Brit Limited
Annual Report 2019
writing the future
If the future was predictable, there would be no risk and if change was
linear, there’d be no need for experts. There’d be no need for the insurance
industry.
But the truth is, the world we live in is unpredictable. It’s volatile, uncertain,
and subject to change.
At Brit, we believe that the uncertainty of the future should never stand in the
way of progress.
That’s why we exist. To help people and businesses face the future and thrive.
Every day, we channel our entrepreneurial expertise to write the most opaque
risk that the future holds, embracing the change faced by our clients by
delivering a service that’s open, honest, and fair. One that invests in the new
products and claims delivery they need in a world of complex risk.
We are dedicated to innovation, developing client solutions, efficient capital
vehicles and a technology-led service that not only lead the market, but drive
the future.
Investing in distribution so that we can deliver market-leading analytics to
further deepen our relationships with key partners, and investing in our
people, so we can amplify the integrity, agility and innovation that define our
shared future.
So if you’re our partner, broker or an employee, we make you this promise:
we won’t just react to change, we’ll create it for the better.
We won’t just write risk, we’ll write the future.
Let’s do it together.
Strategic Report Strategic Report
The Strategic Report contains information about
the Group, how we make money and how we run
the business. It gives an insight into our markets,
approach to governance, sustainability and risk
management. It provides context for our financial
statements, sets out our key performance
indicators (KPIs) and analyses our financial
performance. It also sets out how we engage with
our people and other stakeholders and includes our
Section 172(1) Statement.
Officer Statements
Brit at a Glance
Our Underwriting
Underwriting Review
Financial Performance Review
Financial Position and Capital Strength
Principal Risks and Uncertainties
Our People, Culture, Social, Community
and Environmental Matters
Stakeholder Engagement
Section 172(1) Statement
Governance
This report sets out other information of interest
to our stakeholders. It includes our Directors’
responsibility statement and our Directors’
statement on going concern. It also explains our
governance framework and contains our Modern
Slavery and Human Trafficking Statement.
Directors’ Report
Corporate Governance Report
Modern Slavery and Human
Trafficking Statement
4
6
9
17
22
35
38
43
46
51
56
58
60
Financial statements
This section presents the financial position,
performance and development in accordance with
generally accepted accounting practice for both
the Group and the Company. It also contains the
Auditor’s Report.
Additional information
This section explains how we calculate our KPIs
with reference to data contained within the
financial statements. We also summarise other
information relating to the Company useful to
stakeholders.
Glossary
In this section we include definitions of the terms
used in this Annual Report, focusing on terms
specific to the insurance industry and to Brit.
64
Independent Auditor’s Report
Consolidated Income Statement
72
Consolidated Statement of Comprehensive Income 73
74
Consolidated Statement of Financial Position
75
Consolidated Statement of Cash Flows
76
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
78
158
Parent Company Financial Statements
Reconciliation of Key Performance Indicators
to the Financial Statements
Company Information
165
169
Glossary
170
Disclaimer
This document does not constitute or form part of, and should not be construed as, an offer for sale or subscription of, or solicitation
of any offer or invitation or advice or recommendation to subscribe for, underwrite or otherwise acquire or dispose of any securities
(including share options and debt instruments) of the Company nor any other body corporate nor should it or any part of it form the
basis of, or be relied on in connection with, any contract or commitment whatsoever which may at any time be entered into by the
recipient or any other person, nor does it constitute an invitation or inducement to engage in investment activity under Section 21 of
the Financial Services and Markets Act 2000 (FSMA). This document does not constitute an invitation to effect any transaction with
the Company or to make use of any services provided by the Company. Past performance cannot be relied on as a guide to future
performance.
Brit Limited Annual Report 2019
1
Strategic Report strategic report
This Strategic Report contains information about our business
and provides an insight into how we operate and our approach to
sustainability and risk management. It provides context for our
Financial Statements, sets out our key performance indicators (KPIs)
and analyses our financial performance.
9
Our Underwriting
We discuss our
underwriting
philosophy and the
Brit offering.
4
Officer Statements
Matthew Wilson, our
Group CEO, and Mark
Allan, our Group
CFO, comment on the
Group’s performance
and business
developments during
2019 and look ahead
to 2020.
6
Brit at a Glance
We introduce the Brit
Group, explain who
we are and what we
do. We examine our
track record, financial
strength and look
ahead to 2020.
17
Underwriting Review
We discuss our
2019 performance
and business
developments.
22
Financial
Performance Review
We set out our KPIs.
We explain how we
use them to monitor
our performance
and outline their
performance from
2015 to 2019. We then
provide an analysis of
the performance of
our business during
2019.
35
Financial Position and
Capital Strength
We review our
financial position at
31 December 2019
and our balance sheet
strength. This section
includes a discussion
of our investment
portfolio.
38
Principal Risks and
Uncertainties
We set out our
risk management
framework and
explain how we will
manage the principal
risks facing our
business in 2020 to
ensure we deliver our
strategic priorities.
46
Stakeholder
Engagement
We set out our key
stakeholders, as
identified by the
Board, together with
why and how we
engage with them and
the outcomes of that
engagement.
51
Section 172(1)
Statement
We set out how the
Directors promote
the success of
the Company and
discharge their
responsibilities under
Section 172(1) of the
Companies act.
43
Our People, Culture,
Social, Community
and Environmental
Matters
We provide
information on our
people (including
how we engage
with them) and on
social, community
and environmental
matters, to the extent
that it is necessary
to understand our
business.
This Strategic Report was approved by the Board on 12 February 2020.
Matthew Wilson
Group Chief Executive Officer
Mark Allan
Group Chief Financial Officer
2
Brit Limited Annual Report 2019
Strategic Report Brit Limited Annual Report 2019
3
Strategic Report officer statements
‘Iam pleased to report a return
to profit for Brit, with our
underwriting performance and
investment return delivering a strong
2019 result, with a profit before tax
of US$186.3m and a combined ratio
of 95.8%. Given the ongoing market
environment, I believe this is an
encouraging set of results reflecting
our clear strategy, which is focused
on leadership, innovation and distribution, and the talent and
commitment of our people.
2019 has undoubtedly had its challenges for the industry, on the
back of the difficult prior two years. Claims experience has again
been impacted by significant major loss activity, an increasing
impact from small and medium loss events, and continued
pressures on attritional loss ratios. The industry has also
witnessed the increasing effects of social inflation, climate change
and other socio-economic factors. Despite this, we reported an
improved underwriting result which reflected the combination
of rate increases, a healthy attritional ratio, a reduced level of
major losses and an unbroken record of reserve releases since
we started disclosing them 16 years ago.
Risk adjusted premium rate increases achieved in 2019 were
5.9%, building on 2018’s positive movement of 3.7%. Our
premium written grew by 3.4% at constant exchange rates,
to US$2,293.5m. We have expanded our core book, reflecting
improved market conditions and targeted growth across our
treaty portfolio and selected direct classes, partly offset by
planned contractions across a number of challenged classes.
Where classes remained challenging, we continued to take
decisive action to protect our balance sheet by discontinuing those
business lines. During 2019, we withdrew from certain classes
written in the US and Latin America, and took the decision to
withdraw from our business on the Lloyd’s Singapore Platform
and the Lloyd’s China Platform. This streamlining provides added
focus to our core markets and products, where we see the most
potential to further develop our leadership positions.
We strive to provide direction and leadership within our business
and to our industry. We are supportive of the Future at Lloyd’s
Blueprint and are proud to have worked with Lloyd’s to be the first
Lloyd’s Syndicate to use ILS capacity to back our capital at Lloyd’s,
a landmark achievement.
For 2019, Brit’s total managed capacity across our third-
party capital vehicles, Versutus, Sussex Capital and Syndicate
2988 increased to US$440m. The renewal and expansion
of our ILS capacity, alongside the planned growth in gross
written premium for Syndicate 2988, continues our successful
strategy of managing capital for third parties by offering
access to Brit’s leading underwriting capabilities, deep client
relationships and extensive distribution network.
Following significant research and development, we successfully
launched our e-trading portal in 2019, initially focussing on SME
Cyber business. This initiative presents Brit with the opportunity
to open new distribution channels, and the potential to grow our
most profitable segments more efficiently.
We have continued to invest in businesses with a strong track
record in both distribution and underwriting. We completed
our acquisition of New York headquartered Ambridge Partners
LLC (Ambridge), one of the world’s leading managing general
underwriters of Transactional Insurance, Complex Management
4
Brit Limited Annual Report 2019
Liability Insurance and Intellectual Property Insurance. We also
made a significant strategic investment in Sutton Special Risk
Inc (Sutton), a leading Toronto based MGU, which specialises
in Accident & Health business and underwrites on behalf of a
broad panel of Lloyd’s syndicates and international carriers.
In claims we have continued to focus on our client service
capabilities and development of a best-in-class service. We have
entered into a new partnership with the Geospatial Intelligence
Center, to provide us with industry-leading aerial images of
event-affected areas which will allow us to make rapid and
accurate property catastrophe assessments for our clients
when they are most in need. This was used to great success
after Hurricane Dorian hit the Bahamas, where we were able to
expedite several total loss claim settlements without delay. We
have also launched a mobile claims app for Android and iPhone
for our cyber clients, allowing them to quickly and directly report
a cyber breach, facilitating immediate event management.
In October, we launched our new brand purpose, ‘writing
the future’. It will inform everything we do, from how we
communicate, how we develop and deliver our services, to how
we work together. It means that in choosing Brit, our clients are
choosing a service, not just buying a product, and are choosing
a partner who will help them face the future and thrive. Put
simply, our purpose places innovation at the heart of our
strategy. In October, we launched BritX, our innovation hub, led
by our newly appointed Head of Innovation, aimed at creating
disruption in the London Insurance Market. It has already
identified several areas of opportunity with real potential, which
we have begun to execute.
2019 was another year where our client centric, progressive
approach was recognised by the wider industry. For the second
successive year, our claims team won the Claims Team of the
Year at the 2019 Insurance Day London Market Awards. They
also won two individual awards at the LMA Claims awards.
We were named ‘Cyber Underwriting Firm of the Year’ by the
Insurance Insider for the third year in succession, while we were
shortlisted for a total of seven awards at the Insider Honours
and Insurance Day London Market Awards.
In our most recent staff survey, 91% of our colleagues took the
opportunity to respond. More than 98% said they were ‘proud
to work for Brit’ and over 95% would ‘recommend Brit as a
great place to work’. The passion and dedication of our people
undoubtedly sets us apart, and I’d like to thank each of them for
their devotion to our clients, business partners, Brit and our
parent company Fairfax, and congratulate them on a strong
set of financial results. We constantly look for opportunities to
enhance our culture and in 2020 we will look to do so through
the formation of an Inclusion and Diversity Forum and an
Employee Engagement Forum.
Looking ahead, a number of indicators give us increased cause
for optimism, including continuing rate increases, the withdrawal
of market capacity from certain business lines and the
measures taken by Lloyd’s to improve market competitiveness
as highlighted in their ‘Blueprint One’. Whilst the market is
not without its challenges, our clear strategy of embracing
data driven underwriting discipline and applying rigorous risk
selection, coupled with innovative capital management solutions
and continued investment in distribution, uniquely positions us to
respond to today’s opportunities and challenges.
Matthew Wilson Group Chief Executive Officer
12 February 2020
Strategic Report ‘During 2019, Brit delivered
a profit before tax of
US$186.3m and a profit
after tax of US$179.9m. After a
challenging period, it is pleasing to
report a strong result, reflecting
the continued commitment of all
our staff.
Underwriting contributed
US$68.4m to the result, with a combined ratio of 95.8%.
This reflected an attritional ratio of 55.0% and a major loss
ratio of 3.6%. 2019 saw another year of major windstorm
events causing damage in the US and Japan. Our balanced
underwriting approach meant our losses were contained
within expectations for the year.
For Brit and the wider market, 2017 and 2018 have proved
to be challenging years, with a number of early large losses
and attritional pressure occurring in addition to significant
catastrophes in those years. However, we have seen
more benign claims activity on older years, with 2016 and
prior showing releases, resulting in an overall US$47.9m
reserve release, equivalent to a 2.9pps reduction in the
combined ratio. It was particularly pleasing that despite
major catastrophe loss creep for the market, there was no
material change to our overall net 2017 and 2018 major loss
position.
Our investment return was US$148.1m (net of fees),
a return of 3.6%. This was driven by the strong
performance of our equity portfolio, which recovered the
losses experienced in late 2018 as markets rebounded, and
by the performance of our fixed income portfolio which also
generated positive income and capital returns.
Preserving a strong financial position is critical to the
long-term success of an insurance business. Our balance
sheet remains strong as we maintain our ‘conservative best
estimate’ reserving policy which provides us with a secure
foundation. Our adjusted net tangible assets increased to
US$1,150.4m (31 December 2018: US$992.9m), after capital
contributions, dividends paid and the impact of the Ambridge
acquisition. As a result, we hold surplus management capital
of US$348.9m, 28.4% over the Group’s management capital
requirement. During the period, our capital requirements
increased from US$1,081.1m to US$1,227.7m, primarily
reflecting movements in interest rates. We also benefit from
the financial strength of our parent, Fairfax, and from our
relationships with our capital partners supporting Syndicate
2988 and the Sussex vehicles.
Our investment portfolio on a look-through basis remains
consistent with our position throughout 2018, with a
large allocation to cash and cash equivalents (US$525.2m
or 12.6%) and fixed income securities (US$2,962.9m
or 70.8%). Brit’s equity and fund allocation stands at
US$692.8m or 16.6%. At 31 December 2019, 81.1% of our
invested assets were investment grade and the duration
of the portfolio was 1.1 years. The low yield environment
remains challenging and there continues to be much
uncertainty in the current market outlook, with strong
fundamentals contrasting with many macroeconomic and
political risks. We are well positioned to continue to benefit
from the positive economic environment in the US.
In the period, we have seen a healthy contribution from
our third party capital vehicles and from our investment in
MGAs. Working with our capital and distribution partners
is an important part of Brit’s strategy, enhancing our
leadership position and strengthening our client proposition
while also generating fee income and assisting us in
managing our expense base.
We have seen positive insurance market developments in
the year, such as rate increases and capacity withdrawals,
which will provide us with further opportunities in 2020.
However, the market continues to face significant challenges
such as the frequency and magnitude of major and medium
loss events, attritional ratio pressures, expense levels
and political and economic uncertainty. Our strategy and
discipline position us well in this environment.
Syndicate 2988, which was established at the end of 2016
and writes business predominantly on behalf of third party
capital, has a planned gross written premium of US$223.4m
for 2020, an increase of 40.8% over 2019. For 2020,
capacity is being provided by an expanded investor base and
by Brit and we are delighted to welcome our new investors.
The ILS market is going through a transitional period on the
back of 2017 and 2018, with market loss activity highlighting
different strategies, risk profiles and performance. Against
this, Brit is well positioned, able to offer partners access
to our underwriting track record and distribution, alongside
clear alignment in all of our third party capital vehicles,
which we believe is critical. We remain committed to all our
ILS ventures and focused on continuing to build on our
track record of outperformance. We were delighted with
the result of our fundraising activity in 2019, and welcome
a number of new investors into our vehicles.
In December, we announced the launch of Sussex Specialty
Insurance Fund. The fund, which is closely aligned to the
objectives laid out in Lloyd’s recent blueprint, will allow
Sussex to offer institutional investors direct access to
Lloyd’s-underwritten specialty insurance and reinsurance
through an ILS fund structure. It will access Lloyd’s by
providing capital to support Syndicate 2988 and will offer
a diversified basket of risks from across the Lloyd’s market,
underwritten by Brit’s global platform.
I believe our plans for 2020, underpinned by our wider
strategy and discipline, position us well to maximise
opportunities as they arise and allow us face the future
with optimism.’
Mark Allan Group Chief Financial Officer
12 February 2020
Brit Limited Annual Report 2019
5
Strategic Report Brit at a glance
We are a market-leading global specialty
(Re)insurer and the largest business that
trades primarily on the Lloyd’s of London
platform, the world’s leading specialist
commercial insurance market.
We predominantly underwrite complex, high value insurance
and reinsurance risks. Insurance represents 76.6% of our
GWP while treaty reinsurance represents the balance. Our
largest source of business is the US Excess and Surplus
lines market and the majority of our premium income is
denominated in US dollars, although the risks underwritten
are distributed globally.
Overview
We provide highly specialised insurance products to support
our clients across a broad range of complex risks, with a
strong focus on property, energy and casualty business.
We care deeply about our clients’ needs, ensuring that we not
only surround them with – and invest in – the best talent in the
industry, but also combine the depth of our experience with
the latest technology to deliver a relentless innovation agenda.
Acting in open, honest partnership, our clients can be sure
that with Brit by their side the future isn’t something to be
feared, it’s something to be seized.
We operate globally via a combination of our own international
distribution network that benefits from Lloyd’s global licences
and our broker partners. Our underwriting capabilities
are underpinned by a strong financial position and our
commitment to deliver superior returns to our shareholders.
A full history of Brit can be found at www.britinsurance.com.
The Fairfax Group
Since June 2015, Brit has been a member of the Fairfax
Financial Holdings Limited group (Fairfax), a Canadian company
whose shares are listed on the Toronto Stock Exchange
(www.fairfax.ca). Brit is 89.3% owned by FFHL Group Limited
(FFHL), a Fairfax company, while Brit’s remaining shares are
owned by the Ontario Municipal Employees Retirement System
(OMERS), the pension plan manager for government employees
in the Canadian province of Ontario. FFHL will have the ability to
purchase the shares owned by OMERS over time.
We believe that Fairfax is an excellent partner for Brit,
enabling us to enhance our global product offering. It provides
us with expanded underwriting opportunities and distribution
channels and supports our ability to be a leading global
specialty (re)insurer.
Underwriting
Brit has a long and successful track record of leading an
extensive range of insurance and reinsurance programmes,
based on rigorous risk selection and a disciplined approach to
underwriting. We hire the best people and develop their skills.
Combining technical expertise with industry knowledge, we
listen, we share and we collaborate – to create best-in-class
insurance solutions for our clients. We are an influential and
respected presence at Lloyd’s of London and, in Syndicate
2987, we have one of the largest and most diverse portfolios.
We complement our core classes with highly specialised niche
lines which provide both diversification and the potential
for high returns. We source our business through trading
relationships with Lloyd’s brokers, wholesale brokers,
retail agents and reinsurance intermediaries, including the
three largest brokers, and from a wide range of middle tier
intermediaries. The majority of reinsurance business is
sourced through the global reinsurance brokers.
Through Syndicate 2988, Versutus and Sussex Re, we provide
over US$440m of additional underwriting capacity. These
underwriting platforms, backed by a diversified source of
capital, reflect our desire to increase our flexibility, enhance
our relevance to clients and brokers and reinforce the long-
term relationships we have in the market.
We underwrite primarily in London, but have developed
an extensive network of local offices in the US and have a
presence in Bermuda and Japan. This enables us to access
business that does not usually reach Lloyd’s. We lead or are
second agreement party on approximately 70% of the business
we write, underlining our underwriting strength and expertise.
Our platform and operations
Our strong and efficient capital model results from our focus
on the Lloyd’s platform. As part of the Fairfax group we also
benefit from the group’s financial strength. We believe that
our efficient, flexible and scalable operating platform provides
a stable foundation that enables us to pursue our strategy
of focusing on maximising profitability of the underwriting
business and extending our global distribution network.
Investment management
At Brit we have a significant investment portfolio comprising
financial investments, investments in associates, investment
related derivatives and cash. The value of our invested assets
at 31 December 2019 was US$4,182.2m. The portfolio ended
the year with an increased holding in fixed income securities
(US$2,962.9m), a reduced allocation to cash and cash
equivalents (US$525.2m) and a broadly unchanged exposure
to equities and funds (US$692.8m). Other invested assets
totalled US$1.3m.
The investment portfolio is managed for the most part by
Hamblin Watsa Investment Counsel Limited, a Fairfax subsidiary
with an excellent long-term track record, whose sole business
is managing investment portfolios of Fairfax companies.
6
Brit Limited Annual Report 2019
Strategic Report Our culture and values
We are passionate about our business, our people and our
customers and we have focused on cultivating a franchise
that is built on delivering exceptional service. Our culture is
centred on achievement and we have established a framework
that identifies and rewards strong performance. Each part
of our business has objectives aligned with the overall Group
strategy, so that all of our employees understand the vital part
they play in our success and value our culture which we consider
to be collaborative, hardworking, smart, friendly and fun.
Our track record
Since 2009, we have successfully transformed Brit into
a more focused, more profitable, more efficient and more
dynamic business, driven by some of the industry’s best
talent. We have been proactive in delivering the best service
for our clients and attractive returns to shareholders.
Over this period Brit has demonstrated a strong track record
of profitable underwriting, competitive net investment returns,
growth in core business lines and disciplined capital management.
In 2019, the market again experienced a significant level of
major loss activity, albeit at reduced levels when compared
with 2017 and 2018. This activity totalled US$58.4m and
contributed 3.6pps to Brit’s 2019 combined ratio. The impact
of these events was offset by a solid attritional loss ratio of
55.0% and reserve releases of US$47.9m (2.9%), resulting
in a combined ratio of 95.8%. Our five year average combined
ratio is 99.9%, despite the extreme catastrophe years of
2017 and 2018. This year’s net investment gain after fees of
US$148.1m or 3.6%, brings our five year average investment
return to 1.8%. Brit’s profit after tax totalled US$179.9m
and return on adjusted net tangible assets before FX and
corporate activity costs was 18.1%.
Our financial strength
Our capabilities and ambition are underpinned by our strong
financial position. Our business is underwritten primarily
through our wholly-aligned Lloyd’s Syndicate 2987 and partly-
aligned Lloyd’s Syndicate 2988, which benefit from Lloyd’s
Year
RoNTA1 Combined ratio Attritional ratio
%
%
%
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
Note 1: Before FX and corporate activity costs
18.1
(14.4)
1.1
11.8
9.1
20.7
24.2
18.7
8.5
14.4
17.4
95.8
103.3
112.4
96.4
91.7
89.5
85.4
93.2
98.0
97.1
94.0
55.0
57.2
56.4
55.5
55.2
51.0
51.3
51.8
55.4
58.1
64.2
Investment
return
(net of fees)
%
3.6
(2.0)
4.9
2.6
0.1
2.9
2.1
2.9
2.4
3.2
4.2
ratings of A (Excellent) from A.M. Best, AA- (Very Strong)
from Fitch and A+ (Strong) from Standard & Poor’s.
During 2019, A.M. Best assigned a Financial Strength Rating
of A (Excellent), with a ‘stable’ outlook, to Brit Reinsurance
(Bermuda) Limited (Brit Re). This rating reflects Brit Re’s
balance sheet strength, which A.M Best assesses as ‘very
strong’, and the positive impact of having Fairfax as its
ultimate parent.
At 31 December 2019, we had capital resources equal to
128.4% of the management capital requirements needed
to support our business and Fairfax has supported our
continued capital strength allowing us to take advantage of
business opportunities as they arise. Our capital strength
provides the flexibility to allow us to cope with major losses
while not deviating from our commitment to fund profitable
expansion and to provide attractive returns.
Outlook
Looking ahead, a number of indicators give us increased
cause for optimism. The market continues to harden and
2020 is expected to mark the third consecutive year of
rate increases after years of decline. This presents a real
opportunity for profitable growth.
However, there are still many challenges facing our market:
• The frequency of major events and magnitude of the
resulting claims, with 2019’s experience following on from
those of 2017 and 2018, the most costly back-to-back
years on record;
• The impact of medium loss events, with commentators
attributing an increase in the frequency and severity of
such events to climate change and other factors such as
population growth and increasing insured values;
• Further pressures on attritional ratios continue, largely
driven by the soft market years of 2017 and 2018 and by
social inflation in the US Casualty market;
• The cost of doing business in the London market remains
elevated. The market needs to become more efficient in
processing and work with distribution partners to become
more competitive in local markets;
• Despite the welcome withdrawal of some capacity, available
capacity continues to exceed demand;
•
In a number of markets where we operate, we see
increasing competition from local carriers; and
• We continue to face political and economic uncertainty and
challenges. 2019 saw continued volatility in financial markets
and experienced weakening growth, recession fears, falling
yields, heightened tension around international trade and
loose monetary policy. These trends show no signs of
abating as we go into 2020 and the resulting outlook for the
investment market continues to be challenging.
Brit Limited Annual Report 2019
7
Strategic Report
Brit at a glance
We believe our financial strength, ownership model,
underwriting discipline and our clear strategy focused on
leadership, innovation and distribution, uniquely position us
to respond to the challenges of today’s market and to benefit
from opportunities as they arise.
• Preserving a strong financial position is critical to the long-
term success of an insurance business. Our balance sheet
remains strong as we maintain our ‘conservative best
estimate’ reserving policy which provides us with a secure
foundation. We also benefit from the financial strength
of our parent, Fairfax, and from our relationships with
our capital partners supporting Syndicate 2988 and the
Sussex vehicles.
• We also continue to take action to improve our
performance and maintain our underwriting discipline and
rigorous risk selection criteria in all areas of the business.
• Leadership – We strive to provide direction and authority
within our business and to our industry. We are supportive
of the Future at Lloyd’s Blueprint and are proud to have
worked with Lloyd’s to be the first Lloyd’s Syndicate to
use ILS capacity to back our capital at Lloyd’s, a landmark
achievement.
• Innovation – Our purpose is to help our clients and partners
thrive in an uncertain world and drive the industry
forward in terms of products, services and technology,
and innovation is at the heart of our strategy. BritX, our
new innovation team led by our newly appointed Head of
Innovation, was launched in 2019 to create real change and
action. It is aimed at targeting opportunities to disrupt our
market and has identified a number of opportunities of real
potential.
• Distribution – Our strategy is to deliver our products to
our customers in a more efficient manner. This includes
increased digital distribution and positioning ourselves
closer to our customers. We have an established local
distribution platform in the US, our largest market, and
now have an established Bermuda operation, which houses
Brit Re (our captive reinsurer and A rated reinsurance
carrier), Sussex Re (our ILS vehicle) and BGSB (our
reinsurance service company).
• In 2019, we successfully launched our e-trading portal,
initially focussing on US Cyber business. This initiative
presents Brit with the opportunity to access business
previously not available to the London Market, the ability
to reduce expenses significantly and the potential to
grow our most profitable segments, working with our
distribution partners.
We are ready to face the future with optimism.
8
Brit Limited Annual Report 2019
Strategic Report our underwriting
writing the future
The world we live in is unpredictable. It’s volatile, uncertain, and subject to change. At Brit,
we believe that the uncertainty of the future should never stand in the way of progress.
That’s why we exist. To provide a risk service and help people and businesses face the future
and thrive.
Our vision
A world where uncertainty never stands in the way of
progress. Because we believe the uncertainty of tomorrow
isn’t something to fear, but something to seize.
Our promise
We don’t react to the future, we write it. It’s why we’re the
proud home of forward-thinkers, pioneers and leaders. And
it informs a set of core philosophies:
Our mission
To help people and businesses face the future, and thrive.
At Brit, we start with the customer, and we never forget
the value we deliver. A promise that provides confidence in
an uncertain world.
A mission that requires us to do things differently.
If we are to help people seize the potential of the future we can’t
just sell insurance products, we have to provide a risk service.
• A risk service that helps clients not only prepare for, but
manage and mitigate the risks they face;
• A risk service that doesn’t just react to change, but sees
the opportunity to create change for the better; and
• A risk service that helps people not only move on from
an event, but helps them to move forward rapidly with
confidence.
This forward-thinking approach comes to life in our promise,
and that promise lives at the heart of everything we do.
The Brit difference
At Brit, LEADERSHIP, INNOVATION and enhancing our product
DISTRIBUTION are at the heart of our strategy, underpinned
by our strong underwriting and claims expertise.
We are a leading global specialty insurer and reinsurer, focused
on underwriting complex risks. We have a keen appetite for
leadership; leading – or acting as second lead agreement party
– on approximately 70% of the business we write.
The breadth of classes we support, the depth of our
experience and commitment to our clients is second to none.
We strive for innovation – across our products, processes
and people. We have created a stimulating environment
where talented original thinkers flourish, and we channel this
creativity towards meeting real customer needs: turning
smart ideas into cutting-edge insurance solutions.
• We provide a risk service, not sell insurance products;
• We treat people fairly – conducting ourselves with
honesty and integrity at all times;
• We think proactively to help us (and our clients) live life
on the front foot;
• We always speak with openness, consistency and clarity;
• We take time to make thoughtful and disciplined
decisions; and
• We put innovation at the heart of our business.
We are committed to creating lasting relationships with
brokers and clients. Hence we are happy to meet face-to-
face and make ourselves available when many others do not.
Distribution is one of the key strands of Brit’s ‘LID’ strategy
– we are focussed on understanding our key customers and
tailoring our distribution strategy across four key areas; open
market, coverholders, reinsurance and digital.
We also have a longstanding ethos of social responsibility
and we have a strong culture of ‘doing the right thing’; from
volunteering in our local communities to supporting good
causes further afield. The projects we choose align with our
strategic priorities and each year, ten charities are chosen by
our employees for significant support.
Our parent company – Fairfax Financial Holdings Limited –
provides us with the best of both worlds: a strong and stable
base for long-term growth, combined with the freedom to
pursue our own identity, philosophy and ambitions.
Brit Limited Annual Report 2019
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Strategic Report
our underwriting
Providing a risk service
Choosing to work with Brit means clients are choosing
a service, not just buying a product.
deliver – and it is our responsibility to fulfil that commitment. At
Brit, we do not treat claims as a process; we see every claim as
an opportunity to help customers move forward with their lives.
Every day, our multidisciplined team bring diverse skills and
experience to our clients’ businesses, and this deep underwriting
expertise helps clients to effectively mitigate their risks.
By working in close collaboration across Underwriting,
Claims, Actuarial and Technology, our teams gain and share
unparalleled insight into the risks that our clients face.
•
•
•
•
•
Insight that helps us understand our client intimately, and
enables us to deliver a global service.
Insight that helps us not only lead the business we write,
but also to be a meaningful and valuable partner to those
we work with.
Insight that helps us select and price risk with industry
leading accuracy.
Insight to respond to events efficiently and effectively.
Insight that drives us to deliver market-leading innovation
across all four phases of the customer experience –
pricing, risk management, claims and renewals.
Underwriting and claims excellence
Underscored by comprehensive underwriting, claims and risk
services, we operate as a market lead across our full range
of services. At Brit we pride ourselves on Underwriting and
Claims excellence, deploying the latest tools and a disciplined
approach, we have a long record of strong performance.
Underwriting excellence
We have a long and successful track record of leading an
extensive range of insurance and reinsurance programmes,
based on rigorous risk selection and a disciplined approach to
underwriting. We hire the best people and develop their skills
and expertise. Combining technical expertise with industry
knowledge, we listen, we share and we collaborate – to create
best-in-class insurance solutions for our clients.
We are an influential and respected presence at Lloyd’s of
London. With one of the largest and most diverse portfolios,
we underwrite primarily through our Syndicates 2987 and
2988. We are also helping lead Lloyd’s market modernisation
project and have met the 2019 implementation targets set
by Lloyd’s. Representatives from Brit have also been heavily
involved with ‘Future of Lloyd’s Blueprint One’ and have helped
shape key aspects of the document.
Claims excellence
Should the worst happen, our team of claims professionals
are committed to helping those affected not only to move on
from the incident, but to move forward.
When a customer has a claim, their life or business has been
disrupted, or even put in peril. They expect their insurance to
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Brit Limited Annual Report 2019
Our team is highly experienced at both senior and adjuster
levels, and has successfully managed claims arising from
some of the market’s most challenging events. We know when
to fast track the simple things – and how best to address
more complex issues. Our claims professionals work closely
with our underwriters. It is this collaborative approach
that gives us real insight into the risks that our clients face,
enabling us to tailor our responses appropriately.
For the second successive year, our claims team won the
Claims Team of the Year at the 2019 Insurance Day London
Market Awards, in recognition of our strong focus on
enhancing the end customer experience alongside our ability
to use innovation to improve both service levels and efficiency.
For the second year in succession they were also recognised
at the LMA awards, winning ‘Claims Team of the Year’, while
one member of the team won ‘Young Claims Professional of
the Year’.
Market-leading innovation
By putting innovation at the heart of our business we are
constantly looking for ways to provide the ongoing value
that will help our customers thrive in a changing world. Our
parent company, Fairfax Financial Holdings Limited, gives
us the perfect foundation to do just that, providing a strong
and stable base for long-term growth, while allowing us the
flexibility to be agile in an ever-evolving industry.
In December 2019, we announced the launch of the Sussex
Specialty Insurance Fund. Our collaboration with Lloyd’s has
enabled Brit Syndicate 2988 to be the first Lloyd’s Syndicate
to use ILS capacity to back its capital at Lloyd’s, a landmark
achievement.
Extensive network
We are proud of our extensive distribution network. We
have strong links with local producers, which enable us to
efficiently provide long-term capacity for risks that would not
otherwise reach the Lloyd’s market.
We are absolutely committed to building relationships and
working closely with our clients to understand and exceed their
needs. With offices in the UK, the US, Bermuda and Japan, our
network allows us to reach and serve clients globally.
In such a competitive industry, we never forget that it is a
privilege to manage someone’s insurance business. Hence
we value and nurture our relationships with brokers and
coverholders; they are integral to our distribution capability.
Our specialist Delegated Underwriting Management team
has a reputation for its commitment to excellent customer
service.
Strategic Report Group GWP by line of business (%)
■ Direct – London Market, 59.4%
■
Group GWP (US$m)
Group combined ratio (%)
Group attritional ratio (%)
2019
2018
2017
2016
2015
2,293.5
2,239.1
2,057.0
1,912.2
1,999.2
2019
2018
2017
2016
2015
95.8
103.3
112.4
96.4
91.7
2019
2018
2017
2016
2015
0
250
500
750 1,000 1,250 1,500 1,750 2,000 2,250
0
20
40
60
80
100
120
0
10
20
30
40
50
60
Bit Global Specialty Direct GWP (US$m)
Bit Global Specialty Direct
combined ratio (%)
Brit Global Specialty Direct
attritional ratio (%)
2019
2018
2017
2016
2015
1,713.5
1,758.0
1,675.0
1,546.6
1,634.0
2019
2018
2017
2016
2015
98.7
101.1
117.5
101.1
94.4
2019
2018
2017
2016
2015
0
250
500
750
1,000
1,250
1,500
1,750
0
20
40
60
80
100
120
0
10
20
30
40
50
60
Bit Global Specialty Reinsurance
GWP (US$m)
Bit Global Specialty Reinsurance
combined ratio (%)
Brit Global Specialty Reinsurance
attritional ratio (%)
2019
2018
2017
2016
2015
537.7
451.7
383.3
365.8
365.1
2019
2018
2017
2016
2015
91.7
111.3
86.8
73.6
75.8
2019
2018
2017
2016
2015
0
100
200
300
400
500
0
20
40
60
80
100
120
0
10
20
30
40
50
60
55.0
57.2
56.4
55.5
55.2
54.6
58.0
56.5
55.5
55.5
55.5
54.1
53.2
52.9
51.9
Brit Limited Annual Report 2019
11
Strategic Report■ Financial and Professional Liability, 11.8%■ Programmes and Facilities, 25.2%■ Property, 11.3%■ Specialty, 11.1% Direct – US Specialty, 15.3% ■ Reinsurance, 23.5% ■ Property Treaty, 10.2% ■ Casualty Treaty, 13.3%■ Other, 1.8%
our underwriting
Writing the future
The breadth of classes we support,
the depth of our experience and
our commitment to our clients
differentiates us.
