenses
2004     2003
                                                     $'000    $'000
    Acquisition costs                              355,028  301,292
    Changes in deferred acquisition costs         (21,432) (40,823)
    Administrative expenses                        111,704   90,098
                                                   445,300  350,567
    Reinsurance commissions and profit
    participation                                 (58,792) (65,068)
    Net operating expenses                         386,508  285,499
6 Profit on ordinary activities before taxation
The profit on ordinary activities before taxation is stated after
charging :
2004  2003
                                          $'000 $'000
    Depreciation
    Owned assets                          6,158 5,868
    Rentals under operating leases
    Land and buildings                    5,021 4,438
    Other                                   150   224
    Auditors' remuneration
    Audit fees                            2,085 1,860
    Tax advice                              396   210
    Actuarial and other consulting          408   378
In 2003, $7.0 million of remuneration was also paid to the
auditors in relation to the Company's IPO. This amount was charged
directly to reserves.
7 Investment return
                                                           2004     2003
                                                          $'000    $'000
    Investment income
    Income from other financial investments              76,415   56,337
    Net realised gains on investments                     2,573   12,146
                                                         78,988   68,483
    Investment expenses
    Other investment expenses                           (4,730)  (3,975)
    Unrealised investment losses
    Movement during the year                            (7,082) (29,173)
    Actual investment return                             67,176   35,335
    Longer-term investment return                        87,792   57,811
    Actual investment return excluding gain on
    subordinated preferreds                            (67,176) (35,335)
    Effect of short-term fluctuations over the year      20,616   22,476
The longer-term investment return is calculated for each business
segment and based on the average invested assets and the expected
longer-term rate of return on those assets having regard to the
relevant economic and market forecasts. The Group has selected an
overall rate of 4.5% (2003: 4.5 %). The average investment return for
the five years to 31 December 2004 was 5.3% (2003: 5.5%).
8 Employee information
2004   2003
                                                         $'000  $'000
    Wages and salaries                                  51,147 49,925
    Social security costs                                5,373  4,098
    Other pension costs                                  4,206  3,552
                                                        60,726 57,575
    The average number of employees during the year
    was as follows:
                                                          2004   2003
                                                        Number Number
    Underwriting                                           122    120
    Finance                                                 64     75
    Information Technology                                  41     41
    Claims                                                  38     30
    Technical Accounts                                      41     30
    Management and Administration                           86     71
                                                           392    367
BERMUDA, March 16 /PRNewswire/ --
9 Taxation
    The charge for taxation comprises:
                                                              2004     2003
                                                             $'000    $'000
    Current taxation                                       (9,367)  (1,890)
    Deferred taxation                                      (7,226) (11,638)
                                                          (16,593) (13,528)
    The credit/(charge) for taxation can be analysed as follows:
                                                              2004     2003
                                                             $'000    $'000
    Tax on operating profit                               (21,094) (17,778)
    Tax on short-term fluctuations in investment return      4,686    3,119
    Tax on change in claims equalisation provision           (185)    1,131
                                                          (16,593) (13,528)
The tax charge for the year ended 31 December 2003 included a $9.0
million credit for deferred tax not previously recognised in respect
of tax losses.
The tax for the periods presented varied from
    the stated rate of UK corporation tax as
    explained below:
                                                      2004     2003
                                                     $'000    $'000
    Profit on ordinary activities before taxation   10,929   54,538
    Profit on ordinary activities multiplied by
    the standard rate of UK corporation tax at
    30% (2003: 30%)                                (3,279) (16,361)
    Factors affecting tax charge:
    Adjustment in respect of foreign tax rates    (11,038)  (6,331)
    Adjustment in respect of prior periods           1,330       31
    Overseas and other taxes                         (380)    (367)
    Withholding tax on dividend                    (3,986)        -
    Movement in tax losses                           1,457   18,473
    Other permanent items                              389    (102)
    Other timing differences                         9,054    2,767
    Current tax charge                             (9,367)  (1,890)
The tax for the period presented can be analysed by juristiction
as explained below:
                                  United  United
                                  Kingdom  States
                         Bermuda  Jersey                  Switzerland   Total
    2004                   $'000  $'000     $'000   $'000       $'000   $'000
    Profit/(loss) on
    ordinary activities
    before taxation      (40,472)    948 (6,058)  21,462      35,049   10,929
    Profit/(loss) on
    ordinary activities
    multiplied by
    the standard rate of UK
     corporation tax at 30%
    (2003: 30%)            12,141  (284)   1,817 (6,438)    (10,515)  (3,279)
    Factors affecting tax charge:
    Adjustment in respect of
    foreign tax rates    (12,141)    284       - (1,073)       1,892 (11,038)
    Adjustment in
    respect of prior
    periods                     -      -     974     356           -    1,330
    Overseas and other
    taxes                       -  (289)    (29)    (62)           -    (380)
    Withholding tax on
    dividend                    -      -       - (3,986)           -  (3,986)
    Movement in tax losses      -      - (2,010)       -         553  (1,457)
    Other permanent items       -      -   (137)     526           -      389
    Other timing differences    -      -   (326)   1,310       8,070    9,054
    Current tax (charge)/credit -  (289)     289 (9,367)           -  (9,367)
10 Earnings per ordinary share
Basic earnings per ordinary share is based on the profits after
tax and the weighted average ordinary shares in issue as follows:
                                                        2004        2003
                                                      Number      Number
    Weighted average ordinary shares in issue    174,606,795 114,269,807
    Fully diluted number of shares               176,239,769 116,266,620
2004      2003
                                                 Per share Per share
    (Loss)/earnings - basic ($)                     (0.03)      0.42
    (Loss)/earnings- fully diluted ($)              (0.03)      0.42
    Operating earnings - basic ($)                    0.06      0.55
    Operating earnings - fully diluted ($)            0.06      0.54
BERMUDA, March 16 /PRNewswire/ --
Operating earnings per ordinary share based on the longer-term
investment return is considered to be a more appropriate measure of
operating performance than earnings per share including short-term
fluctuations in investment return. Transfers to or from claims
equalisation provisions are transfers to or from a statutory reserve
and not a deduction or credit in arriving at operating profit. The
gain made in 2003 on the purchase of subordinated preferred shares
issued by subsidiaries has also been excluded in calculating
operating profit.
