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2011 Preliminary Results Presentation. John Coldman, Chairman Richard Pexton, Chief Executive Officer Katherine Letsinger, Interim Chief Financial Officer. Important Notice

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Presentation Transcript
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2011 Preliminary Results Presentation

John Coldman, Chairman

Richard Pexton, Chief Executive Officer

Katherine Letsinger, Interim Chief Financial Officer

disclaimer
Important Notice

This Presentation does not constitute or form any part of any offer or invitation to sell or issue or purchase or subscribe for any shares in the Company nor shall they or any part of them, or the fact of their distribution, form the basis of, or be relied on in connection with, any contract with the Company relating to any securities of the Company, nor does it constitute an invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000. No reliance may be placed for any purpose whatsoever on the information contained in this Presentation or on its completeness.

None of the Company’s securities have been, nor will be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any state or other jurisdiction of the United States, and there is no intention to offer any such securities in the United States. Any offering of securities of the Company will be made only outside the United States in accordance with Regulation S under the Securities Act.

No representation or warranty, express or implied, is given by the Company as to the accuracy, fairness, sufficiency or completeness of the information, opinions or beliefs contained in this Presentation and nothing in this Presentation is, or should be relied upon as, a promise or representation as to the future. Save in the case of fraud, no liability is accepted for any loss, cost or damage suffered or incurred as a result of the reliance on such information, opinions or beliefs. All such liability (including, without limitation, liability for indirect, economic or consequential loss) is hereby excluded to the fullest extent permissible by law.

This Presentation contains written and oral “forward-looking statements”, which includes all statements that do not relate solely to historical or current facts. All forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other factors, many of which are outside the Company’s control that could cause actual results to differ materially from such statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The information and opinions contained in this Presentation are provided as at the date hereof and are subject to change without notice.

By accepting this Presentation, you acknowledge and agree to be bound by the foregoing limitations and restrictions.

Disclaimer
contents
Contents

Section 1: Summary and 2011 Priorities

Section 2: Financial Review

Section 3: Outlook

Q & A

section 1 summary and 2011 priorities

SECTION 1SUMMARY AND 2011 PRIORITIES

Richard Pexton, Chief Executive Officer

summary of results
Summary of Results
  • Gross written premiums reduced 14.5% to US$304.6 million (FY 2010: US$356.1 million) in line with plan;
  • Combined ratio of 134.3% (FY 2010: 114.4%);
  • US$85.6 million of net catastrophe losses (FY 2010: US$55.0 million), accounting for 37.5% of the combined ratio;
  • Investment return of 1.2% (FY 2010: 1.9%);
  • Loss before tax of US$94.7 million (FY 2010: US$42.9 million loss);
  • Basic earnings per share of (36.5) US cents (FY 2010: (17.6) US cents);
  • Nil dividend (FY 2010: 6.0 US cents)
2011 focus was to reposition the business
2011 focus was to reposition the business
  • Catastrophe premium income reduced from c.$105m to c.$84m;
  • 2011: 0.1% market share of applicable Industry Cat losses (2010: 0.32%);
  • 2011 cat losses at the lower end of our peer group range as measured by % of 2010 NTA.
  • Exited:
    • Offshore Energy;
    • Retrocessional;
    • Third party Bermuda reinsurance business.
  • Reinsurance recovery ratio of 14.2% (FY 2010: 6.7%);
  • Lower reinsurance retentions on US & International programmes and increased cover for 2012;
  • Reduced basis risk.
  • Increased Group’s economic participation for 2012 to 60.7%;
  • Retained key accounts.
  • We have taken the following actions in 2011
  • Reduced catastrophe exposed premium – to create a better balanced portfolio for the future
  • Reduced more volatile classes
  • Purchased more effective reinsurance protection
  • Focused on the core Syndicate 958 portfolio

Effect

  • Changed the business mix
summary of gross premium written
Summary of Gross Premium Written

2008

2009

  • Syndicate 958 has completed the exit from Marine Energy and Retrocessional business
  • Omega Specialty exited third party reinsurance business during Q2 2011
  • Omega US has obtained eligibility for excess and surplus lines licences in all remaining US mainland states including California;
changing business mix
Changing business mix

Omega has changed its business mix, reducing the more volatile classes (GWP $m)

2009

  • Increase in Motor XL account has benefited from original repricing;
  • Decrease in Property Catastrophe reflects exit from retrocessional business.
section 2 financial review

SECTION 2FINANCIAL REVIEW

Katherine Letsinger, Interim Chief Financial Officer

net earned premium by segment
Net Earned Premium by segment

The effect of premium changes is reflected in net earned premium

243.9

247.4

  • Increase in group share of Syndicate fully earned;
  • Omega Specialty exit from third-party reinsurance business;
  • Growth in Omega US.
loss experience
Loss Experience
  • Catastrophe Losses
  • US$98.7 million of estimated catastrophe losses, net of class specific reinsurance recoveries, but before inwards reinstatement premiums of US$13.1 million;
  • Small increase in estimates for 2010 catastrophes (US$3.1 million);
  • More effective reinsurance, with recovery ratio of 14.2% (FY 2010: 6.7%), excluding whole account reinsurance.
loss experience1
Loss Experience
  • Attritional Losses and Prior Year Movements
  • Affected by high occurrence of small catastrophe experience (e.g. smaller US tornadoes)
  • Increase in ultimate loss ratio for 2011 US liability business
  • Prior year reserve release of US$0.6 million (FY 2010: $6.0 million increase)
group expenses
Group Expenses
  • Other underwriting operating expenses have increased marginally from 4.5% to 5.4% due to ongoing cost associated with Solvency II
  • Investment incurred by the Group in 2010 and 2011 in order to enhance the quality of its infrastructure has been completed and the cost base has stabilised
  • Non-recurring expenses (corporate activity) total US$2.3 million (FY 2010: US$3.3 million)
investment portfolio
Investment Portfolio
  • Diversification away from Government bonds
  • Total duration equal to approximately 1.24 years (2010: 1.3 years)
  • Investment return of 1.2% (FY 2010: 1.9%)

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capital
Capital
  • The business remains well-capitalised
  • Historic capital requirements have been rating agency driven
  • Changes in business (non-renewal of Omega Specialty third party business) means a stand alone A.M. Best rating is no longer necessary for Omega Specialty (currently in discussions with rating agency and regulators)
  • Omega US stand alone rating is a commercial requirement
  • Lloyd’s capital will become the driver of capital requirements for the Group, creating a more efficient capital model
  • Lack of leverage places Omega apart from peers; conservative leverage considered going forward
section 3 outlook

SECTION 3OUTLOOK

Richard Pexton, Chief Executive Officer

outlook
Outlook
  • 2012 Priorities include:
  • Underwriting: concentrating our underwriting where rates are increasing:
    • US catastrophe rates increasing 5-15%;
    • US SME rates increasing 7-15%.
  • Omega US: continue to build our footprint in the US;
  • Embedding operational improvements: continuing to embed the operational and infrastructure improvements made over the past two years;
  • Capital Management: improving capital efficiency.

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