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Brit Limited Annual Report 2019
Direct
Specialty
Marine
Cargo
An experienced and respected team
covering cargo on ships, aircraft or
in warehouses worldwide – as well as
project cargo for construction and
inland marine exposures.
Marine Hull and War
An expert team providing market
leading Hull insurance across the
Lloyd’s platform. Brit insures a range
of commercial bluewater tonnage as
well as specialist operations on
a worldwide basis.
Marine Liability
Offering specialist cover including
protection and indemnity, charterers’
liability and pollution as well as energy
liability products for upstream
exploration and production.
Energy
A highly technical class with an
experienced and well respected team
offering coverage for all aspects of
Upstream and Midstream Energy
operations, including renewables.
Space
For over twenty years we have led
the Brit Space Consortium, offering
bespoke wordings for both launch and
in-orbit risks to carefully selected
clients.
Energy
Space
EL and PL
Environmental Liability and Public Liability
An experienced team with a flexible
approach to UK and international
liability business including Employers,
Public, Products and Environmental
Liability across a range of territories.
Our expertise encompasses construction, transportation,
oil and gas, renewable energy, utilities, infrastructure,
manufacturing and local government – on a primary
and excess basis.
Strategic Report Facilities
Accident and Health (A&H)
Bloodstock
With over 30 years’ experience, we
create tailor-made cover for all breeds
of horses and some livestock, with
broad cover including mortality risks,
infertility and veterinary fees.
Contingency
An established lead market offering
specialist products for diverse risks
including event cancellation, film
production, non-appearance and prize
indemnity.
Kidnap for Ransom
The world’s security environment is
constantly changing and our individually
tailored kidnap for ransom product
has been designed to respond to these
evolving threats. Our clients range from
private individuals to large multinationals.
Personal Accident and Medical Expenses
A vibrant, performance-orientated
team, leading across a wide range
of in-demand products. Our focus is
innovative solutions and responsiveness
in partnerships.
Property Facilities
Commercial Property
Our established portfolio insures owners
of commercial property and package
risks through selected coverholders and
Lloyd’s brokers.
Property Financial
Coverage for financial institutions, loan
servicers and property investors, including
lender-placed hazard and flood protection.
We also offer mortgage impairment
coverage.
Residential Property Facilities
Coverage for primary, secondary and
vacant dwellings plus condominium units in
the US and Canada. Flood, Earthquake
and Landslide available separately or as
a package.
High Value Homes
Solutions for owners or occupiers of high
value or unusual residential property,
including primary, secondary, rental, vacant
and under construction or renovation.
Transport
Transportation
We insure commercial automobile physical
damage and motor truck cargo across the
US and Canada. We target smaller fleets
and source business through a network
of Lloyd’s brokers and coverholders.
Long Tail Facilities
Legal and Structured Solutions
A leader in Before the Event (BTE) or
After the Event (ATE) legal expenses
coverage for individuals, companies and
affinity groups worldwide, we deliver
bespoke structured insurance solutions
for financial, contingent and legal risks.
Small North American Liability
We insure small and medium-sized
enterprises in the USA and Canada for
financial recourse resulting from their
professional negligence, errors and
omissions.
Brit Limited Annual Report 2019
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Strategic Report
Property
Property
Political Risk and Trade Credit
Covers non-payment/performance
of counterparties and confiscation,
expropriation, nationalisation,
deprivation, sequestration or forced
abandonment of overseas assets.
Political Violence
Covers physical damage and business
interruption losses due to perils including
terrorism, strikes, riots, civil commotion,
war on land and nuclear, chemical, biological
and/or radiological attacks.
Open Market and Worldwide Property
Our technical expertise in the areas of
catastrophe modelling, pricing, policy
wordings and claims has made us a market
of choice for both brokers and clients.
UK Property
We have a proven track record of writing
and delivering flexible commercial solutions
to address the precise nature of our
customers’ requirements.
Specie and Private Client
Our team has over 25 years of underwriting
experience in the High Net Worth market,
specialising in tailoring products to clients’
needs.
our underwriting
Fin Pro
D&O
Directors’ and Officers’ (D&O)
As recognised experts in the D&O
market, we are renowned for our
underwriting precision, specialising in
tailoring products to precisely match
individual clients’ needs.
Financial Institutions
As acknowledged leaders in the
traditional insurance lines, we also
offer exclusive, innovative solutions for
organisations of all sizes across mature
and emerging economies.
Global Cyber Privacy and Technology
Providing cutting-edge products that
address the multitude of exposures
from first and third party perspectives
relating to network security, privacy
and data protection risk.
FI
Cyber
Healthcare
Healthcare Liability
With a wealth of industry expertise,
our team delivers innovative products
backed by exceptional service, focusing
on hospitals, allied health and long-term
care liability.
US PI
North American Professional Liability
An established leader in this sector, we
provide cover on both an open market
and binding authority basis. Clients
range from small start-ups to the
largest multinationals.
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Brit Limited Annual Report 2019
Strategic Report International
USA (BGSU)
Reinsurance
Casualty
Casualty Treaty
The Casualty team underwrites a
predominantly non-proportional
reinsurance (including retrocession)
account, covering all the principal
casualty classes – as well as Personal
Accident and other accident classes. These include
Property Terror, Products Recall, Credit/Bond/Surety,
Political Risks and Contingency. We underwrite on a
worldwide basis and are a recognised quoting market.
Property
Property Treaty
Our team of specialist underwriters
provides superior service to brokers
and clients utilising a blend of up-to-
date technical expertise, embedded
modelling capability and real-world
market experience. Our client base represents a
significant and established cross-section of carriers
writing simple homeowners policies through to complex
commercial/industrial risks.
BGSU offers a range of E&S,
admitted and reinsurance cover with
a focus on property, casualty and
marine. Headquartered in Chicago,
it has underwriting nationwide
offices servicing each US time zone.
It underwrites:
Construction Professional
Contractors Professional Liability (E&S)
Cyber & Technology
Excess Casualty (E&S)
General Liability (E&S)
Marine – Cargo (U.S. Admitted)
Miscellaneous Professional Liability (E&S)
Owner Protective Indemnity
Programs (Admitted and E&S)
Property (E&S)
Alternative Risk Package (E&S)
Public Entity – First Dollar (Admitted)
U.S. Casualty Treaty (Reinsurance)
U.S. Political Violence (Terrorism)
U.S. Property Facultative (Reinsurance)
Bermuda
Our Bermuda operations complement
our distribution network and are a key
step in developing Brit’s global offering.
They underwrite:
Property Treaty
Casualty Treaty
Brit Limited Annual Report 2019
15
Strategic Report
16
Brit Limited Annual Report 2019
Strategic Report underwriting review
2019 underwriting review
The market has continued to benefit from the strengthening
of premium rates during 2019. Brit achieved an overall risk
adjusted rate increase of 5.9% (2018: 3.7%). All classes,
with the exception of Property Political Risks and Violence,
experienced an increase, with the main contributors being
Property Open Market, Marine, US Specialty, Specialist
Liability and Property Facilities. We remain focused on the
overall value of our products, ensuring we rate them so they
are economically attractive for our business. This has led us
to exit a number of classes which, despite significant rate
rises, remain unattractive.
These increases were driven by the re-engineering of Brit
portfolios to deliver improvements in performance; the
tightening of conditions in the US E&S market as participants
look to improve performance; the withdrawal of competitors
from selected poor performing segments following the
2017 and 2018 major loss events and Lloyd’s initiatives; and
reduction in available capacity in the London Market as the
year progressed.
However, while we have seen such positive developments,
there are still many challenges facing our market, as
discussed on page 7.
2019 has been a year of reduced but still significant natural
catastrophe activity, with hurricanes, typhoons and wildfires
having a devastating impact on people’s lives, homes and
businesses, and resulting in an estimated global economic loss
of approximately US$140bn and global insured loss estimates
in the region of approximately US$56bn.
In 2019, the market has also experienced deterioration in
the insured loss estimates arising from the 2017 and 2018
events, already the most costly back-to-back years on record.
The net impact to Brit of the claims incurred from 2019
catastrophe events, before reinstatements, was US$58.4m,
or 3.6pps on the combined ratio (2018: US$196.8m/12.0pps).
These losses were within our expectations, given the scale
and nature of the events, and we have once again benefitted
from the protection of our extensive reinsurance programme.
There has been no material movement in Brit’s overall net
estimates arising from the 2017 and 2018 events.
Our customers are our priority, and our products are
designed to support our insureds when faced with difficult
and unexpected challenges. It follows that we focus on
providing outstanding claims service, to ensure we can
support and service our customers when they need us most.
This claims service has included:
• A focus on responding to our customers and pursuing
opportunities to reduce claims lifecycle and bring claims to
resolution at every opportunity;
• On-boarding and monitoring of local third-party resources
available to adjust and report claims. Claims is a local
business, and oversight and support for our delegated
claims TPAs and coverholders, managing claims on our
behalf, 24 hours a day, seven days a week;
• Swiftly establishing dedicated loss funds for our TPAs and
coverholders in order to expedite claims payments and
pursuing new insure-tech solutions to modernise claims
payments and loss funding;
• Proactively making interim or partial payments whenever
possible to support our insureds’ recovery efforts;
• Utilising Geospatial Intelligence Centre technology to
advance our property claims adjusting capabilities,
specifically by capturing high resolution images of Brit
insured homes affected by Hurricane Dorian and California
Wildfires. Losses were immediately referred to our TPAs
for payment, even when affected areas could not be
accessed by local field adjusters; and
•
Increasing our focus on containment of loss adjusting
expense, either through utilising Geospatial Intelligence
Centre technology, legal bill review, or other agile service
models, designed to reduce the overall cost of handling
claims and expedite our claims process.
Our overall GWP for 2019 was US$2,293.5m, an increase of
2.4% over 2018 (US$2,239.1m), or 3.4% at constant rates
of exchange. Growth areas included BGSU’s underwriting
initiatives (Casualty RI US, Cyber, Excess Casualty, General
Liability and Professional Liability), our Scion MGA and our
core classes (Casualty Treaty, Property Treaty, Property
Political Risks and Violence, and Financial and Professional
Liability). The increase generated by these areas was partially
offset by lower levels of prior year premium development,
our re-engineering of certain classes (such as Marine) and
our withdrawal from a number of other underperforming
classes, including International Professional Indemnity,
Aviation, Contractors’ Plant and Equipment, and Yacht.
Our retention ratio at 78.0% was marginally lower than in
2018 (80.2%), as we non-renewed certain accounts due to
unsustainable pricing levels and exited our worst performing
classes. Across all lines we have retained our underwriting
discipline and are prepared to discontinue accounts that we
believe are inadequately priced or outside of our appetite.
Our ability to lead business, combined with our innovative
approach to underwriting, supports our success in building
long-term and dependable market relationships.
Our distribution strategy remains key, especially during a
period of intense market competition, and we continue to
build and leverage our network. Continued improvement in
relationships with the broker and coverholder community,
with a clear articulation of our strategy and risk appetite,
is a key area of focus.
Brit Limited Annual Report 2019
17
Strategic Report
underwriting review
This continues to be evidenced by the increasing contribution
from our overseas offices, allowing us to see business not
generally accessed in London.
Our business developments during 2019
During 2019 we have continued to focus on our underwriting
strategy. Developments have included:
• Brit Global Specialty USA (BGSU) has written US$305.8m
of premium, 6.3% of growth over 2018. This increase is
after the exit from certain underperforming classes and
reflects the continued development of our US distribution
network. It has arisen from both recently launched
initiatives and from organic growth, as we capitalise on
market opportunities.
• Scion Underwriting Services Inc., our US MGA headed by
Scott Brock, generated US$46.0m of premium for Brit in
2019, its second year of operations (2018: US$5.4m).
• Ambridge Partners LLC, our New York based MGA of which
we acquired the remaining 50% during 2019, generated
US$46.7m of premium for Brit.
• Our Bermuda operation, established in late 2013, has
selectively written reinsurance business in lines and
markets that we believe remain well rated. Premiums
generated by our Bermuda office in 2019 equated to
US$110.1m (2018: US$91.5m).
Our combined ratio in 2019 was 95.8%, including 3.6pps in
respect of major losses and (2.9)pps of reserve releases.
Over the past five years, we have delivered an average
combined ratio of 99.9%, despite the extreme catastrophe
years of 2017 and 2018.
Overall, the combination of strong portfolio management
and underwriting discipline has led to us achieving a 55.0%
attritional ratio in 2019 (2018: 57.2%), a solid underwriting
performance given the market backdrop and testament to the
strength of our underwriting in such an ongoing competitive
environment.
As part of our standard reserving process, we released
US$47.9m of net reserves established for prior year claims,
the equivalent of a combined ratio reduction of 2.9pps (2018:
US$99.3m/6.1pps), reflecting favourable development
across most classes, with Financial and Professional Lines,
Specialty, Property and Programmes and Facilities being
the most significant. There has been no material movement
in Brit’s overall net estimates arising from the 2017 and
2018 events. The releases in 2018 included the favourable
impact on certain legacy classes afforded by a loss portfolio
reinsurance with RiverStone Managing Agency Limited (for
and on behalf of Lloyd’s Syndicate 3500) and favourable
development of the 2017 catastrophe events.
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Brit Limited Annual Report 2019
• Brit managed capacity on new initiatives expanded to
over US$440m for 2019
In February 2019, Brit announced the completion of the
Versutus 2019 Series. This was the fifth annual renewal
and continued the development of the Versutus Ltd
(Versutus) vehicle.
2019 also saw the continued development of Sussex Capital
which writes through Sussex Re in Bermuda, providing
direct collateralised reinsurance as well as collateralised
reinsurance to Brit’s reinsurance portfolio. Sussex has an
open-ended fund offering investors a balanced portfolio of
reinsurance risks and continued to expand in 2019.
In addition, Syndicate 2988 had a planned gross written
premium of US$158.7m for the 2019 year of account, an
increase of 12% over 2018.
Brit’s total managed capacity across Versutus, Sussex
Capital and Syndicate 2988 for 2019 was approximately
US$440m.
• Brit Re rated A (Excellent) by A.M. Best
A.M. Best assigned a Financial Strength Rating of
A (Excellent), with a ‘stable’ outlook, to Brit Reinsurance
(Bermuda) Limited (Brit Re). This rating reflected Brit Re’s
balance sheet strength, which A.M Best assessed as
‘very strong’, and the positive impact of having Fairfax as
its ultimate parent.
Following the assignment of this rating, Brit Re plans to
expand its reinsurance portfolio in 2020 by selectively
writing a modest amount of Casualty Treaty business.
• Continued development of BGSU
BGSU Cyber and Technology
In July 2019, we appointed two experienced VPs, Cyber &
Technology, based in San Francisco and New York. They are
responsible for underwriting and supporting the continued
growth of BGSU’s successful Cyber & Technology offering,
which launched in 2017.
BGSU Casualty
In July 2019, we appointed a VP, Primary General Liability
and a VP, Excess Casualty, based in California in Walnut
Creek and Los Angeles respectively. The two appointments
represented a strengthening of BGSU’s Casualty portfolio
and follow a period of sustained growth for BGSU’s
Casualty and Professional Lines offering.
• Acquisition of Ambridge Partners LLC
On 18 April, Brit completed its acquisition of the remaining
50% of Ambridge Partners LLC (Ambridge). Brit made
an initial 50% strategic investment in Ambridge in 2015
Strategic Report and Ambridge has been a key trading partner of Brit for
the past thirteen years. This acquisition continues Brit’s
selective international expansion into niche specialty
businesses with a strong track record in distribution
and underwriting. Ambridge is one of the world’s leading
managing general underwriters of complex risks, focusing
on Transactional Insurance, Complex Management
Liability Insurance and Intellectual Property Insurance.
It was established in 2000 and now has a team of over
50 employees based in New York, London and Frankfurt.
Ambridge retains its independence, continuing to underwrite
as a managing general underwriter on behalf of its existing
broad Brit-led consortium of Lloyd’s syndicates and
international insurers.
• Sutton Special Risk Inc.
On 2 January 2019, Brit made a significant strategic
investment in Sutton Special Risk Inc (Sutton). Sutton is
a leading MGU, specialising in Accident & Health business,
with over 40 years of experience as a Lloyd’s coverholder.
Sutton has been an important trading partner for Brit
for the last 16 years. Founded in 1978 by William J. Sutton,
it underwrites Accident, Health and Special Risk products
with a team of 40 employees based in Toronto, New York
and London and wrote CA$54m of premium in 2019.
Brit’s 49% investment offers attractive exposure to
a fast-growing MGU with a strong presence in Canada
and the United States and continues Brit’s selective
international expansion through niche specialty businesses
with excellent distribution and underwriting capabilities,
alongside highly skilled and experienced professionals.
Sutton will retain its independence, continuing to underwrite
as an MGU on behalf of its existing broad panel of Lloyd’s
syndicates and international carriers.
• Launch of Brit’s e-trading Portal
Following significant research and development, Brit’s
e-trading portal started binding US Cyber policies on
1 May. The portal gives brokers an agile, user-friendly
outlet for Brit’s leading cyber underwriting capabilities,
allowing them to quote and bind in minutes, entirely online,
with a maximum of four question responses. The portal is
underpinned by preventative risk management and breach
response service with clients having access to extensive
training modules, security trend updates and downloadable
content aimed at helping businesses and their employees
protect against an event. This key strategic initiative
presents Brit with the opportunity to access business
previously not available to the London Market, the ability
to reduce acquisition and administrative expenses and the
potential to grow our most profitable segments.
• Adoption of aerial imagery for high tech claims service
In June, Brit announced a new partnership with the
Geospatial Intelligence Center (GIC), which was created by
the National Insurance Crime Bureau (NICB), a US not-
for-profit organisation. After an event, GIC aircraft have
special access to affected areas to capture high-resolution
images and assess property damage. Access to these
industry-leading aerial images allows Brit to make rapid
and accurate property catastrophe assessments without
any ground presence to expedite claim settlements for our
clients when they need it most.
• BGS Bermuda – Property Reinsurance
In April, we appointed a Vice President of Property
Reinsurance. This role will manage our BGSB Property
team, which has grown to over US$30m gross premium
through a mix of US Cat and Retro business since it
launched in 2013. It will also work closely with Sussex Re
and Brit Re as we continue to build our Bermuda based
reinsurance platform.
• Kidnap & Ransom
In February, we appointed an experienced Kidnap &
Ransom underwriter. This role complements the existing
Brit businesses as well as introducing product diversity.
Following our Kidnap & Ransom product’s ‘soft launch’ in
early 2019, brokers have reacted positively to how we have
articulated the difference in our product offering from that
of our competitors, reflecting our exclusive partnership
with Schillings and the experience of our underwriting and
claims teams.
• Cyber underwriting firm of the year award
In September, Brit received the ‘Cyber underwriting firm
of the year award’ at the Insurance Insider Rankings Cyber
awards. The winners for this category were selected
following an Insurance Insider survey of brokers who
were asked to rate the nominees based on six key areas:
knowledge and experience; negotiation skills; response
times; communication; creativity; and consistency in the
treatment of risks and relationships.
This is an outstanding achievement which has culminated
from investment in Cyber and Tech E&O for over ten years,
allowing Brit to develop both coverage and claims offerings
as the risks and legislations continue to evolve.
• Claims team recognition
The Brit Claims Team won Claims Team of the Year for
the second year running at the Insurance Day London
Market Awards. The award reflected Brit’s ‘strong focus
on enhancing the end customer experience’ alongside its
ability to use innovation to improve both service levels and
efficiency. Examples include the use of Geo Imaging during
wildfires and the rollout of technology leveraging mobile
phone cameras to adjust claims.
The claims team also received two awards at the LMA
Claims awards. These awards are testament to the claims
team relentless client service and genuine commitment to
innovation, and also reflect Brit’s market leadership in claims.
Brit Limited Annual Report 2019
19
Strategic Report
underwriting review
• Claims App for Cyber clients
An app for Brit’s Cyber clients, allowing them to access
important information and direct contact numbers in the
event of a cyber breach, was launched in November. With
the hours immediately after a breach critical, the app
provides a simple, effective and informative reporting
service to our clients.
• Llift Space
Brit announced the launch of a new space product, Llift
Space, in December. The product is backed by a consortium
of 18 syndicates, led by Brit and Hiscox MGA, and is
targeted at the ‘NewSpace’ sector. The product is designed
to cater to the distinct needs of a rapidly growing new
space sector. Llift Space is designed for satellites that
weigh less than 300kg.
• Innovation – The launch of BritX
Brit’s purpose is to help our clients and partners thrive in
an uncertain world and drive the industry forward in terms
of products, services and technology; innovation is at the
heart of this strategy.
BritX, our new innovation team led by our newly appointed
Head of Innovation, James Birch, was launched in November
2019 to create real change and action. It is an innovation-
led cross functional business unit, whose remit is to
identify opportunities to disrupt our market, identify
significant growth opportunities and explore how we can
capitalise on these.
Key corporate appointments
We have made a number of key corporate appointments
during the period, including:
• A Head of Innovation, to manage the innovation process at
Brit and identify strategies, business opportunities and
new technologies;
• An experienced Head of Outwards Reinsurance, who will
replace our retiring Head of Outwards Reinsurance; and
• A Head of Strategy, to help develop, manage and implement
Brit’s strategic initiatives and Brit’s engagement with, and
response to, the Future at Lloyd’s initiative.
• Continued Portfolio Management
Where classes remain challenging, we have continued to
take action to improve our performance and maintained our
rigorous risk selection criteria. During 2019, we examined
the classes we write in BGSU as well as our broader
international operations, and took the following decisions:
• Withdrawal from certain classes written in the US:
We took the decision to place Inland Marine, Yacht, CJSO
written in US into runoff and to exit Latin American
property facultative reinsurance, casualty and
engineering business.
20
Brit Limited Annual Report 2019
• Singapore: We also took the decision to withdraw
from the Lloyd’s Singapore Platform, reflecting group
appetite and a lack of rate adequacy.
• China: Following the resignation in July 2019 of our
representative, we have decided to withdraw from the
Lloyd’s China Platform.
This streamlining provides added focus on our core markets,
where we see the most potential to further build meaningful
scale and generate sustainable underwriting profit.
2020 business planning
• Syndicate 2987
Syndicate 2987, Brit’s wholly aligned Syndicate, has
planned gross net written premium growth of 5.5% for
2020, reflecting both premium rate increases and organic
growth. This growth is targeted primarily in the Syndicate’s
top performing classes, such as Property Treaty, Casualty
Treaty and Cyber Privacy & Tech, through growth from
existing business and new opportunities. This growth will
be partially offset by contraction in a small number of
classes facing more challenging conditions.
• Syndicate 2988
Syndicate 2988 was established at the end of 2016 and
writes business predominantly on behalf of third party
capital. The 2020 year of account has a planned gross
written premium of US$223.4m, an increase of 40.8% over
2019’s plan. For 2020, capacity is being provided by an
expanded investor base and by Brit, thereby demonstrating
alignment to the strategy of the Syndicate.
• Sussex Lloyd’s Specialty Insurance Fund
In December, we announced the launch of the Sussex
Specialty Insurance Fund (‘SIF’ or ‘the Fund’). Our
collaboration with Lloyd’s has enabled us to be the first
Lloyd’s Syndicate to use ILS capacity to back its capital at
Lloyd’s, a ground-breaking achievement.
The Fund will sit as part of Brit’s Sussex Capital platform
and will allow Sussex to offer institutional investors direct
access to Lloyd’s-underwritten specialty insurance and
reinsurance through an ILS fund structure. The Fund will
access Lloyd’s by providing capital to support Syndicate
2988.
Strategic Report Brit Limited Annual Report 2019
21
Strategic Report
financial performance review
Key Performance Indicators
At Brit we monitor and measure our
performance by reference to certain
key performance indicators (KPIs).
These KPIs are used by us to manage
our business and allow us to see at a
glance how we are performing.
Our six KPIs show the returns that we are
generating, the performance of our underwriting
activities, our investment portfolio, our financial
strength and our efficient, flexible and scalable
platform. The development of our KPIs over the
five years set out below reflects our successful
major transformation programme, together with
the challenges presented by the deterioration in
underwriting market conditions and the increase
in investment market volatility.
A reconciliation of each KPI to the amounts
presented in the financial statements, where
relevant, is included in the Annual Report and
Accounts starting on page 165 and definitions
of each of our KPIs are included in the Glossary
starting on page 170.
22
Brit Limited Annual Report 2019
Overall performance
Return on net tangible assets before FX movements
and corporate activity costs (RoNTA)
18.1%
2019
2018
2017
2016
2015
18.1%
(14.4)%
1.1%
11.8%
9.1%
-15
-10
-5
0
5
10
15
20
Return on net tangible assets before foreign exchange
movements and corporate activity costs (RoNTA) shows
the return being generated by our operations compared
to the adjusted net tangible assets deployed in our
business. Corporate activity costs were incurred 2015
and related to our acquisition by Fairfax.
In 2019, our RoNTA was 18.1%, reflecting improving
market conditions, a strong attritional performance,
reduced major loss activity, solid prior year reserve
releases, increased contribution from our MGA
interests and a good investment return.
This return resulted in a five year average RoNTA
of 5.1%. RoNTA for 2019 after foreign exchange
movements was 18.4% (2018: 15.4% negative).
Overall performance
Total value created
US$198.6m
2019
2018
2017
2016
2015
US$198.6m
US$(175.6)m
US$24.7m
US$139.0m
US$19.2m
-200
-150
-100
-50
0
50
100
150
200
The total value created measures the increase in
adjusted NTA (before distributions, capital raisings and
intangibles created on acquisitions) in a year. It reflects
the after tax result recorded in the income statement
and all other value movements.
In 2019, value creation was US$198.6m, or 20.0% of
opening adjusted NTA. The company has generated a
total value of US$205.9m over the past five years, an
average of US$41.2m per annum.
Strategic Report 2019
2018
2017
2016
2015
Underwriting
Combined ratio
95.8%
2019
2018
2017
2016
2015
Capital management
Capital ratio
128.4%
95.8%
103.3%
112.4%
96.4%
91.7%
2019
2018
2017
2016
2015
0.0
0.0
0.0
0.0
0.0
128.4%
130.4%
136.8%
125.6%
128.2%
0
20
40
60
80
100
120
0
20
40
60
80
100
120
140
The combined ratio is our key underwriting metric and
measures the profitability of our underwriting. It shows
how much of every US$1 of premium is spent in the total
costs of sourcing and underwriting the business and
settling claims. A combined ratio under 100% indicates
underwriting profitability.
Our combined ratio in 2019 was 95.8%, including 3.6pps
in respect of major losses and (2.9)pps of reserve
releases. Over the past five years, we have delivered an
average combined ratio of 99.9% despite the extreme
catastrophe years of 2017 and 2018.
The capital ratio measures the strength of our balance
sheet by comparing our available capital resources to
the capital we need to hold to meet our management
entity capital requirements.
Our statement of financial position remains strong. At
31 December 2019, following a capital injections from
Fairfax in 2019 of US$70.6m, Group capital resources
totalled US$1,576.6m which equated to 128.4% of
our Group capital requirement. During the period, our
capital requirements increased from US$1,081.1m to
US$1,227.7m, primarily reflecting movements in
interest rates.
Investment management
Investment return
3.6%
2019
2018
2017
2016
2015
Operating platform
Ratio of front office employees to back office
employees
150.9%
3.6%
(2.0)%
4.9%
2.6%
0.1%
2019
2018
2017
2016
2015
150.9%
155.5%
163.8%
180.7%
178.5%
-2
-1
0
1
2
3
4
5
0
20
40
60
80
100
120
140
160
180
We assess the performance of our investment portfolio
by comparing the return generated by our invested
assets, net of external investment related expenses,
against the average value of those invested assets.
Our investment strategy takes a long-term view of
markets, which can lead to significant variations in our
year-on-year return figures. Over the past five years,
we have delivered an average investment return of 1.8%.
This measure monitors the efficiency of our business
model by comparing the number of front office client-
facing revenue generators and service providers to the
number of back office employees. An increase in the
ratio would suggest that the back office is becoming
more efficient in supporting the client-facing activities
of the front office.
At 31 December 2019, the ratio was 150.9%, reflecting
that we had approximately 1.5 front office employees
for every back office employee.
The reduction in the ratio over 2018 primarily reflects
the relative increased back office staff to support
our overseas growth initiatives, third party capital
management and regulatory requirements.
Brit Limited Annual Report 2019
23
Strategic Report
financial performance review
Overview of Results
The Group’s income statement, re-analysed to show the key components of our result, is set out below:
2019
US$m
2018
US$m
2017
US$m
2016
US$m
2015
US$m
Gross written premium
Net earned premium (Note 1)
Underwriting result (Note 1)
Underwriting result
Return on invested assets, net of fees
Corporate expenses
Finance costs
Other items
Profit/(loss) on ordinary activities before tax, FX and corporate activity costs
FX movements
Corporate activity costs (Note 2)
Profit/(loss) on ordinary activities before tax
Tax
Profit/(loss) for the year after tax
2,293.5
1,638.5
68.4
68.4
148.1
(20.3)
(23.7)
10.5
183.0
3.3
–
186.3
(6.4)
179.9
2,239.1 2,057.0
1,466.1 1,540.1
(172.8)
(56.9)
(56.9)
(82.1)
(20.0)
(18.8)
(3.4)
(181.2)
(9.1)
–
(190.3)
23.8
(166.5)
(172.8)
204.2
(24.0)
(17.1)
2.6
(7.1)
12.6
–
5.5
16.0
21.5
1,912.2 1,999.2
1,515.1 1,649.6
137.0
54.6
54.6
102.9
(21.3)
(18.8)
1.1
118.5
41.3
–
159.8
(2.2)
157.6
137.0
5.0
(30.0)
(20.6)
0.3
91.7
(60.2)
(23.8)
7.7
7.9
15.6
Note 1: Excluding the effects of foreign exchange on non-monetary items.
Note 2: Corporate activity costs during 2015 relate to costs incurred as a result of the acquisition of Brit by Fairfax.
Group performance and total value created
Brit’s result for the year ended 31 December 2019 reflects improving market conditions, a strong attritional performance,
reduced major loss activity, solid prior year reserve releases, increased contribution from our MGA interests and a good
investment return.
The result on ordinary activities for the year before tax, FX and corporate activity costs was a profit of US$183.0m (2018: loss
of US$181.2m), profit before tax was US$186.3m (2018: loss before tax of US$190.3m) and profit after tax was US$179.9m
(2018: loss after tax was US$166.5m). Return on adjusted net tangible assets (RoNTA), excluding the effects of FX and
corporate activity costs, increased to 18.1% (2018: decrease of 14.4%). RoNTA for 2019 after including foreign exchange
movements was 18.4% (2018: 15.4% negative) and total value created for the year was US$198.6m (2018: US$175.6m
negative).
Our adjusted net tangible assets at 31 December 2019 totalled US$1,150.4m (2018: US$992.9m).
Performance measures
In addition to our KPIs, we have other measures that offer further insight into the detail of our performance. These measures
include:
• Premium related: Risk adjusted rate change; Retention rate;
• Claims related: Claims ratio; Attritional loss ratio; Major claims ratio; Reserve release ratio; and
• Underwriting expense related: Underwriting expense ratio; Commission ratio; Operating expense ratio.
24
Brit Limited Annual Report 2019
Strategic Report
Underwriting
Overview
Our underwriting result for the year was a profit of US$68.4m (2018: loss of US$56.9m) and our combined ratio, which excludes
the effect of foreign exchange on non-monetary items, was 95.8% (2018: 103.3%). The premiums, claims and expenses
components of this result are examined below.
Premiums written
Premium growth
Brit Global Specialty Direct
Brit Global Specialty Reinsurance
Other underwriting
Group total
Premiums by class
Brit Global Specialty Direct
London Market
Financial and Professional Liability
Programmes and Facilities
Property
Specialty
US Specialty
Total Direct
Brit Global Specialty Reinsurance
Property Treaty
Casualty Treaty
Total reinsurance
Other underwriting (Note 2)
Group total
2019
US$m
2018
US$m
1,713.5
537.7
42.3
2,293.5
1,758.0
451.7
29.4
2,239.1
Growth at
constant
FX rates
%
(1.5)
19.6
45.4
3.4
Growth
%
(2.5)
19.0
43.9
2.4
2019
US$m
2018
US$m
270.9
577.9
259.1
253.8
270.9
525.3
311.3
357.3
1,361.7 1,464.8
293.2
1,713.5 1,758.0
351.8
233.2
304.5
537.7
42.3
209.4
242.3
451.7
29.4
2,293.5 2,239.1
Note 1: The 2018 analysis has been re-analysed to reflect the underwriting class monitoring structure introduced in 2019.
Note 2: ‘Other Underwriting’ comprises the Group’s special purpose vehicles, Brit’s share of Syndicate 2988 and run-off classes.
Gross written premium (GWP) increased by 2.4% to US$2,293.5m (2018: US$2,239.1m). At constant exchange rates the
increase was 3.4%. Direct business decreased by 2.5% to US$1,713.5m (2018: US$1,758.0m), while reinsurance increased by
19.0% to US$537.7m (2018: US$451.7m) and other underwriting increased by 43.9% to US$42.3m (2018: US$29.4m).
The drivers of the increase in Group GWP, which was in line with expectations, are as follows:
• Underwriting initiatives: The Group’s underwriting initiatives of recent years, resulted in a US$115.3m increase in GWP. The
largest increases were seen in BGSU (Casualty RI US, Professional Liability, General Liability, Cyber, Excess Casualty and
Programmes) and in Scion. Growth was also seen in Kidnap & Ransom and Healthcare Liability.