The reconciliation between earnings per ordinary share and
operating earnings per ordinary share is as follows:
                                                                 2004    2003
                                                                $'000   $'000
    (Loss)/profit for the financial year attributable to
    equity shareholders                                       (5,664)  48,510
    Add
                  Gain on purchase of subordinated preferred        - (7,500)
                  shares issued by subsidiaries
                  Short-term fluctuations in investment return 20,616  22,476
                  Change in claims equalisation provision       (617)   3,771
                                                               19,999  18,747
                  Tax thereon                                 (4,500) (4,250)
                                                               15,499  14,497
    Operating profit after tax                                  9,835  63,007
11 Intangible assets
The net book value of intangible assets comprises capitalised
expenses of $1.4 million in obtaining United States licences together
with insurance licences for the United States market, with a fair
value of $8.4 million which were acquired as a result of the purchase
of Seven Hills Insurance Company. Based on their annual impairment
review, the Directors believe that no impairment exists and
therefore, as at 31 December 2004, the intangible assets are stated
at $9.8 million (31 December 2003: $10.0 million).
12 Investments
    Group - investments                 Current Value           Historic Cost
                                   2004          2003      2004          2003
    Other financial
    investments                   $'000         $'000     $'000         $'000
    Shares and other variable
    yield securities - listed       947           836       904           826
    Debt securities - unit
    trusts - listed              45,801        34,061    44,077        33,152
    Debt securities and other
    fixed income securities -
    listed                    1,968,903     1,432,032 1,967,969     1,421,894
    Deposits with credit
    institutions                131,995       115,428   131,995       115,428
    Total debt securities and
    other fixed income
    securities                2,100,898     1,547,460 2,099,964     1,537,322
    Total other financial
    investments               2,147,646     1,582,357 2,144,945     1,571,300
    Deposits with ceding
    undertakings                143,687       105,513   143,687       105,513
    Total investments         2,291,333     1,687,870 2,288,632     1,676,813
Included within investments as at 31 December 2004, the Group held
$53.9 million (31 December 2003: $19.8 million) as statutory deposits
with local regulators. A further $872.6 million (31 December 2003:
$540.5 million) is held in trust for the benefit of holders of North
American policies. Included within investments at 31 December 2004 is
$432.1 million (31 December 2003: $185.4 million) that Alea (Bermuda)
Ltd has placed in trust on behalf of Alea North America Insurance
Company due to quota share arrangements between these companies.
There are pledges over certain investments for the issuance of
letters of credit in the normal course of business. As at 31 December
2004, the pledges covered assets of $247.6 million (31 December 2003:
$227.6 million).
Included within ''Debt securities - unit trusts - listed'' as at
31 December 2004 the group held Societe d'Investissement a Capital
Variable ("SICAV") of $45.8 million (31 December 2003: $34.1 million)
pledged for the benefit of French and Belgian Cedents. These SICAVs
are mutual funds invested in European fixed income securities with
average credit quality of AAA and duration of approximately 5.5
years.
    Summary by rating - Debt securities and
    other fixed income securities                       2004             2003
                                                $'000      %     $'000      %
    AAA/US Govt or equivalent               1,824,115   86.8 1,344,644   86.9
    AA                                        248,283   11.8   178,668   11.5
    A                                          28,500    1.4    24,148    1.6
    BBB                                             -      -         -      -
    NR                                              -      -         -      -
                                            2,100,898  100.0 1,547,460  100.0
    Summary by maturity - Debt securities
    and other fixed income securities                   2004             2003
                                                $'000      %     $'000      %
    Less than 1 year                          435,408   20.7   272,667   17.6
    1 year up to 3 years                      447,490   21.3   417,423   27.0
    3 years up to 5 years                     416,730   19.8   279,490   18.1
    5 years up to 10 years                    312,480   14.9   217,140   14.0
    More than 10 years                        488,790   23.3   360,740   23.3
                                            2,100,898  100.0 1,547,460  100.0
Included within fixed income securities with a maturity of more
than 10 years are mortgage backed securities issued by United States
Government Agencies with a market value of $264.0 million (31
December 2003: $168.7 million) and nominal weighted average life of
3.7 years (31 December 2003: 3.5 years).
                                                                   Restated
                                                                  (Note 20)
                                                               2004      2003
    Company - investments in Group undertakings               $'000     $'000
    As at 1 January                                         808,514   479,130
    Acquisitions during the year                            253,089   255,143
    Disposals during the year                              (50,000)         -
    Revaluation during the year                            (95,477)    74,241
    As at 31 December                                       916,126   808,514
As at 31 December 2003, the investments were presented at
historical cost. With effect from 1 January 2004, the Company has
valued its investments in Group undertakings at net asset value in
accordance with the accounting policy stated in note 1.The 2003
comparatives have been restated accordingly as stated in note 20.
The following transactions were executed in 2003 subsequent to the
initial public offering on the London Stock Exchange on 19 November
2003:
The Company acquired 10,912,066 shares of common stock in Alea
(Bermuda) Ltd valued at $44.2 million. This represented a 8.84%
holding bringing the holding in Alea (Bermuda) Ltd to 67.34%.
The Company acquired 432.18 shares of common stock in Alea
Holdings US Company valued at $28.5 million. This represented a
25.01% holding making Alea Holdings US Company a direct 100%
subsidiary of the Company.
The Company purchased from Bankers Trust Corporation and certain
of its affiliates $50.0 million of subordinated preferred shares
issued by subsidiaries of the Alea Group for a total consideration of
$42.5 million. This comprised 30,000,000 shares of preferred stock in
Alea (Bermuda) Ltd valued at $25.5 million and 200,000 shares of
preferred stock in Alea Holdings Guernsey Ltd valued at $17.0
million.
At 31 December 2003, the Company had a direct holding of 67.34% of
the common shares of Alea (Bermuda) Ltd, with the balance of 32.66%
held indirectly through Alea Group Holdings AG. On 17 December 2004,
the Company acquired the remaining 32.66% of the common shares of
Alea (Bermuda) Ltd from Alea Group Holdings AG valued at $118.1
million resulting in 100% direct ownership of Alea (Bermuda) Ltd.
On 20 December 2004, the $50.0 million of subordinated preferred
shares described above were redeemed by Alea (Bermuda) Ltd and Alea
Guernsey Limited in accordance with their terms of issue for $39.0
million and $26.0 million, respectively. The aggregate proceeds of
$65.0 million were donated by the Company to Alea (Bermuda) Ltd as
contributed surplus.
On 28 December 2004, Alea Holding US Company paid a dividend of
$90.0 million to the Company. This is the main cause for the negative
revaluation movement noted during the year. The Company donated $70.0
million to Alea (Bermuda) Ltd as contributed surplus and retained
$20.0 million for general corporate purposes.
13 Debtors arising out of insurance and reinsurance operations
2004    2003
                                                       $'000   $'000
    Pipeline premiums in respect of inwards
    insurance not yet due                             87,521  39,419
    Other debtors arising out of insurance
    operations                                        30,426  27,512
    Debtors arising out of insurance operations      117,947  66,931
    Pipeline premiums in respect of inwards
    reinsurance not yet due                          328,705 359,193
    Other debtors arising out of reinsurance
    operations                                       191,714 172,442
    Debtors arising out of reinsurance operations    520,419 531,635
BERMUDA, March 16 /PRNewswire/ --
All insurance debtors arise from transactions with intermediaries.
