EX-99.2 3 y64785exv99w2.htm EX-99.2: CONSOLIDATED FINANCIAL STATEMENTS EX-99.2
Exhibit 99.2
TALBOT HOLDINGS LTD
Unaudited Consolidated Financial Statements for the Six Month Period ended June 30, 2007

 

 

Unaudited Consolidated Financial Statements for the Six Month Period ended June 30, 2007
Contents
         
Unaudited Consolidated balance sheets as at June 30, 2007 and December 31, 2006
     1  
Unaudited Consolidated statements of income (loss) and comprehensive income (loss) for the Six Months ended June 30, 2007 and 2006
     2  
Unaudited Consolidated statements of cash flows for the Six Months ended June 30, 2007 and 2006
     3  
Notes to unaudited consolidated financial statements
     4  

 

 

TALBOT HOLDINGS LTD CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
As at June 30, 2007 and December 31, 2006
                 
             
    June 30,   December 31,
    2007   2006
    $000   $000
 
ASSETS
                
Securities available-for-sale (amortised cost $188,603; 2006: $527,458)
     188,067       524,483  
Short-term investments (estimated fair value approximates to cost)
     366,523       28,446  
Cash and cash equivalents
     353,705       278,231  
 
Total investments and cash
     908,295       831,160  
Receivables
     84,005       46,065  
Accrued premium income
     168,346       140,440  
Reinsurance recoverable on paid and unpaid losses
     191,704       228,124  
Prepaid reinsurance premiums
     51,525       9,178  
Deferred policy acquisition costs
     70,029       55,841  
Accrued investment income
     7,692       7,717  
Other assets
     27,884       13,509  
Current taxes recoverable
     741       275  
 
TOTAL ASSETS
     1,510,221       1,332,309  
 
 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Liabilities
                
Insurance reserves
                
- losses and loss adjustment expenses
     755,117       711,014  
- unearned premiums
     355,131       281,928  
Payable to insurance companies and reinsurers
     80,108       59,127  
Current taxation
     (4,996 )     1,735  
Deferred taxation
     17,846       14,704  
Other liabilities
     68,072       76,552  
 
Total liabilities
     1,271,278       1,145,060  
 
 
                
Preference shares
     80,767       79,128  
 
Shareholders’ equity
                
Common stock (50,000,000 shares at 0.2 cents par value)
     115       100  
Additional paid-in capital
     17,219       5,065  
Retained earnings
     141,191       104,250  
Accumulated other comprehensive loss (net of tax)
     (349 )     (681 )
Treasury shares
     —       (613 )
 
Total shareholders’ equity
     158,176       108,121  
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
     1,510,221       1,332,309  
 
See accompanying notes
     1

 

 

TALBOT HOLDINGS LTD CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 2007
CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)
                 
    Six Months ended June 30  
    2007   2006
    $000   $000
 
Revenues
                
Gross premiums written
     401,186       335,664  
Reinsurance premiums ceded
     (96,927 )     (119,295 )
 
Net written premiums
     304,259       216,369  
Change in net unearned premiums
     (27,853 )     (2,763 )
 
Net earned premiums
     276,406       213,606  
Net investment income
     19,881       16,124  
Other
     2,165       2,351  
 
Total operating revenues
     298,452       232,081  
 
 
                
Expenses
                
Losses and loss adjustment expenses
     144,842       104,916  
Net commissions and brokerage
     61,465       54,230  
Other operating expenses
     49,293       29,694  
Net realised losses on securities
     1,230       6,048  
Foreign exchange (gain)/loss
     (1,183 )     1,075  
Interest expense
     184       581  
 
Total operating expenses
     255,831       196,544  
 
 
                
Income/(loss) before income taxes
     42,621       35,537  
Income tax (expense)
     (1,194 )     (2,053 )
 
Net income
     41,427       33,484  
 
 
                
Other comprehensive income/(loss)
                
 
Net change in unrealised gains and losses on available for sale securities, net of taxes
     303       (2,580 )
Foreign currency translation adjustment
     29       647  
 
Total other comprehensive income/(loss)
     332       (1,933 )
 
 
                
Comprehensive income
     41,759       31,551  
 
See accompanying notes
     2

 

 

TALBOT HOLDINGS LTD CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 2007
CONSOLIDATED STATEMENTS OF CASH FLOWS
                 
    Six Months ended June 30
    2007   2006
    $000   $000
 
Operating activities
                
Net income
     41,427       33,484  
Adjustments to reconcile net income to net cash provided by operating activities
                