• Other current year premiums: Other current year premiums decreased by US$10.0m over 2018. This reflects decisive
action taken to improve our performance by discontinuing business lines which remained challenging, including certain
classes written in the US and Latin America, and our withdrawal from the Lloyd’s Singapore Platform and the Lloyd’s China
Platform. The premium reductions from these actions were partly offset by targeted growth in our treaty portfolio and
higher margin direct classes.
• Prior year premium development: The book again experienced favourable development on prior years, but at a lower rate
than in 2018. This resulted in a year-on-year reduction of US$30.0m.
• Foreign exchange: The impact of foreign exchange resulted in a US$20.9m year-on-year reduction in premium, which
reflects the movement during 2019 of the US dollar against a number of currencies in which the Group writes business.
Brit Limited Annual Report 2019
25
Strategic Report
financial performance review
Premium ratings
Measure
Risk adjusted rate change
Commentary
Track record
The risk adjusted rate change shows
whether premium rates are increasing,
reflecting a hardening market, or
decreasing, reflecting a softening market.
A hardening market indicates increasing
profitability.
Risk adjusted rate change (%)
2019
2018
2017
2016
2015
5.9%
3.7%
(1.3)%
(3.3)%
(4.1)%
-5
0
5
10
2019 saw a continued positive rate environment, building on that of 2018, with an overall risk adjusted premium rate increase
of 5.9% across the portfolio (2018: 3.7%). Direct business premium rates increased by 7.7% (2018: 3.8%) and reinsurance
by 2.2% (2018: 3.0%). All classes with the exception of Property Political Risks and Violence experienced an increase, with the
main contributors being Property Open Market, Marine, US Specialty, Specialist Liability and Property Facilities.
Retention rates
Measure
Retention rate
Commentary
The retention rate shows the proportion
of our business that renews, on a premium
weighted basis, compared to the previous
year.
Track record
Retention rate (%)
2019
2018
2017
2016
2015
0
20
40
60
80
100
78.0%
80.2%
83.6%
84.3%
82.4%
Our retention rate for the period was 78.0% (2018: 80.2%). The retention rates we achieved in 2018 and 2019 reflect the
successful renewal of a profitable book of business. The reduction in 2019 results from the action taken to improve our
performance by discontinuing business lines which remained challenging.
Outwards reinsurance
Our reinsurance expenditure in 2019 was US$637.3m or 27.8% of GWP (2018: US$756.7m/33.8%), a reduction of US$119.4m.
This reduction reflects:
• The loss portfolio reinsurance contract entered into in 2018 with RiverStone Managing Agency Limited (for and on behalf
of Lloyd’s Syndicate 3500), a Fairfax sister company. Under the terms of this reinsurance Brit ceded its Non-US PI, 2014
and prior EL UK/PL UK and legacy books of business for a premium of US$186.3m. Excluding this transaction, the 2018
reinsurance expenditure was US$570.4m or 25.4% of GWP; and
• The increased use of proportional treaty in 2019, to provide flexibility in the challenging market conditions and to manage net
exposure on classes where our risk appetite is lower than the efficient operating scale.
Net earned premium
Net earned premium (NEP) in 2019, excluding the effects of foreign exchange on non-monetary items, increased by 11.8%
to US$1,638.5m (2018: US$1,466.1m, decrease of 4.8%). Direct business increased by 6.4% to US$1,159.6m (2018:
US$1,089.5m, decrease of 10.3%), reinsurance increased by 15.8% to US$385.7m (2018: US$333.2m, increase of 11.9%) and
other underwriting increased by 114.7% to US$93.2m (2018: US$43.4m, increase of 58.4%).
Excluding the impact of the 2018 loss portfolio reinsurance contract, 2019 NEP decreased by 0.8%.
26
Brit Limited Annual Report 2019
Strategic Report Claims
Measure
Claims ratio
Commentary
The claims ratio measures the
performance of the whole underwriting
book, encompassing risks written in the
current year and in prior years.
Track record
Claims ratio (%)
2019
2018
2017
2016
2015
0
20
40
60
80
100
The claims ratio can be further analysed into its underlying components, as follows:
Measure
Commentary
Track record
Attritional loss ratio
The attritional loss ratio measures
the performance of the underlying
underwriting book by measuring the effect
of attritional claims.
Major claims ratio
The major claims ratio measures the
effect of claims arising from major losses
on our performance and the 2019 ratio
reflects the lower level of major loss
activity during the year.
Reserve release ratio
The reserve release ratio measures the
performance of reserves held on the
statement of financial position at the start
of the year. A negative ratio indicates an
overall net release, which means that
prior year claims are performing better
than estimated at the start of the year.
A positive ratio indicates that over the
course of the year the amount required
to meet those prior year claims has
increased.
Attritional loss ratio (%)
2019
2018
2017
2016
2015
0
20
40
60
80
100
Major claims ratio (%)
2019
2018
2017
2016
2015
0
20
40
60
80
100
Reserve release ratio (%)
2019
2018
2017
2016
2015
-8
-6
-4
-2
0
55.7%
63.1%
72.0%
56.5%
53.5%
55.0%
57.2%
56.4%
55.5%
55.2%
3.6%
12.0%
16.2%
4.5%
–
(2.9)%
(6.1)%
(0.6)%
(3.5)%
(1.7)%
Our underlying claims experience in 2019 was in line with expectations, with a reduction in our attritional loss ratio to 55.0%
(2018: 57.2%). This reflects favourable claims experience across our Direct portfolio (principally Programmes and Facilities and
Property). Compound rate increases over 2018 (+3.7%) and 2019 (+5.9%), combined with a change in mix as we target growth on
our high performing segments while taking remedial action on more marginal business, has also contributed to the improvement.
Catastrophe activity was again significant in 2019, albeit reduced from 2018 and 2017 levels. The Group incurred major claims,
before reinstatements premiums, of US$58.4m (2018: US$196.8m), as set out below. Major losses are defined as claims
which are initially assessed as having the potential to exceed US$15.0m (net of reinsurance and allowing for reinstatements),
incurred from natural or man-made catastrophes, or from large single risk loss events.
Brit Limited Annual Report 2019
27
Strategic Report
financial performance review
Major losses
Hurricane Dorian
Typhoon Faxai
Typhoon Hagibis
Typhoon Jebi
Hurricane Florence
Typhoon Mangkhut
Hurricane Michael
California wildfires (Note 1)
Total before third party share
Third party investors share of major losses (Note 2)
Total
CoR
Note 1: 2019 California wildfires did not classify as a major event for Brit .
2019
US$m
24.3
12.5
24.8
–
–
–
–
–
61.6
(3.2)
58.4
3.6%
2018
US$m
–
–
–
26.0
27.1
7.0
56.3
98.1
214.5
(17.7)
196.8
12.0%
Note 2: Accounting rules require Brit to consolidate Sussex Capital and Versutus II which have third party investors. This adjustment eliminates the third
party share of major losses, which is included in the Group’s Consolidated Income Statement within ‘gains on other financial liabilities’.
As part of our standard reserving process, we released US$47.9m of net reserves established for prior year claims, the
equivalent of a combined ratio reduction of 2.9pps (2018: US$99.3m/6.1pps), maintaining our unbroken record of reserve
releases since we started disclosing them in 2004.
The 2019 release reflected favourable development across most classes. Financial and Professional Lines, Specialty, Property
and Programmes and Facilities generated the most significant releases, partly offset by strengthening on US Specialty. There
was no material movement in Brit’s overall net estimates arising from the 2017 and 2018 events. The releases in 2018 included
the favourable impact on certain legacy classes afforded by the loss portfolio reinsurance with RiverStone Managing Agency
Limited (for and on behalf of Lloyd’s Syndicate 3500) and favourable development of the 2017 catastrophe events.
Underwriting expenses
Our underwriting expense ratio was 40.1% (2018: 40.2%).
Measure
Commentary
Track record
Underwriting expense ratio
The underwriting expense ratio measures
the cost we incur to acquire every US$1 of
premium. There are two key components
to this – commission costs and operating
expenses.
Underwriting expense ratio (%)
2019
2018
2017
2016
2015
40.1%
40.2%
40.4%
39.9%
38.2%
0
10
20
30
40
28
Brit Limited Annual Report 2019
Strategic Report
The underwriting expense ratio can be further analysed into its underlying components, as follows:
Measure
Commission ratio
Commentary
The commission ratio measures our
distribution costs and shows how much of
every US$1 of premium is paid to acquire
our business.
Operating expense ratio
The operating expense ratio helps us
understand how much it costs us to
support the underwriting activities. This
ratio shows how much of every US$1
of premium we spend supporting our
underwriting activities.
Track record
Commission ratio (%)
2019
2018
2017
2016
2015
0
5
10
15
20
25
30
Operating expense ratio (%)
2019
2018
2017
2016
2015
0
5
10
15
20
25
30
27.2%
27.8%
27.6%
27.2%
26.0%
12.9%
12.4%
12.8%
12.7%
12.2%
Commission costs were US$443.3m and the commission expense ratio was 27.2% (2018: US$456.1m/27.8%). The decrease in
the ratio principally reflects changes in business mix and additional quota share overriders.
Our operating expenses are analysed below.
Expenses
Our operating expense ratio increased to 12.9% (2018: 12.4%). Operating expenses for the period were as follows:
Expense analysis
Underlying operating expenses including bonus provisions
Project costs, timing differences and other expense adjustments (Note 1)
Total operating expenses
Note 1: Includes minority share of expenses incurred by consolidated vehicles
2019
US$m
275.3
1.1
276.4
2018
US$m
231.6
5.1
236.7
Underlying operating expenses during 2019 increased by 18.9% to US$275.3m (2018: US$231.6m). US$23.2m (10.0pps) of the
increase represents Ambridge operating expenses consolidated for the first time during 2019 and amortisation of intangible
assets arising on the acquisition of Ambridge. The remainder of the increase relates to targeted expansion and investment in
growth areas, increased regulatory levies and increased support costs.
As the majority of Brit’s business is in US dollars and the majority of the operating expenses are in Sterling, Brit made the
decision to effectively hedge the Sterling proportion of the Group’s expenses. This decision was driven by the weakness
in Sterling against the US dollar. To effect this, Brit purchased Sterling in the spot and forward market. The effect of this
derivative contract, US$0.4m gain (2018: US$2.2m loss), is recognised within the underwriting result, but excluded from the
combined ratio.
Brit Limited Annual Report 2019
29
Strategic Report
financial performance review
The allocation of operating expenses within the Consolidated Income Statement and the Segmental Information is as follows:
Disclosure of operating expenses
Acquisition costs
Other insurance related expenses
Total insurance related expenses
Other operating expenses
Total operating expenses
Other income
Other income totalled US$45.9m (2018: US$10.6m), as set out below.
Other income
Fee and commission income (Note 1)
Change in value of parent company shares (Note 2)
Total other income
2019
US$m
150.6
105.5
256.1
20.3
276.4
2018
US$m
116.2
100.5
216.7
20.0
236.7
2019
US$m
45.6
0.3
45.9
2018
US$m
14.0
(3.4)
10.6
Note 1: Total fee and commission income is included within our underwriting result and our combined and expense ratios.
Note 2: Change in value of parent company shares is included within our corporate result.
Fees and commissions generated by the Group’s underwriting management activities have continued to increase in 2019,
totalling US$45.6m, an increase of 225.7% (2018: US$14.0m/68.7%). Of the increase, US$28.0m was generated by Ambridge,
consolidated for the first time during 2019
(Losses)/gains on other financial liabilities
The statement of financial position of the Group includes liabilities representing third party investors’ share in structured
undertakings consolidated by the Group. These structured undertakings are Sussex Capital, Versutus II and an equity UCITS.
Changes in the value of these liabilities during a year are recorded in the Group’s consolidated income statement as ‘gains on
other financial liabilites’, as follows:
(Losses)/gains on other financial liabilities
Underwriting vehicle related (Note 1)
Investment vehicle related (Note 2)
Total (losses)/gains on other financial liabilities
2019
US$m
(2.6)
(7.9)
(10.5)
2018
US$m
4.9
12.5
17.4
Note 1: Allocated to the Group’s underwriting result as it represents the third party share of the underwriting result.
Note 2: Allocated to the Group’s investment result as it represents the third party share of the investment result.
Return on invested assets
The investment portfolio is managed for the most part by Hamblin Watsa Investment Counsel Limited, a Fairfax subsidiary with an
excellent long-term track record, whose sole business is managing investment portfolios of Fairfax group companies. They are
supported by a number of external managers across core fixed income and a small allocation to specialised credit.
The return on our invested assets was US$148.1m or 3.6% (2018: negative US$82.1m/2.0%). This result is analysed below:
30
Brit Limited Annual Report 2019
Strategic Report Investment return
Income
Realised (losses)/gains
Unrealised gains/(losses)
Investment return before fees
Investment management fees
Investment return net of fees
Investment related derivative return
Third party investors share of investment return (Note 1)
Return on associated undertakings
Total return
Total return
2019
US$m
2018
US$m
87.3
(51.9)
134.8
170.2
(11.7)
158.5
(2.8)
(7.9)
0.3
148.1
75.5
39.6
(203.4)
(88.3)
(12.9)
(101.2)
0.1
12.5
6.5
(82.1)
3.6%
(2.0)%
Note 1: Accounting rules require Brit to consolidate the return on a UCITS which has third party investors. This adjustment eliminates the third party share of that
return included in ‘Investment return net of fees’. This amount is included in the Group’s consolidated income statement within ‘Gains on other financial liabilities’.
Return on invested assets (net of fees)
Year
2019
2018
2017
2016
2015
%
3.6
(2.0)
4.9
2.6
0.1
The higher yields as we entered 2019 benefited fixed income returns, giving a total portfolio income return for the year of US$87.3m.
The fall in yields over 2019, as the US Federal Reserve cut rates three times, also boosted our unrealised gains from fixed income to
US$22.4m (2018: unrealised loss US$12.5m). We continue to seek out opportunities to increase the yield on the portfolio where
appropriate opportunities arise, including diversifying into securities with a yield component, such as property funds.
The equity portfolio also performed strongly in 2019, despite bouts of volatility during the year, as global indices responded to
each downturn with a more sustained upswing and along the way kept setting record highs. Unrealised gains from equity for
the year totalled US$129.7m (2018: loss of US$169.9m), with most of our holdings seeing a reversal of the losses recorded in
2018. However, the return on funds was negative for the year, with a loss of US$17.8m, the majority of which is unrealised.
The return on cash has also been solid over the year. Our approach to management of cash during the year has (and continues
to be) to limit the amount of operational cash held within bank accounts and to maximise the amounts held within short term
government bills and money market instruments such as commercial paper, avoiding where possible exposure to European
paper where the yield is negative.
At 31 December 2019, the running yield (expressed as yield as a percentage of invested assets) of our total portfolio was 1.5%
(2018: 2.3%). This has decreased over 2019 in line with the decrease in base rates in the US and continues to represent a
challenging environment for insurance groups.
Our share of our associated undertakings net profit was US$0.3m (2018: US$6.5m).
• Camargue Underwriting Managers Proprietary Limited, a leading managing general underwriter of a range of specialised
insurance products and specialist liability solutions in South Africa in which Brit holds a 50% share, contributed US$0.6m to
this return (2018: US$0.6m).
• Sutton Special Risk Inc., a leading Canada-based managing general underwriter specialising in Accident & Health business in
which Brit acquired a 49% share on 8 January 2019, contributed US$0.7m to this return; and
• Ambridge Partners LLC (Ambridge), a leading managing general underwriter of Transactional Insurance, Complex Management
Liability Insurance and Intellectual Property Insurance, in which Brit held a 50% share until 18 April 2019, returned US$(1.0)m (2018:
+US$5.9m). On 18 April, following Brit’s acquisition of the remaining 50% of Ambridge, Ambridge became a 100% subsidiary of the
Group and ceased to be an associated undertaking. For the year, Ambridge generated a positive return for the Group.
Brit Limited Annual Report 2019
31
Strategic Report
financial performance review
Foreign exchange
As explained on page 37, we manage our currency exposures to mitigate the impact on solvency rather than to achieve a short-
term impact on earnings. We experienced a total foreign exchange gain of US$3.3m in 2019 (2018: loss of US$9.1m), reflecting
the movement of the US dollar against other currencies in which we trade and hold assets. This total foreign exchange related
gain comprised:
• An unrealised revaluation gain of US$14.0m (2018: loss of US$12.7m), primarily relating to the mark to market of the capital
we hold in non-US dollar currencies to match our risk exposures. The gain primarily results from movements in the US dollar
which gave rise to a gain on our long Canadian dollar and short Euro positions, partly offset by a loss on our short Sterling
position;
• Losses of US$15.2m (2018: gains of US$8.4m) on derivative contracts which were entered into to help manage our
monetary FX exposures and therefore should be viewed in conjunction with our monetary FX movements. This excludes
the gain on the derivative contract entered into to effectively hedge the Sterling proportion of the Group’s expenses, as
explained on pages 29 to 30; and
• Gains of US$4.5m (2018: losses of US$4.8m), as a result of the IFRS requirement to recognise non-monetary assets and
liabilities at historic exchange rates. This adjustment is essentially a timing difference. The adjustment for the full year 2019
comprises the un-wind of the credit carried on the balance sheet at 31 December 2018 (US$2.5m), plus the debit balance
established during 2019 (US$2.0m).
The allocation of the FX result within the Consolidated Income Statement is as follows:
Foreign exchange gains and (losses)
Net change in unearned premium provision – non-monetary FX effect
Acquisition costs – non-monetary FX effect
Net foreign exchange gains/(losses) – non-monetary (Note 1)
Net foreign exchange gains/(losses) – monetary (Note 1)
Return on derivative contracts – FX related instruments (Note 2)
Total gain/(loss)
2019
US$m
3.4
(1.7)
2.8
4.5
14.0
(15.2)
(1.2)
3.3
2018
US$m
1.9
(0.8)
(5.9)
(4.8)
(12.7)
8.4
(4.3)
(9.1)
Note 1: The sum of these two amounts, US$16.8m, is the ‘Net foreign exchange gains’ figure per the Consolidated Income Statement (2018: US$18.6m ‘Net
foreign exchange losses’).
Note 2: Excludes the gain of US$0.4m (2018: loss of US$2.2m) on the derivative contract entered into to effectively hedge the Sterling proportion of the
Group’s expenses, as explained on pages 29 to 30.
Tax
Our tax on ordinary activities for 2019 resulted in a tax charge of US$6.4m (2018: tax credit US$23.8m), based on a group
profit before tax of US$186.3m (2018: loss before tax of US$190.3m).
The Group is liable to taxes on its corporate income in a number of jurisdictions where its companies carry on business,
most notably the UK, Australia and the US. Corporate profits and losses in Bermuda are exempt from tax. The tax charge is
calculated in each legal entity across the Group and then consolidated. Therefore, the Group effective rate is sensitive to the
location of taxable profits and is a composite tax rate reflecting the mix of tax rates in those jurisdictions.
The 2019 Group rate varies from the weighted average rate in those jurisdictions due to a number of factors, the principal
factors being unrecognised deferred tax assets of US$2.4m in respect of undeclared Lloyd’s syndicate year of account losses
and a prior year credit of US$1.2m in respect of 2018 US tax. The rate is further influenced by the impact of exempt income,
such as dividend income, and by non-UK taxes arising in our Lloyd’s syndicates.
32
Brit Limited Annual Report 2019
Strategic Report
Brit Limited Annual Report 2019
33
Strategic Report
34
Brit Limited Annual Report 2019
Strategic Report financial position and capital strength
Financial position
At 31 December 2019 our adjusted net tangible assets totalled
US$1,150.4m (2018: US$992.9m).
Summary consolidated statement of financial position
Assets
Intangible assets
Reinsurance contracts
Insurance and other receivables
Financial investments, investments in
associated undertakings and cash
Investment related derivatives
FX related derivatives
Other assets
Total assets
Liabilities
Deferred tax on intangible assets
Insurance contracts
Borrowings
Investment related derivatives
FX related derivatives
Other liabilities
Total liabilities
Net assets
Adjusted net tangible assets
2019
US$m
2018
US$m
192.6
1,628.1
1,240.2
4,180.1
2.1
13.6
415.9
7,672.6
23.1
5,266.1
316.2
–
14.2
733.1
6,352.7
1,319.9
1,150.4
104.4
1,699.8
1,008.8
4,006.3
3.6
13.8
379.0
7,215.7
12.3
5,274.1
174.9
0.2
13.9
655.3
6,130.7
1,085.0
992.9
In addition to the profit recognised through the consolidated
income statement, the other movements in our net assets
related to defined benefit pension scheme related gains and
charges (US$1.7m net gain); changes in unrealised foreign
currency translation gains on foreign operations (US$3.7m
gain); recycling of foreign exchange losses upon acquisition
of Ambridge (US$0.4m charge); issuance of share capital
(US$70.6m); and dividends paid (US$20.6m).
On 18 April 2019 the Brit Group acquired the remaining 50%
of the issued shares of Ambridge Partners LLC (Ambridge).
Prior to 18 April, Brit’s investment in Ambridge was recorded
as an investment in associated undertaking and after that
date as a subsidiary. Following the acquisition, an exercise
to allocate the purchase price under IFRS 3 was performed,
including the identification and valuation of acquired intangible
assets. The findings of this exercise included the identification
of US$45.2m of acquired intangible assets and US$45.9m of
goodwill, which are included within intangible assets at
31 December 2019 in the table above.
Capital strength
Our balance sheet remains strong. At 31 December 2019,
Group capital resources totalled US$1,576.6m, giving surplus
management capital of US$348.9m (2018: US$328.7m), or
28.4% (2018: 30.4%) over our Group capital requirement of
US$1,227.7m.
Share capital
On 30 April 2019, FFHL Group Limited subscribed for
4,800,000 new Brit Limited B class shares for a contribution
of US$20.6m. On 24 June 2019, FFHL Group Limited
subscribed for a further 11,627,907 new Brit Limited B class
shares for a contribution of US$50.0m. As a result of these
transactions, FFHL Group Limited’s holding in Brit Limited
increased to 89.26% (31 December 2018: 88.85%).
Reserving policy
Preserving a strong financial position is critical to the long-
term success of an insurance business. The Group maintains
appropriate loss reserves to cover its estimated future
liabilities. Reserves are estimates that involve actuarial and
statistical projections of the expected cost of the ultimate
settlement and administration of claims. The reserving
process is robust and managed by the Chief Risk Officer
and Chief Actuary and under the oversight of the Reserving
Committee. Reserving estimates are prepared quarterly
and are based on facts and circumstances then known,
predictions of future developments, estimates of future
trends in claims frequency and severity and other variable
factors such as inflation. Movement in these reserves forms
an integral element of our operating result.
Our reserving policy is to reserve to a ‘conservative best
estimate’ and carry an explicit risk margin above that
‘conservative best estimate’. This policy has led to a track
record of modest annual reserve releases. In 2019, this
trend, first reported in 2004, continued with net releases
of US$47.9m (2018: US$99.3m, including releases on certain
legacy classes afforded by the loss portfolio reinsurance
with RiverStone Managing Agency Limited (for and on behalf
of Lloyd’s Syndicate 3500) and favourable development of the
2017 catastrophe events).
Maintaining reserves is critical to safeguard future
obligations to policyholders and the ‘conservative best
estimate’ approach provides a secure foundation. It also
provides a secure foundation for the pricing of new business
which is particularly critical in a soft rating environment.
Asset allocation
Brit’s invested assets (financial investments, investments
in associates, cash and cash equivalents and derivative
contracts) at 31 December 2019 were US$4,182.2m
(31 December 2018: US$4,009.6m).
Brit Limited Annual Report 2019
35
Strategic Report
financial position and capital strength
Our asset allocation, on both a look-through basis and statutory disclosure basis, is set out in the tables below:
Statutory basis
31 December 2019
Look-through basis
Government debt securities
Corporate debt securities
Structured products
Equity securities
Alternative investments
Cash and cash equivalents
Investment related derivatives
Total invested assets (statutory)
31 December 2018
Look-through basis
Government debt securities
Corporate debt securities
Structured products
Equity securities
Alternative investments
Cash and cash equivalents
Investment related derivatives
Total invested assets (statutory)
Equity
securities
US$m
Debt
securities
US$m
Specialised
investment
funds
US$m
Cash and cash
equivalents
US$m
Associated
undertakings
US$m
–
–
–
403.9
–
–
–
1,611.8
1,339.2
0.1
–
–
–
–
403.9 2,951.1
9.7
2.2
18.2
242.7
8.5
5.1
(0.8)
285.6
–
–
–
–
–
520.1
–
520.1
–
–
–
575.8
–
–
–
1,577.1
935.9
0.1
–
–
–
–
575.8
2,513.1
0.2
–
16.7
29.5
8.7
1.1
–
56.2
–
–
–
–
–
818.2
–
818.2
–
–
–
19.4
–
–
–
19.4
–
–
–
43.0
–
–
–
43.0
Investment
derivatives
Total
invested
assets
(net) (look-through)
US$m
US$m
– 1,621.5
– 1,341.4
18.3
–
666.0
–
8.5
–
525.2
–
1.3
2.1
2.1 4,182.2
– 1,577.3
935.9
–
16.8
–
648.3
–
8.7
–
819.3
–
3.3
3.3
3.3 4,009.6
Invested assets – look-through basis (US$m)
Total
invested assets
US$4,182.2m
■ Government debt securities, US$1,621.5m
■ Corporate debt securities, US$1,341.4m
■ Structured products, US$18.3m
■ Equity securities, US$666.0m
■ Alternative investments, US$8.5m
■ Cash and cash equivalents, US$525.2m
■ Investment related derivatives, US$1.3m
Investment return (net of fees) (%)
2019
2018
2017
2016
2015
3.6%
(2.0)%
4.9%
2.6%
0.1%
-2
-1
0
1
2
3
4
5
36
Brit Limited Annual Report 2019
The portfolio’s tactical positioning remained broadly
consistent in 2019, with a short duration position to protect
against the impact of rising rates. For the allocation to
credit risk, the exposure is primarily defensive, focused on
short duration, high quality, investment grade non-cyclical
companies. Equity allocations are invested in a portfolio of
both listed and private (non-listed) equities and funds.
The assets remain primarily invested in cash and fixed income
securities (2019: US$3,488.1m or 83.4% of the portfolio;
2018: US$3,332.5m or 83.1% of the portfolio). The fixed
income portfolio is short dated, with a majority allocation to
government bills. Corporate bonds represent 32.1% (2018:
23.3%) of the total portfolio with 1.9pps (2018: 2.2pps) of this
figure being below investment grade.
The exposure to equities and funds has remained broadly
consistent over 2019 (2019: US$692.8m or 16.6% of the
portfolio; 2018: US$675.0m/16.8%).
The duration of our portfolio at 31 December 2019 was
1.1 years (2018: 0.9 years), which is shorter than the
duration of our liabilities. US rates fell significantly across the
curve over 2019, although some relief was felt towards the
end of the year as the US Federal Reserve messaged the last
of three rate cuts in the final quarter of the year.
Strategic Report
The reporting currency for the Group’s consolidated Financial
Statements is US dollars, as are the functional and reporting
currencies of a number of our subsidiaries, including all of
our underwriting subsidiaries. A portion of our revenues
and expenses, and assets and liabilities, are denominated
in currencies other than US dollars, hence we are exposed
to fluctuations in the values of those currencies against the
US dollar. These fluctuations impact our reported operating
results and our assets and liabilities.
We have sought to reduce the impact on our stakeholders
of the effects of movements in foreign exchange rates
by matching the currencies of our liabilities and capital
requirements with the assets we hold. As a consequence of
this, because we report our results in US dollars, we import
some exchange rate volatility into the income statement
through the revaluation of our net tangible assets. The
Group’s NTA is, however, largely matched against our capital
requirement, protecting our shareholders against the risk
of additional capital being required as a result of FX volatility.
Any excess is held in US dollars.
At 31 December 2019, 81.1% of our invested assets were
investment grade quality (2018: 82.5%). An analysis of the
credit quality of our invested assets is set out below:
Invested assets by rating
AAA
AA
A
BBB
P-1 and P-2
Other
Total
2019
%
38.8
8.3
21.1
12.2
0.7
18.9
100.0
2018
%
49.1
8.6
13.0
8.2
3.6
17.5
100.0
Other includes equities and investment related derivatives
Gearing
At 31 December 2019, our gearing ratio was 29.9% (2018:
22.0%).
Brit has in place a US$450m revolving credit facility (RCF),
expiring on 31 December 2022. Under our capital policy we
have identified a maximum of US$250.0m (2018: US$250.0m)
of this facility to form part of our capital resources, with the
balance available for liquidity funding.
At 31 December 2019, the cash drawings on the facility
were US$140.0m (2018: US$8.0m) and a US$80.0m
uncollateralised letter of credit (LoC) was in place
(31 December 2018: US$80.0m/uncollateralised) to support
our underwriting activities. At the date of this report, cash
drawings had reduced to US$65.0m and the US$80.0m
uncollateralised LoC remained in place.
In addition, we have in issue £135.0m of 6.625% subordinated
debt with a carrying value of £133.0m/US$176.2m
(31 December 2018: £131.0m/US$166.9m). This instrument,
which is listed on the London Stock Exchange, was issued in
December 2005, is callable in whole by Brit on 9 December
2020 and matures in 2030.
Foreign exchange management
At 31 December 2019, our US-dollar denominated net assets
were 85.6% of our total net assets, reflecting the currency
denomination of the majority of the business we write. Our net
assets, analysed by currency, are as follows:
Net assets/(liabilities) by currency
US dollar
Sterling
Canadian dollar
Euro
Australian dollar
Total
2019
%
85.6
8.4
4.1
1.5
0.4
100.0
2018
%
83.4
7.3
4.3
2.2
2.8
100.0
Brit Limited Annual Report 2019
37
Strategic Report
principal risks and uncertainties
Risk management framework
Brit delivers shareholder value by actively seeking and
accepting risk within agreed limits. Risk management
within Brit is a continuous process that links directly to the
organisation’s business and risk management strategies and
the associated Board risk tolerances.
Brit’s Risk Management Framework (RMF) applies a consistent
methodology and structure to how risks are identified,
measured, managed and monitored. This process enables us
to protect policyholders and maximise shareholder value by
ensuring the risk and capital implications of business strategy
are well understood.
The RMF has the following key elements:
• Identification: Risk events, risks and relevant controls are
identified and classified. This is a continuous process which
considers any emerging and existing risks.
• Measurement: Risks are assessed and quantified
and controls are evaluated. This is done through a
combination of stochastic modelling techniques, stress and
scenario analysis, reverse stress testing and qualitative
assessment using relevant internal and external data.
• Management: The information resulting from risk
identification and measurement is used to improve how the
business is managed.
A key part of the RMF is the setting of risk tolerances and risk
appetite. Risk tolerances are set by the Board and represent
the maximum amount of risk Brit is willing to accept to meet
its strategic objectives. Risk appetite is set by management
and reflect the maximum amount of risk that Brit wishes to
take in the current market environment. The actual amount of
risk taken is monitored against the tolerances and appetites
on an ongoing basis.
The RMF, including the risk tolerances and appetite, reflects
Brit’s strategy and seeks to ensure that risk is accepted in
the areas which are expected to maximise shareholder value
whilst continuing to protect policyholders against extreme
events. The process applies to both the Brit Group and to the
individual underwriting entities (such as Lloyd’s syndicates).
The risk management team, led by the Chief Risk Officer (CRO),
ensures that Brit operates within the risk tolerance level
approved by the Board. This includes the assessment of the
new strategic initiatives and principal risks and uncertainties
faced by the business as detailed below. All Brit staff are
involved in ensuring there is an appropriate culture which
promotes the identification and management of risk.
The sections below set out the approach to risk governance, and
the key risks identified, measured and managed under the RMF.
Risk governance
The Board is responsible for overseeing our risk management
and internal control systems, which management is
responsible for implementing.
Brit maintains a strong risk governance framework using
Risk Oversight Committees and Audit Committees whose
membership consists of independent non-executive Directors.
The Risk Oversight Committees monitor and review the
risk profile and the effectiveness of all risk management
activities and, in particular, monitor adherence to agreed risk
limits. Our Internal Audit function provides assurance to the
Risk Oversight Committees, Audit Committees and Boards,
while external experts are regularly used for independent
assessments.
Brit operates a three lines of defence model for governing
risk. Within the first line of defence individual risk committees
monitor day-to-day risk control activities. The risk
management function, as a second line of defence, provides
oversight over business processes and sets out policies and
procedures. Internal Audit, as a third line of defence, provides
independent assurance and monitors the effectiveness of the
risk management processes.
Key risks
The RMF categorises the risks to Brit as follows:
• Overarching risk: strategic, earnings and solvency; and
• Individual risk categories: insurance, market, credit and
operational and group.
Insurance risk is the key driver of our Group capital
requirements.
Strategy
Business strategy
Risk tolerances and appetites
Risk management framework
Planning and capital processes
Identification
Business plan
Measurement
Economic capital requirements
Management
Capital allocation
38
Brit Limited Annual Report 2019
Strategic Report The key risks and uncertainties are set out in the following table and the principal risks in the current environment are further
described below.
Risk category
Risk
Description
Principal risks
Overarching
Strategic
Risk that Brit’s strategy is not appropriate or is not implemented
effectively
Insurance
Investment
Earnings
Solvency
Underwriting
– pricing
Underwriting
– natural
catastrophe
Underwriting
– man made
catastrophe
Underwriting
– reinsurance
Reserving
Investment
market risk
Currency
Liquidity
Credit
Counterparty risk
Unexpected earnings volatility leads to unexpected losses.
Capital ratio falls below the level targeted by management.
Emerging experience is inconsistent with the assumptions and pricing
models used.
Natural catastrophe events impacting Brit’s (re)insureds, leading to large
volumes of claims.
✓
✓
Extreme man-made events, such as terrorist attacks, impacting Brit’s
(re)insureds, leading to large volumes of claims.
Failure to obtain reinsurance on attractive terms, or failure to recover
under reinsurance arrangements.
Prior year reserves are insufficient to cover claims (net of reinsurance). ✓
Invested assets adversely affected by changes in economic variables,
such as interest rates, bond yields, equity returns, credit spreads, credit
ratings.
✓
Exchange rate fluctuations materially impact our financial performance.
Insufficient financial resources available to meet liabilities as they fall due.
Deterioration in the creditworthiness of, defaults by, or reputational
issues related to, reinsurers or other third parties with whom we
transact business.
Operational
and group
People
Failure to attract, motivate and retain key Directors, senior underwriters,
senior management and other key personnel, on whom our future success
is substantially dependent.