14 Tangible assets
The book value of tangible assets is made up as follows:
Fixtures
                               Computer       and
                              equipment    office
                           and software equipment   Other    Total
    Cost                          $'000     $'000   $'000    $'000
    As at 1 January 2004         23,727     6,104   2,472   32,303
    Exchange movement             1,620       234     229    2,083
    Additions                     5,335     1,874      17    7,226
    Disposals                     (520)      (14)       -    (534)
    As at 31 December 2004       30,162     8,198   2,718   41,078
    Depreciation
    As at 1 January 2004       (14,801)   (3,427) (1,863) (20,091)
    Exchange movement           (1,412)     (200)   (126)  (1,738)
    Charge for the period       (4,963)     (909)   (286)  (6,158)
    Disposals                       502        10       -      512
    As at 31 December 2004     (20,674)   (4,526) (2,275) (27,475)
    Net Book Value
    As at 31 December 2003        8,926     2,677     609   12,212
    As at 31 December 2004        9,488     3,672     443   13,603
15 Other debtors
2004   2003
                                         $'000  $'000
    Deferred taxation                   30,632 33,767
    Tax recoverable                      2,593  3,181
    Sundry debtors                      16,785 18,745
                                        50,010 55,693
BERMUDA, March 16 /PRNewswire/ --
The deferred tax asset comprises:
                                                          2004     2003
                                                         $'000    $'000
    Tax losses and disclaimed technical reserves        27,979   29,152
    Other timing differences                             2,653    4,615
                                                        30,632   33,767
    Balance as at 1 January                             33,767   46,657
    Charge for the year                                (7,226) (11,638)
    Credit allocated to exchange movement for the year   2,770        -
    Exchange movement                                    1,321  (1,252)
    Balance as at 31 December                           30,632   33,767
The Group's net deferred tax asset at 31 December 2004 was $30.6
million (31 December 2003: $33.8 million). The balance included a
deferred tax asset of $17.1 million (31 December 2003: $14.9 million)
in respect of the United Kingdom, $1.3 million (31 December 2003:
$3.0 million) in respect of Alea North America and $12.2 million (31
December 2003: $15.9 million) in respect of Switzerland.
The deferred tax asset has been recognised in respect of losses
carried forward to the extent that, based upon detailed budgets, the
Group anticipates taxable profits to arise within the foreseeable
future. There were no unrecognised deferred tax assets as at 31
December 2004 (31 December 2003: nil).
In 2004 the exchange differences are disclosed net of tax. For the
financial year 2004 there was a tax credit which increased the
exchange gain by $2.8 million.
16 Share capital
                                               2004   2004       2003   2003
                                             Number            Number
                                              '000s  $'000      '000s  $'000
    Authorised:
    Common shares of $0.01                1,000,000 10,000  1,000,000 10,000
    Total authorised                      1,000,000 10,000  1,000,000 10,000
    Allotted, called up and fully paid:
    Common shares of $0.01                  174,422  1,744    174,707  1,747
    Total allotted, called up share
    capital and fully paid                  174,422  1,744    174,707  1,747
Stock options and restricted shares
Bermuda Plan
Alea Group Holdings AG had in place a stock purchase and option
plan for key employees and advisors known as the 1998 Amended and
Restated Stock Option Plan for Key Employees and Subsidiaries (the
''Swiss Plan''). The Company adopted a 2002 Stock Purchase and Option
Plan for Key Employees of the Company and its Subsidiaries, as
amended in connection with IPO (the ''Bermuda Plan''), in connection
with the redomiciling of the ultimate parent company of the Group to
Bermuda and all awards under the Swiss Plan are now governed by the
terms of the Bermuda Plan. The terms of the Bermuda Plan are
substantially similar to the terms of the Swiss Plan. All Alea Group
Holdings AG non-voting participation shares and options were
exchanged for common shares and options in connection with an equity
exchange offer that was completed on 3 April 2002. In total,
15,000,000 common shares are authorised for use under the Bermuda
Plan.
The exercise price of the options will be the fair market value of
the common shares on the grant date. Generally, the options vest
rateably over a five-year period except in the case of performance
options where vesting is affected by attainment of certain
pre-approved financial targets. The exercisability of the options
accelerates upon a change of control of the Group. Options expire and
are no longer exercisable on the tenth anniversary or in certain
circumstances at the end of the three month period following such
tenth anniversary of the grant date. The expiration of the options
can accelerate due to termination of employment. Certain options
granted contain shortened expiration and vesting periods.
The terms of the Company's common shares and the exercise price of
the options to acquire company common shares on the purchase/grant
date were determined by the Remuneration Committee in accordance with
the terms of the Bermuda Plan. The Bermuda Plan was terminated as to
future grants with effect from 19 November 2003.
Executive Plan
The Company's shareholders have adopted the Alea Executive Option
and Stock Plan and the Alea Sharesave Plan ("Executive Plan"). The
Executive Plan provides for the grant of time and performance
options, restricted stock units and share savings for employees. The
exercise price of options granted shall not be less than the middle
market quotation for the Company's shares on the dealing day
preceding the date of grant. The number of common shares granted in
any period under all of the Company's employee share schemes
(excluding shares issuable on exercise of options granted prior to 19
November 2003) may not exceed 10% of the Company's issued ordinary
share capital. Generally, the vesting period of an option granted
under the Executive Plan is subject to the discretion of the Board
(or a committee thereof) provided that vesting for certain tax
qualified options may not be earlier than 3 years or more than 10
years after the date of grant and unless any relevant performance
conditions have been satisfied.
To date the options granted under the Executive Plan vest rateably
over a five-year period. No performance options have been granted
under this plan. At the discretion of the Board the exercisability of
the options accelerates upon a change of control of the Group.
Options expire and are no longer exercisable on the tenth anniversary
or in certain circumstances at the end of the three month period
following such tenth anniversary of the grant date. The expiration of
the options can accelerate due to termination of employment.
Share Purchase Arrangements
In order to align closely the interests of employees with those of
its shareholders the Company has made available share purchase
facilities for those employees given the opportunity to purchase
shares and receive an option multiple under the Bermuda Plan and the
Executive Plan. An employee may borrow up to 50% of the employee's
purchase price of the shares which are then pledged toward repayment.
Such loans carry interest at full market rates established at the
time the loan is taken out and are repayable in five equal annual
payments of 20% of the principal amount thereof. The total amount
outstanding under these arrangements in respect of all officers and
employees as at 31 December 2004 was $2,726,327 (31 December 2003:
$3,225,832).