Depreciation
     497       440  
Cost of share options expensed
     2,370       272  
Realised losses on securities
     1,230       6,048  
Foreign exchange movements
     (1,183 )     1,075  
Change in receivables
     (42,101 )     (50,966 )
Change in accrued premium income
     (26,532 )     (3,305 )
Change in deferred policy acquisition costs
     (13,415 )     (10,146 )
Change in current taxes recoverable
     (443 )     —  
Change in other assets
     (13,214 )     (2,576 )
Change in unpaid losses and loss adjustment expenses, net
     38,050       (19,158 )
Change in unearned premiums, net
     69,883       55,021  
Change in payables to insurance companies
     7,739       10,008  
Change in accrued taxation
     (1,149 )     (1,025 )
Change in deferred income taxes
     231       202  
Change in other liabilities
     14,291       (30,600 )
Change in accrued preference dividend
     (718 )     —  
 
Net cash provided by (used in) operating activities
     76,963       (11,226 )
 
 
                
Investing activities
                
Proceeds from sales and maturities of investment securities
     878,767       765,670  
Cost of investment securities purchased
     (877,369 )     (685,593 )
Additions to property and equipment
     (915 )     (356 )
 
Net cash provided by investing activities
     483       79,721  
 
 
                
Financing activities
                
Issue of common shares
     6,736       —  
Repayment of long-term debt
     —       (6,809 )
Change in overdraft
     (11,179 )     17,500  
Preference dividends paid
     (2,128 )     (2,127 )
Shares sold (purchased) by Contingency Trust
     613       (42 )
 
Net cash (utilised) provided by financing activities
     (5,958 )     8,522  
 
 
                
Effect of exchange rate movements on cash and cash equivalents
     3,986       4,610  
 
 
                
Net change in cash and cash equivalents
     75,474       81,627  
Cash and cash equivalents at beginning of period
     278,231       119,386  
 
Cash and cash equivalents at end of period
     353,705       201,013  
 
See accompanying notes
     3

 

 

TALBOT HOLDINGS LTD CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 General
The group underwrites marine, property, financial institutions, contingency insurance and treaty reinsurance through syndicate 1183 (“the syndicate”) at Lloyd’s. Reinsurance is purchased at a syndicate level to protect against exceptional large losses and at corporate member level to provide underwriting capacity.
A significant proportion of the group’s operations arise within the Lloyd’s insurance market. This business is conducted using the worldwide licensing and franchise of the Lloyd’s market.
2 Basis of preparation and consolidation
These unaudited condensed consolidated financial statements include Talbot Holdings Ltd and its wholly owned subsidiaries (together, the “Company”) and have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results of a full year. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The major estimates reflected in the Company’s consolidated financial statements include unpaid losses and loss adjustment expenses. Actual results could differ from those estimates.
3 Commitments and contingencies
Funds at Lloyd’s
The Company’s underwriting at Lloyd’s for the 2005, 2006 and 2007 years of account is supported by Funds at Lloyd’s (“FAL”) comprising: cash, investments and undrawn letters of credit provided by various banks on behalf of various companies and persons under reinsurance and other agreements. The FAL are provided in exchange for payment calculated principally by reference to the syndicate’s 2005, 2006 and 2007 results, as appropriate, when they are declared. The amounts of cash, investments and letters of credit at June 30, 2007 amount to $266.5m (June 30, 2006: $268.6m).
At June 30, 2007, $145.0m is provided by the Company, of which $30.0m is provided under banking and other arrangements which would become a liability of the Company in the event of the syndicate declaring a loss at a level which would call on such arrangements.
Operating lease commitments
One of the Company’s subsidiaries leases office space under operating leases which expire at various dates. This subsidiary has also entered into operating leases for office equipment and furniture. Future minimum annual rental commitments for non-cancellable operating leases are as follows:
         
    June 30,
    2007
    $000
 
Within one year
     1,066  
Between one and two years
     1,477  
Between two and three years
     1,553  
After three years
     5,378  
 
 
     9,474  
 
     4

 

 

TALBOT HOLDINGS LTD CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 2007
Early redemption of preference shares
Under the terms of the Byelaws of the company, THL is obliged to offer, in respect of the annual redemption period ending on November 1, each year, to redeem preference shares as long as there are preference shares in issue. The minimum amount that can be offered each year is $10 million. The preference shareholders can choose whether to accept all or part of this redemption. The early redemption offer in respect of the annual redemption period ending on November 1, 2006 has been deferred, with the approval of all the preference shareholders, to a date not later than the date on which the redemption offer in respect of the annual redemption period ending on November 1, 2007 is made.
4 Subsequent Events
On June 29, 2007 all outstanding options over the shares of Talbot Holdings Ltd were exercised for cash payable on July 2, 2007.
On July 2, 2007, the entire share capital of the Company was acquired by Validus Holdings Ltd, a company registered in Bermuda. The Sale Agreement provides for limited post-completion indemnification of Validus, but only by certain employee sellers of shares.
On July 2, 2007, the preference shares were converted into ordinary shares and all rights of redemption ceased.
     5