✓
Systems and
processes
Information
security
Outsourcing
arrangements
Reputational
Failure of our systems or processes, impacting our ability to conduct
business and our ability to provide continuity of service to our clients.
Failure to properly protect information could compromise the
confidentiality, integrity or availability of our information and data,
potentially resulting in financial loss and legal, regulatory and reputational
consequences.
Failure on the part of any third party to perform agreed outsourced
services, on which we are heavily reliant.
Damage to reputation due to actions taken by Brit or related parties and
the impact this has on Brit’s business and operations.
Regulatory & legal
Legislation or regulation adversely affects Brit’s operations.
Change
management
Major projects or other key changes are not implemented effectively.
Brit Limited Annual Report 2019
39
Strategic Report
principal risks and uncertainties
Principal risks
The table below provides additional information on the principal risks in the current environment and how we manage them.
Principal risk
Mitigation tools
Metrics
Status
Underwriting – pricing
Inadequate pricing
could have a material
adverse effect
on our results
for underwriting
operations and
financial condition.
• Strategic focus on
underwriting performance
rather than on top line growth.
Risk adjusted rate change (2019:
increase of 5.9%; 2018: increase
of 3.7%).
• Strong governance
processes around strategy
and planning.
• Pricing discipline is maintained
though strict underwriting
guidelines, monitoring of the
delegated authorities and
enforcement of the technical
pricing framework.
• Efficient use of the outwards
reinsurance programme.
• Monitoring of risk adjusted
rate change.
We have seen positive rate
rises in 2018 and 2019.
However, these increases
follow four years of rate
reductions.
Active rebalancing of the
portfolio remains a key
focus for management.
Underwriting – natural catastrophe
A catastrophic event
or catastrophic events
could result in large
insured losses that
adversely impact our
financial results and
potentially our capital
position.
• Diverse portfolio of risks written
between lines of business and
geographic location.
• Regular modelling and
monitoring against the Board
catastrophe risk appetite by our
exposure management team.
• Effective outwards
reinsurance programme
in place, with particular
emphasis on managing
accumulation of risks.
• Clear limits set for
key accumulations and
conservative use of line size
by our underwriters.
• Identification and monitoring
of emerging risks such as
climate change.
• Conservative best estimate
reserving philosophy with
track record of releases.
• Actuarial team recommend
reserves independently
from underwriting division
using established actuarial
techniques.
• Independent external review of
reserving is performed annually.
Reserving
Estimating insurance
reserves is inherently
uncertain and, if
insufficient, may have
a material adverse
effect on our results
and financial condition.
40
Brit Limited Annual Report 2019
Largest realistic disaster scenarios
(1 October 2019 estimated loss in
US$m):
Event
Gulf of Mexico windstorm
Florida Miami windstorm
US North East windstorm
San Francisco
earthquake
Japan earthquake
Japan windstorm
European windstorm
Gross
827
868
845
1,038
291
78
96
Net
151
128
149
191
142
47
59
An aggregate catastrophe
excess of loss cover is in
place to protect the Group
against combined property
claims from multiple
policies resulting from
catastrophe events. This is
supplemented by specific
covers for peril regions,
catastrophe swaps and
industry loss warranties
where they are a cost-
efficient means to ensure
that the Group remains
within its catastrophe risk
appetite.
Reserve release ratio (2019:
2.9%; 2018: 6.1%).
Reserves are held at
a ‘conservative best
estimate’ and we also
carry an explicit risk
margin.
No change in approach
from prior years.
Strategic Report Principal risk
Mitigation tools
Metrics
Status
Investment risk
Invested assets are
susceptible to changes
in economic conditions.
A decrease in the value
of our invested assets
may have a material
adverse effect on
our results, financial
condition and liquidity.
People
We could be adversely
affected by the loss of
key employees or by
an inability to attract
and retain qualified
personnel.
• Strong governance processes
around investment strategy.
Return on invested assets, net of
fees (2019: 3.6%; 2018: (2.0)%).
Running yield (2019: 1.5%;
2018: 2.3%).
Staff turnover (2019: 10.1%;
2018: 8.9%).
• Regular monitoring against
the Board investment risk
appetite which includes
defined limits for solvency,
earnings risk and liquidity risk.
• Investment guidelines in place
for individual asset classes
and monitored regularly.
• Our remuneration strategy
(including share-based
remuneration) is designed to
reward talent and success.
We have a proven track
record in being able to retain
high-performing staff.
• Succession and contingency
plans are in place in the event
of the loss of a key employee.
• Regular monitoring of
employee turnover and morale.
Markets remain volatile.
Our portfolio at the year
end remained highly liquid
and was primarily invested
in cash and fixed income
securities.
The current environment
remains competitive with
a number of our peers
actively seeking talented
staff. We actively manage
our remuneration and
HR policies to ensure we
continue to retain and
attract the best staff.
Current turnover rates
remain well within our
appetite.
Emerging risks
Brit undertakes a formal emerging risk review annually with the results reported to the Risk Oversight Committee and included
in the ORSA report. The review is an important part of the risk identification aspect of the RMF and includes horizon scanning of
the internal and external risk environment to identify potential new or developing risks to Brit. These risks can then be included
in the risk register and managed appropriately as required.
The emerging risk review has previously identified risks such as the United Kingdom’s exit from the EU (Brexit) and cyber risk.
These risks have been managed throughout their development and are now monitored as part of the business as usual risk
management process.
Climate change related financial risks
Climate change is a key example of a developing risk identified as part of Brit’s emerging risk review, and the potential impact
to the insurance industry is an area of focus for the market and the regulators. The risks to insurers may include the potential
increase in the frequency and severity of weather-related natural catastrophes, for example, hurricanes and wildfires. Brit is
managing the risks associated with climate change in line with the RMF and is responding to the latest regulatory guidance in
this area. This will continue to be an area of management and risk committee focus.
United Kingdom’s exit from the EU (Brexit)
We have continued to work to minimise the impact of Brexit on Brit and our clients. While direct European business is not material
for Brit, we have continued to monitor and evaluate the associated risks and have implemented the processes and business changes
required to write business onto Lloyd’s new Brussels-based European insurance company (LBS), of which we are fully supportive.
The known work required is complete and our new processes are operational. We commenced writing business via LBS in
the fourth quarter of 2018, for risks incepting on or after 1 January 2019. The placement process is more onerous than for
non-European business, however, the solution in place is the most effective approach given that the UK will potentially lose its
passporting rights.
Following the UK’s exit from the EU on 31 January 2020, significant uncertainties remain surrounding the UK’s future
relationship with the EU, with potentially unknown economic and political implications for the UK. We continue to monitor
developments closely.
Brit Limited Annual Report 2019
41
Strategic Report
42
Brit Limited Annual Report 2019
Strategic Report our people, culture, social, community and
environmental matters
Introduction
In order to generate value, we recognise that our people,
culture, social and community strategies must be both
sustainable and aligned to the long-term interests of all our
stakeholders. We seek to make both a positive contribution
to society and to be aware of the long-term consequences
of our actions. We also seek to generate new commercial
opportunities by developing strong stakeholder relationships
and by recruiting and retaining a highly skilled, engaged and
motivated workforce.
Our people and culture
Our people are our greatest asset and managing our talent
appropriately contributes significantly to our success.
During 2019 we continued to strengthen our highly committed
team. Through the attraction and recruitment of new talent and
the ongoing development of existing expertise, we continued to
embed a culture of achievement in the organisation. This has
resulted in employees feeling valued for their contribution as
part of a team working towards the same goals.
Our culture is communicated and lived through an established
framework that identifies and rewards strong performance.
Business plan goals are aligned to our Group vision and
used to determine individuals’ objectives, ensuring that all
employees understand the part they play in the Group’s
success.
We are committed to developing the technical, behavioural,
management and leadership skills required for our teams to
outperform – both individually and collectively. We continue to
invest in the future of Brit through our leadership, graduate
and intern programmes and our bi-annual succession and
talent mapping exercise, all of which aim to grow expertise
from within and ensure robust succession plans.
Brit Syndicates Limited has Chartered Insurer status
through the Chartered Insurance Institute. This prestigious
designation signifies to our customers – and the market – that
we are committed to the pursuit of the highest standards and
demonstrates our adherence to ethical good practice.
Brit’s cross-functional Social Committee continued to
organise a range of social, community and charitable events
for employees during the year.
The 2019 staff turnover rate excluding retirements and
redundancies was 10.1% (2018: 8.9%).
At 31 December 2019, 37.1% (2018: 39.9%) of staff had
completed at least five years of service and 15.2% (2018:
15.7%) had served at least ten years.
Details of Brit’s employment policies are given in the
‘Employment’ section of the Directors’ Report on page 57.
Staff engagement
We want to engage with our employees and invest in their
future so that they do not just progress, but thrive – both
professionally, and emotionally. By developing and retaining
a highly skilled, engaged and motivated workforce, we
can generate value for them, the Company and our other
stakeholders.
The Board principally engages with its workforce through its
executive Directors. Brit believes in two-way communication
between directors, managers and all staff. It has a number of
initiatives and processes designed to support and encourage
this, including:
• An employee engagement survey, which takes place every
two years across the Group. This is a key mechanism
for assessing the views of our staff and leads to further
engagement with them. The most recent engagement
survey was held in late 2018. We had an excellent response
rate of 91% and feedback was generally very positive.
The survey results were discussed at the executive level
and then presented to all staff by the Chief Executive
Officer. The findings were also presented to the Board by
the Chief Engagement Officer.
Following this, an employee engagement group (EEG)
was established, representing all areas of the business,
to encourage free and open discussion and wider
participation on employee engagement matters. Its
primary objective is to further develop engagement
strategy through the delivery of a number of initiatives,
including targeted surveys and focus groups, and to make
recommendations to the Executive Committee.
The survey results for each department were also made
available and department heads were encouraged to enter
into a two-way dialogue with their teams, with further
initiatives encouraged at this level.
• Executive Blogs – These blogs provide a useful medium
through which the Executive Committee and other members
of senior management can update employees on matters
such as the group’s performance, initiatives and other
developments, charitable activities and market conditions.
All employees are encouraged to respond with a question or
comment to help facilitate understanding and debate.
• Town Halls – Each month, a member of the executive
committee presents on their area of focus. All staff
are invited to these presentations, which are followed
by questions and discussion. These presentations are
recorded and made available to those unable to attend.
• Spotlight series – These in-depth interviews are circulated to
all staff and are a way to highlight new initiatives and projects.
Recent topics have included the engagement survey and a
series highlighting cross functional staff moves.
• Team Meetings – At Brit, team meetings are encouraged
both at a macro and micro level.
Brit Limited Annual Report 2019
43
Strategic Report
our people, culture, social, community and environmental matters
•
Intranet – The Brit intranet site provides a central point of
information, news and announcements to support working
lives at Brit and provide access to tools and systems
essential to people performing their roles.
• Email announcements – To communicate significant or high
profile news to all employees or groups of employees.
•
In November 2019, Brit held its third annual ‘celebrate the
difference week’, which provided a focus on individuals
making a personal difference both to themselves and
others. It concentrated on a variety of topics from working
inclusively, understanding the positives that arise from
businesses who have diverse and inclusive employee
populations, mental, physical and emotional well-being.
The various sessions, mainly hosted by external specialists,
were well attended and well received.
Engagement with our staff allows us to assess the extent to
which they are motivated. Such motivation contributes to the
success of our organisation. Engagement also identifies areas
we need to focus on to continue to develop staff motivation.
High engagement results have a positive impact on our team
performance and employee retention, our service quality
(both internally and externally), and our overall business
performance, ultimately benefitting all stakeholders.
lnclusivity sits at the centre of our culture. Through 2019,
we have run training programmes focussed on inclusion
and diversity, held focus groups and strengthened our
relationship with external organisations and in 2020 we will
launch our Inclusion and Diversity Forum. In 2019, we have
continued to promote Brit and the London Market to attract
a more diverse workforce. We work with the Brokerage to
educate and offer work placements to state schools based
in Inner London boroughs and we also support the London
Insurance Life Campaign. Through these initiatives we have
run ‘Career Insights days’ at our offices, offered internships
and taken part in Careers Fairs at Lloyd’s. Matthew Wilson
was the sponsor of the LMG Talent and Diversity workstream
throughout 2019.
Social and community
We are committed to supporting the communities in which we
operate and charities that are meaningful to employees. Our
objective is to select charitable giving and community projects
based on three criteria: projects should be for a good cause
and operate in an area relevant to us, financial involvement
should be for the benefit of the good cause, and projects
should offer alignment with our strategic priorities.
During 2019 we again supported ten charities chosen by
employees. The charities selected for 2019 were Crohn’s and
Colitis UK, Saint Francis Hospice, Cycle for Survival, The Tom
Bowdidge Youth Cancer Foundation, Operation Healing Forces,
CLAPA – Cleft Lip and Palate Association, Isabel Hospice,
Sands Charity, Operation Catnip of Richmond and the Terence
Higgins Trust. We donated a sum of money to each charity at
the start of the year and continued with fund raising activities
through the year. A further ten staff-nominated charities have
been selected to receive our support in 2020.
Our Social Committee also organised a number of volunteering
days in the local community. We further promote staff
involvement in the community by granting every employee two
additional days of paid leave a year to volunteer their time to
a registered local charity.
The 2019 volunteering activity continued Brit’s support for
a school that educates boys and girls from the age of five to
18 in Kibera, the largest slum in Africa. The school does not
discriminate between religion or tribal allegiance but instead
believes in its motto that ‘knowledge is power’. The experience
was invaluable, not just from the bringing together of staff
from across Brit who previously had never met and the team
building it generated, but also by making a positive change to
the school’s environment. It is inspiring to see Brit have such
a positive effect on peoples’ lives, but equally humbling to
know people live in environments many of us could not even
imagine. We look forward to continuing our support in 2020.
We have supported Team BRIT, a team of disabled motor
racing drivers, since 2017. For 2019, we signed a new two
year contract with Team BRIT, as title sponsor, that will allow
them to launch a racing academy. Brit is extremely proud to
be the sponsor behind the academy. It will offer something
never previously available – the chance for any disabled
driver to gain access to expert tuition and coaching, plus the
technology they need, to allow them to gain a race licence and
become competitive against anybody else on the race track.
In July 2019 we announced that we were delighted to be
supporting Great Ormond Street Hospital (GOSH) as one of our
chosen corporate charities. GOSH is a world leading children’s
hospital based in London. Brit employees will help raise money
for GOSH by attending a number of fundraising events, the first
was a ‘Race for the Kids’ family fun run held in October.
We also run a payroll giving scheme and match any money
raised by employees participating in charitable events.
During 2019, Brit donated US$0.6m (2018: US$0.7m) under
its charitable initiatives. In addition to this, Brit employees
completed 104 volunteering days (2018: 134 days).
Environmental responsibility
At Brit we take our environmental responsibilities very
seriously and continually seek to improve the sustainability
of our business. In 2019, we launched an initiative to offset
all the carbon emissions associated with our air travel by
ClimateCare (www.climatecare.org). For every tonne of
CO2 generated we fund the equivalent reduction through
ClimateCare’s carbon reduction projects – neutralising our
flight impact and helping to address climate change.
44
Brit Limited Annual Report 2019
Strategic Report We strive to reduce the levels of recyclable and non-
recyclable waste we generate. During 2019 we recycled
7.6 tonnes of paper waste (2018: 7.4 tonnes) and we sent
16.6 tonnes of general waste to energy recycling (2018:
32.0 tonnes). In 2019, we also recycled 1.4 tonnes of glass
(2018: 0.9 tonnes), 5.1 tonnes of cardboard (2018: 5.1 tonnes)
and 0.2 tonnes of food waste (2018: 4.3 tonnes). During 2019,
in conjunction with our building managers, we continued to
work hard to reduce waste sent to landfill. At December 2019
we remained fully ESOS compliant.
We continue to use a business dining and internal hospitality
provider that is committed to the principles of sustainable
food procurement. It recognises that it is important to the
future wellbeing of the UK that farming communities are
supported and able to contribute to their supply chains.
We measure and monitor our carbon footprint. In 2019 our
carbon emissions per employee before offset were 7.1 tonnes
(2018: 7.3 tonnes), which reduced significantly after offset
to 0.6 tonnes per employee. The sources of these emissions
were as follows:
Emission source
Gas
Electricity
Business air travel
Business travel other
Total carbon footprint before offset
2019
2018
CO2 (tonnes) CO2 (tonnes)
305
389
3,884
3
4,581
357
385
3,862
5
4,609
Offset
Total carbon footprint after offset
(4,220)
389
–
4,581
Number of employees at 31 December,
excluding NEDs
Carbon footprint per employee before offset
Carbon footprint per employee after offset
645
7.1
0.6
631
7.3
7.3
Brit Limited Annual Report 2019
45
Strategic Report
stakeholder engagement
The Board recognises the importance of engaging with its broader stakeholder base. The Company’s key stakeholders,
as identified by the Board, are set out below, together with why and how we engage with them and the outcomes of that
engagement.
Clients and Intermediaries
Why we engage
Form of engagement
Impact of engagement
We care deeply about our clients’ needs
and work with brokers and partners to
share expertise and deliver a seamless
service for the end insured.
Intermediary engagement commences
before any formal relationship is
entered into, with a robust on-boarding
governance process.
As a specialty insurer, almost 100%
of Brit’s business is distributed via
intermediaries. In London, the majority
of this is via Lloyd’s brokers and in
BGSU via both wholesale and retail
intermediaries.
Engagement and building strong
relationships with our intermediaries
is crucial for us to source business
and to deliver the best service and
products for our insureds.
Intermediaries also provide a range
of services to Brit, for which we
remunerate them via brokerage and
commissions.
Post on-boarding, Brit underwriters
engage with intermediaries in a number
of ways, including face to face and via
electronic means.
To maximise our intermediary
relationships, Brit has entered into
strategic partnership agreements with
six of our largest brokers, covering
over 50% of our gross premium. Under
these agreements Brit pays an annual
fee, which gives access to a range of
services including regular engagement
and introductions, data provision
and consultancy. All new and renewal
agreements require full Board approval.
When a client has a claim, their life or
business has been disrupted, or even
put in peril, they expect their insurance
to deliver. It is our responsibility to
fulfil that commitment. At Brit, we do
not treat claims as a process; we see
every claim as an opportunity to help
our clients move forward.
When a client has a claim we adopt
a proactive approach. We engage
directly with them or their intermediary
to ensure their needs are met.
Following a major loss event, we
instigate additional measures including
establishing 24/7 contact with claims
administrators, extending deployment
of Brit claims adjusters from London
and swiftly establishing dedicated loss
funds.
By engaging with clients and
intermediaries we provide a risk
service that helps clients not only
prepare for but manage and mitigate
the risks they face.
By building stronger and deeper
relationships with our intermediaries,
we believe we put ourselves in a
stronger position to quickly take
advantage of new opportunities and
understand and satisfy changing
customer needs. The data provided to
us by brokers allows us to have more
informed discussions and make more
informed decisions.
One of our key areas of focus is the
management of acquisition costs. We
are working with a number of our major
broking partners to explore ways we
can work together via digital platforms
to reduce overall cost and improve
efficiency for our mutual business
models.
Engagement with our clients,
intermediaries and other service
providers after an event reinforces our
provision of a risk service that helps
people not only move on from an event but
helps them to move forward rapidly with
confidence.
46
Brit Limited Annual Report 2019
Strategic Report Reinsurers
Why we engage
Form of engagement
Impact of engagement
Brit purchases reinsurance to help
manage risk, reduce volatility, enhance
earnings, control aggregations and
create capital efficiency.
Brit uses its appointed brokers for
the majority of reinsurer interactions,
allowing us to benefit from their
expertise.
Brit’s risk appetite is defined by its
outwards reinsurance strategy and
plan, which is approved as part of the
annual business planning process.
We also engage when we make
recoveries under the cover we have
purchased.
Brit also engages directly with
reinsurers, such as when there is
a need to achieve broader strategic
aims which would involve more than
one broker. These tend to be with our
largest reinsurance counterparties.
This engagement allows Brit to access
up to date market information and to
access a broad range of reinsurance
counterparties and reinsurance products,
thereby managing its risk appetite in
the most effective way. It also aids the
administration of reinsurance products
and may give Brit access to a range of
advisory functions on contract wordings,
financial modelling and ancillary functions.
When we make recoveries, such
engagement helps to expedite the
recovery process.
Investment managers
Why we engage
Form of engagement
Impact of engagement
We are responsible for managing the
assets which support our underwriting
and ensure that clients’ claims can be
paid. We manage those assets with
a long-term view and aim to maximise
return while controlling the level of
market risk.
We have regular discussions with our
managers to monitor performance
and assess the outlook for investment
markets. We also receive regular
written investment reports covering
positioning, investment performance
and outlook.
We implement our investment strategy
using the expertise of investment
managers, whose mandates are set out
in investment management agreements
(IMAs).
We engage with our investment
managers to monitor their
performance and to ensure assets are
managed within the restrictions set out
in the IMAs.
We also gain additional insights and
expertise by engaging with investment
managers.
We have regular and ad-hoc calls and
meetings with managers to review new
investment opportunities and to assess
their suitability for our portfolio.
Investment managers regularly
present to the Board and Investment
Committee Board.
We also perform annual due diligence
meetings to review the operational
aspects of the investment managers’
processes.
Engaging with our investment managers
allows us to ensure that the assets are
managed within our risk tolerances
and guidelines and that any changes
are implemented in a timely fashion. We
receive insights from our investment
managers which enhances our investment
strategy and performance.
Engagement allows us to discuss potential
new opportunities with our investment
managers, adding diversification and
resilience to our portfolio. Discussions
also help us to understand their approach
to environmental, social and governance
issues, including climate risk and stranded
assets, validating the sustainability of the
portfolio.
Our operational reviews confirm assets
are managed robustly and controls
the risk of fraud within the investment
managers and other third parties.
Brit Limited Annual Report 2019
47
Strategic Report
stakeholder engagement
Capital providers
Why we engage
Working with third party capital
providers on Syndicate 2988 and
Sussex creates the opportunity to
increase Brit’s leadership footprint and
proposition to clients. It also leverages
our operational infrastructure
resulting in a more expense efficient
model for both us and our capital
providers.
Engagement with third party capital
providers also supports our growth
strategy for those vehicles.
Regulators
Why we engage
Regulators are key stakeholders for
any regulated business and Brit’s
Board is pro-active in ensuring that
Brit meets regulators’ expectations
around compliance, transparency and
aligning the business with regulators’
objectives.
Brit engages with regulators to
ensure that:
• We understand their regulatory
objectives and how they apply to Brit;
• Regulators have a proper
understanding of Brit’s business
model, strategy and risk appetite; and
• Regulators understand how Brit’s
business model, risk appetite and
operational processes and controls
are aligned to regulatory objectives.
48
Brit Limited Annual Report 2019
Form of engagement
Impact of engagement
Brit engages with prospective third
party capital providers ahead of
an underwriting year, to market
the Syndicate 2988 and Sussex
propositions and to understand
investor appetite and capacity.
The successful implementation of the
Syndicate 2988 and Sussex strategies
is dependent on developing strong
relationships with third party capital
providers. Such engagement helps
facilitate this.
After an underwriting year incepts,
Brit formally meets each provider
regularly to discuss performance,
outlook and any other relevant
matter. Ad-hoc queries and requests
for information are also welcomed.
Most interaction is via face-to-face
discussion or by conference call.
The insight we gain from our regular
interactions and feedback helps Brit
to ensure that our propositions can
continuously evolve in line with investor
appetite.
Form of engagement
Impact of engagement
Brit engages with its principal
regulators through:
Engagement with regulators impacts
Brit through:
• Regular face-to-face meetings
• The Periodic Summary and Close and
between supervisory teams, key
decision-makers and authorised
persons at Brit, including executive
and non-executive Directors;
Continuous supervision approach by the
PRA enables Brit to respond promptly
to the PRA’s regulatory concerns and
areas of regulatory focus;
• Sharing of key business updates
and internal documents including
board and committee papers to
ensure regulators have a thorough
understanding of Brit’s business
and the opportunity to ask questions
about it;
• Responding to thematic reviews and
information requests as required;
• Engagement with regulators on thematic
reviews and information requests
enables Brit to contribute to regulators’
understanding of how the market
operates and best practice;
• Brit’s regular engagement with
regulators enables it to pro-actively
plan its response to areas of regulatory
focus, e.g. operational resilience;
• Engaging with Lloyd’s across the
• Engagement with regulators assists
business including around business
planning and compliance with Minimum
Standards; and
• Ensuring the Board is kept up-
to-date on regulatory matters as
communicated by regulators.
Brit to meet the prudential and conduct
standards required by regulators; and
• Directors and employees understand
their regulatory responsibilities.
Strategic Report Key suppliers
Why we engage
Form of engagement
Impact of engagement
Supply chain integrity is a critical
part of our business, as we rely on a
number of key suppliers of goods and
services to help us meet the needs
of our customers’ and those of other
stakeholders.
Brit determines the risk of the potential
engagement by investigating the
potential spend value, criticality of the
services to be provided and personal
information to be shared between
parties.
Ongoing engagement with such
suppliers helps us ensure that those
needs are met and ensures that the
standards set by those suppliers meet
Brit’s criteria.
Such suppliers include providers
of IT systems, claims management,
professional services, facilities and
travel providers.
Brit has strong partnerships with a
number of critical suppliers. These
partnerships are fostered by a range
of activities including ongoing dialogue
and meetings at both executive and
function owner level. We also engage
with key suppliers in areas such as
technical and product roadmaps,
integration planning and disaster
recovery.
Brit also has a rigorous on-boarding
process for new suppliers.
Such supplier engagement enables us to:
• Provide a better service to and satisfy
the needs of our customers and other
stakeholders;
• Enhance current operational processes,
leading to better efficiencies and
increased competitive advantage in the
market place;
• Comply with appropriate laws and
regulations, by implementing suitable
controls and measures;
• Improve the company’s technological
resilience; and
• Ensure the robustness and integrity of
our suppliers, such as their compliance
with the Modern Slavery Act 2015.
Members
Why we engage
Brit Limited is 89.26% owned by
Fairfax Financial Holdings Limited
(FFHL) and 10.74% by the Ontario
Municipal Employees Retirement
System (OMERS).
Our aim is to provide long term
sustainable value for our shareholders.
Engagement ensures that our
objectives are aligned
and that our strategy, operating
environment and performance are
clearly understood.
Form of engagement
Impact of engagement
Both of Brit’s ultimate shareholders
are represented on the Brit Limited
board and there is regular contact
between Brit executives and senior
management and those of our majority
shareholder.
This engagement helps ensure that Brit’s
strategy is aligned to and supported by
our shareholders.
Such engagement also presents us
with underwriting and investment
opportunities, and can result in favourable
collaboration with other members of the
Fairfax Group.
Brit Limited Annual Report 2019
49
Strategic Report
50
Brit Limited Annual Report 2019
Strategic Report section 172(1) statement
Introduction
As Directors of Brit Limited, our key responsibility is to
promote the success of the Company. This principle is
embodied in our terms of reference and is the cornerstone
of our discussions and our decision making. Each Director is
cognisant that in discharging this key responsibility, they must
have regard to:
• The likely consequences of any decisions in the long-term;
• The interests of the company’s employees;
• The need to foster the Company’s business relationships
with suppliers, customers and others;
• The impact of the Company’s operations on the community
and environment;
• The desirability of the Company maintaining a reputation
for high standards of business conduct; and
• The need to act fairly as between shareholders of the Company.
The Directors of Brit Limited consider, both individually and
collectively, that they have acted in the way they consider, in
good faith, would be most likely to promote the success of the
Company for the benefit of its members as a whole (having
regard to the stakeholders and matters set out in s172(1)
(a-f) of the Act)
The Board’s approach to section 172(1) and decision making
The Board’s terms of reference, which are reviewed annually,
clearly articulate the Board’s responsibilities, the role of
the Chair and matters reserved for the Board. They also
set out which of the Board’s powers and responsibilities
may be delegated to other committees and the governance
mechanisms by which the Board monitors those committees’
activities and performance. The Chair ensures that these
terms of reference are adhered to and, by doing so, ensures
that Directors have due regard for all appropriate factors
during the decision-making process.
Our strategy
The Board is responsible for a number of key strategic
decisions, including approving the business plans, objectives
and strategy of the Company. It is also responsible for
conduct risk strategy and appetite, for recommending
dividends and for setting dividend policy.
The Company’s strategy and business plans are approved
annually by the Board. The Board also assesses how the
strategy underpins long-term value creation by discussing
and approving a three-year plan. Such matters are also
discussed at the Group’s annual strategy review and planning
day, in which the Directors of the Company and its principal
subsidiaries participate. On-going performance is discussed
and monitored at Board meetings.
The Directors’ assessment of long-term value creation also
considers the Company’s resilience. The Directors determine and
monitor underwriting, reserving, business, operational, credit,
market and liquidity risk appetites and tolerances. They ensure
the Company has an effective risk management framework in
place, approve its conduct risk strategy and appetite.
Board information
The Board receives regular information on a range of
relevant topics, and receives confirmation on other areas as
requested by the Directors from time to time.
The Board receives regular formal reports on the operations
and performance of the Company from the Group Chief Executive
Officer and the Group Chief Financial Officer. The Board also
receives regular reports from the chairs of the committees
of the Board such as the Audit Committee, Remuneration
Committee and Nomination Committee, and from the chairs of its
principal subsidiaries’ boards including those of Brit Syndicates
Limited and Brit Reinsurance (Bermuda) Limited. It also receives
the minutes of meetings of these bodies. Each of these reports
provides an update on areas necessary to help the Directors
promote the success of Brit Limited.
In addition, the Board receives and considers a number of
annual reports, such as the ‘Whistleblowing Annual Report’.
From time to time the Board receives detailed reports on
specific areas for it to consider. During 2019, such reports
included a ‘Group Capital Update’ and a ‘Group Investment
Update’.
Our policies and practices
All relevant factors are appropriately addressed by the Board
when considering matters reserved for it, as set out in its
terms of reference.
The Board also ensures that appropriate consideration is given
to relevant factors by the committees to which it delegates
responsibilities. The Board reviews the terms of reference
of such committees on an annual basis, and receives regular
updates and reports from those committees’ chairs.
The Board also reviews the Company’s key policies on an
annual basis, ensuring that all relevant considerations to
assist it discharge its responsibilities are embedded in the key
operations of the business. These policies help to promote the
long-term success of the Company by focusing on areas such
as the key operations of the Company.
The Board reviews its key stakeholder map on an annual
basis. New key stakeholder relationships are identified
through information received and considered by the Board
on a regular basis, or through the Board’s consideration and
approval of substantial contracts and commitments.
Training
To assist the Directors discharge their responsibilities,
they are provided with on-going training and development
Brit Limited Annual Report 2019
51
Strategic Report
Section 172(1) Statement
opportunities. They have received a number of in-depth briefing
papers on specific relevant issues.
For the wider workforce, there is a comprehensive staff
development programme tailored to meet individual needs.
Elements of this training are mandatory, with all staff required
to successfully complete e-learning modules on key areas such
as money laundering, bribery and corruption, data protection,
fraud and cyber risk.
Our culture
Building and maintaining the Company’s reputation and its high
standards of business conduct are essential to the future
success of the Company. This is embedded in our culture.
In October 2019, we launched our new brand purpose (see
page 4). Our brand purpose informs everything we do, from
how we communicate, to how we develop and deliver our
services, to how we work together. Our purpose informs our
core philosophies, which are set out on page 9.
The Company also maintains a ‘Code of Conduct’ setting out
the standard we expect from all of our staff. This is regularly
reviewed and updated, and compliance is attested to by each
employee on an annual basis.
Our people
Our people are key to our success. How we engage with them
and how we invest in them is set out on pages 43 to 45.
Our stakeholders
The Board recognises the importance of engaging with its
broader stakeholder base. The Company’s key stakeholders,
as identified by the Board, are set on pages 46 to 49, together
with why and how we engage with them and the outcomes of
that engagement.
Community and environment
The Board recognises the importance of not only generating
value for shareholders but also to contribute to wider society.
We do this through a number of initiatives, as set out on
page 44. We also monitor and manage our environmental
impact, as set out on pages 44 to 45.
52
Brit Limited Annual Report 2019
Key decisions made by the Directors during the year
Share issues and dividends
On 29 April, the Board agreed the issue of 4,800,000 class B
shares, which were acquired by Fairfax for a contribution of
US$20.6m, and approved a dividend payment of US$20.6m
to Brit’s minority shareholder, OMERS. On 26 June, the Board
approved the issue of an additional 11,627,907 class B shares,
which were acquired by Fairfax for a further contribution of
US$50.0m.
In considering these decisions, the Directors assessed
Brit’s ongoing underwriting strategy and capital
requirements, and its obligation to act fairly between
members. It was mindful of its agreed obligations to its
minority shareholder and to its majority shareholder,
Fairfax, whose ownership of Brit increased from 88.9%
to 89.3% as a result of these transactions.
2018 financial statements and reserving position
The Executive Directors approved the financial statements
for the year ended 31 December 2018, on 13 February
2019. As part of this process, the Directors considered
and approved the underwriting reserves held by the
Group’s underwriting entities.
In considering these key factors and in approving the
final reserving position, the Directors were mindful of the
importance of maintaining the Group’s policy of reserving
on a conservative best estimate basis. This policy provides
robust security to our policyholders, while ensuring the
long-term financial strength of the Group in the long-term,
thereby protecting the interests of our key stakeholders
including our clients, members and employees.
Acquisition of Ambridge Partners LLC
In April, the Board proceeded with the completion of the
acquisition of the remaining 50% of Ambridge Partners LLC
(Ambridge). Brit made an initial 50% strategic investment
in Ambridge in 2015 and Ambridge has been a key trading
partner of Brit for the past thirteen years. Ambridge
retains its independence, continuing to underwrite as
a managing general underwriter on behalf of its existing
broad Brit-led consortium of Lloyd’s syndicates and
international insurers.
This acquisition continues Brit’s strategy of selective
international expansion into niche specialty businesses
with a strong track record in distribution and underwriting.
It will provide added long-term value for our members,
increasing revenue channels for the Group while cementing
access to profitable underwriting risks. It also provides
an integrated solution for our clients and helps foster the
Group’s business relationships with those clients.
Strategic Report 2020 business plan and capital requirements
The Directors selected and approved the 2020 business
plan. The plan included the Group’s underwriting and
investment strategy, together with the capital needed to
support the plan.