The Remuneration Committee may defer mandatory amortisation of
loans for employees at its discretion and has determined to do so in
respect of instalments due in 2005 as a consequence of the decision
to eliminate plan achievement based bonuses payable in respect of the
2004 period. As a result, for employees of the Group, loan
amortisation payments due in 2005 will be deferred to 2006, but loans
will continue to bear interest during the deferral period. For
officers of the Group, loan interest repayments may be deferred only
if that officer is not in receipt of a merit award or guaranteed
bonus payable in respect of the 2004 period. Executive Directors will
not be permitted to defer scheduled payments of principal or interest
on any loan outstanding. Further details of loans made to officers of
the Group are stated in note 31. Officers of the Group include those
officers who are on the Leadership Team.
Other
The Company has issued to Fisher Capital Corp. LLC certain options
to acquire common shares, which are fully vested and are exercisable
within 15 years of the date of grant. In connection with a consulting
agreement, the company has issued restricted shares which are fully
vested to Richard Delaney, a former Director. These shares and
options were not granted pursuant to either Plan.
Transactions involving common share options and share
participation certificate options are as follows:
                                                2004                2003
                                            Weighted            Weighted
                                             average             average
                                  Number       price     Number    price
    Options outstanding                            $                   $
    As at 1 January           11,229,400        3.59  9,577,660     3.41
    Granted                    2,694,720        4.53  2,229,780     4.30
    Forfeited                (2,011,480)        3.84  (578,040)     3.39
    As at 31 December         11,912,640        3.76 11,229,400     3.59
BERMUDA, March 16 /PRNewswire/ --
Forfeited options include options reacquired from employees and
Directors and subsequently cancelled.
17 Group - movement in consolidated shareholders' funds
                                                              Profit
                                     Share    Share Capital and loss
                                   capital  premium reserve  account    Total
                                     $'000    $'000   $'000    $'000    $'000
    As at 1 January 2004             1,747  633,053  75,644   14,958  725,402
    Share issues                         -      117       -        -      117
    Capital raising expenses             -        -   (263)        -    (263)
    Share repurchase and
    cancellation                       (3)  (1,731)       -        -  (1,734)
    Share based payments                 -       83       -        -       83
    Retained loss transferred
    to reserves                          -        -       - (23,104) (23,104)
    Exchange differences                 -        -       -    5,917    5,917
    As at 31 December 2004           1,744  631,522  75,381  (2,229)  706,418
BERMUDA, March 16 /PRNewswire/ --
Company - movement in shareholders' funds
                                                              Profit
                                                                 and
                           Share   Share Capital Revaluation    loss
                         capital premium reserve     reserve account    Total
                           $'000   $'000   $'000       $'000   $'000    $'000
    As at 1 January 2004
    (restated note 20)     1,747 633,053  16,361      74,241       -  725,402
    Share issues               -     117       -           -       -      117
    Capital raising
    expenses                   -       -   (263)           -       -    (263)
    Share repurchase and
    cancellation             (3) (1,731)       -           -       -  (1,734)
    Share based payments       -      83       -           -       -       83
    Unrealised losses
    (note 12)                  -       -       -    (95,477)       - (95,477)
    Retained profit for
    the financial period       -       -       -           -  78,290   78,290
    As at 31 December
    2004                   1,744 631,522  16,098    (21,236)  78,290  706,418
The Company movement in shareholders' funds has taken into account
the change in accounting policy with regards to the valuation method
used for investments in Group undertakings as stated in notes 1, 12
and 20.
Share based payments - Group and Company
The credit to reserves for share based payments relates to the
profit and loss account charge recorded under the requirements of
UITF 17.
18 Dividend
Ordinary dividends comprise:
                                                             2004  2003
                                                            $'000 $'000
    Interim dividend paid - $0.03 per share (2003: nil)     5,238     -
    Final declared - $0.07 per share (2003: nil)           12,202     -
    Ordinary dividend                                      17,440     -
The Board has recommended a final dividend of seven cents per
Common Share payable on 10 June 2005 to shareholders on the register
of members at the close of business (Bermuda time) on 13 May 2005.
Dividends are declared and paid gross.
Dividends are declared in U.S Dollars but may be paid in U.S.
Dollars, British Pounds or Swiss Francs. The British Pound or Swiss
Franc equivalent of dividends declared in US Dollars will be
calculated by reference to an exchange rate prevailing on 20 May
2005.
19 Claims outstanding
                                                          2004      2003
                                                         $'000     $'000
    Gross
    Provision for claims outstanding, reported and
    not reported                                     1,971,265 1,463,702
    Discount                                         (140,534)  (80,020)
                                                     1,830,731 1,383,682
    Claims handling provisions                          21,162    14,869
                                                     1,851,893 1,398,551
    Aggregate excess reinsurance
    Provision for claims outstanding, reported and
    not reported                                     (465,722) (508,924)
    Discount                                            36,985    35,355
    Net aggregate excess reinsurance                 (428,737) (473,569)
    Other reinsurance
    Provision for claims outstanding, reported and
    not reported                                     (315,528) (253,165)
    Discount                                             7,062       173
    Net other reinsurance                            (308,466) (252,992)
    Total reinsurance
    Provision for claims outstanding, reported and
    not reported                                     (781,250) (762,089)
    Discount                                            44,047    35,528
    Total reinsurers share of claims outstanding     (737,203) (726,561)
    Claims outstanding, net of reinsurance
    Before discount                                  1,211,177   716,482
    Discount                                          (96,487)  (44,492)
    Claims outstanding net of reinsurance            1,114,690   671,990
                                                          2004      2003
    Security held for aggregate excess reinsurance       $'000     $'000
    Deposits received from reinsurers                  123,743   199,903
    Trust fund and LOC collateral available against
    aggregate excess contracts                         277,297   228,415
    Total collateral available against aggregate
    excess reinsurance recoverable                     401,040   428,318
    Collateral held in respect of unearned premiums      2,713    11,241
    Total collateral held                              403,753   439,559
BERMUDA, March 16 /PRNewswire/ --
Where appropriate, reserves are discounted in accordance with
statutory regulations of the European Union. Discount rates are based
on the expected future cash flow derived from assets established for
the payment of reserves. The Group discounts loss reserves for
certain business with a mean term to ultimate claims settlement in
excess of four years. The majority of such discount applies to
casualty business. All data is presented for the years ended 31
December 2004 and 31 December 2003 prior to intra-group quota share
arrangements.