The Directors considered the Company’s immediate
and longer-term strategic priorities, together with the
risks facing the business. They also considered the
needs and expectations of the Company’s shareholders,
the interest of its clients and employees, and those of
the wider stakeholder group. After due discussion, the
Directors concluded that the plans and attaching capital
requirements positioned the Company well for 2020 and
the longer term.
Approval of policies
During 2019, the Directors reviewed and approved the
Company’s key policies, including the whistleblowing Policy
and the Fit and Proper Policy.
In approving these policies, the Directors considered
whether they support the strategic aims of the Company,
and whether all relevant considerations were satisfactorily
embedded in the key operations of the business. Such
integration helps ensure the Group’s approved operational
practices are clearly articulated to and understood
by all relevant employees, ensuring our reputation for
high standards of business conduct is maintained. Such
practices in turn will help ensure our longer-term strategic
aims are delivered, in the interests of all our stakeholders.
Brit Limited Annual Report 2019
53
Strategic Report
54
Brit Limited Annual Report 2019
Governance Directors’ Report
Corporate Governance Report
Modern Slavery and Human
Trafficking Statement
56
58
60
Governance
Directors’ Report
This report sets out other information of
interest to shareholders. It includes information
on our significant shareholders, the Directors’
responsibility statement and Directors’ statement
on going concern.
Corporate Governance Report
This report explains our governance framework.
Modern Slavery and Human Trafficking Statement
This statement sets out the steps taken by us to
ensure that slavery and human trafficking are not
taking place in our supply chains or in any part of
our business.
Brit Limited Annual Report 2019
55
Governance
directors’ report
The Directors present their report together with the audited
consolidated financial statements for the year ended
31 December 2019.
Principal activities, review of business and other
disclosures
Details of the Company’s principal activities and a review
of the business, including how the business environment is
likely to affect its future development and performance, are
included in the Strategic Report.
Directors
The following Directors held office at the date of this report:
Gordon Campbell
Matthew Wilson
Mark Allan
Andrew Barnard
Jeremy Ehrlich
Andrea Welsch
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Directors’
Report and the financial statements in accordance with
applicable law and regulations.
Company law requires that the Directors prepare financial
statements for each financial year. Under company law the
Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the
state of affairs of the Company and of the profit and loss
of the Company for that period. In preparing these financial
statements, the Directors are required to:
• Select suitable accounting policies and then apply them
consistently;
• Make judgements and accounting estimates that are
reasonable and prudent; and
• Prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Company will continue in business.
The Directors confirm that, to the best of their knowledge:
• The consolidated financial statements, which have been
prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European
Union, give a true and fair view of the assets, liabilities,
financial position, and profit or loss of the Group; and
• The Strategic Report includes a fair review of the
development and performance of the business and the
position of the Group, together with a description of the
principal risks and uncertainties that it faces.
56
Brit Limited Annual Report 2019
Dividends
On 29 April 2019, the Company paid a dividend of US$20.6m to
the holder of its class A ordinary shares. The Directors do not
recommend a final dividend.
Share capital
The Company’s ordinary issued share capital at 31 December
2019 comprised two classes of ordinary shares, class A
ordinary and class B ordinary, which are fully paid.
Voting rights
The Company’s articles of association provide that a
resolution put to the vote of a general meeting must be
decided on a show of hands unless a poll is duly demanded
in accordance with the articles.
Articles of Association
The Company’s articles of association may only be amended by
the unanimous approval of the Company’s shareholders.
Shareholders
The Company’s two shareholders at the time of this report
are as follows:
Shareholder
FFHL Group
Limited
OMERS
Administration
Corporation
Units
Class
% of total
A and B
ordinary
shares
398,977,185
B Ordinary
89.26
48,000,000
A Ordinary
10.74
On 29 April 2019, FFHL Group Limited subscribed for 4,800,000
new Brit Limited class B ordinary shares for US$20.6m,
increasing its holding in Brit Limited to 88.97% of the total.
On 26 June 2019, FFHL Group Limited subscribed for a further
11,627,907 new Brit Limited class B ordinary shares for
US$50.0m. As a result of these transactions, FFHL Group
Limited’s holding in Brit Limited increased to 89.26% of the total.
Significant agreements
The following agreement which was in force at 31 December
2019, takes effect, alters or terminates on a change of
control of the Company.
Revolving Credit Facility
The Group has a syndicated revolving credit facility (RCF)
which provides for US$450.0m of committed multi-currency
financing. Amounts under the RCF can be drawn until
30 November 2022, and the RCF terminates on 31 December
2022, on which date all outstanding facilities must be repaid.
The RCF also contains a change of control provision under
which, upon the occurrence of a change of control, the
lenders may refuse to fund utilisation requests under the RCF,
cancel their commitments and demand immediate repayment
of all outstanding amounts.
Governance
Going concern
A review of the financial performance of the Group is set out
on pages 22 to 32. The financial position of the Group, its cash
flows and borrowing facilities are set out on pages 35 to 37.
After reviewing the Group’s budgets and medium-term plans,
the Directors have a reasonable expectation that the Group
has adequate resources to continue in operational existence
for the foreseeable future. For this reason they continue
to adopt the going concern basis in preparing the financial
statements.
Information included in the Strategic Report
The information below is not shown in the Directors’ Report
because it is shown in the Strategic Report instead under
s414C(11).
• Employee engagement
Disclosures regarding employee engagement can be found on
pages 43 to 45.
• Stakeholder engagement
Disclosures regarding stakeholder engagement can be found
on pages 46 to 49.
• Charitable donations
Disclosures regarding charitable donations can be found on
pages 43 to 45.
• Financial instruments
Details of the Group’s risk management framework are set
out on pages 39 to 41.
By order of the Board
Tim Harmer Company Secretary
12 February 2020
Brit Limited – 08821629
Employment
Brit is an equal opportunities employer. This means we will not
unlawfully discriminate against any person on grounds of colour,
religion or belief, race or ethnic origin, nationality or national
origin, sex or sexual orientation, marital status, disability, age,
pregnancy or maternity, or gender reassignment. We have
established policies to ensure that there is no discrimination
against applicants for a job or whilst in employment.
The Company is committed to ensuring equal opportunities
in relation to job advertisements, recruitment and selection,
assessment of work performance or conduct, disciplinary and
grievance procedures, conditions of service, promotion and
training, pay and benefits and termination of employment.
In the event of employees becoming disabled, every effort is
made to ensure their employment with the Group continues
and appropriate training arranged. So far as possible, the
Company ensures that the training, career development and
promotion of any disabled person are identical to that of a
colleague who does not suffer from such a disability.
The Company maintains procedures by which all employees
are systematically encouraged to express matters that may
affect them and are provided with information on matters
of concern.
The employee share scheme, as well as other means provide
an opportunity for staff involvement in the Company’s
performance.
Political donations
Neither the Company nor any of its subsidiaries made any
political donations during the year.
Disclosure of information to the Company’s auditor
In accordance with the provisions of section 418 of the
Companies Act 2006, each of the persons who are Directors
of the Company at the date of approval of this report
confirms that:
• So far as the Director is aware, there is no relevant audit
information (as defined in the Companies Act 2006) of
which the Company’s auditor is unaware; and
• The Director has taken all the steps that he/she ought to
have taken as a Director to make himself/herself aware of
any relevant audit information (as defined) and to establish
that the Company’s auditor is aware of that information.
Auditor
PricewaterhouseCoopers LLP remain in office as the
Company’s auditor.
Post Balance Sheet Events
The Company has no post balance sheet events requiring
disclosure.
Brit Limited Annual Report 2019
57
Governance
Committees of the Board
The Board has delegated specific responsibilities to Board
committees, notably the Brit Limited Audit, Nomination and
Remuneration Committees.
Brit Governance Structure as at 31 December 2019
The Governance structure, shown overleaf, is deeply
embedded within the business. The Company’s main
operating subsidiaries have in place governance principles
in accordance with the Group’s Memorandum on Corporate
Governance.
Audit Committee
The Audit Committee is responsible for overseeing the
Group’s financial reporting processes, internal control and
risk management framework and the work undertaken by the
external auditor. Regular updates are provided to the Board
by the committee chair.
Remuneration Committee
The Remuneration Committee is responsible for setting the
Group’s remuneration policy. The company aims to reward
employees fairly. The Committee is also responsible for
setting the remuneration of all executive Directors. The
Committee currently comprises one executive Director, one
non-executive shareholder representative Director and one
independent non-executive Director who is also the Chair of
the Board, whereas the Code indicates that the Chair of the
Board should not chair the Committee, and that membership
of the Committee should be comprised of three independent
non-executive directors.
Nomination Committee
The composition of the Board is reviewed regularly by
the Nomination Committee. In considering the Board’s
composition, the Committee is mindful of the need to
maintain a well–balanced Board in terms of skills, knowledge,
experience and background. The appointment of all new
Directors is led by the Nomination Committee.
corporate governance report
Introduction
The Company has in place a memorandum of Corporate
Governance that sets out the Corporate Governance principles
of the Group based on the UK Corporate Governance Code
(Code).
Board of Directors
The Board currently has six Directors and the full board
meets on a regular basis.
Independence of Directors
The Board considers Gordon Campbell to be an independent
non–executive Director of the Company, within the meaning of
the Code. Gordon Campbell was appointed Chair of the Board
on 1 January 2019, chair of the Company’s Audit Committee
with effect from 1 January 2019, chair of the Company’s
Nomination Committee with effect from 1 January 2019 and
chair
of the Company’s Remuneration Committee with effect from
1 January 2019.
Chair
The Chair is responsible for leadership of the Board ensuring
its effectiveness on all aspects of its role and setting its
agenda. The Chair is responsible for setting the agenda for
Board deliberations, with the help of the executive Directors
and the Company Secretary, to be primarily focused on
strategy, performance, value creation and accountability, and
ensure that issues relevant to these areas are reserved for
Board decision. The Chair, in conjunction with the Company
Secretary, ensures that the Board members receive accurate
and timely information.
Group Chief Executive Officer
The Group Chief Executive Officer is responsible for
implementing and executing the strategy of the Group and for
generally running the Group’s business.
Conflicts of Interest
Under the Companies Act 2006, all Directors must seek
authorisation before taking up any position with another
company that conflicts or may possibly conflict with the
Company’s interests. The Directors are required to notify
the Company of any conflicts so that they can be considered
and if appropriate authorised by the Board. The Board
carries out an annual review of conflicts of interest and each
authorisation is set out in the conflicts register.
58
Brit Limited Annual Report 2019
Governance Governance structure
Brit Limited Board
Remuneration
Committee
Audit Committee
Nomination
Committee
Sussex
Sussex
Capital
Management
Limited Board
Brit Insurance
Holdings Limited
Board
Brit
Reinsurance
(Bermuda)
Limited Board
Executive
Committee
Underwriting
Committee
Brit
Syndicates
Limited
Board
Management
Committee
Investment
Committee
Valuation
Committee
Risk
Oversight
Committee
Audit
Committee
Management
Committee
Audit
Committee
UK
Investment
Committee
Risk
Oversight
Committee
Model
Governance
Committee
By order of the Board
Tim Harmer Company Secretary
12 February 2020
Brit Limited Annual Report 2019
59
Governance
modern slavery and human trafficking statement
Introduction
This statement sets out the steps taken by Brit Limited to
ensure that slavery and human trafficking are not taking place
in our supply chains or in any part of our business. Slavery
and human trafficking can occur in many forms, such as
forced labour, child labour, domestic servitude, sex trafficking
and workplace abuse. Given the nature of the work that we
do, we believe that there is a low risk of slavery or human
trafficking having any connection with our business. We must,
however, not be complacent, and all staff have a responsibility
to be aware of any risks in our business and in our wider
supply chains and report any concerns to senior management.
Our business
At Brit, we provide highly specialised insurance products to
support our clients across a broad range of complex risks.
We have a strong focus on the property, energy and casualty
sectors. We have a major presence in Lloyd’s of London, the
world’s specialist insurance market provider, and a significant
US and international reach. We have local offices in the US,
Bermuda and Japan.
We operate globally via our own international distribution
network and broker partners. Insurance represents close
to 76.6% of our gross written premium, with the remainder
coming from treaty reinsurance.
The average number of employees working at Brit during 2019
was 710 and profit after tax in 2019 was US$179.9m.
Our supply chains
We source our business through trading relationships
with Lloyd’s brokers, wholesale brokers, retail agents and
reinsurance intermediaries. Most of our reinsurance business
is sourced through global reinsurance brokers.
We require that all contractual agreements with third party
suppliers contain obligations to ensure compliance with the
Modern Slavery Act 2015.
As part of any due diligence exercise during supplier on-
boarding or at regular intervals, potential slavery concerns
must be assessed and addressed.
Our Procurement and Material Outsourcing Policy ensures
that information around our requirements is detailed and
available to our wider business.
Our policies on slavery and human trafficking
We are committed to ensuring that there is no modern slavery
or human trafficking in our supply chains or in any part of
our business. We believe in paying people fairly and properly
for their work. This policy reflects our commitment to acting
ethically and with integrity in all our business relationships
and to implementing and enforcing effective systems and
controls to ensure slavery and human trafficking is not taking
place anywhere in our supply chains.
60
Brit Limited Annual Report 2019
Due diligence processes for slavery and human trafficking
As part of our initiative to identify and mitigate risk we have in
place systems to:
•
Identify and assess potential risk areas in our supply chains.
We give all suppliers a copy of this statement and request a
copy of their statement (if they are required to have one).
• Mitigate the risk of slavery and human trafficking occurring
in our supply chains. We set clear expectations for our
suppliers by informing them of our Code of Conduct, which
states ‘Brit does not tolerate modern slavery or any form
of human trafficking within its business or supply chains.
Brit does not allow harsh or inhumane treatment and we
expect our suppliers to share our values’.
• Monitor potential risk areas in our supply chains. Staff are
encouraged to report any concerns to senior management
and there is a risk register operated by the Operational
Risk Manager to record any such concerns.
• Ensure appropriate recruitment practices are carried
out, using reputable employment agencies. We verify
the practices of any new recruitment agency as part of
our terms of business with them and before accepting
any workers from that agency. We also request a
copy of the agency’s modern slavery statement (if it is
required to have one). We ask any agency supplying us
with staff to conduct verification checks on those staff
(including verification of identity, references, evidence of
qualifications and criminal and financial checks). We also
carry out the same checks on direct hires.
• Protect whistleblowers. At Brit, workers, customers
and suppliers are encouraged to report any concerns
related to our activities or supply chains. This includes
circumstances which may give rise to increased risk of
slavery or human trafficking. Our whistleblowing procedure
is designed to make it easy for people to make disclosures
without fear of retaliation.
Training
To ensure a high level of understanding of the risks of modern
slavery and human trafficking in our supply chains and our
business, we provide training to appropriate members of staff.
Our commitment
This statement is made pursuant to section 54(1) of the Modern
Slavery Act 2015 and constitutes our Group’s slavery and
human trafficking statement for the financial year ending 2019.
This Modern Slavery and Human Trafficking Statement is
reviewed by Brit’s Board of Directors at least annually and
may be amended from time to time.
By order of the Board
Tim Harmer Company Secretary
12 February 2020
Governance Brit Limited Annual Report 2019
61
Governance
62
Brit Limited Annual Report 2019
Financial Statements Financial Statements
Independent Auditor’s Report
to the Members of Brit Limited
Consolidated Financial Statements
Parent Company Financial Statements
64
72
158
Brit Limited Annual Report 2019
63
Financial Statements
independent auditor’s report to the members of Brit Limited
Report on the audit of the financial statements
Opinion
In our opinion:
• Brit Limited’s Group financial statements and company
financial statements (the “financial statements”) give a
true and fair view of the state of the Group’s and of the
Company’s affairs as at 31 December 2019 and of the
Group’s profit and cash flows for the year then ended;
• The Group financial statements have been properly prepared
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
the Company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 102 “The Financial Reporting
Standard applicable in the UK and Republic of Ireland”, and
applicable law); and
• The financial statements have been prepared in
accordance with the requirements of the Companies Act
2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
We have audited the financial statements, included within the
Annual Report, which comprise: the consolidated and Company
statements of financial position as at 31 December 2019; the
consolidated income statement, the consolidated statement
of comprehensive income, the consolidated statement
of cash flows, and the consolidated and Company statements
of changes in equity for the year then ended; and the notes
to the financial statements, which include a description of the
significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described
in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with
the ethical requirements that are relevant to our audit of
the financial statements in the UK, which includes the FRC’s
Ethical Standard, as applicable to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-
audit services prohibited by the FRC’s Ethical Standard were
not provided to the Group or the Company.
Other than those disclosed in note 13 to the financial
statements, we have provided no non-audit services to the
Group or the Company in the period from 1 January 2019 to
31 December 2019.
Our audit approach
Overview
• Overall Group materiality: US$16.39m (2018: US$15.39m), based on 1% of combined
operating ratio. This represents the total by which net operating expenses and/or net claims
incurred would have to fluctuate to move the combined operating ratio (‘COR’) by 1%.
• Overall Company materiality: US$12.68m (2018: US$12.14m), based on 1% of total assets.
• We performed audit procedures over material balances/transactions in active operations/
subsidiaries in the UK for the purpose of the Group audit.
• We have performed the majority of the work for the purpose of the Group audit on Brit Global
Specialty Singapore Pte. Ltd. and Brit Reinsurance (Bermuda) Limited, as the Group maintains
its accounting records in the UK.
• We have also scoped in certain balances and transactions in Sussex Capital Limited/Sussex Re
Limited (Bermuda) which are audited by a component auditor and the results reported to us.
• We have performed the work on certain scoped-in balances recognised at Group level on
acquisition of remaining 50% of shares in Ambridge Partners LLC which are audited by
another auditor.
• Appropriateness of methodologies and assumptions applied in the valuation
of the IBNR component of insurance contracts liabilities.
• Risk of inappropriate revenue recognition (including fraud risk).
• Valuation of investments with valuations modelled using unobservable inputs.
64
Brit Limited Annual Report 2019
Financial Statements The scope of our audit
As part of designing our audit, we determined materiality
and assessed the risks of material misstatement in the
financial statements. In particular, we looked at where
the Directors made subjective judgements, for example in
respect of significant accounting estimates that involved
making assumptions and considering future events that are
inherently uncertain.
Capability of the audit in detecting irregularities,
including fraud
Based on our understanding of the Group and Company/
industry, we identified that the principal risks of non compliance
with laws and regulations related to breaches of regulatory
principles, such as those governed by the Prudential Regulation
Authority and the Financial Conduct Authority, and we
considered the extent to which non-compliance might have a
material effect on the financial statements of the Group and
Company. We also considered those laws and regulations that
have a direct impact on the financial statements such as the
Companies Act 2006, the Council of Lloyd’s regulations, the
Financial Conduct Authority’s and the Prudential Regulation
Authority’s regulations applicable to insurance companies, the
Listing Rules and UK tax legislation. We evaluated management’s
incentives and opportunities for fraudulent manipulation of
the financial statements (including the risk of override of
controls), and determined that the principal risks were related
to posting inappropriate journal entries to increase revenue
and management bias in accounting estimates such as valuation
of the IBNR component of insurance contract liabilities, accrued
pipeline premium and investments with valuations modelled
using unobservable inputs. The Group engagement team shared
this risk assessment with the PwC Bermuda referred to in the
scoping section of our report below, so that they could include
appropriate audit procedures in response to such risks in their
work. Audit procedures performed by the Group engagement
team and/or component auditors included:
• Discussions with the audit committee, management, internal
audit and the Group’s director of legal and compliance,
including consideration of known or suspected instances
of non-compliance with laws and regulation and fraud;
• Evaluation and testing of the operating effectiveness of
management’s controls designed to prevent and detect
irregularities;
•
Identifying and testing journal entries, in particular any
journal entries posted with unusual account combinations/
narrative in journal description or posted by or on behalf
of senior management;
• Assessment of matters reported on the Group’s
whistleblowing helpline and the results of management’s
investigation of such matters;
• Reading key correspondence with regulatory authorities
which included, the Council of Lloyd’s, the Financial Conduct
Authority and the Prudential Regulation Authority (“PRA”)
in relation to compliance with laws and regulations
(including meeting with the PRA);
• Reviewing relevant meeting minutes including those of the
Risk Committee and the Reserving Committee;
• Reviewing the Group’s and Company’s list of litigation
and claims, internal audit reports, compliance reports in
so far as they related to non-compliance with laws and
regulations and fraud; and
• Procedures relating to valuation of the IBNR component of
insurance contract liabilities, accrued pipeline premium and
investments with valuations modelled using unobservable
inputs described in the related key audit matter below.
There are inherent limitations in the audit procedures
described above and the further removed non-compliance
with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely we would
become aware of it. Also, the risk of not detecting a material
misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the audit
of the financial statements of the current period and include
the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including
those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters. This is
not a complete list of all risks identified by our audit.
Brit Limited Annual Report 2019
65
Financial Statements
Independent auditor’s report to the members of Brit Limited
Key audit matter
How our audit addressed the key audit matter
Appropriateness of methodologies and assumptions
applied in the valuation of the IBNR component of insurance
contracts liabilities.
See notes 2.5, 3.2, 4.1.3 and 20 of the consolidated financial
statements for disclosures of related accounting policies,
judgements and estimates.
The IBNR component of insurance contract liabilities, net
of reinsurance is a material balance within the financial
statements (US$1,796.5m as at 31 December 2019) which
are judgemental and complex to calculate. These are a best
estimate of all claims incurred but not reported at a given date,
regardless of whether these have been reported to the Group.
There are varying methods which can be adopted in the
estimation of IBNR which are underpinned by a series of
assumptions selected by the Group. These can rely on a large
degree of judgement and relatively small changes in these
assumptions can lead to significant movements in IBNR.
Our core team with actuarial specialists have performed the
following:
• We understood, assessed and tested the design and
operational effectiveness of key controls over the Group’s
estimation of IBNR, which included controls over the
extraction of data from the underlying systems and the
review and approval of the IBNR.
• We tested on a sample basis the underlying source data
being claims incurred and claims payments to supporting
documentation.
• We developed a point estimate of IBNR on both a gross
and net basis and we compared our estimate to those
booked by management, and in all those cases where
significant differences were identified, we obtained
satisfactory responses, concluding on the reasonableness
of management’s estimates.
•
In relation to catastrophe events, we understood
the approach used to set the booked reserves and
consistency of its application. For a sample of individual
claims balances, we traced the booked reserves back to
supporting documentation. Further, we compared booked
reserves to PwC’s market view for major events and in all
those cases where significant differences were identified
we obtained satisfactory responses and concluded on the
reasonableness of management estimates.
Based on the work performed, the recorded IBNR is
consistent with the evidence obtained.
Risk of inappropriate revenue recognition (including
fraud risk)
Our testing procedures over pipeline premium estimates and
non-standard earning patterns included:
See notes 2.5, 3.3 and 5 of the consolidated financial
statements for disclosures of related accounting policies,
judgements and estimates.
Auditing standards assume a rebuttable presumption, that
there is a significant risk of fraud in revenue recognition in all
businesses. We have not rebutted the risk of fraud in revenue
recognition and we determined the key risks of fraud in this
area to be around the judgemental aspects of revenue which
include appropriate premium earnings profiles applied to the
various contracts/lines of business and accrued pipeline
premium.
The Group recognises a material amount of pipeline premiums
estimates in its financial statements using an actuarial
technique applied to historic written premium data in order to
derive written premium development factors. For certain lines
of business, judgemental adjustments are made to the derived
written premium development factors.
• We understood, assessed and tested the design and
operating effectiveness of the governance and controls
over the monitoring of pipeline premiums estimates. In
particular we have focused on management’s monitoring
controls of pipeline premium forecasts and signed
premiums to date.
• We have reviewed the methodology adopted in the
calculation of pipeline premiums estimates including
recalculation of development factors.
• We have understood a sample of material adjustments
made to development factors in the determination of
pipeline premiums estimates and considered whether
these have been made appropriately.
• We have obtained and checked on a sample basis
management’s calculations for non-standard earning
patterns.
Based on the above procedures we note that no material
exceptions were identified in relation to revenue.
66
Brit Limited Annual Report 2019
Financial Statements Key audit matter
How our audit addressed the key audit matter
Valuation of investments with valuations modelled using
unobservable inputs
We coordinated with our internal valuation specialists based
in Toronto who centrally test the valuation of all investments.
See notes 2.5.5, 3.6 and 22 of the consolidated financial
statements for disclosures of related accounting policies,
judgements and estimates.
The Group investment portfolio contains US$217m of Level 3
investments measured at fair value, whose fair value is
determined using unobservable inputs. Fair values for these
investments can only be calculated using estimates or risk-
adjusted value ranges (‘Level 3 portfolio investments’) and
accordingly these investments require some additional audit
focus as they require a greater degree of judgement to value.
We have performed the following for a sample of Level 3
portfolio investments:
• Reviewed the appropriateness of models and assumptions;
• Reviewed and re-performed the fair value calculations; and
• Concluded on the reasonableness of the valuation models.
Based on the above procedures, no material exceptions
were found.
We determined that there were no key audit matters
applicable to the Company to communicate in our report.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of
the Group and the Company, the accounting processes and
controls, and the industry in which they operate.
Brit is a global specialty insurer and reinsurer, present in
Lloyd’s of London and has operations in the United States
of America, Singapore and Bermuda, and writes insurance
business internationally. Further, the Group has invested in
Sussex Capital Limited, which is a special purpose vehicle
in Bermuda, which through Sussex Re Limited (a Bermuda-
domiciled special purpose insurer) writes direct collateralised
reinsurance while also providing collateralised reinsurance to
Brit’s reinsurance portfolio.
We have scoped in the active operations/subsidiaries in the
UK for the purpose of the Group audit and performed audit
procedures over material balances/transactions. Further, for
subsidiaries in Singapore (Brit Global Specialty Singapore Pte.
Ltd.) and Bermuda (Brit Reinsurance (Bermuda) Limited), we
have performed the majority of the work for the purpose of the
Group audit, as the financial records and supporting information
are maintained in the Group’s London headquarters.
We have also scoped in certain balances and transactions in
Sussex Re Limited/Sussex Capital Limited, which are audited
by a component auditor and the results reported to us.
Further, we have performed the work on certain scoped-in
balances recognised at Group level on acquisition of remaining
50% of shares in Ambridge Partners LLC which are audited
by another auditor.
Materiality
The scope of our audit was influenced by our application
of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and
in evaluating the effect of misstatements, both individually
and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
Group financial
statements
Company financial
statements
Overall
materiality
US$16.39m
(2018: US$15.39m)
US$12.68m
(2018: US$12.14m)
How we
determined
it
Rationale
for
benchmark
applied
1% of combined
operating ratio.
This represents the
total by which net
operating expenses
and/or net claims
incurred would
have to fluctuate to
move the combined
operating ratio
(‘COR’) by 1%.
Materiality for
the consolidated
financial statements
is based on a 1%
change in combined
operating ratio.
The benchmark to
determine materiality
for the Group has
been chosen as the
combined operating
ratio which is a
primary performance
measure for Brit.
1% of total assets.
We believe that due
to the nature of
operations of the
parent company
which is a holding
company, total assets
is an appropriate and
generally accepted
auditing benchmark.
Brit Limited Annual Report 2019
67
Financial Statements
Independent auditor’s report to the members of Brit Limited
For each component in the scope of our Group audit, we
allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across
components was between US$6.13m and US$16.39m. Certain
components were audited to a local statutory audit materiality
that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
US$0.82m (Group audit) (2018: US$0.77m) and
US$0.63m (Company audit) (2018: US$0.61m) as well as
misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Conclusions relating to going concern
ISAs (UK) require us to report to you when:
• the directors’ use of the going concern basis of accounting
in the preparation of the financial statements is not
appropriate; or
• the directors have not disclosed in the financial statements
any identified material uncertainties that may cast
significant doubt about the Group’s and Company’s ability to
continue to adopt the going concern basis of accounting for
a period of at least twelve months from the date when the
financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Group’s
and Company’s ability to continue as a going concern. For
example, the terms of the United Kingdom’s withdrawal from
the European Union are not clear, and it is difficult to evaluate
all of the potential implications on the Group’s trade and the
wider economy.
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for
the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do
not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or
material misstatement, we are required to perform procedures
to conclude whether there is a material misstatement of the
financial statements or a material misstatement of the other
information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
68
Brit Limited Annual Report 2019
information, we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report,
we also considered whether the disclosures required by the
UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, ISAs (UK) require us also
to report certain opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course
of the audit, the information given in the Strategic Report
and Directors’ Report for the year ended 31 December 2019
is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and
Company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the
Strategic Report and Directors’ Report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’
Responsibilities, the directors are responsible for the
preparation of the financial statements in accordance with
the applicable framework and for being satisfied that they give
a true and fair view. The directors are also responsible for
such internal control as they determine is necessary to enable
the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group’s and the Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern
basis of accounting unless the directors either intend to
liquidate the Group or the Company or to cease operations,
or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditors’ report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of these financial statements.
Financial Statements A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• We have not received all the information and explanations
we require for our audit; or
• Adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• Certain disclosures of directors’ remuneration specified
by law are not made; or
• The Company financial statements are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Appointment
Following the recommendation of the Audit Committee, we
were appointed by the members on 14 June 2016 to audit
the financial statements for the year ended 31 December
2016 and subsequent financial periods. The period of total
uninterrupted engagement is 4 years, covering the years
ended 31 December 2016 to 31 December 2019.
Mark Bolton (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
12 February 2020
Notes:
1. The maintenance and integrity of the Brit Limited website is the
responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website.
2. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Brit Limited Annual Report 2019
69
Financial Statements
Financial Statements
Introduction to the Primary Statements
Consolidated Income Statement
The income statement shows income earned and expenses incurred by all the companies of Brit. Other items are shown in the
statement of comprehensive income. The numbers in brackets are costs or losses incurred.
Consolidated Statement of Comprehensive Income
As well as the profit or loss reported in the income statement, there are a number of other items not reported in the income
statement which are instead shown here. These are gains and losses in the Group’s pension scheme, any tax associated with
these gains or losses and foreign exchange gains and losses on the translation of foreign operations into US dollars. The
statement starts from profit or loss reported in the income statement and adjusts for any gains and losses arising as a result
of the pension scheme and foreign operations to show the overall result.
Consolidated Statement of Financial Position
The statement of financial position is a summary of assets and how the assets have been funded through liabilities and equity
investment by shareholders.
Consolidated Statement of Cash Flows
The cash flow statement shows how we generate cash through our operating activities, how we have spent cash (investing
activities) and how we have borrowed or spent cash to fund our business for all the companies in the Group.
Consolidated Statement of Changes in Equity
The statement of changes in equity shows how the various lines in the equity section of the Group’s statement of financial position
have moved during the year.
70
Brit Limited Annual Report 2019
contents Financial Statements
Index to the Consolidated Financial Statements
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements:
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
General information
Accounting policies and basis of preparation
Critical accounting estimates and judgements
in applying accounting policies
Risk management policies
Segmental information
Investment return
Return on derivative contracts
Other income
Net foreign exchange gains
Note 10
Acquisition costs and other operating
expenses
Note 11
Staff costs
Note 12
Finance costs
Note 13
Auditor’s remuneration
Note 14
Investments in associated undertakings
72
73
74
75
76
78
78
78
90
93
112
116
116
117
117
118
118
119
119
120
Note 15
Tax expense
Note 16
Intangible assets
Note 17
Property, plant and equipment
Note 18
Deferred acquisition costs
Note 19
Deferred taxation
Note 20
Insurance and reinsurance contracts
Note 21
Employee benefits
Note 22
Financial investments
Note 23
Derivative contracts
Note 24
Insurance and other receivables
Note 25
Cash and cash equivalents
Note 26
Borrowings
Note 27
Other financial liabilities
Note 28
Insurance and other payables
Note 29
Called up share capital
Note 30
Dividends
Note 31
Cash flows provided by operating activities
Note 32
Share‑based payments
Note 33
Consolidated entities
Note 34
Related party transactions and Ultimate
Parent Company
Note 35
Guarantees and contingent liabilities
121
123
126
127
127
129
133
138
141
143
144
144
145
145
146
146
147
148
150
152
156
Brit Limited Annual Report 2019
71
contents
Financial Statements
consolidated income statement
For the year ended 31 December 2019
Revenue
Gross premiums written
Less premiums ceded to reinsurers
Premiums written, net of reinsurance
Gross amount of change in provision for unearned premiums
Reinsurers’ share of change in provision for unearned premiums
Net change in provision for unearned premiums
Earned premiums, net of reinsurance
Investment return
Return on derivative contracts
Gain on business combination
Other income
(Losses)/gains on other financial liabilities
Net foreign exchange gains
Total revenue
Expenses
Claims incurred:
Claims paid:
Gross amount
Reinsurers’ share
Claims paid, net of reinsurance
Change in the provision for claims:
Gross amount
Reinsurers’ share
Net change in the provision for claims
Claims incurred, net of reinsurance
Acquisition costs
Other operating expenses
Net foreign exchange losses
Total expenses excluding finance costs
Operating profit/(loss)
Finance costs
Share of net profit of associates
Profit/(loss) on ordinary activities before tax
Tax (charge)/income
Profit/(loss) for the year
All profits/(losses) arise from continuing operations.
The accompanying Notes are an integral part of the financial statements.
72
Brit Limited Annual Report 2019
Note
5
5
6
7
8
8
9
5
10
10
9
12
15(a)
Year ended
31 December
2019
US$m
Year ended
31 December
2018
US$m
2,293.5
(637.3)
1,656.2
(43.8)
29.5
(14.3)
1,641.9
158.5
(17.6)
10.2
45.9
(10.5)
16.8
1,845.2
(1,366.6)
509.1
(857.5)
83.2
(140.2)
(57.0)
(914.5)
(595.2)
(125.8)
–
(1,635.5)
209.7
(23.7)
0.3
186.3
(6.4)
179.9
2,239.1
(756.7)
1,482.4
(34.4)
20.0
(14.4)
1,468.0
(101.2)
6.3
–
10.6
17.4
–
1,401.1
(1,345.5)
407.3
(938.2)
(290.0)
361.2
71.2
(867.0)
(573.0)
(120.5)
(18.6)
(1,579.1)
(178.0)
(18.8)
6.5
(190.3)
23.8
(166.5)
consolidated statement of comprehensive income
For the year ended 31 December 2019
Financial Statements
Profit/(loss) attributable to owners of the parent
Other comprehensive income
Items not to be reclassified to profit or loss in subsequent periods:
Actuarial (losses)/gains on defined benefit pension scheme
Deferred tax gain/(loss) relating to actuarial (losses)/gains
on defined benefit pension scheme
Items that may be reclassified to profit or loss in subsequent periods:
Change in unrealised foreign currency translation losses on foreign operations
Total other comprehensive income
Note
21
15(b)
Year ended
31 December
2019
US$m
Year ended
31 December
2018
US$m
179.9
(166.5)
(4.7)
6.4
3.7
5.4
3.8
(0.6)
(6.1)
(2.9)
Total comprehensive income recognised for the year
185.3
(169.4)
The accompanying Notes are an integral part of the financial statements.
Brit Limited Annual Report 2019
73
Financial Statements
consolidated statement of financial position
At 31 December 2019
Assets
Intangible assets
Property, plant and equipment
Deferred acquisition costs
Investments in associated undertakings
Reinsurance contracts
Employee benefits
Deferred taxation
Current taxation
Financial investments
Derivative contracts
Insurance and other receivables
Cash and cash equivalents
Total assets
Liabilities and Equity
Liabilities
Insurance contracts
Borrowings
Other financial liabilities
Provisions
Current taxation
Derivative contracts
Insurance and other payables
Total liabilities
Equity
Called up share capital
Share premium
Capital redemption reserve
Foreign currency translation reserve
Retained earnings
Total equity attributable to owners of the parent
Total liabilities and equity
Note
31 December
2019
US$m
31 December
2018
US$m
16
17
18
14
20
21
19
22
23
24
25
20
26
27
23
28
29
29
192.6
67.9
243.6
19.4
1,628.1
51.9
41.1
11.4
3,640.6
15.7
1,240.2
520.1
7,672.6
5,266.1
316.2
75.5
3.5
1.2
14.2
676.0
6,352.7
7.0
505.5
1.0
(86.4)
892.8
1,319.9
7,672.6
104.4
17.4
244.1
43.0
1,699.8
53.1
56.1
8.3
3,145.1
17.4
1,008.8
818.2
7,215.7
5,274.1
174.9
241.8
2.2
1.4
14.1
422.2
6,130.7
6.8
435.1
1.0
(89.7)
731.8
1,085.0
7,215.7
The accompanying Notes are an integral part of the financial statements.
These financial statements were approved by the Board of Directors on 12 February 2020 and were signed on its behalf by:
Matthew Wilson
Group Chief Executive Officer
Mark Allan
Group Chief Financial Officer
74
Brit Limited Annual Report 2019
consolidated statement of cash flows
For the year ended 31 December 2019
Note
31
16
17
Cash flows from operating activities
Cash used in operations
Tax received/(paid)
Interest received
Dividends received
Net cash outflows from operating activities
Cash flows from investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Acquisition of subsidiary undertaking
Acquisition of associated undertaking
Dividends from associated undertaking
Net cash outflows from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Drawdown/(repayment) on revolving credit facility
Purchase of class A shares for cancellation
Purchase of shares for share‑based payment schemes
Interest paid
Dividends paid
Net cash inflows from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Effect of exchange rate fluctuations on cash and cash equivalents
Cash and cash equivalents at the end of the year
25
The accompanying Notes are an integral part of the financial statements.
Financial Statements
Year ended
31 December
2019
US$m
Year ended
31 December
2018
US$m
(467.0)
0.6
70.1
5.3
(391.0)
(5.2)
(4.9)
(31.1)
(13.0)
0.5
(53.7)
70.6
132.0
–
(25.0)
(14.5)
(20.6)
142.5
(302.2)
818.2
4.1
520.1
(822.2)
(25.6)
45.1
11.4
(791.3)
(6.4)
(1.4)
(15.5)
–
3.7
(19.6)
436.3
(37.0)
(252.9)
(11.2)
(12.7)
(58.6)
63.9
(747.0)
1,571.6
(6.4)
818.2
Brit Limited Annual Report 2019
75
Financial Statements
consolidated statement of changes in equity
For the year ended 31 December 2019
At 1 January 2019
Total comprehensive income recognised
Recycling of foreign exchange losses upon
acquisition of Ambridge
Issuance of share capital
Dividend
At 31 December 2019
Called up
share
capital
US$m
Note
6.8
–
–
0.2
–
7.0
29
30
Capital
redemption
reserve
US$m
Foreign
currency
translation
reserve
US$m
Retained
earnings
US$m
Total
equity
US$m
1.0
(89.7)
731.8
1,085.0
–
–
–
–
3.7
181.6
185.3
(0.4)
–
–
–
–
(20.6)
(0.4)
70.6
(20.6)
Share
premium
US$m
435.1
–
–
70.4
–
505.5
1.0
(86.4)
892.8
1,319.9
The accompanying Notes are an integral part of the financial statements.
76
Brit Limited Annual Report 2019
consolidated statement of changes in equity
For the year ended 31 December 2018
Financial Statements
At 1 January 2018
Total comprehensive income recognised
Share‑based payments
Issuance of share capital
Repurchase of class A shares
Cancellation of share capital
Dividend
At 31 December 2018
Nature and Purpose of Group Reserves
Called up
share
capital
US$m
Share
premium
US$m
Capital
redemption
reserve
US$m
Foreign
currency
translation
reserve
US$m
Retained
earnings
US$m
Total
equity
US$m
6.4
–
–
1.2
–
(0.8)
–
6.8
–
–
–
435.1
–
–
–
435.1
0.2
–
–
–
–
0.8
–
1.0
(83.6)
1,207.3
1,130.3
(6.1)
–
–
–
–
–
(163.3)
(0.7)
–
(252.9)
–
(58.6)
(169.4)
(0.7)
436.3
(252.9)
–
(58.6)
(89.7)
731.8
1,085.0
Note
32
29
29
29
30
Share premium: The balance represents the difference between the price at which shares are issued and their nominal value, less
any distributions made from this account.
Capital redemption reserve: The balance represents the amount by which share capital is diminished in the event of a share
cancellation and is required to be recognised in a legal reserve to maintain the Group’s capital.
Foreign currency translation reserve: The balance on this reserve represents the foreign exchange differences arising from
the translation of financial statement information of entities within the Group from functional currencies to the presentational
currency of the Group.
Retained earnings: Retained earnings represents the cumulative comprehensive income retained by the Group after taxation and
after any distributions made from this account.
The accompanying Notes are an integral part of the financial statements.
Brit Limited Annual Report 2019
77
Financial Statements
notes to the consolidated financial statements
The first three Notes provide details of the basis of preparation and accounting policies applied in producing these financial
statements and the critical accounting estimates and judgements therein.
1 General information
The consolidated financial statements of Brit Limited and its subsidiaries (collectively, the Group) for the year ended
31 December 2019 were authorised for issue in accordance with a resolution of the Directors on 12 February 2020. The Group’s
principal activity is the underwriting of general insurance and reinsurance business.
Brit Limited (the Company) is a limited company, incorporated and domiciled in England and Wales. The address of the registered
office is: The Leadenhall Building, 122 Leadenhall Street, London, EC3V 4AB.
2 Accounting policies and basis of preparation
2.1 Basis of preparation
The consolidated financial statements for the year ended 31 December 2019 have been prepared in accordance with International
Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) as adopted by the
European Union (EU), and those parts of the Companies Act 2006 applicable to reporting under IFRS. The accounting policies of the
Group have been applied consistently to all the years presented, unless otherwise stated.
The consolidated financial statements have been compiled on a going concern basis and prepared on a historical cost basis, except
for financial investments, derivative contracts and certain other financial liabilities which have been measured at fair value. The
consolidated financial statements are presented in US dollars and all values are rounded to the nearest US$0.1m except where
otherwise indicated.
Certain amounts recorded in the financial information include estimates and assumptions made by management, particularly about
insurance liability reserves, investment valuations, interest rates and other factors. Actual results may differ from the estimates
made. Further details on estimates, judgements and assumptions are included within Note 3 to the consolidated financial statements.
The consolidated financial statements include the results of the Company and all its subsidiary undertakings (collectively, the Group)
made up to the same accounting date.
The Group has adopted the following standards and amendments with a date of initial application of 1 January 2019 for the first time:
(a) IFRS 16 ‘Leases’
From 1 January 2019 the Group adopted IFRS 16 ‘Leases’. IFRS 16 replaces the classification of leases as either operating or finance
leases for lessees that was required under IAS 17. Instead, lessees are required to recognise both a right‑of‑use asset and a lease
liability on balance sheet for all leases.
As at 31 December 2018, the Group had non‑cancellable operating lease commitments of US$71.7m (undiscounted).
On 1 January 2019, the transition date, the Group had a lease liability of US$61.9m of which US$5.4m was a current liability, and
a right‑of‑use asset opening balance of US$50.4m. A reconciliation between the operating lease commitments under IAS 17
at 31 December 2018 and the lease liability at 1 January 2019 is shown below:
Operating lease commitments under IAS 17 as at 31 December 2018
Effect of discounting on payments included in the calculation of the lease liability
Lease liability opening balance reported as at 1 January 2019
US$m
71.7
(9.8)
61.9
78
Brit Limited Annual Report 2019
Financial Statements
The standard has been adopted retrospectively from 1 January 2019; however, as permitted under the transition requirements set
out in IFRS 16, the Group has not restated comparatives for the 2018 reporting period. Reclassifications and adjustments arising
from applying the new standard are therefore recognised in the opening statement of financial position as at 1 January 2019.
The change in accounting policy affected the following items in the balance sheet on 1 January 2019:
• Property, plant and equipment – Increased by US$50.4m
•
Insurance and other payables – Decreased by US$11.5m
• Lease liability – Increased by US$61.9m
This change did not have an impact on retained earnings or deferred tax balances as at 1 January 2019.
The Group has applied several practical expedients as permitted by the standard. The Group has not reassessed whether an existing
contract was, or contained, a lease on transition. The Group has applied the standard to all contracts previously identified as leases
in accordance with IAS 17 and applied the IFRS 16 definition of a lease to all contracts entered into after the date of transition. The
weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 2.99%. The Group’s
incremental borrowing rate has been used as the discount rate, which is calculated as the average of each operating lease’s
applicable discount rate weighted by the remaining aggregate payments on that lease. The applicable discount rates are estimated
by using the Group’s unsecured borrowing rates and making adjustments to the rate to determine a secured borrowing rate. Any
leases that are low value or short term have been expensed on a straight‑line basis to the income statement in accordance with
IFRS 16. On the Statement of Financial Position, the lease liability is included within Insurance and other payables and the right‑of‑use
asset is included in Property, plant and equipment.
(b) Other improvements and amendments
The Group has also applied the following standards and amendments for the first time for the reporting period commencing
1 January 2019:
• Long‑term Interests in Associates and Joint Ventures – Amendments to IAS 28
• Annual Improvements to IFRS Standards 2015 – 2017 Cycle
• Plan Amendment, Curtailment or Settlement – Amendments to IAS 19
• Uncertainty over Income Tax Treatments – IFRIC 23
The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected
to significantly affect the current or future periods.
(c) New standards and interpretations not yet adopted
At the date of authorisation of these financial statements, the following standards which have not been applied in these financial
statements were in issue but not yet effective:
Standard
IFRS 9 Financial Instruments (2014)
IFRS 17 Insurance Contracts (2017)
Effective
Periods commencing on or after 1 January 2018
Periods commencing on or after 1 January 2022
IFRS 9 ‘Financial Instruments’
In July 2014, the IASB issued the final version of IFRS 9 that replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’
and all previous versions of IFRS 9. IFRS 9 (2014) addresses all three aspects of the IASB’s accounting for financial instruments
project, including classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning
on or after 1 January 2018, with early application permitted. Currently, the Group’s investment and derivatives portfolios are
recorded at fair value through profit or loss under IAS 39. Brit expects to continue to record these items at fair value through profit
or loss under IFRS 9.
Brit Limited Annual Report 2019
79
Financial Statements
2 Accounting policies and basis of preparation (continued)
In September 2016 the IASB issued amendments to IFRS 4 that provided two approaches for insurers applying the requirements
of IFRS 9, including an optional temporary exemption from applying IFRS 9 until 2021 for those companies whose activities are
predominantly connected with insurance. In line with the deferral of the effective date of IFRS 17 to 1 January 2022 the IASB has
tentatively agreed to extend the IFRS 9 exemption for insurers to the same date. Brit has taken advantage of this temporary
exemption and, subject to confirmation of the IASB’s tentative decision, will apply IFRS 9 for the period beginning 1 January 2022.
IFRS 17 ‘Insurance Contracts’
In May 2017, the IASB issued IFRS 17 which will have the effect of introducing fundamental changes to the statutory reporting
of insurance entities. IFRS 17 replaces the existing insurance contracts accounting standard, IFRS 4, and is effective for annual
periods beginning on or after 1 January 2022, with early application permitted. This standard has not yet been endorsed by the EU.
Brit has initiated an implementation project which is currently assessing the impact of adopting IFRS 17 on its financial statements
and which will determine both the operational and reporting effects upon the business. The project will ensure that Brit Limited can
meet all of its reporting requirements in 2022.
2.2 Basis of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and associates and the
Group’s participation in Lloyd’s syndicates’ assets, liabilities, revenues and expenses. Subsidiaries are those entities (including
structured entities) that an investor controls, when it is exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over the investee.
The financial statements of the subsidiaries are prepared up to 31 December each year. Consolidation adjustments are made
to convert subsidiary financial statements from local GAAP into IFRS to remove any dissimilar accounting policies that may exist.
Subsidiaries are consolidated from the date control is transferred to the Group and cease to be consolidated from the date
control is transferred from the Group. All inter‑company balances, profits and transactions are eliminated. The acquisition method
of accounting is used to account for business combinations by the Group.
Included within the financial statements of the Group are structured entities where under the requirements of IFRS 10 Consolidated
Financial Statements it has been determined that control exists. The third‑party investment in these entities is recognised
as a financial liability in accordance with IAS 32.
Underwriting members at Lloyd’s have several but not joint liability for the transactions of the syndicates in which they participate.
Therefore, for each managed syndicate on which the Group participates, only the relevant proportion of the transactions, assets and
liabilities of those syndicates are reflected in the consolidated financial statements. Syndicate assets are held subject to trust deeds
for the benefit of the syndicate’s insurance creditors. As at 31 December 2019 Brit UW Limited, a subsidiary of the Group, provided
100% of the capital for Syndicate 2987 and therefore all transactions, assets and liabilities of Syndicate 2987 have been included
in the Group’s financial statements. The Group managed the underwriting of, and participated as a member with an 18.46% share
of the 2018 year of account of, Syndicate 2988 at Lloyd’s. Consequently, 18.46% of the 2018 year of account has been consolidated
into the financial position and performance in the Group’s financial statements. The Group did not participate on Syndicate 2988’s
2019 year of account.
Associates are those entities over which the Group has the power to exercise significant influence but not control. The
Group’s investments in associated undertakings are accounted for under the equity method of accounting whereby associated
undertakings are carried in the statement of financial position at cost plus post‑acquisition changes in the Group’s share of net
assets of the associate, less any impairment in value. The income statement reflects the Group‘s share of the post‑acquisition
results of operations of the associated undertaking and the statement of comprehensive income reflects the Group’s share of the
comprehensive income of the associated undertaking. The financial statements of associated undertakings are prepared up
to 31 December each year.
80
Brit Limited Annual Report 2019
notes to the consolidated financial statements Financial Statements
2.3 Product classification
Insurance contracts are those contracts that transfer significant insurance risk. The significance of insurance risk is dependent
on both the probability of an insured event and the magnitude of its potential effect to the policyholder. Once a contract has been
classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk
reduces significantly during this period. Where the Group has issued financial guarantee contracts these have been regarded
as insurance contracts and have been accounted for in accordance with IFRS 4 ‘Insurance Contracts’.
2.4 Business combinations
The acquisition method of accounting is used for business combinations. The cost of an acquisition is measured as the aggregate
of the consideration transferred, measured at acquisition date fair value and the amount of any non‑controlling interest (NCI) in the
acquiree, where relevant. Acquisition‑related costs are expensed as incurred. Where goodwill or a bargain purchase arises, this
is accounted for in accordance with the policy set out in note 2.5.7(a).
When the Group acquires a business, it assesses the identifiable assets acquired and liabilities assumed, measured initially
at their fair values at the acquisition date, for appropriate classification and designation in accordance with the contractual terms,
economic circumstances and pertinent conditions at the acquisition date. This includes the separation of embedded derivatives
in host contracts by the acquiree. No reclassification of insurance contracts is required as part of the accounting for the business
combination. Thus, insurance contracts are classified on the basis of the contractual terms and other factors at the inception of the
contract or modification date.
If the business combination is achieved in stages, any previously held equity interest is remeasured at its acquisition date fair value
and any resulting gain or loss is recognised in profit or loss.
Any contingent consideration will be recognised at fair value at the acquisition date. Contingent consideration that is classified
as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration that is classified
as an asset or liability within or outside the scope of IAS 39 is measured at fair value through profit or loss (FVTPL).
2.5 Other accounting policies
2.5.1 Insurance contracts
(a) Premiums
Premiums written relate to business incepted during the year, together with any differences between booked premiums for prior
years and those previously accrued, and include estimates of premiums due but not yet receivable or notified, less an allowance
for cancellations. Premiums are accreted to the income statement on a pro‑rata basis over the term of the related policy, except
for those contracts where the period of risk differs significantly from the contract period. In these circumstances, premiums
are recognised over the period of risk in proportion to the amount of insurance protection provided. Reinstatement premiums
are accreted to the income statement on a pro‑rata basis over the term of the original policy to which it relates. Premiums are
shown net of premium taxes and other levies on premiums. Pipeline premium estimates are typically based on standard actuarial
projection techniques (e.g. basic chain ladder) on the key assumption that historical development of premiums is representative
of future development.
(b) Profit commissions
Profit commission income arising from whole account quota share contracts is recognised when the economic benefits are highly
probable. They are netted off against commission costs which are included within the ‘acquisition costs’ line in the income statement.
(c) Deferred acquisition costs
Commission and other acquisition costs incurred during the financial period that are related to securing new insurance contracts
and/or renewing existing insurance contracts, but which relate to subsequent financial periods, are deferred to the extent that they
are recoverable out of future revenue margins. Deferred acquisition costs are capitalised and amortised over the life of the policy
to which they relate on a basis consistent with the earnings pattern of that policy.
Brit Limited Annual Report 2019
81
Financial Statements
2 Accounting policies and basis of preparation (continued)
(d) Claims incurred
Claims incurred comprise claims and claims handling costs paid in the year and changes in the outstanding claims provisions,
including provisions for claims incurred but not reported and related expenses, together with any adjustments to claims from prior
years. Claims handling costs are mainly external costs related to the negotiation and settlement of claims.
(e) Outstanding claims provisions
Outstanding claims represent the estimated ultimate cost of settling all claims (including direct and indirect claims settlement costs)
arising from events which have occurred up to the date of the statement of financial position, including provision for claims incurred
but not reported, less any amounts paid in respect of those claims. The Group does not discount its liabilities for unpaid claims, the
ultimate cost of which cannot be known with certainty at the date of the statement of financial position.
(f) Provision for unearned premiums
The proportion of written premiums that relate to unexpired terms of policies in force at the date of the statement of financial
position is deferred as a provision for unearned premiums, generally calculated on a time apportioned basis. The movement in the
provision is taken to the income statement in order that revenue is recognised over the period of the risk.
(g) Liability adequacy tests
At the date of each statement of financial position, liability adequacy tests are performed, to ensure the adequacy of unearned
premiums net of related deferred acquisition costs, employing the current estimates of future cash flows under its insurance
contracts. If as a result of these tests, the carrying amount of the Group’s insurance liabilities is found to be inadequate
in comparison to the value of these future cash flows, the deficiency is charged to the income statement for the period
by establishing an unexpired risk provision. The tests are performed at a whole account and portfolio level at the statement
of financial position date to ensure the estimated costs of future claims and related deferred acquisition costs do not exceed the
unearned premium provision.
(h) Reinsurance
The Group assumes and cedes reinsurance in the normal course of business. Premiums and claims on reinsurance assumed
are recognised in the income statement along the same basis as direct business, taking into account the product classification.
Reinsurance premiums ceded and reinsurance recoveries on claims incurred are included in the respective expense and income
accounts. Reinsurance outwards premiums are earned according to the nature of the cover. Losses occurring during policies
are earned evenly over the policy period. ‘Risks attaching’ policies are expensed on the same basis as the inwards business being
protected. Reinstatement premiums on both inwards and outwards business are accreted to the income statement on a pro‑rata
basis over the term of the original policy to which they relate.
Reinsurance assets include amounts recoverable from reinsurance companies for paid and unpaid losses and loss adjustment
expenses, and ceded unearned premiums. Amounts recoverable from reinsurers are calculated with reference to the claims liability
associated with the reinsured risks. Revenues and expenses arising from reinsurance agreements are therefore recognised
in accordance with the underlying risk of the business reinsured.
Gains or losses on buying reinsurance are recognised immediately in the income statement.
If a reinsurance asset is impaired, the Group reduces its carrying amount accordingly and will immediately recognise the impairment
loss in the income statement. A reinsurance asset will be deemed to be impaired if there is objective evidence, as a result of an event
that occurred after initial recognition of the asset, that the Group may not receive all amounts due to it under the terms of the
contract and that the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer.
Gains or losses on buying retroactive reinsurance are recognised immediately in the income statement and are not deferred and
amortised. Premiums ceded and claims reimbursed are presented on a gross basis in the consolidated income statement and
statement of financial position as appropriate.
82
Brit Limited Annual Report 2019
notes to the consolidated financial statements Financial Statements
2.5.2 Revenue recognition
Revenue is measured by the Group based on the consideration to which it expects to be entitled through contracts with customers
(net of refunds). Amounts collected on behalf of third parties are excluded from revenue. When control of a service is transferred
to a customer, the related revenue is then recognised.
(a) Management fee income
The Group receives administration and broking fees from non‑aligned syndicates, in accordance with management agreements
that are agreed on an annual basis and specify the services to be provided. These services are in relation to ‘effectively managing
and operating’ the syndicate and are therefore provided continuously throughout the year. As a result, these services are treated
as a single performance obligation. The price is fixed with no variable element and is matched against the single performance
obligation. Consequently, the passage of time is used to measure the amount of fees and commission to be recognised.
(b) Underwriting agency fee income
The Group also receives commissions for the placement or underwriting of policies on behalf of other insurers. Such commissions,
which are measured as a portion of the policy premium, are recognised at the later of the policy inception date or when the policy
placement has been completed.
Brit also receives fees in respect of the costs and expenses of establishing and administering Lloyd’s consortia and conducting the
underwriting on their behalf. The services provided are classed as ‘establishing and administering’ the consortium and are provided
continuously throughout the year. As a result, this is treated as a single performance obligation and measured in accordance with
the measurement bases set out in the relevant consortium agreement.
2.5.3 Investment return
Investment income comprises all interest and dividend income and realised and unrealised gains and losses less investment
management fees. Interest income is recognised using the effective interest method. Dividend income is recognised when the
shareholders’ right to receive the payment is established.
Realised gains and losses on investments are calculated as the difference between net sales proceeds and cost and are recognised
when the sale transaction occurs.
Unrealised gains and losses on investments are calculated as the difference between the valuation at the date of the statement
of financial position and the valuation at the last statement of financial position or purchase price, if acquired during the year.
Unrealised investment gains and losses include adjustments in respect of unrealised gains and losses recorded in prior years which
have been realised during the year and are reported as realised gains and losses in the current year’s income statement.
2.5.4 Recognition and derecognition of financial assets and financial liabilities
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the
contract. A financial asset is derecognised when either the contractual rights to the asset’s cash flows expire, or the asset
is transferred, and the transfer qualifies for derecognition under a combination of risks and rewards and control tests. A financial
liability is derecognised when it is extinguished which is when the obligation in the contract is discharged, cancelled or expired.
All ‘regular way purchases and sales’ of financial assets are recognised on the trade date, i.e. the date that the Group commits
to purchase or sell the asset. Regular way purchases and sales are purchases and sales of financial assets that require delivery
of assets within the time frame generally established by regulation or convention in the marketplace.
Brit Limited Annual Report 2019
83
Financial Statements
2 Accounting policies and basis of preparation (continued)
2.5.5 Investments
The Group has designated on initial recognition its financial assets held for investment purposes (investments) at fair value through
profit or loss (FVTPL). This is in accordance with the Group’s documented investment strategy and consistent with investment risk
being assessed on a portfolio basis. Information relating to investments is provided internally to the Group’s Directors and key
managers on a fair value basis.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value of financial assets and liabilities traded in active markets (which are the
principal markets or the most advantageous markets that maximise the amount that would be received to sell the asset or minimise
the amount that would be paid to transfer the liability) are based on quoted market bid and ask price for both financial assets and
financial liabilities respectively.
The fair value of financial assets and liabilities that are not traded in an active market, including over‑the‑counter derivatives,
is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market
conditions existing at each reporting date. Valuation techniques include the use of comparable recent arm’s‑length transactions,
reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and others
commonly used by market participants and which make the maximum use of observable inputs.
Gains and losses on investments designated as FVTPL are recognised through the income statement. Interest income from
investments in bonds and short‑term investments is recognised at the effective interest rate. Interest receivable is shown
separately in the statement of financial position based on the instruments’ stated rates of interest.
2.5.6 Derivatives
Derivative financial instruments include foreign exchange contracts, forward rate agreements, interest rate futures, currency and
interest rate swaps and other financial instruments that derive their value mainly from underlying interest rates, foreign exchange
rates, credit indices, commodity values or equity instruments. All derivatives are initially recognised in the statement of financial
position at their fair value, which represents their cost. They are subsequently remeasured at their fair value, with movements
in this value recognised in the income statement. Fair values are obtained from quoted market prices or, if these are not available,
by using valuation techniques such as discounted cash flow models or option pricing models.
All derivatives are carried as assets when the fair values are positive and as liabilities when the fair values are negative. Derivative
contracts may be traded on an exchange or over‑the‑counter (OTC). Exchange‑traded derivatives are standardised and include
certain futures and option contracts. OTC derivative contracts are individually negotiated between contracting parties and include
forwards and swaps.
Derivatives are subject to various risks including market, liquidity and credit risk, similar to those related to the underlying financial
instruments. Many OTC transactions are contracted and documented under International Swaps and Derivatives Association (ISDA)
master agreements or their equivalent, which are designed to provide legally enforceable set‑off in the event of default, reducing
the Group’s exposure to credit risk. The notional or contractual amounts associated with derivative financial instruments are not
recorded as assets or liabilities on the statement of financial position as they do not represent the fair value of these transactions.
2.5.7 Intangible assets
(a) Goodwill
Goodwill is initially measured at cost, being the excess of the fair value of the consideration transferred and the amount recognised
for non‑controlling interests and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If those
amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly
in profit or loss as a bargain purchase.
84
Brit Limited Annual Report 2019
notes to the consolidated financial statements Financial Statements
After initial recognition, goodwill is not amortised but is measured at cost less any accumulated impairment losses. Goodwill
is tested for impairment annually or more frequently if events or circumstances indicate that it might be impaired. For the purposes
of impairment testing, goodwill acquired in a business combination is allocated to an appropriate cash generating unit (CGU)
that is expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned
to those units.
Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with
the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal of the
operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the
portion of the cash‑generating unit retained.
(b) Syndicate participation rights
Lloyd’s syndicate participation rights that have been acquired on acquisition of a subsidiary are initially recognised at fair value.
They are considered to have an indefinite useful life as they will provide benefits over an indefinite future period and are therefore
not subject to an annual amortisation charge. The continuing value of the underwriting capacity is reviewed for impairment annually
by reference to the expected future profit streams to be earned from the respective syndicate, with any impairment in value being
charged to the income statement.
(c) Trade names
Trade names that have been acquired on acquisition of a subsidiary are initially recognised at fair value. They are considered to have
an indefinite useful life as they will provide benefits over an indefinite future period and are therefore not subject to an annual
amortisation charge. The carrying value of the trade names is reviewed for impairment annually by reference to the expected future
profit streams to be earned from the CGUs to which the trade names relate, with any impairment in value being charged to the
income statement.
(d) Computer software
Acquired computer software licences are capitalised based on the costs incurred to acquire and bring into use the specific software.
Internal development costs that are directly associated with the production of identifiable and unique software products controlled
by the Group are also capitalised where the cost can be measured reliably, the Group intends to and has adequate resources
to complete development and the computer software will generate future economic benefits. All computer software costs are finite
life assets and amortised on a straight‑line basis over their expected useful lives, not exceeding a period of five years.
(e) Distribution channels
Distribution channels that have been acquired on acquisition of a subsidiary are initially recognised at fair value. They are
deemed to be finite life assets and amortised on a straight‑line basis over their expected useful economic lives, not exceeding
a period of 15 years.
(f) Employee‑related intangibles
A non‑compete agreement in favour of the Group, signed upon acquisition of a subsidiary, and non‑compete clauses in certain
employee contracts acquired in business combinations have been recognised at fair value. These are considered to be finite
life assets and, as such, are amortised on a straight‑line basis over their expected useful economic lives, not exceeding
a period of 3 years.
(g) Regulatory licences
Regulatory licences that have been acquired on acquisition of a subsidiary are initially recognised at fair value. They are considered
to have an indefinite useful life as they do not expire and will provide benefits over an indefinite future period and are therefore
not subject to an annual amortisation charge. The carrying value of the licences is reviewed for impairment annually by reference
to the expected future profit streams to be earned from the respective licences, with any impairment in value being charged to the
income statement.
Brit Limited Annual Report 2019
85
Financial Statements
2 Accounting policies and basis of preparation (continued)
2.5.8 Property, plant and equipment
Property, plant and equipment are carried at cost, less accumulated depreciation and any impairment in value. Depreciation
is calculated so as to write‑off the cost over their estimated useful economic lives on a straight‑line basis having regard to the
residual value of each asset, as follows:
Office refurbishment costs, office machinery, furniture and equipment
Computers, servers, data storage devices, networks and other IT infrastructure
5‑15 years
3‑5 years
The assets’ residual values and useful lives are reviewed at the date of each statement of financial position and adjusted
if appropriate.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Gains and losses on the disposal of property, plant and equipment are determined by comparing
proceeds with the carrying amount of the asset and are included in the income statement. Costs for repairs and maintenance are
expensed as incurred.
2.5.9 Impairment
Goodwill, syndicate participation rights, trade names and regulatory licenses are not subjected to amortisation but are tested
annually for impairment as they are assets with an indefinite useful life. Other assets, except for assets arising from insurance
contracts, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable.
If the carrying value of an asset is impaired, it is reduced to the recoverable amount by an immediate charge to the income
statement. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
Value in use is based on discounting cash flows at the Group’s weighted average cost of capital which is loaded where
significant uncertainties exist. Assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash‑generating units).
Impairment reviews are made by comparing carrying value to recoverable amount.
2.5.10 Cash and cash equivalents
Cash and cash equivalents in the statement of financial position include cash in hand, deposits held at call with banks and other
short‑term, highly liquid investments with a maturity of three months or less at the date of acquisition.
2.5.11 Income taxes
Income tax comprises current and deferred tax. Income tax is recognised in the income statement except where it relates to an item
which is recognised in equity.
(a) Current income tax
Current income tax is the expected tax payable on the taxable profit for the period using tax rates (and laws) enacted
or substantively enacted at the date of the statement of financial position and any adjustment to the tax payable in respect
of previous periods. The Group calculates current income tax using current income tax rates.
(b) Deferred income tax
Where relevant deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the consolidated financial statements. If the deferred income tax arises
from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss, it is not recognised.
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Financial Statements
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the date of the
statement of financial position and are expected to apply when the related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilised.
Deferred income tax relating to items recognised in other comprehensive income is also recognised in other comprehensive income.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where
the Group controls the timing of the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income taxes relate to the same fiscal authority.
Deferred tax assets and liabilities are not discounted.
2.5.12 Employee benefits
The Group operates a number of defined contribution schemes. It also makes payments into a number of personal money purchase
pension plans. Contributions in respect of these schemes are charged to the income statement in the period to which they relate.
The Group also operates a defined benefit pension scheme. The asset recognised in the statement of financial position in respect
of the defined benefit scheme is the fair value of the scheme assets less the present value of the defined benefit obligation which
is determined by discounting the estimated future cash outflows. The discount rate is based on market yields at the reporting date
of high‑quality corporate bonds that have terms to maturity which approximate to those of the related pension liability. An asset
is recognised only to the extent that it is considered available in the form of future refunds from the plan, in particular taking into
consideration any minimum funding requirements that apply to the plan.
Actuarial gains and losses are recognised immediately through other comprehensive income.
The Group determines the net interest expense/income on the net defined benefit liability/asset for the period by applying the
discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit
liability/asset.
Past service costs arising in the period are recognised as an expense at the earlier of the date when the plan amendment
or curtailment occurs and the date when the Group recognises related restructuring costs or termination benefits.
The Group recognises an accrual in respect of profit‑sharing, bonus plans and long service cash awards where a contractual
obligation to employees exists or where there is a past practice that has created a constructive obligation.
2.5.13 Share‑based payments
The fair value of equity instruments granted under share‑based payment plans are recognised as an expense and spread over the
vesting period of the instrument. The total amount to be expensed is determined by reference to the fair value of the awards made
at the grant date.
At the date of each statement of financial position, the Group revises its estimate of the number of equity instruments that are
expected to become exercisable and it recognises the impact of the revision of original estimates, if any, in the income statement.
Where the awards have been granted by a parent company and are therefore treated as equity‑settled a corresponding adjustment
is made to equity over the remaining vesting period.
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Where the awards have been granted by the Company and are therefore treated as cash‑settled, a liability is provided for settlement
of the awards. The corresponding adjustment arising on a revision of the original estimate is made to that liability. In addition, the fair
value of the award and ultimate expense are adjusted upon a change in the market share price of the underlying shares or at the
valuation date.
2.5.14 Provisions and contingencies
Provisions are liabilities with uncertainties in the amount or timing of payments. Provisions are recognised if there is a present
obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation, and a reliable estimate of the amount of the obligation can be made at the date of the statement
of financial position.
A contingent liability is a possible obligation that arises from past events or a present obligation that is not recognised as it is not
probable that an outflow of resources will be required to settle the obligation or the amount of obligation cannot be measured with
sufficient reliability. A contingent liability is disclosed but not recognised.
2.5.15 Leases
As indicated in Note 2.1(a), the Group has adopted IFRS 16 retrospectively from 1 January 2019. The Group leases various
offices under rental contracts that are typically from 1 to 15 years but may have extension options. Lease terms are negotiated
on an individual basis and contain a wide range of terms and conditions.
Until 31 December 2018, all the Group’s leases of property were classified as operating leases. From 1 January 2019, leased assets
are recognised as right‑of‑use assets and corresponding liabilities are recorded at the date at which the leased assets are available
for use by the Group.