The amount of discount and the average gross mean term can be
analysed as follows:
                                                                        2004
                                    Gross Reinsurance    Net Gross mean term
                                    $'000       $'000  $'000           Years
    London                         22,070     (5,866) 16,204             4.3
    United States                  33,552    (18,103) 15,449             5.5
    Bermuda (1)                    23,605     (5,999) 17,606             3.9
    Europe                         61,307    (14,079) 47,228             5.9
    Total                         140,534    (44,047) 96,487             5.0
                                                                        2003
                                                                  Gross mean
                                     Gross Reinsurance    Net           term
                                     $'000       $'000  $'000          Years
    London                           8,662     (4,541)  4,121            5.0
    United States                   12,727     (9,354)  3,373            5.1
    Bermuda                         14,284     (7,117)  7,167            4.1
    Europe                          44,347    (14,516) 29,831            4.5
    Total                           80,020    (35,528) 44,492            4.7
The total average discount rate has been established at a rate
below the average investment return for the five years to 31 December
2004 which was 5.3% (2003: 5.6%).
(1) After application of the reinsurance contracts, all business
areas have a mean term of more than four years in accordance with the
Company's policies.
2004       2003
    Claims equalisation provision               $'000      $'000
    As at 1 January                             6,408      2,368
    Currency revaluation                          451        269
    Change in claims equalisation provision     (617)      3,771
    As at 31 December                           6,242      6,408
BERMUDA, March 16 /PRNewswire/ --
The claims equalisation provision is in respect of the UK
subsidiary. The reserve is established for the purpose of mitigating
exceptionally high loss ratios. In 2004, there was a small release
from the provision as a result of claims incurred due to hurricane
and typhoon activity.
20 Prior year adjustment
The Company reports investments in Group undertakings at net asset
value. In prior years, investments were reported by the Company at
historical cost. This has no impact on the Group accounts.
The impact of the change in accounting policy is as follows:
                                                                   2003
                                                                  $'000
    Investments in group undertakings under the old policy      734,273
    Revaluation reserve                                          74,241
    Investments in group undertakings under the new policy      808,514
    Revaluation reserve in capital reserve under the old policy       -
    Revalution reserve                                           74,241
    Revaluation reserve in capital reserve under the new policy  74,241
21 Other technical provisions
As at 31 December 2004, the Directors determined that an unexpired
risk provision, in excess of the unearned premium reserve, to
recognise the cost of claims and expenses arising after the end of
the financial year from contracts concluded before that date need not
be established (31 December 2003: nil).
22 Group creditors
                                                             2004    2003
    Creditors arising out of insurance and reinsurance      $'000   $'000
    operations
    Insurance balances payable                             66,909  62,744
    Reinsurance balances payable                          211,464 133,627
                                                          278,373 196,371
Company creditors - demand note payable to Group undertakings
In consideration of the Company's acquisition of 32.66% of the
common shares of Alea (Bermuda) Ltd from Alea Group Holdings AG in
December 2004, the Company issued a demand note in the amount of
$34.2 million to Alea Group Holdings AG bearing interest at 4.5%. All
other demand notes of the Company to Group undertakings outstanding
at 31 December 2003 were repaid during 2004.
23 Amounts owed to credit institutions
The three year bank term loan of $200.0 million and the $50.0
million revolver currently carry an interest margin of 90 basis
points, which is adjustable based upon the Standard and Poor's debt
ratings for Alea. The $50.0 million revolver facility is additionally
subject to a commitment fee of 40% of the applicable margin. The term
loan was used to repay the pre-existing financing facilities with the
balance being used for general corporate expenses. The revolver
facility was unutilised during 2004.
In February 2005, the $50.0 million revolver was fully drawn and
the funds were used to make a voluntary prepayment of $50.0 million
under the $200.0 million term loan. This prepayment was accompanied
by an amendment which increased the financial flexibilty of Alea
under this financing.
The loan imposes restrictive covenants including limitations on
the granting of liens, other dispositions of assets, increased
indebtedness and distribution of assets.
Total loan repayments under the above facilities fall due as
follows:
2004    2003
                                                 $'000   $'000
    2004                                             -  12,926
    2005                                             -  92,862
    2006                                             -       -
    2007                                       200,000  75,000
    Total before debt raising expenses         200,000 180,788
    Capitalised debt raising expenses          (1,562) (2,413)
    Total                                      198,438 178,375
BERMUDA, March 16 /PRNewswire/ --
The interest expense for the year ended 31 December 2004 amounted
to $5.1 million (2003: $4.7 million). Debt raising expenses are
capitalised and are amortised over the period of the loan. Capital
assets relating to the previous loan arrangements of $ 2.1 million
have been written off in 2004.
24 Trust preferred securities
In December 2004, the Group issued $100.0 million of trust
preferred securities and had in place a commitment for an additional
$20.0 million of trust preferred securities issued in January 2005.
These securities (issued from three Delaware trusts established by
Alea Holdings US Company, of which one trust was established in
January 2005) provide for a preferred dividend at a rate of three
month LIBOR plus 285 basis points. These securities allow for the
postponement of preferred dividends under certain circumstances for
up to five years. These securities carry no financial covenants and
no cross default covenants, have a fixed maturity of 30 years, and
are callable after five years. The Group has committed to AM Best not
to exercise the call rights if such action would negatively affect
the Group's AM Best ratings or ratings outlook thereupon. AM Best
currently treats these "hybrid" securities as equity in its capital
assessment model.
Total trust preferred securities fall due as follows:
                                                                2004  2003
                                                               $'000 $'000
    2034                                                     100,000   -
    Total before trust preferred securities raising expenses 100,000   -
    Capitalised trust preferred securities raising expenses  (2,047)   -
    Total                                                     97,953   -
BERMUDA, March 16 /PRNewswire/ --
Trust preferred securities expenses are capitalised and are
amortised over the period of the trust preferred securities.
25 Other creditors including taxation and social security
                                                              2004  2003
                                                             $'000 $'000
    Corporation tax                                          4,621 2,331
    Other creditors including other taxes and social
    security costs                                          15,718   664
                                                            20,339 2,995
BERMUDA, March 16 /PRNewswire/ --
26 Accruals and deferred income
2004   2003
                                                 $'000  $'000
    Deferred reinsurance commissions             3,459    665
    Other accruals and deferred income          27,680 37,135
                                                31,139 37,800
27 Capital commitments
At 31 December 2004 there were capital commitments of $1.1 million
(31 December 2003:$1.1 million) relating to software, leasehold
improvements and fixtures.
28 Operating leases
Annual commitments under operating leases expire:
2004            2003
                                   Land and        Land and
                                  buildings Other buildings Other
                                      $'000 $'000     $'000 $'000
    - within one year                   180     -         -    14
    - between two and five years      1,869    35       459    21
    - over five years                 3,005     -     3,091     -
                                      5,054    35     3,550    35
29 Pension commitments
The employees of the Group are covered by defined contribution
schemes the costs of which are charged to the profit and loss account
when incurred. The total cost of retirement benefits for the Group in
the year ended 31 December 2004 was $4.2 million (2003: $3.6
million).