Assets and liabilities arising from a lease are initially measured on a present value basis.
Lease liabilities include the net present value of the following lease payments:
• fixed payments (including in‑substance fixed payments), less any lease incentives receivable;
• variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the
commencement date; and
• payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which
is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee
would have to pay to borrow the funds necessary to obtain an asset of similar value to the right‑of‑use asset in a similar economic
environment with similar terms, security and conditions. To determine this, the Group uses recent third‑party financing received
by the individual lessee (where available) and, if necessary, makes adjustments to reflect subsequent changes in financing conditions
and other adjustments specific to the lease (for example, to reflect lease term, country of leased asset, contract currency
and security).
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included
in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability
is reassessed and adjusted against the right‑of‑use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
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Right‑of‑use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability;
• any lease payments made at or before the commencement date less any lease incentives received;
• any initial direct costs, and
• restoration costs.
Right‑of‑use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight‑line basis.
Payments associated with short‑term leases and leases of low‑value assets are recognised on a straight‑line basis as an expense
in profit or loss. Short‑term leases are leases with a term of 12 months or less.
Extension and termination options are included in a number of leases across the Group. These are used to maximise operational
flexibility in terms of managing the assets used in the Group’s operations. Most of the extension and termination options held are
exercisable only by the Group and not by the respective lessor.
2.5.16 Foreign currency translation
Items included in the financial statements of the parent and subsidiaries are measured using the functional currency which is the
primary economic environment in which the entity operates. The Group presents its consolidated financial statements in US dollars
which is the functional currency of the parent.
Foreign currency transactions are recorded in the functional currency for each entity using the exchange rates prevailing
at the dates of the transactions or at the average rate for the period when this is a reasonable approximation. Substantially all
of the Group’s operations have US dollars as their functional currency. Monetary assets and liabilities denominated in foreign
currencies are translated at period end exchange rates. The resulting exchange differences on translation are recorded in the
income statement. Non‑monetary assets and liabilities that are measured at historical cost denominated in a foreign currency are
not retranslated.
The functional currencies of some of the Company’s subsidiaries differ from the consolidated Group US dollar presentation currency.
As a result, the assets and liabilities of these subsidiaries are translated on consolidation at the rates of exchange prevailing
at the balance sheet date. Revenue and expenses are translated at the average rate of exchange for the period. The unrealised
gain or loss resulting from this translation is recognised in other comprehensive income and transferred to a foreign currency
translation reserve.
2.5.17 Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred and subsequently stated at amortised cost. Fair
value is normally determined by reference to the fair value of the proceeds received. Any difference between the initial carrying
amount and the redemption value is recognised in the income statement over the period of the borrowings using the effective
interest rate method.
2.5.18 Other financial liabilities
The Group has designated its financial liabilities in respect of third‑party investments in consolidated structured entities and
investment funds at fair value through profit or loss (FVTPL). The fair value of the investments by independent third parties
is determined by reference to the net assets of those entities, which may also require reference to the underlying net assets
of other vehicles or investment funds in which those entities have invested. Gains or losses in respect to change in fair value
is recognised through the income statement.
2.5.19 Segmental reporting
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the entity’s chief operating decision maker and for which discrete
financial information is available.
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2 Accounting policies and basis of preparation (continued)
2.5.20 Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments. Loans and receivables are measured at amortised
cost, using the effective interest rate method, less provision for impairment. Individual receivables known to be uncollectible are
written off by reducing the carrying amount directly. Other receivables are assessed collectively to determine whether there
is objective evidence that an impairment has occurred but not yet been identified and, where necessary, the estimated impairment
losses are recognised in a separate provision for impairment.
2.5.21 Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial position only when there
is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the
assets and settle the liability simultaneously.
2.5.22 Dividend and capital distributions
Dividend and capital distributions to the Company’s shareholders are recognised in the Group’s financial statements in the period
in which they are declared and appropriately approved.
2.5.23 Collateral
The Group receives collateral from certain reinsurers and pledges collateral where required for regulatory purposes and other
funding arrangements. Collateral received in the form of cash is recognised as an asset on the statement of financial position with
a corresponding liability for the repayment. Non‑cash collateral received is not recognised on the statement of financial position.
Collateral pledged is not derecognised from the statement of financial position unless the Group defaults on its obligations under the
relevant agreement.
3 Critical accounting estimates and judgements in applying accounting policies
3.1 Introduction
The Group makes various assumptions that affect the reported amounts of assets and liabilities. Estimates and judgements are
regularly re‑evaluated and are based on a combination of historical experience and other factors, including exposure analysis,
expectations of future experience and expert judgement.
3.2 The ultimate liability arising from claims made under insurance contracts
The estimation of the ultimate liability arising from claims made under insurance contracts is the Group’s most critical accounting
estimate. There are several sources of uncertainty that need to be considered in the estimate of the amounts that the Group will
ultimately pay to settle such claims. Significant areas requiring estimation and judgement include:
• Estimates of the amount of any liability in respect of claims notified but not settled and incurred but not reported claims (IBNR)
to be included within provisions for inwards insurance and reinsurance contracts;
• The corresponding estimate of the amount of outwards reinsurance recoveries which will become due as a result of the
estimated claims on inwards business;
• The recoverability of amounts due from reinsurers; and
• Estimates of the proportion of exposure which has expired in the period as represented by the earned proportion
of premiums written.
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The assumptions used and the manner in which these estimates and judgements are made are set out below, including the reserving
process for the estimation of gross, and net of reinsurance, ultimate premiums and claims:
• Quarterly statistical data is produced in respect of gross and net premiums and claims (paid and incurred);
• Projections of ultimate premiums, reinstatement premiums and claims are produced by the internal actuarial department using
standard actuarial projection techniques (e.g. Basic Chain Ladder, Bornhuetter‑Ferguson, Initial Expected Loss Ratio). The Basic
Chain Ladder and Bornhuetter‑Ferguson projection methods are based on the key assumption that historical development
of premiums and claims is representative of future development. Claims inflation is taken into account in the Initial Expected Loss
Ratio selections but is otherwise assumed to be in line with historical inflation trends, unless explicit adjustments for other drivers
of inflation such as legislative developments are deemed appropriate;
• Some classes of business have characteristics which do not necessarily lend themselves easily to statistical estimation
techniques, e.g. due to low data volumes. In such cases, for example, a policy‑by‑policy review may also be carried out
to supplement statistical estimates;
•
In the event of catastrophe losses, prior to detailed claims information becoming available, claims provision estimates are
compiled using a combination of output from specific recognised modelling software and detailed reviews of contracts exposed
to the event in question;
• The initial ultimate selections derived by the actuarial department, along with the underlying key assumptions and methodology,
are discussed with class underwriters, divisional underwriting directors and the claims team at ‘pre‑committee’ meetings. The
actuarial department may make adjustments to the initial ultimates following these meetings;
• Following the completion of the ‘pre‑committee’ meetings and peer review process within the actuarial department, the ultimate
selections (actuarial estimate), assumptions, methodology and uncertainties are presented to the Reserving Committee for
discussion and debate;
• Following review of the actuarial estimate, the Reserving Committee recommends the committee estimate to be adopted in the
financial statements; and
• As part of their audit engagement, claims provisions are subject to external actuarial review by Brit’s auditor.
The results of the external actuarial review by Brit’s auditor is presented to both the Reserving Committee and the Audit Committee
with key assumptions, methodologies and uncertainties also highlighted. The purpose of the external review is to provide both
committees with an independent actuarial view of reserve requirements compared to the recommendations of the internal
actuarial department.
The estimates and judgements are applied in line with the overall reserving philosophy and seek to state the claims provisions
on a best estimate, undiscounted basis. A management risk margin is also applied over and above the actuarial best estimate to allow
for the inherent uncertainty within the best estimate reserve position.
In addition to claims provisions, the reserve for future loss adjustment expenses is also subject to estimation with consideration
being given to the level of internal and third‑party loss adjustment expenses incurred annually. The estimated loss adjustment
expenses are expressed as a percentage of gross claims reserves and the reasonableness of the estimate is assessed through
benchmarking. Further judgements are made as to the recoverability of amounts due from reinsurers. Provisions for bad debts are
made specifically, based on the solvency of reinsurers, internal and external ratings, payment experience with them and any disputes
of which the Group is aware.
The carrying value at the date of the statement of financial position of gross claims reported and loss adjustment expenses and
claims incurred but not reported were US$4,296.7m (2018: US$4,348.5m) as set out in Note 20 to the financial statements. The
amount of reinsurance recoveries estimated at that date is US$1,345.3m (2018: US$1,446.5m).
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3 Critical accounting estimates and judgements in applying accounting policies (continued)
3.3 Pipeline premiums
Written premiums include pipeline premiums of US$735.6m (2018: US$626.9m) which represent future premiums receivable
on in‑force insurance contracts. Pipeline premium estimates are typically based on standard actuarial projection techniques (e.g.
Basic Chain Ladder) on the key assumption that historical development of premiums is representative of future development.
3.4 Intangible assets
Intangible assets with indefinite useful lives are tested for impairment on an annual basis in accordance with IAS 36 ‘Impairment
of Assets’. Determining the assumptions used in the test requires estimation. The calculations use projected profit streams based
on cash flow forecasts and are approved by management. The indefinite useful life intangible assets of the Group consist of goodwill,
syndicate participation rights, trade names and US state authorisation regulatory licenses. The carrying amount at the date of the
statement of financial position was goodwill: US$45.9m (2018: nil), trade names: US$0.5m (2018: nil), syndicate participation rights:
US$70.8m (2018: US$70.8m) and regulatory licences: US$7.5m (2018: US$7.5m). For further information, refer to Note 16.
3.5 Leases
The accounting for leases under the newly adopted IFRS 16 (see Note 2.1(a)) requires an incremental borrowing rate to use as the
discount rate for the leases. Brit has taken advantage of the practical expedient in IFRS 16 to apply a single discount rate to its
portfolio of leases. The property leases do not explicitly or implicitly state interest rates, therefore unsecured borrowing rates for
individual leases have been estimated by using the borrowing rate for the group in the jurisdictions that the leases are held.
Extension and termination options are included in a number of leases across the Group. These are used to maximise operational
flexibility in terms of managing the assets used in the group’s operations. Most of the extension and termination options held are
exercisable only by the group and not by the respective lessor. Management have exercised judgement in determining whether there
is a significant expectation that these options would be exercised.
3.6 Financial investments
Financial investments are carried in the statement of financial position at fair value. The carrying amount of financial investments
at the date of the statement of financial position was US$3,640.6m (2018: US$3,145.1m). Determining the fair value of certain
investments requires estimation.
The Group value investments using designated methodologies, estimations and assumptions. These securities, which are reported
at fair value on the consolidated statement of financial position, represent the majority of the invested assets. The measurement
basis for assets carried at fair value is categorised into a ‘fair value hierarchy’ in accordance with the valuation inputs and
consistent with IFRS 13 ‘Fair Value Measurement’. The fair value hierarchy gives the highest priority to quoted prices in active
markets for identical assets or liabilities (level one); the middle priority to fair values other than quoted prices based on observable
market information (level two); and the lowest priority to unobservable inputs that reflect the assumptions that we consider market
participants would normally use (level three). To the extent that valuation is based on models or inputs that are unobservable
in the market, the determination of fair value requires more judgement and, accordingly, those instruments included in level
three will require a greater degree of judgement to be exercised during valuation than for those included in level two or level one.
At 31 December 2019, financial investments amounting to US$215.2m (2018: US$199.0m) were classified as level three.
The classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. Any change
to investment valuations may affect our results of operations and reported financial condition. For further information,
refer to Note 22.
3.7 Defined benefit plans
The amounts recognised in the consolidated financial statements in respect of the Group’s defined benefit pension plan are
determined using actuarial valuations, which involves making assumptions that may differ from actual developments in the future.
These include the determination of the discount rate, inflation, mortality rates and future pension increases. Due to the complexities
involved in the valuation and its long‑term nature, a defined benefit obligation is highly sensitive to changes in these assumptions.
All assumptions are reviewed at each reporting date.
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The carrying amount of the pension asset at the date of the statement of financial position was US$51.9m (2018: US$53.1m). For
further information, refer to Note 21.
3.8 Consolidation of structured entities
The Group holds investments in two Bermuda‑domiciled special purpose vehicles, Versutus Limited and Sussex Capital Limited (which
is the sole investor in another special purpose vehicle, Sussex Re Limited). The Group is therefore required to determine whether
these entities (or segregated accounts thereof) meet the criteria for consolidation as defined in IFRS 10, for which the exercise
of judgement is required. In particular, the Group considered the following factors to determine whether it is acting as an agent
or a principal for these entities: (i) the power the Group has over them and the ability to direct relevant activities; (ii) the rights of the
Group to variable returns from the Group’s involvement with the entities; and (iii) the ability to use that power to affect the amount
of the Group’s returns.
The Group is exposed to variability of returns from the activities of these entities both through its direct investments in the
vehicles and through the receipt of fee income from services provided to those entities. As at 31 December 2019, that exposure
was of a significance that it indicates that the Group is acting as a principal when considered alongside additional factors including
the design of the structures in which those entities have been established, their business models, and a range of other qualitative
factors in determining whether the criteria for consolidation are met. Consequently, the Group has continued to consolidate these
entities (or relevant segregated accounts thereof) during the financial year.
3.9 Deferred tax asset in respect of carried forward losses
The deferred tax asset includes an amount of US$80.3m (2018: US$73.8m) which relates to carried forward tax losses in respect
of Lloyd’s undeclared year of account losses for 2017 and 2018 which will be taxed under the Lloyd’s declaration basis in the years
2020 and 2021 respectively. The Group has concluded that the deferred tax asset is recoverable based on the Lloyd’s approved
plan for the year of account 2020 and forecast results for the Brit group UK entities and other UK subsidiaries of the Fairfax group
which are available for group or consortium relief. The losses can be carried forward indefinitely and have no expiry date, however
a further deferred tax asset of US$2.4m (2018:US$8.7m) has not been recognised on the basis that it is not yet possible to measure
the asset reliably due to the difficulty of forecasting results beyond 2025 and the year of account 2022.
4 Risk management policies
This Note provides details of key risks that the Group is exposed to and explains the Group’s strategies and the role of management
in mitigating these risks.
4.1 Insurance risk
Insurance risk arises from the possibility of an adverse financial result due to actual experience being different from that expected
when an insurance product was designed and priced. The actual performance of insurance contracts is subject to the inherent
uncertainty in the occurrence, timing and amount of the final insurance liabilities. This is the principal risk the Group is exposed
to as the Group’s primary function is to underwrite insurance contracts. The risk arises due to the possibility of insurance contracts
being under‑priced, under‑reserved or subject to unforeseen catastrophe claims.
The areas of insurance risk discussed below include underwriting (including aggregate exposure management), reinsurance
and reserving.
4.1.1 Underwriting risk
(a) Introduction
Underwriting risk is the risk that insurance premiums will not be sufficient to cover the future losses and associated expenses.
It arises from the fluctuations in the frequency and severity of financial losses incurred through the underwriting process by the
Group as a result of unpredictable events.
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4 Risk management policies (continued)
The Group is also exposed to the risks resulting from its underwriters accepting risks for premiums which are insufficient to cover
the ultimate claims which result from such policies. The underwriting environment and the associated impact on premium rates,
including trends due to the underwriting cycle, are factored into the Group’s pricing models and risk management tools, and
is continually monitored to assess whether any corrective action is required. Additional controls over the underwriting strategy are
described in the section below.
The Group primarily writes its business through Lloyd’s and therefore can take advantage of Lloyd’s centralised infrastructure
and service support. Lloyd’s also has an established global distribution framework, with extensive licensing agreements providing
the Group access to over 200 territories. Primarily using the Lloyd’s platform to underwrite, subjects the Group to a number
of underwriting risks. The Group relies on the efficient functioning of the Lloyd’s market. If for any reason Brit Syndicates Limited
(BSL) was restricted or otherwise unable to write insurance through the Lloyd’s market, there would be a potentially material
adverse effect on the Group’s business. In particular, any damage to the brand or reputation of Lloyd’s, increase in tax levies imposed
on Lloyd’s participants or deterioration in Lloyd’s asset base when compared with its liabilities may have a material adverse effect
on the Group’s ability to write new business.
BSL also benefits from the ability to write business based on the Lloyd’s financial rating, which allows the Group to write more
business as part of the Lloyd’s platform. A downgrade in Lloyd’s financial strength ratings may have an adverse effect on the Group.
The Group also writes business through the Sussex Capital collateralised reinsurance platform. Through Sussex Re Limited the
platform writes direct collateralised property catastrophe reinsurance in addition to providing collateralised reinsurance to Brit’s
Property Treaty portfolio. Please refer to section 4.9 for details on the governance structure relevant to the Sussex platform.
(b) Controls over underwriting strategy
The Board sets the Group’s underwriting strategy for accepting and managing underwriting risk. The Underwriting Committee
meets regularly to drive the underwriting strategy and to monitor performance against the plans. The assessment of underwriting
performance is all‑encompassing applying underwriting key performance indicators (KPIs), technical pricing management
information (MI), premium monitoring, delegated underwriting operations and claims. The risks are managed by the committee in line
with the underwriting risk policy and within the risk tolerance set by the Board. The underwriting risk policy also sets out a number
of controls, which are summarised below.
The Group carries out a detailed annual business planning process for each of its underwriting units. The resulting plans set out
premium, territorial and aggregate limits and reinsurance protection thresholds for all classes of business and represent a key
tool in managing concentration risk. Performance against the plans is monitored on a regular basis by the Underwriting Committee
as well as by the Boards of the regulated entities. A dedicated Risk Aggregation Team also performs Realistic Disaster Scenario
(RDS) analysis on a regular basis to ensure that the Group’s net losses remain within its risk appetite.
The Group has developed underwriting guidelines, limits of authority and business plans which are binding upon all staff authorised
to underwrite. These are detailed and specific to underwriters and classes of business. Gross and net line size limits are in place for
each class of business with additional restrictions in place on catastrophe exposed business.
A proportion of the Group’s insurance risks are written by third parties under delegated underwriting authorities, with the
remaining being written through individual risk acceptances or through reinsurance treaties. The third parties are closely vetted
in advance and are subject to tight reporting requirements. In addition, the performance of these contracts is closely monitored
by underwriters and regular audits are carried out.
The technical pricing framework ensures that the pricing process in the Group is appropriate. It ensures pricing methodologies are
demonstrable and transparent and that technical (or benchmark) prices are assessed for each risk. The underwriting and actuarial
functions work together to maintain the pricing models and assess the difference between technical price and actual price. The
framework also ensures that sufficient data is recorded and checked by underwriters to enable the Group to maintain an effective
rate monitoring process.
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Compliance is checked through both a peer review process and, periodically, by the Group’s internal audit department which
is entirely independent of the underwriting units.
In order to limit risk, the number of reinstatements per policy is limited, deductibles are imposed, policy exclusions are applied and
whenever allowed by statute, maximum indemnity limits are put in place per insured event.
(c) Underwriting risk profile
The core insurance portfolio of property, marine, energy and casualty covers a variety of largely uncorrelated events and also
provides some protection against the underwriting cycle as different classes are at different points in the underwriting cycle. The
underwriting portfolio is managed to target top quartile underwriting performance and the mix of business is continually adjusted
based on the current environment (including the current pricing strength of each class). This assessment is conducted as part
of the business planning and strategy process which operates annually and uses inputs from the technical pricing framework.
The business plan is approved by the Board and is monitored monthly.
The Group underwrites a well‑diversified portfolio across multiple regions and classes. While underlying risk and the policyholder
may be situated anywhere in the world, more than 80% of the GWP of the Group in 2019 was sourced in London. Other business
written by the syndicate includes that sourced through a wholly‑owned service company in the United States, the business of which
accounted for 13.3% of the Group’s annual GWP in 2019. The Group also writes business from its office in Bermuda, with Brit Global
Specialty Bermuda (BGSB) accounting for 4.8% of the Group’s annual GWP in 2019. In 2019, 36.5% of the Group’s GWP was reinsured
to third parties.
(d) Geographical concentration of premium
The Group enters into policies with policyholders from all over the world, with the underlying risk relating to premiums spread
worldwide. This allows the Group to benefit from a wide geographic diversification of risk. The four principal locations of the Group’s
policyholders are the United States, UK, Europe and Canada. The concentration of insurance premium before and after reinsurance
by the location of the underlying risk is summarised below:
2019
United States
United Kingdom
Canada
Europe (excluding UK)
Other (including worldwide)
2018
United States
United Kingdom
Canada
Europe (excluding UK)
Other (including worldwide)
Gross
premiums
written
US$m
Net
premiums
written
US$m
1,207.3
141.0
103.8
69.5
771.9
863.5
97.1
70.4
44.7
580.5
2,293.5
1,656.2
1,016.4
139.4
83.7
94.0
905.6
743.4
28.5
49.1
50.2
611.2
2,239.1
1,482.4
The nature of the London Market business is such that the insureds and reinsureds are often operating on a multi‑territory
or worldwide basis and hence coverage is often provided on a worldwide basis. Premiums written on a multi‑territory or worldwide
basis are included in ‘Other’ in the table above.
Brit Limited Annual Report 2019
95
Financial Statements
4 Risk management policies (continued)
(e) Portfolio mix
The Group’s third‑party underwriting takes place through the syndicate underwriting business in a wide variety of business lines.
The business lines can be broken down into five principal categories: (i) short‑tail direct insurance; (ii) long‑tail direct insurance;
(iii) short‑tail reinsurance; (iv) long‑tail reinsurance; and (v) other.
The breakdown of premium before reinsurance by principal lines of business is summarised below:
Brit Global Specialty Direct
Brit Global Specialty Reinsurance
Other
Financial and Professional Liability
Programmes and Facilities
Property
Specialty
US Specialty
Casualty Treaty
Property Treaty
2019
Gross
premiums
written
%
11.8
25.2
11.3
11.1
15.3
10.2
13.3
1.8
US$m
270.9
577.9
259.1
253.8
351.8
233.2
304.5
42.3
2018
Gross
premiums
written
%
12.1
23.5
13.9
16.0
13.1
9.3
10.8
1.3
US$m
270.9
525.3
311.3
357.3
293.2
209.4
242.3
29.4
2,293.5
100%
2,239.1
100%
The Group underwrites a business mix of both insurance and reinsurance, long and short‑tail business across a number
of geographic areas which results in a diversification of the Group’s portfolio. The business mix is monitored on an ongoing basis.
Underwriting risk is mainly driven by the syndicate’s US catastrophe exposure. Casualty treaty is also a driver due to its long‑tail
exposure. The risk profile of Brit’s underwriting portfolio is set out in more detail in the sections below.
(i) Specialty
Marine
Energy
EL and PL
Space
Coverage for cargo, hull, marine war and marine liability.
Coverage for upstream (offshore) and midstream activities related to oil and gas production.
Cover for employers’ liability and public liability both in the UK and internationally but excluding the US.
Coverage for satellites at both launch and in orbit.
The Specialty portfolio includes a diverse range of business lines. However, the portfolio is exposed to large losses on individual risks,
for example due to the loss of marine vessels or offshore oil platforms. The EL and PL portfolio is exposed to large losses resulting
from bodily injury claims, and the risk of latent claims arising from risks that were not envisaged at the time of writing the policy.
(ii) Facilities
Property Facilities
Coverage of commercial and residential properties underwriting business predominantly
in North America.
Accident and Health
Coverage for personal accident (including kidnap and ransom), bloodstock and contingency.
Transport
Coverage of commercial automobile physical damage and motor truck cargo across the US and Canada.
Long Tail Facilities
Coverage of legal expenses, and of professional negligence, errors and omissions for small and medium‑
sized enterprises.
96
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
The Facilities portfolio consists of business written on a delegated authority basis. Property Facilities is exposed to catastrophe
claims, particularly US windstorms, earthquakes, floods and terrorist events, and also to an increased frequency of fire and
weather‑related events.
Accident and Health offers diversification due to low correlation with other business lines. Personal accident has the potential
to suffer from large losses due to a high concentration of multiple deaths from a catastrophe or large claims from highly valued
insured individuals. Medical expense claims are subject to high inflationary costs and may experience a high claim frequency. Both
bloodstock and contingency classes have exposure to multiple claims from a single event.
The key risks relating to Long Tail Facilities lie with increasing claim frequency due to global recessionary events
or systemic malpractice.
(iii) Financial & Professional
Directors & Officers
Financial Institutions
Cyber
Healthcare
Coverage provided to both directors and officers and companies for personal liability
or securities‑related lawsuits.
Coverage of financial institutions for risks including internal and external fraud, and liability
to customers, shareholders and regulators.
Coverage of first‑ and third‑party risks relating to network security, privacy and data
protection risks.
Coverage of hospitals, allied health and long‑term care liability, predominantly in the US.
US Professional Indemnity
Coverage for professional negligence, errors and omissions, provided on both an open
market and a binding authority basis.
Financial and professional lines are typically long‑tailed, meaning that on average the claims are not settled for several years
after the expiry of the policy, which increases exposure to claims inflation. Other key risks relate to increasing claim frequency
due to global recessionary events or systemic malpractice, as well as an increasing prevalence of cyber risk. This portfolio is also
exposed to the risk of latent claims arising from risks that were not envisaged at the time of writing the policy.
(iv) Property
Political Risk and Trade Credit
Covers non‑payment/performance of counterparties and confiscation, expropriation,
nationalisation, deprivation, sequestration or forced abandonment of overseas assets.
Political Violence
Covers physical damage and business interruption losses due to perils including terrorism,
riots, war, chemical, biological and/or radiological attacks.
Open Market and Worldwide Property
Coverage of commercial property in the US and internationally.
UK Property
UK property package covers for individuals and small or medium sized enterprises.
Specie and Private Client
Coverage of fine art, specie and private client risks.
Brit provides property cover on a worldwide basis, with the largest exposures in the US. The open market, UK and worldwide
property lines are exposed to catastrophe claims, particularly windstorms, earthquakes, floods and terrorist events, and also
to an increased frequency of fire and weather‑related events. The Political Risk and Political Violence classes are exposed
to individual large losses arising from terrorist attacks or state action.
Brit Limited Annual Report 2019
97
Financial Statements
4 Risk management policies (continued)
(v) International
USA
Brit Global Specialty USA underwrites a variety of lines, including casualty, professional liability, property,
reinsurance and commercial packages.
Bermuda
Property and casualty treaty reinsurance and retrocession business.
The US portfolio is well‑diversified but is exposed to the risk of US catastrophe claims and individual large losses. A downturn in the
US economy could also lead to increased claims activity.
The Bermuda property treaty business is exposed to natural catastrophe events, particularly US windstorms and earthquakes.
The Bermuda casualty treaty business is exposed to man‑made catastrophe claims such as terrorism, increased claims activity
in the event of an economic downturn and the potential for latent claims which were not foreseen at the time the policies
were underwritten.
(vi) Reinsurance
Property Treaty
Casualty Treaty
Catastrophe excess of loss, risk excess of loss reinsurance and retrocession.
Casualty and accident treaty reinsurance. Worldwide portfolio, written on an excess of loss basis. The
largest regional block is the US and Canada. The account is a mix of risk, catastrophe and clash business.
The key exposures for Property Treaty are US windstorms and Californian earthquakes. Property Treaty also has exposures
to Japanese earthquakes and European windstorms.
The Casualty Treaty business is exposed to man‑made catastrophe claims such as terrorism, increased claim activity in the event
of an economic downturn and the potential for latent claims which were not foreseen at the time the policies were underwritten.
This division contains the longest tailed liabilities the Group holds, i.e. there can be a significant delay between the notification and
final settlement of a claim. This delay can result in the final settlement being subject to significant claims inflation.
(vii) Aggregate exposure management
The Group closely monitors aggregation of exposure to natural catastrophe events against agreed risk appetites using stochastic
catastrophe modelling tools, along with knowledge of the business, historical loss information, and geographical accumulations.
Analysis and monitoring also measures the effectiveness of the Group’s reinsurance programmes.
The Group’s catastrophe risk tolerance is reviewed and set by the boards on an annual basis. The last review of catastrophe risk
tolerances was in March 2019.
Overall, the Group, for major catastrophe events (as measured by World Wide All Perils net, 1‑in‑5, 1‑in‑30 and 1‑in‑250 Aggregate
Exceedance Probability (AEP)) has tolerances for each return period expressed as a percentage of the Brit Limited Group net
tangible assets.
98
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Stress and scenario tests are also run, such as Lloyd’s and internally developed realistic disaster scenarios (RDSs). Below are the
key RDS losses to the Group for all classes combined (unaudited):
Gulf of Mexico windstorm
Florida Miami windstorm
US North East windstorm
San Francisco earthquake
Japan earthquake
Japan windstorm
European windstorm
Modelled
Group loss at
1 October 2019
(Note 1)
Net
US$m
Gross
US$m
Modelled
Group loss at
1 October 2018
(Note 1)
Net
US$m
Gross
US$m
827
868
845
1,038
291
78
96
151
128
149
191
142
47
59
818
993
795
1,078
254
70
172
197
142
168
284
143
40
117
Estimated
industry loss
US$m
111,000
131,000
81,000
80,000
73,369
15,591
26,847
Note 1: At 31 December 2019 foreign exchange rates.
Actual results may differ materially from the losses above given the significant uncertainties within model assumptions, techniques
and simulations applied to calculate these event loss estimates. There could also be non‑modelled losses which result in actual losses
exceeding these figures. Moreover, the portfolio of insured risks changes dynamically over time.
(viii) Sensitivity to changes in net claims ratio
The Group profit/loss on ordinary activities before taxation is sensitive to an independent 1% change in the net claims ratio
(excluding the effect of foreign exchange on non‑monetary items) for each class of business as follows:
Brit Global Specialty Direct
Brit Global Specialty Reinsurance
Other
Financial and Professional Liability
Programmes and Facilities
Property
Specialty
US Specialty
Discontinued
Casualty Treaty
Property Treaty
US Specialty Reinsurance
Movement in profit
year ended
31 December 2019
%
US$m
Movement in profit
year ended
31 December 2018
%
US$m
1.5
4.2
1.7
1.8
2.3
0.4
2.2
0.9
0.8
0.6
9.1
25.7
10.4
11.0
14.0
2.4
13.4
5.4
4.9
3.7
1.3
4.1
1.6
2.2
2.2
(0.5)
1.8
0.8
0.7
0.5
8.8
27.9
10.9
15.0
15.0
(3.4)
12.2
5.4
4.8
3.4
16.4
100.0%
14.7
100.0%
Subject to taxation, the impact on shareholders’ equity would be the same as that on profit following a change in the net claims ratio.
4.1.2 Reinsurance
The Group purchases reinsurance to manage its exposure to individual risks and aggregation of risks arising from individual large
claims and catastrophe events. This allows the Group to mitigate exposure to insurance losses against the risk appetite, reduce
volatility of reported results and protect capital.
Proportional quota share reinsurance is purchased to provide protection against claims arising either from individual large claims
or aggregation of losses. Quota share reinsurance is also used to manage the Group’s net exposure to classes of business where
the Group’s risk appetite is lower than the efficient operating scale of the class of business on a gross of reinsurance basis. These
placements are reviewed on the basis of market conditions.
Brit Limited Annual Report 2019
99
Financial Statements
4 Risk management policies (continued)
The Group also has in place a comprehensive programme of excess of loss reinsurances to protect itself from severe size
or frequency of losses:
• Facultative reinsurance is used to reduce risk relating to individual contracts. The amount of cover bought varies by class
of business. Facultative reinsurance is also used as a tool to manage the net line size on individual risks to within tolerance.
• Risk excess of loss reinsurance is used to protect a range of individual inwards contracts which could give rise to individual
large claims. The optimal net retention per risk is assessed for each class of business given the Group’s risk appetite during
the business planning exercise.
• An aggregate catastrophe excess of loss cover is in place to protect the Group against combined property claims from multiple
policies resulting from catastrophe events. This is supplemented by specific covers for peril regions, catastrophe swaps
and industry loss warranties where they are a cost‑efficient means to ensure that the Group remains within its catastrophe
risk appetite.
• Given the fundamental importance of reinsurance protection to the Group’s risk management, the Group has in place internal
controls and processes to ensure that the reinsurance arrangements provide appropriate protection of capital and maintain
our ability to meet policyholder obligations. The Outwards Reinsurance Committee oversees the purchase of reinsurance.
The Group remains exposed to a number of risks relating to its reinsurance programme:
•
It is possible for extremely severe catastrophe losses to exhaust the reinsurance purchased. Any losses exceeding the
reinsurance protection would be borne by the Group.
• Some parts of the programme have limited reinstatements which limit the amount that may be recovered from second
or subsequent claims. If the entirety of the cover is exhausted, it may not be possible to purchase additional reinsurance
at a reasonable price.
• A dispute may arise with a reinsurer which may mean the recoveries received are lower than anticipated.
These risks are managed through a combination of techniques and controls including risk aggregation management, capital modelling
and internal actuarial review of outward reinsurance costs. The counterparty risk in relation to reinsurance purchased is managed
by the Credit Committee. This is further discussed in the Credit risk section below.
4.1.3 Reserving risk
Reserving risk arises as the actual cost of losses for policyholder obligations incurred before 31 December 2019 from the
established reserves due to inaccurate assumptions or unforeseen circumstances. This is a key risk for the Group as the reserves
for unpaid losses represent the largest component of the Group’s liabilities and are inherently uncertain. The BSL Reserving
Committee is responsible for the management of Syndicate 2987’s reserving risk, and the Brit Reinsurance (Bermuda) Limited
Management Committee performs a similar function for Brit Reinsurance (Bermuda) Limited.
The Group has a rigorous process for establishing reserves for insurance claim liabilities and a number of controls are used
to mitigate reserving risk. The reserving process starts with controls over claims data which ensure complete and accurate
recording of all paid and notified claims. Claims adjusters validate policy terms and conditions, adjust claims and investigate
suspicious or disputed claims in accordance with the Group’s claims policy. Case reserves are set for notified claims using the
experience of specialist claims adjusters, underwriters and external experts where necessary.
100
Brit Limited Annual Report 2019
notes to the consolidated financial statements Financial Statements
Whilst the case reserve is expected to be sufficient to meet the claims amount when it is settled, incurred but not reported (IBNR)
claims require additional reserves. This is particularly the case for the longest tailed classes of business where the final settlement
can occur several years after the claim occurred. Actuarial triangulation techniques are employed by the Group’s experienced
actuaries to establish the IBNR reserve. These techniques project IBNR reserves based on historical development of paid and
incurred claims by underwriting year. For the most uncertain claims, the triangulation techniques are supplemented by additional
methods to ensure the established reserve is appropriate. The actuarial team work closely with other business functions such
as underwriting, claims and risk aggregation management to ensure that they have a full understanding of the emerging claims
experience across the Group. Further details on the actuarial methods used can be found in Note 20.