30 Contingent liabilities
Litigation - settlement
In December 2004, a settlement was reached in the 2003 lawsuit
commenced by PXRE Reinsurance Company ("PXRE") against Lumbermens,
which in turn had joined Alea North America Company (''ANAC'') in
August 2003 as a third party defendant. The lawsuit sought rescission
(amongst other claims) of a retrocession arrangement in which PXRE
reinsured Lumbermens excess of a 75% paid loss ratio, for a maximum
liability of $50 million. Under the settlement, PXRE reassumed its
liability under the retrocession arrangement. ANAC paid $250,000 as
its contribution towards this settlement which was expensed in 2004
Structured settlements
The Group, through the Canadian branch of Alea Europe Ltd, has
assumed ownership of certain structured settlements and has purchased
annuities from life assurers to provide fixed and recurring payments
to those underlying claimants. As a result of these arrangements, the
Group is exposed to a credit risk to the extent that any of these
insurers are unable to meet their obligations under the structured
settlements. This risk is viewed by the Directors as being remote as
the annuities are fully funded and the Group has only purchased
annuities from Canadian insurers with a financial stability of AA or
higher (Standard & Poors). The Canadian branch is in run-off and the
branch discontinued accepting assignments of annuities in August
2001. In the event of all the relevant life insurers being unable to
meet their obligations under the structured settlements, the total
exposure, net of amounts that may be recoverable from the
Compensation Corporation of Canada (a Canadian industry-backed
compensation scheme), is estimated to be 39 million Canadian Dollars
($32 million) and the maximum in relation to any one insurer 17
million Canadian Dollars ($14 million).
Litigation
In January 2003, a claim was made against the Group and its
indirect subsidiary ANAC by a former employee of ANAC alleging, inter
alia, discrimination, harassment and retaliation for damages
totalling $3.5 million. At this stage it is not possible to estimate
the amount of any potential liability that may arise for the Group.
The Group believes the allegations are unfounded and is vigorously
defending itself against the claim. The Group's Motion for Summary
Judgment was fully briefed as of April 22, 2004, and is presently
pending. No provision has been made in the accounts for this matter.
Subpoena
In November 2004, Alea North America Insurance Company ("ANAIC")
received a subpoena from the Attorney General of New York and,
together with Alea North America Specialty Insurance Company
("ANASIC"), received inquiries from certain U.S. state insurance
departments (which inquiries were only for informational purposes).
The subpoena and inquiries relate to the on-going industry-wide
investigations into U.S. producer compensation practices and
arrangements. No allegations of wrongdoing have been made against
ANAIC and ANASIC, nor any of their employees, nor do we have reason
to believe any of them are specific targets of any investigation.
ANAIC and ANASIC have co-operated fully with these inquiries.
After concluding their internal investigations in connection with
these matters, the companies have reported to these regulatory
authorities that they have identified no transactions or information
causing concern, nor are they aware of any improper conduct.
Company contingent obligations
In the third quarter of 2002 the Company entered into a top down
guarantee with each of the Group's rated insurance operating
entities. These guarantees are in addition to the pre-existing cross
company guarantees already in place between the various subsidiaries
of the Group. Subject to applicable corporate and regulatory
requirements, the top down guarantees require that the Company make
funds available to the insurance operating entities to allow the
entities to fulfill their insurance or reinsurance obligations to the
client/customer incurred while the guarantee remains in effect.
31 Related party transactions
Kohlberg Kravis Roberts & Co.
The Group pays annual advisory fees of $750,000 to Kohlberg Kravis
Roberts & Co., L.P., an affiliate of KKR 1996 Fund (Overseas),
Limited Partnership, a shareholder and KKR Partners (International),
Limited Partnership, also a shareholder and $350,000 to Fisher
Capital Corp. LLC, also a shareholder. As at 31 December 2004 the
balance due under these arrangements was nil (31 December 2003:nil).
Loans to officers
Loans to officers are offered in connection with their purchase of
Company shares and are interest bearing and except as described
below, are full recourse and made on consistent terms as those to
other employees. Mr M. Ricciardelli received a loan of $375,000 in
connection with his purchase of pledged shares at a cost of $750,000
in March 2004 that bears interest at 1 year LIBOR set on the funding
date and reset annually on each anniversary thereof. Upon termination
of employment Mr M Ricciardelli is not personally liable for any
amounts in excess of the value of the shares pledged plus any accrued
but unpaid bonus contractually payable to him. Consistent with other
borrowers, Mr M. Ricciardelli's loan is repayable in five equal
annual instalments of 20% of the principal amount thereof. The unpaid
interest as at 31 December 2004 was $3,818.
As at 31 December 2004 the Group had loans to officers, including
the amount set out above in respect of Mr M. Ricciardelli, of
$1,074,819 (31 December 2003: $648,140). The number of officers that
had outstanding loans at 31 December 2004 was 11 (31 December 2003:
8). Officers are defined as members of the Leadership Team or its
predecessor, the Executive Committee during the respective periods.
Bristol West Insurance Group
During 2003 and 2004, Alea London Ltd underwrote a 40% share of an
inwards reinsurance contract with Bristol West Insurance Group
(Bristol West), a public company traded on the New York Stock
Exchange. Affiliates of a Kohlberg Kravis Roberts & Co. fund other
than KKR 1996 Fund (Overseas), Limited Partnership, held an interest
in 38.5% of the outstanding shares of Bristol West at 15 February
2005.
Mr J Fisher, a Director of the Company, is Chairman of the Board
and Chief Executive Officer of Bristol West and as of 3 March 2005
may be deemed to have beneficial interests in some or all of
1,053,485 shares or options to acquire shares of Bristol West
representing approximately 3.0% of the outstanding shares and may
also be deemed to to have an interest in some or all of the shares in
Bristol West owned by a KKR affiliate representing 2% of the
outstanding shares.
Messrs. T Fisher, P Golkin and S Nuttall, Directors of the
Company, are also directors of Bristol West and may be deemed to have
beneficial interests in some or all of the shares in Bristol West
controlled by affiliates of Kohlberg Kravis Roberts & Co. and
representing 38.5% of the outstanding shares at 15 February 2005.
The contract was priced and terms and conditions established on an
arm's length basis by an unrelated lead underwriter and found to be
acceptable by the Company using the Company's normal actuarial
practices. The co-participating reinsurers on the contract are
companies unrelated to either the Company, Bristol West, KKR or Mr J
Fisher.
Gross premiums written in 2004 include $56.5 million in respect of
unearned premiums anticipated to be earned in 2005. Effective 1
January 2005, Bristol West exercised its rights to terminate and
commute its quota share agreement. All cash balances due to Bristol
West of $78.7 million were settled in for full in January 2005. The
remaining unearned premium of $56.5 million has been reversed such
that 2005 financial statements will show a reduction in gross
premiums written of $56.5 million representing the unearned premium
balances previously carried forward. There will be no profit and loss
impact in 2005 with regards to this contract. The contract has not
been renewed in 2005.
The contract had the following impact on the profit and loss
account, balance sheet and cash flows of the Group:
2004      2003
    General Business - Technical Account           $'000     $'000
    Net premiums written                         149,431   158,500
    Net premiums earned                          148,089   126,341
    Net incurred losses                        (118,442) (101,072)
    Net acquisition expenses                    (25,177)  (21,479)
    Balance on technical account                   4,470     3,790
                                                    2004      2003
    Balance Sheet                                  $'000     $'000
    Cash received                                 88,197    55,464
    Reinsurance debtors                           66,302    64,228
    Deferred acquisition costs                     9,600     9,372
    Total Assets                                 164,099   129,064
    Claims incurred                               98,106    68,883
    Unearned premium reserves                     56,473    55,130
    Retained profit                                9,520     5,051
    Total Liabilities                            164,099   129,064
                                                    2004      2003
    Cash Flows                                     $'000     $'000
    Premium received                             243,243   121,277
    Claims paid                                (155,046)  (65,813)
BERMUDA, March 16 /PRNewswire/ --
No amounts have been written off in respect of debts due to or
from Bristol West.
Conseco Inc.
Mr R Hilliard, a Director of the Company, is the Executive
Chairman of the Board of Conseco Inc.. A subsidiary of the Company
was an insurer on Conseco Inc.'s Directors and Officers insurance
policy, for which Conseco paid to the Company a net premium of
$364,595 with respect to the 2003 underwriting year. The terms of
this agreement were made on an arm's length basis without any
involvement of Mr Hilliard.
Willis Group Holdings
Willis Group Holdings Limited and its subsidiaries ("Willis")
conduct insurance and reinsurance intermediary activities.
As at 31 December 2004, KKR 1996 Fund (Overseas), Limited
Partnership owned 5.6% (31 December 2003: 23.3%) of the outstanding
common equity of Willis Group Holdings Limited.
The Group has entered into multiple business arrangements with
Willis for the years ended 31 December 2004 and 31 December 2003.
These transactions involved the production and procurement of
insurance and reinsurance relationships and contracts, in many cases
for a commission or fee, the transmission of premium and other
related transactions.
While most of these relationships and contracts individually have
involved less than 0.5% of the assets of the Group, some of the
transactions have involved premium flows or other cash flows through
Willis in excess of such amounts. In aggregate the total gross
premiums written by the Group produced through Willis for the year
ended 31 December 2004 was $69.5 million (31 December 2003: $74.6
million).
Messrs. P Golkin and S Nuttall are directors and shareholders of
Willis and may also be deemed to be beneficially interested in some
or all of the shares in Willis owned by KKR 1996 Fund (Overseas),
Limited Partnership and KKR Partners (International), Limited
Partnership. Mr J Fisher is a director and shareholder of Willis and
may also be deemed to be beneficially interested in some or all of
the options to acquire shares in Willis held by Fisher Capital Corp.
LLC and the shares in Willis owned by KKR Partners (International),
Limited Partnership.
The Group's dealings with intermediaries, including Willis, are on
arm's length normal commercial terms.
32 Credit risk - exposure to Lumbermens
In connection with the Group's acquisition of the Equus Re
reinsurance division of Lumbermens on 3 December 1999, Alea (Bermuda)
Ltd and Lumbermens entered into a 100% quota share reinsurance of the
Lumbermens business written by Equus Re through 30 September 1999
(namely, business written by Equus Re prior to the Group's
acquisition of the Equus Re operations). Lumbermens, in turn,
provides stop loss reinsurance to Alea (Bermuda) Ltd for losses in
excess of a 75% paid loss ratio on the same business (the "Protected
Business"). In addition to the Protected Business, the parties agreed
that the Group would write new and renewal business on behalf of
Lumbermens (as the reinsurer) up to 31 December 2001, which business
is ceded by a 100% quota share reinsurance to Alea (Bermuda) Ltd (the
" Fronted Business"). Concurrent with these arrangements, Lumbermens
retained ANAC as its agent to adjust and pay claims and collect
premiums for both the Protected Business and the Fronted Business.
The respective obligations of Alea (Bermuda) Ltd and Lumbermens
noted above are subject to contractual mutual offset provisions under
the reinsurance agreements and as permitted under Illinois law.
Further, in respect of the Protected Business, Lumbermens is
contractually required to fund losses on its own behalf once the 75%
paid loss ratio is met. The Group's balance sheet therefore, records
(i) no net balance due from Lumbermens under the Protected Business,
as the 75% paid loss ratio was met in late December 2003
(specifically, $158.2 million is due to and from Lumbermens), and
(ii) as at 31 December 2004, a balance due to Lumbermens under the
Fronted Business of $123.8 million
As is required for credit for reinsurance purposes when cessions
are made to non-US licensed reinsurers, Alea (Bermuda) Ltd must
collateralise its obligations to Lumbermens. Pursuant to contract,
the amount of posted collateral is required to equal 120% of the
estimated loss reserves, which based on the above year-end balance
due from Alea Bermuda Ltd would be approximately $148.6 million. If,
as was the case in 2004, Alea (Bermuda) Ltd (as reinsurer) and
Lumbermens cannot agree upon the calculation of the amount to be
collateralised, the contract provides that the matter is to be
resolved by referral to a neutral and disinterested Fellow of the
Casualty Actuary Society for determination ("Independent Actuary").
Based on a determination of the estimated loss reserves by the
Independent Actuary measured as at 30 September 2004 the amount Alea
(Bermuda) Ltd posted as collateral at year-end pursuant to the
contract was $186.6 million.
The Independent Actuary's estimate is utilized strictly to enable
the parties to settle on the collateral posting. The determination of
collateral posted is subject to recalculation quarterly in arrears,
and both parties retain the right to request a further determination
in the future by an Independent Actuary if the parties cannot agree
such calculation.
Lumbermens risk based capital level allows the Illinois Department
of Insurance to assume control of Lumbermens at its discretion. The
mutual obligations of Alea (Bermuda) Ltd and Lumbermens described
above are subject to contractual mutual offset provisions under the
agreements and as permitted under Illinois law. The Directors believe
that the Group should not be exposed to material credit risk
resulting from these arrangements with Lumbermens.
33 Notes to the statement of cash flows
    (a) Reconciliation of profit on ordinary activities
    before tax to net cash inflow from operating
    activities                                                 2004      2003
                                                              $'000     $'000
    Profit on ordinary activities before tax                 10,929    54,538
    Depreciation of tangible assets                           6,158     5,868
    Profit on disposal of tangible assets                     (343)     (289)
    Changes to market value and currencies on investments  (29,980)  (24,893)
    Losses on foreign exchange                                2,277     9,095
    Change in debtors arising out of re/insurance
    operations                                             (39,800) (109,423)
    Change in amounts due from reinsurance operations not
    transferring significant insurance risk                   3,543     6,044
    Change in other assets                                    2,150   (1,475)
    Change in prepayments and accrued income                (5,771)   (1,395)
    Change in technical provisions                          575,314   481,416
    Change in claims equalisation provision                   (617)     3,771
    Change in reinsurers' share of technical provisions    (22,909) (165,849)
    Change in deposits with ceding undertakings            (38,174)  (13,407)
    Change in reinsurance deposits and creditors              5,842    12,360
    Change in liabilities from reinsurance operations not
    transferring significant insurance risk                 (9,461)   (8,811)
    Change in other creditors                                 5,967   (2,733)
    Change in accruals and deferred income                  (8,348)     1,442
    Debt interest expense                                     5,127     4,718
    Net cash inflow from operating activities               461,904   250,977
                                                               2004      2003
    (b) Movement in opening and closing portfolio
    investments net of financing                              $'000     $'000
    Net cash inflow for the year                             15,837    13,752
    Cash flow - portfolio investments net of financing      516,735   452,291
    Movement arising from cash flows                        532,572   466,043
    Changes in market value and exchange rates               29,980    15,054
    Total movement in portfolio investments net of
    financing                                               562,552   481,097
    Portfolio at 1 January                                1,448,289   967,192
    Portfolio at 31 December                              2,010,841 1,448,289
(c) Movement in cash and portfolio investments
                                                  Changes
                                           As at           to market    As at
                                                                           31
                                      1 January     Cash  value and  December
                                           2004     flow currencies      2004
    2004                                  $'000    $'000      $'000     $'000
    Cash at bank and in hand             44,307   15,837      1,489    61,633
    Shares and other variable yield
    securities                              836        -        111       947
    Debt securities - unit trusts -
    listed                               34,061    7,585      4,155    45,801
    Debt securities and other fixed
    income securities                 1,432,032  516,682     20,189 1,968,903
    Deposits with credit institutions   115,428   12,531      4,036   131,995
                                      1,626,664  552,635     29,980 2,209,279
    Amount owed to credit institutions(178,375) (20,063)          - (198,438)
                                      1,448,289  532,572     29,980 2,010,841
                                                                   Changes
                                          As at           to market     As at
                                                                           31
                                      1 January     Cash  value and  December
                                           2003     flow currencies      2003
    2003                                  $'000    $'000      $'000     $'000
    Cash at bank and in hand             28,989   13,752      1,566    44,307
    Shares and other variable yield
    securities                              949    (331)        218       836
    Debt securities - unit trusts -
    listed                               21,745    6,973      5,343    34,061
    Debt securities and other fixed
    income securities                   963,880  453,123     15,029 1,432,032
    Deposits with credit institutions   120,165  (7,474)      2,737   115,428
                                      1,135,728  466,043     24,893 1,626,664
    Amounts owed to credit
    institutions                      (168,536)        -    (9,839) (178,375)
                                        967,192  466,043     15,054 1,448,289
(d) Net cash outflow on portfolio investments
                                                                     Net
                                         Purchases       Sales cash flow
    2004                                     $'000       $'000     $'000
    Shares and other variable yield              -           -         -
    securities
    Debt securities - unit trusts -         14,304     (6,719)     7,585
    listed
    Debt securities and other fixed
    income securities                    2,852,160 (2,335,478)   516,682
                                         2,866,464 (2,342,197)   524,267
    Deposits with credit institutions                             12,531
    Net cash outflow on portfolio
    investments                                                  536,798
                                                                     Net
                                         Purchases       Sales cash flow
    2003                                     $'000       $'000     $'000
    Shares and other variable yield              -       (331)     (331)
    securities
    Debt securities - unit trusts -          9,278     (2,305)     6,973
    listed
    Debt securities and other fixed
    income securities                    2,737,986 (2,284,863)   453,123
                                         2,747,264 (2,287,499)   459,765
    Deposits with credit institutions                            (7,474)
    Net cash outflow on portfolio
    investments                                                  452,291
BERMUDA, March 16 /PRNewswire/ --
34 Group companies
The consolidated financial information presents the financial
record of the Group for the years ended 31 December 2004 and 31
December 2003. The following are the parent company and the
subsidiary undertakings that have been included in the consolidated
financial information.
                                                                   Country of
                                                               incorporation/
    Name                       Nature of business                registration
    Alea Group Holdings
    (Bermuda) Ltd              Ultimate holding company          Bermuda
    Alea Group Holdings AG     Intermediate holding company      Switzerland
    Alea Europe Ltd            Reinsurance carrier               Switzerland
    Alea (Bermuda) Ltd         Reinsurance carrier               Bermuda
    Alea Holdings US Company   Intermediate holding company      USA
    Alea North America
    Insurance Company          Insurance and reinsurance carrier USA
    Alea North America
    Specialty Insurance
    Company                    Insurance and reinsurance carrier USA
    Alea North America Company Reinsurance intermediary          USA
    Alea Holdings UK Limited   Intermediate holding company      England &
                                                                  Wales
    Alea London Limited        Insurance and reinsurance carrier England &
                                                                  Wales
    Alea Services UK Limited   Services company                  England &
                                                                  Wales
    Alea Financial UK Limited  Risk intermediary                 England &
                                                                  Wales
    Alea Technology Limited    Software and Systems              England &
                                                                  Wales
    IRM International
    Reinsurance Management Ltd.Services company                  Switzerland
    Alea Jersey Limited        Insurance and reinsurance carrier Jersey
    Alea Global Risk Limited   Insurance and reinsurance carrier Jersey
    Alea Holdings Guernsey
    Limited                    Special purpose entity            Guernsey
    AHUSCO Statutory Trust I   Special purpose entity            USA
    AHUSCO Statutory Trust II  Special purpose entity            USA
All companies listed above are wholly owned subsidiaries of
the Group.
35 Financial information and posting of accounts
The financial information set out above does not constitute the
Company's statutory accounts from the year ended 31 December 2003 or
2004, but is derived from those accounts. The auditor's have reported
on the accounts for the year ended 31 December 2004; their opinion
was unqualified.

Contact:

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Plus de actualités: Alea Group Holdings (Bermuda) Ltd.
Plus de actualités: Alea Group Holdings (Bermuda) Ltd.
  • 11.10.2004 – 09:28

    Alea Group Estimates Impact of Hurricanes

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