The Group’s reserving policy sets out the approach to estimating claims provisions and is designed to produce accurate and reliable
estimates that are consistent over time and across classes of business. The actuarial best estimate set out in the policy is subject
to Reserving Committee and Brit Reinsurance (Bermuda) Limited Management Committee sign‑off as part of the formal governance
arrangements for the Group. The estimate agreed by the committees is used as a basis for the consolidated financial statements.
A management risk margin is also applied over and above the actuarial best estimate to allow for the inherent uncertainty within the
best estimate reserve position and wider inherent uncertainty across the economic and insurance environment. Finally, the reserves
in the financial statements are presented to the Audit Committee for recommendation to the Board who are responsible for the final
sign‑off. As part of their audit engagement, reserves are subject to external actuarial review by Brit’s auditor.
The reserves can be more or less than is required to meet the claims arising from earned business. The level of uncertainty varies
significantly between the classes written by the Group but typically is highest for those classes where there are significant delays
in the settlement of the final claim amount. More specifically, the key areas of uncertainty within the Group’s reserves are considered
to be claims from the long‑tailed direct and long‑tailed reinsurance classes. The issues contributing to this heightened uncertainty
are common to all entities which write such business.
Further details on the reserve profile and claims development tables can be found in Note 20.
4.2 Investment risk management
4.2.1 Introduction
This section describes the Group’s approach to managing its investment risk, from both a quantitative and a qualitative perspective.
Investment risk includes market risk (which is covered in section 4.3), investment credit risk (which is covered in section 4.4) and
liquidity risk (which is covered in section 4.5).
4.2.2 Investment governance framework
Investment risk is managed in line with the elements of the Risk Management Framework (RMF) – identification, measurement and
management. The Board has overall responsibility for determining the investment strategy, including defining the risk tolerance.
This is achieved through investment policies and guidelines, which reflect the risk appetite and the business strategy of the Group
and individual entities within the Group.
The BSL Investment Committee and the Brit Reinsurance (Bermuda) Limited Management Committee have been mandated
to review, advise and make recommendations to the respective boards on investment strategy with a view to optimising investment
performance. The investment strategy is executed through outsourced investment management agreements, which is in line with
prevailing regulations, with Hamblin Watsa Investment Counsel Limited (HWIC) and a range of other third‑party investment managers.
The Risk Oversight Committee ensures that the investment risk is managed within the framework and also reports to the Board.
An Investment Operations Committee oversees the operational risk that is relevant to the investment management function.
Information is provided at least quarterly covering portfolio composition, performance, forecasting and the results of stress and
scenario tests. Any operational issues and breaches to the risk appetite framework are reported to the Risk Oversight Committee
and the Board.
Brit Limited Annual Report 2019
101
Financial Statements
4 Risk management policies (continued)
4.2.3 Risk tolerance
Investment risk tolerances are set by the Board, defining the appetite to investments, solvency risk, concentration risk, credit
quality, currency risk and liquidity risk. The appetite to these elements of investment risk is derived from the overall risk appetite
and business strategy and reflects a number of factors, including the current and expected economic climate, capital management
strategy, liquidity needs and asset liability matching (ALM) policy. The investment risk tolerance helps determine the strategic
asset allocation.
Risk metrics are monitored and reported on regularly, to ensure that performance is within the Board‑approved levels and limits
continue to remain appropriate, within the governance framework highlighted above.
4.2.4 Solvency matching
Assets are considered by both currency and duration profile in relation to the liabilities thereby managing the impact of foreign
exchange and interest rate risk on the solvency position.
Under this strategy, the total assets of each Group underwriting entity are sought to be held in proportion to the currencies of that
entity’s technical provisions. For each Group underwriting entity, a solvency matched benchmark is calculated. This benchmark is the
cash flow profile for investments which would minimise the sensitivity of the Group’s solvency position to changes in interest and
exchange rates. The Group seeks to implement this through the use of cash, investments and foreign exchange forward contracts
in the respective currencies. The investment guidelines for each entity stipulate duration limits and the positioning and sensitivity for
both the asset and solvency position is reported quarterly.
4.2.5 Investment management
The investment management strategy is delivered, at the entity level, through outsourced Investment Management Agreements
(IMAs) with HWIC and a range of other third‑party investment managers. The IMAs prescribe the investment parameters within which
HWIC are permitted to make asset allocation decisions on behalf of the respective entities.
Each of the Group’s investing entities is governed by separate investment policies; these detail the parameters, roles and
responsibilities relating to the management of each entity’s investment portfolio.
4.3 Market risk
4.3.1 Introduction
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk. Credit risk on financial
investments and cash is covered in the credit risk section.
4.3.2 Interest rate risk
Introduction
Interest rate risk is the risk that the fair value and/or future cash flows of a financial instrument will fluctuate because of changes
in interest rates. The Group is exposed to interest rate risk through its investment portfolio, borrowings and cash and cash
equivalents. The sensitivity of the price of these financial exposures is indicated by their respective durations. This is defined as the
modified duration which is the change in the price of the security subject to a 100 basis points parallel shift in interest rates. The
greater the duration of a security, the greater the possible price volatility.
102
Brit Limited Annual Report 2019
notes to the consolidated financial statements Financial Statements
The banded durations of the Group’s financial investments and cash and cash equivalents sensitive to interest rate risk are shown
in the table below:
Duration
At 31 December 2019
Cash and cash equivalents
Financial investments
At 31 December 2018
Cash and cash equivalents
Financial investments
1 year or less
US$m
1 to 3 years
US$m
3 to 5 years Over 5 years
US$m
US$m
Equities
US$m
Total
US$m
520.1
2,367.5
2,887.6
–
455.3
455.3
–
232.2
232.2
–
181.7
181.7
–
520.1
403.9 3,640.6
403.9
4,160.7
818.2
1,059.6
–
1,193.5
1,877.8
1,193.5
–
272.7
272.7
–
43.5
43.5
–
575.8
818.2
3,145.1
575.8
3,963.3
The duration of the investment portfolio is set within an allowable range relative to the targeted duration and monitored on
a quarterly basis.
As the claims liabilities are measured on an undiscounted basis, the reported liabilities are not sensitive to changes in interest rates.
Therefore there is a balance to be struck between targeting a longer duration to protect the solvency position against movements
in interest rates, and targeting a shorter duration that will reduce the possible volatility around the income statement.
Sensitivity to changes in investment yields
The sensitivity of the profit to the changes in investment yields is set out in the table below. The analysis is based on the information
at 31 December 2019.
Impact on profit before tax
Increase
25 basis points
50 basis points
100 basis points
Decrease
25 basis points
50 basis points
100 basis points
2019
US$m
2018
US$m
(11.6)
(23.2)
(46.5)
11.5
22.9
45.9
(8.7)
(17.4)
(34.8)
8.6
17.2
34.4
Subject to taxation, the effect on shareholders’ equity would be the same as the effect on profit.
4.3.3 Currency risk
Introduction
Currency risk is the risk that movements in exchange rates impact the financial performance or solvency position of the Group.
Brit Limited Annual Report 2019
103
Financial Statements
4 Risk management policies (continued)
The Group matches assets to liabilities for each of the main currencies. Group capital is held in proportion to the liabilities,
to minimise the impact on solvency and distributable earnings from movements in exchange rates. The split of assets and liabilities
for each of the Group’s main currencies, converted to US dollars, is set out in the tables below:
USD
US$m
GBP
conv. US$m
CAD $
conv. US$m
EUR €
conv. US$m
AUS $
conv. US$m
Total
conv. US$m
Net assets/(liabilities) excluding the effect of currency derivatives
At 31 December 2019
Total assets
Total liabilities
Adjustment for foreign exchange derivatives
Adjusted net assets
At 31 December 2018
Total assets
Total liabilities
Net assets/(liabilities) excluding the effect of currency derivatives
Adjusted for foreign exchange derivatives
Adjusted net assets
5,490.8
4,442.5
1,048.3
81.2
1,129.5
1,081.0
1,196.7
(115.7)
226.2
110.5
700.2
324.3
375.9
(321.3)
54.6
330.7
306.3
24.4
(4.4)
20.0
69.9
82.9
7,672.6
6,352.7
(13.0)
1,319.9
18.3
–
5.3
1,319.9
5,181.1
4,335.5
1,072.4
1,120.9
845.6
59.2
904.8
(48.5)
127.2
78.7
584.0
271.4
312.6
(266.3)
46.3
309.9
316.8
68.3
86.1
7,215.7
6,130.7
(6.9)
(17.8)
1,085.0
31.3
24.4
48.6
30.8
–
1,085.0
The non‑US dollar denominated net assets of the Group may lead to profits or losses (depending on the mix relative to the liabilities),
should the US dollar vary relative to these currencies.
Foreign currency forward contracts may be used to achieve the desired exposure to each currency. From time to time the Group
may also choose to utilise foreign currency derivatives to manage the risk of reported losses due to changes in foreign exchange
rates. The details of all foreign currency derivative contracts entered into are given in Note 23.
As a result of the accounting treatment for non‑monetary items, the Group may also experience volatility in its income statement
due to fluctuations in exchange rates. The degree to which derivatives are used is dependent on the prevailing costs versus the
perceived benefit to shareholder value from reducing the chance of a reported loss due to changes in foreign exchange rates.
In accordance with IFRS, non‑monetary items are recorded at original transaction rates and are not revalued at the reporting date.
These items include unearned premiums, deferred acquisition costs and reinsurers’ share of unearned premiums. This means these
amounts in the statement of financial position are carried at a different exchange rate to the remaining assets and liabilities, with the
resulting exchange differences that are created being recognised in the income statement. The Group considers this to be a timing
issue which can cause volatility in the income statement.
104
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Sensitivity to changes in foreign exchange rates
The table below gives an indication of the impact on profit of a percentage movement in the relative strength of the US dollar
against the value of Sterling, Canadian dollar, Australian dollar and Euro simultaneously, after taking into consideration the effect
of hedged positions and items recorded as non‑monetary assets and liabilities under IFRS. The analysis is based on the information
at 31 December 2019.
Impact on profit before tax
US dollar weakens
10% against other currencies
20% against other currencies
US dollar strengthens
10% against other currencies
20% against other currencies
2019
US$m
26.6
53.3
2018
US$m
26.1
52.3
(26.6)
(53.3)
(26.1)
(52.3)
Subject to taxation, the effect on shareholders’ equity would be the same as the effect on profit.
4.3.4 Other price risk
Introduction
This is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices
(other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the
individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
Financial assets and derivatives that are recognised at their fair value are susceptible to losses due to adverse changes in their
prices. This is known as price risk.
Listed investments are recognised in the financial statements at quoted bid price. If the market for the investment is not considered
to be active, then the Group establishes fair valuation techniques. This includes using recent arm’s‑length transactions, reference
to current fair value of other similar investments, discounted cash flow models and other valuation techniques that are commonly
used by market participants.
The prices of fixed and floating rate income securities are predominantly impacted by currency, interest rate and credit risks. Credit
risk on investments is discussed in the following section of this Note.
Sensitivity to changes in other price risk
The sensitivity of the profit to the changes in the prices of equity is set out in the table below. The analysis is based on the information
at 31 December 2019.
Impact on profit before tax
Increase in fair value
10%
20%
30%
Decrease in fair value
10%
20%
30%
Subject to taxation, the effect on shareholders’ equity would be the same as the effect on profit.
2019
US$m
2018
US$m
69.0
137.9
206.9
63.2
126.4
189.6
(69.0)
(137.9)
(206.9)
(63.2)
(126.4)
(189.6)
Brit Limited Annual Report 2019
105
Financial Statements
4 Risk management policies (continued)
4.4 Credit risk
This is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge
an obligation in a timely manner. The main sources of credit risk relate to:
• Reinsurers: through the failure to pay valid claims against a reinsurance contract held by the Group;
• Brokers and coverholders: where counterparties fail to pass on premiums or claims collected or paid on behalf of the Group;
•
Investments: through the issuer default of all or part of the value of a financial instrument or the market value of that
instrument; and
• Cash and cash equivalents: through the default of the banks holding the cash and cash equivalents.
The insurance and non‑insurance related counterparty credit risks are managed separately by the Group.
4.4.1 Investment credit risk
Investment credit risk management process
The Group Board has overall responsibility for investment credit risk. The investment guidelines and investment policy set out clear
limits and controls around the level of investment credit risk. The Group has established concentration guidelines that restrict the
exposure to any individual counterparty. The investment guidelines further limit the type, credit quality and maturity profile of both
the Group’s cash and investments. In addition, the investment risk framework further limits potential exposure to credit risk through
aggregate investment risk limits. The Investment Committee chaired by Simon Lee, a non‑executive Director of Brit Syndicates
Limited, is responsible for the immediate oversight of the Group’s UK investments and the Brit Reinsurance (Bermuda) Limited board
is responsible for the immediate oversight of the Group’s Bermuda investments.
Investment credit risk profile
The summary of the investment credit risk exposures for the Group is set out in the tables below:
At 31 December 2019
Financial investments
Derivative contracts
Cash and cash equivalents
At 31 December 2018
Financial investments
Derivative contracts
Cash and cash equivalents
AAA
US$m
AA
US$m
A
US$m
P‑1
US$m
P‑2
US$m
1,469.4
–
150.1
1,619.5
1,507.0
–
457.8
1,964.8
347.6
–
0.8
348.4
303.5
–
54.3
357.8
577.7
–
303.8
881.5
288.8
–
217.1
505.9
–
–
7.8
7.8
–
–
69.2
69.2
–
–
19.0
19.0
–
–
6.3
6.3
BBB and
below
US$m
478.4
–
31.7
510.1
329.0
–
13.5
342.5
Equities
US$m
Not rated
US$m
Total
US$m
403.9
–
–
403.9
575.8
–
–
575.8
363.6 3,640.6
15.7
520.1
15.7
6.9
386.2
4,176.4
141.0
17.4
–
3,145.1
17.4
818.2
158.4
3,980.7
The table above gives an indication of the level of credit worthiness of assets that are most exposed to credit risk. The ratings are
mainly sourced from Standard & Poor’s and where these are not available an equivalent rating agency.
4.4.2 Insurance credit risk
Insurance credit risk management process
The Credit Committee chaired by the Group Chief Financial Officer is responsible for the management of credit risk arising from
insurance activities.
106
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Reinsurer credit risk is managed by transacting only with reinsurance counterparties that satisfy a minimum level of financial
strength or provide appropriate levels of collateral, and have been approved for use by the Credit Committee. The reinsurer security
list, which sets out the list of approved reinsurance counterparties, is reviewed at least annually and following any significant change
in risk profile, which includes any changes to reinsurers’ financial ratings. Credit risk appetite limits are set for reinsurance entities
and groups to limit accumulations of risk. These positions are monitored quarterly against current balance sheet exposures and
in relation to a number of extreme loss scenarios.
Reinsurance aged debt is monitored and managed against the management risk appetite limits set by the Credit Committee. A bad
debt provision is held against all non‑rated reinsurers or any reinsurer where there is deemed to be a specific risk of non‑payment.
Any breaches of credit risk tolerance and/or appetite are reported to the Risk Oversight Committee and the Board at least quarterly.
Insurance credit risk profile
The summary of the insurance credit risk exposures for the Group is set out in the tables below:
At 31 December 2019
Reinsurance assets
Insurance receivables
At 31 December 2018
Reinsurance assets
Insurance receivables
AAA
US$m
AA
US$m
A
US$m
Collateral
US$m
Not rated
US$m
Total
US$m
3.4
–
3.4
2.6
–
2.6
785.8
–
785.8
781.4
–
781.4
327.4
–
327.4
397.1
–
397.1
174.0
–
174.0
54.7
1,091.3
1,345.3
1,091.3
1,146.0
2,436.6
224.4
–
224.4
41.0
941.3
1,446.5
941.3
982.3
2,387.8
Insurance credit risk arises primarily from reinsurers (whereby reinsurers fail to pay recoveries due to the Group in a timely
manner) and brokers and coverholders (whereby intermediaries fail to pass on premiums due to the Group in a timely manner).
As at 31 December 2019, collateral of US$727.3m (2018: US$734.4m) is held in third‑party trust accounts or as a letter of credit
(LOC) to guarantee Syndicate 2987 against reinsurance counterparties and is available for immediate drawdown in the event
of a default. Of this amount, US$174.0m (2018: US$224.4m) had been drawn against reinsurance assets at 31 December 2019.
The following table shows movements in impairment provisions during the year:
2019
Opening provision at 1 January
Strengthening for the year
Net foreign exchange differences
Closing provision at 31 December
2018
Opening provision at 1 January
(Release)/strengthening for the year
Net foreign exchange differences
Closing provision at 31 December
Impairment
provision
against
reinsurance
assets
US$m
Impairment
provision
against
insurance
receivables
US$m
–
–
–
–
0.7
(0.7)
–
–
11.7
0.3
(1.0)
11.0
11.3
0.5
(0.1)
11.7
Brit Limited Annual Report 2019
107
Financial Statements
4 Risk management policies (continued)
The following table shows the amount of insurance receivables past due but not impaired at the end of the year:
0‑3 months past due
4‑6 months past due
7‑9 months past due
10‑12 months past due
More than 12 months past due
2019
US$m
16.2
29.7
0.6
0.4
2.5
49.4
2018
US$m
41.5
11.2
3.8
1.1
8.3
65.9
4.5 Liquidity risk
Liquidity risk is the risk that the Group may encounter difficulty in meeting obligations associated with financial liabilities that are
settled by delivering cash or another financial asset. The predominant liquidity risk the Group faces is the daily calls on its available
cash resources in respect of claims arising from insurance contracts.
The Group monitors the levels of cash and cash equivalents on a daily basis, ensuring adequate liquidity to meet the expected cash
flow requirements due over the short‑term.
The Group also limits the amount of investment in illiquid securities in line with the liquidity policy set by the Board. This involves
ensuring sufficient liquidity to withstand claim scenarios at the extreme end of business plan projections, by reference to modelled
realistic disaster scenarios. Contingent liquidity also exists in the form of a Group revolving credit facility.
The tables below present the fair value of monetary assets and the undiscounted value of monetary liabilities of the Group into
their relevant maturing groups based on the remaining period at the end of the year to their contractual maturities or expected
repayment dates. Borrowings are stated at their nominal value at maturity.
Statement
of financial
position
US$m
Fair values
<1 year
US$m
1 to 3 years
US$m
3 to 5 years
US$m
>5 years
US$m
Equities
US$m
Total
US$m
1,345.3
3,640.6
15.7
1,091.3
520.1
404.9
2,367.5
15.3
1,091.3
520.1
6,613.0
4,399.1
435.4
455.3
–
–
–
890.7
233.9
232.2
–
–
–
466.1
271.1
181.7
0.4
–
–
–
1,345.3
403.9 3,640.6
15.7
1,091.3
520.1
–
–
–
453.2
403.9
6,613.0
Undiscounted values
<1 year
US$m
1 to 3 years
US$m
3 to 5 years
US$m
>5 years
US$m
Equities
US$m
Total
US$m
1,190.6
14.2
140.0
–
676.0
1,321.0
–
–
–
–
749.7
–
–
–
–
749.7
1,035.4
–
182.9
–
–
1,218.3
–
–
–
75.5
–
75.5
4,296.7
14.2
322.9
75.5
676.0
5,385.3
5,378.6
2,020.8
1,321.0
Statement
of financial
position
US$m
4,296.7
14.2
316.2
75.5
676.0
31 December 2019
Assets
Reinsurance assets
Financial investments
Derivative contracts
Insurance receivables
Cash and cash equivalents
31 December 2019
Liabilities
Insurance contract liabilities
Derivative contracts
Borrowings
Other financial liabilities
Insurance and other payables
108
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Statement
of financial
position
US$m
Fair values
<1 year
US$m
1 to 3 years
US$m
3 to 5 years
US$m
>5 years
US$m
Equities
US$m
Total
US$m
1,446.5
3,145.1
17.4
941.3
818.2
461.8
1,059.6
16.4
941.3
818.2
433.0
1,193.5
–
–
–
6,368.5
3,297.3
1,626.5
244.7
272.7
–
–
–
517.4
307.0
43.5
1.0
–
–
351.5
–
575.8
–
–
–
1,446.5
3,145.1
17.4
941.3
818.2
575.8
6,368.5
Undiscounted values
<1 year
US$m
1 to 3 years
US$m
3 to 5 years
US$m
>5 years
US$m
Equities
US$m
Total
US$m
1,220.1
14.1
8.0
–
422.2
1,331.1
–
–
–
–
1,331.1
741.5
–
–
–
–
741.5
1,055.8
–
173.3
–
–
1,229.1
–
–
–
241.8
–
4,348.5
14.1
181.3
241.8
422.2
241.8
5,207.9
5,201.5
1,664.4
Statement
of financial
position
US$m
4,348.5
14.1
174.9
241.8
422.2
31 December 2018
Assets
Reinsurance assets
Financial investments
Derivative contracts
Insurance receivables
Cash and cash equivalents
31 December 2018
Liabilities
Insurance contract liabilities
Derivative contracts
Borrowings
Other financial liabilities
Insurance and other payables
4.6 Operational risk
Operational risk is the potential for loss arising from the failure of people, process or technology or the impact of external events.
The nature of operational risk means that it is dispersed across all functional areas of Brit. Operational risk exposures are managed
through a consistent set of management processes that drive risk identification, assessment, control and monitoring.
The Operations Committee, chaired by the Group Chief Operating Officer, is a key governance committee reporting to the Executive
Committee. The Operations Committee is responsible for managing operational risk in line with the operational risk policy and the risk
tolerance and management appetite limits set by the Board and management respectively. Each individual risk committee is provided
with relevant operational risk updates and these committees include operational risk owners within executive management who
actively manage operational risk within their respective areas (such as Underwriting, Claims, Investments and Finance).
An operational risk management framework is in place to ensure an appropriate standard approach is taken to managing operational
risk across the Group. The key elements of this framework are:
• Allocation of responsibility for the identification and assessment of operational risk. Standard tools are used to facilitate
these assessments;
• Definition of standard elements of sound operating controls that are expected to be in place to address all identified
operational risks;
• A process that integrates with Brit’s internal model to support the setting and monitoring of operational risk appetite
and tolerances;
• Governance, reporting and escalation for operational risk;
•
Infrastructure supporting the operational risk management framework; and
• Operational risk management training and awareness.
Brit Limited Annual Report 2019
109
Financial Statements
4 Risk management policies (continued)
4.7 Political risk – The United Kingdom’s exit from the EU (Brexit)
We have continued to work to minimise the impact of Brexit on Brit and our clients. While direct European business is not material
for Brit, we have continued to monitor and evaluate the associated risks and have implemented the processes and business changes
required to write business onto Lloyd’s new Brussels‑based European insurance company (LBS), of which we are fully supportive.
The known work required is complete and our new processes are operational. We commenced writing business via LBS in the fourth
quarter of 2018, for risks incepting on or after 1 January 2019. The placement process is more onerous than for non‑European
business. However, the solution in place is the most effective approach given that the UK will potentially lose its passporting rights.
Following the UK’s exit from the EU on 31 January 2020, significant uncertainties remain surrounding the UK’s future relationship with
the EU, with potentially unknown economic and political implications for the UK. We continue to monitor developments closely.
4.8 Emerging risks
Brit undertakes a formal emerging risk review annually with the results reported to the Risk Oversight Committee and included
in the Own Risk & Solvency Assessment (ORSA) report. The review is an important part of the risk identification aspect of the RMF
and includes horizon scanning of the internal and external risk environment to identify potential new or developing risks to Brit.
These risks can then be included in the risk register and managed appropriately as required.
Climate change is a current example of a developing risk identified as part of Brit’s emerging risk review and the potential impact
to the insurance industry is an area of focus for the market and the regulators. The risks to insurers may include the potential
increase in the frequency and severity of weather‑related natural catastrophes, for example, hurricanes and wildfires. Brit
is managing the risks associated with climate change in line with the RMF and is responding to the latest regulatory guidance
in this area. This will continue to be an area of management and risk committee focus.
The emerging risk review has previously identified risks such as the United Kingdom’s exit from the EU (Brexit) and cyber risk.
These risks have been managed throughout their development and are now monitored as part of the business as usual risk
management process.
4.9 Capital management
Brit defines management entity capital as the amount of capital that the board of each underwriting entity determines that it should
hold, taking into account the requirements of shareholders, regulators, policyholders, and the boards’ solvency risk appetite. The
capital policy is set by the entity and Group boards. Management entity capital requirements are in excess of capital requirements
under the Solvency II capital regime, which became effective on 1 January 2016.
The capital requirements are based on the output of the internal model which reflects the risk profile of the business. The capital
policy requires capital to be held well in excess of regulatory minimum requirements, underpinning Brit’s financial strength.
The policy ensures the capital adequacy of the Group as a whole, and each entity, through an efficient capital structure. Brit
proactively responds to developments in the financial environment to ensure its capital strength is maintained while optimising risk
adjusted returns.
110
Brit Limited Annual Report 2019
notes to the consolidated financial statements Financial Statements
In addition to the management capital requirements, the Brit Limited Board has determined that the Brit Limited Group should
maintain a minimum surplus, in excess of the entity management capital requirements, to withstand short‑term shocks without
requiring a capital injection. The minimum surplus is calibrated to a 1‑in‑20 one‑year VaR (i.e. it is sufficient to protect against
losses over a one‑year period in 19 out of 20 years whilst maintaining management capital). The Group minimum surplus is set with
reference to the internal model.
The Group’s available capital consists of net tangible assets, subordinated debt, letters of credit and contingent funding. This
amounted to US$1,576.6m as at 31 December 2019. This represented a surplus of US$348.9m over the management capital
requirements, compared to the Group’s minimum surplus of US$210.0m.
All regulatory capital requirements have been complied with during the year by the Group’s individual insurance subsidiaries.
The Lloyd’s market is subject to the solvency and capital adequacy requirements of the Prudential Regulation Authority (PRA).
Any regulatory intervention by the PRA in respect of Lloyd’s may adversely affect the Group. The PRA may impose more stringent
requirements on Lloyd’s which may result in higher capital requirements or a restriction on trading activities for entities within
the Group. If Lloyd’s fails to satisfy its solvency test in any year, the PRA may require Lloyd’s to cease trading and/or its members
to cease or reduce their underwriting exposure, which may result in a material adverse effect to the Group’s reputation, financial
condition and results of operations.
During 2019, Brit primarily underwrote through the Group’s wholly‑aligned Lloyd’s Syndicate 2987 which benefits from the Lloyd’s
credit ratings of A (Excellent) from A.M. Best, AA – (Very Strong) from Fitch and A+ (Strong) from Standard & Poor’s. Any downgrade
in Lloyd’s financial strength ratings may have an adverse effect on the Group.
The Group’s business plan and underwriting capacity for the Syndicate may be affected by a decrease in the value of the Group’s
Funds at Lloyd’s or by recommendations from the Lloyd’s Franchise Board. The Group is also reliant upon the compliance of Lloyd’s
with US regulations, including the maintenance by Lloyd’s of its trading licences and approvals in the US.
4.10 Sussex: Governance Structure
Sussex Capital is Brit’s collateralised reinsurance platform based in Bermuda which was launched on 1 January 2018. Sussex Capital
Limited has two segregated accounts operating as funds available for capital investment, referred to as The Diversified Fund and
Specialty Insurance Fund (the Funds). Through Sussex Re, it writes direct collateralised property catastrophe reinsurance and also
provides collateralised reinsurance to Brit’s Property Treaty portfolio.
Sussex Capital has an independent governance structure to manage its operations. This consists of a Board and three sub‑
committees. The Board has overall responsibility for oversight of the business. The Valuation Committee is responsible for fund
valuation, settling claims and setting reserves, the Investment Committee ensures investments are made in line with the Funds
objectives, and the Management Committee oversees the day‑to‑day operations of the Funds.
The risks to Brit from Sussex Capital arise from two main sources: First, a direct investment risk due to the Group’s investment
in the Funds. Secondly, operational, reputational, and strategic risks relating to managing the Funds on behalf of external investors.
The direct investment risk is managed in the same way as the Group’s other investment risks, through oversight by the relevant
committees. The operational, reputational, and strategic risks are managed through the governance structure in place at Sussex
as described above. In particular, the Sussex Board has independent non‑executive Directors with significant industry experience.
The Brit Group provides support (for example, catastrophe modelling) to assist Sussex’s operations and risk management.
Brit Limited Annual Report 2019
111
Financial Statements
5 Segmental information
This Note breaks down the operating results summarised in the income statement into the main business areas of the Group. It also
shows how our revenue is split globally. This analysis is designed to help you understand how each segment of our business has
performed and how we have allocated our shareholders’ capital.
As at 31 December 2019, the reportable segments identified were as follows:
•
•
•
‘Brit Global Specialty Direct’, which underwrites the Group’s international and US business, other than treaty reinsurance. In the
main, Brit Global Specialty Direct deals with wholesale buyers of insurance, rather than individuals. Risks are large and usually
syndicated by several underwriters by means of the subscription market.
‘Brit Global Specialty Reinsurance’, which underwrites reinsurance business (essentially the insurance of insurance and
reinsurance companies) and includes writing non‑proportional cover for major events such as earthquakes or hurricanes.
These insurance and reinsurance companies calculate how much risk they want to retain and then pass on their remaining
exposure to reinsurers in return for a premium.
‘Other Underwriting’, which comprises the Group’s special purpose vehicles, Brit’s share of Syndicate 2988 and run‑off classes.
The share of the Group’s special purpose vehicles attributable to third‑party underwriting capital providers is represented by the
‘gains on other financial liabilities’.
•
‘Other corporate’, which is made up of residual income and expenditure not allocated to other segments.
Foreign exchange differences on non‑monetary items are separately disclosed. This provides a fairer representation of the claims
ratios and financial performance of the strategic business units (SBUs) which would otherwise be distorted by the mismatch
arising from IFRSs whereby unearned premium, reinsurer’s share of unearned premium and deferred acquisition costs are treated
as non‑monetary items and the majority of other assets and liabilities are treated as monetary items. Non‑monetary items are
carried at historic exchange rates, while monetary items are translated at closing rates.
The Group investment return is managed centrally and an allocation is made to each of the strategic business units based
on the average risk‑free interest rate for the period being applied to the opening insurance funds of each strategic business
unit. The annualised average risk‑free rate applied to insurance funds was 1.5% for the year ended 31 December 2019
(31 December 2018: 1.5%).
The ratios set out in the segmental analysis are calculated as follows:
• The claims ratio is calculated as claims incurred, net of reinsurance divided by earned premiums, net of reinsurance.
• The expense ratio is calculated as acquisition costs and other insurance related expenses divided by earned premiums,
net of reinsurance.
• The combined ratio is the sum of the claims and expense ratios.
112
Brit Limited Annual Report 2019
notes to the consolidated financial statements Financial Statements
Other
corporate
US$m
–
–
–
–
–
–
113.6
(18.0)
10.2
0.3
(7.9)
14.0
Total
US$m
2,293.5
(637.3)
1,656.2
2,249.7
(607.8)
1,641.9
158.5
(17.6)
10.2
45.9
(10.5)
16.8
Information regarding the Group’s reportable segments is presented below.
(a) Income statement by segment
Year ended 31 December 2019
Brit Global
Specialty
Brit Global
Specialty
Total
underwriting
excluding
the effect
of foreign
exchange on
Total
underwriting
after the
effect of
foreign
exchange on
Other non‑monetary non‑monetary non‑monetary
items
US$m
Effect of
foreign
exchange on
items
US$m
items
US$m
Direct Reinsurance Underwriting
US$m
US$m
US$m
Gross premiums written
Less premiums ceded to reinsurers
Premiums written, net of reinsurance
Gross earned premiums
Reinsurers’ share
Earned premiums, net of reinsurance
Investment return
Return on derivative contracts
Gain on business combination
Other income
Losses on other financial liabilities
Net foreign exchange gains
Total revenue
Gross claims incurred
Reinsurers’ share
Claims incurred, net of reinsurance
Acquisition costs – commission
Acquisition costs – other
Other insurance related expenses
Other expenses
1,713.5
(530.2)
1,183.3
1,649.3
(489.7)
1,159.6
24.6
0.2
–
14.1
–
–
1,198.5
(951.8)
331.4
(620.4)
(351.5)
(92.5)
(74.5)
–
537.7
(118.7)
419.0
503.4
(117.7)
385.7
13.4
0.1
–
3.0
–
–
402.2
(303.6)
62.5
(241.1)
(69.9)
(17.4)
(25.8)
–
42.3
11.6
53.9
92.0
1.2
93.2
6.9
0.1
–
28.5
(2.6)
–
2,293.5
(637.3)
1,656.2
2,244.7
(606.2)
1,638.5
44.9
0.4
–
45.6
(2.6)
–
126.1
1,726.8
(28.0) (1,283.4)
368.9
(25.0)
(53.0)
(21.9)
(40.3)
(5.2)
–
(914.5)
(443.3)
(150.2)
(105.5)
–
2,293.5
(637.3)
1,656.2
2,249.7
(607.8)
1,641.9
44.9
0.4
–
45.6
(2.6)
2.8
–
–
–
5.0
(1.6)
3.4
–
–
–
–
–
2.8
6.2
1,733.0
112.2
1,845.2
–
–
(1,283.4)
368.9
–
(1.3)
(0.4)
–
–
(914.5)
(444.6)
(150.6)
(105.5)
–
–
–
(1,283.4)
368.9
–
–
–
–
(20.3)
(914.5)
(444.6)
(150.6)
(105.5)
(20.3)
Total expenses excluding finance costs
(1,138.9)
(354.2)
(120.4)
(1,613.5)
(1.7)
(1,615.2)
(20.3)
(1,635.5)
Operating profit
Finance costs
Share of net profit of associates
Profit on ordinary activities before tax
Tax charge
Profit for the year
Claims ratio
Expense ratio
Combined ratio
59.6
48.0
5.7
113.3
4.5
117.8
91.9
209.7
(23.7)
0.3
186.3
(6.4)
179.9
53.9%
44.8%
98.7%
62.5%
29.2%
91.7%
55.7%
40.1%
95.8%
Brit Limited Annual Report 2019
113
Financial Statements
5 Segmental information (continued)
Year ended 31 December 2018
Brit Global
Specialty
Brit Global
Specialty
Total
underwriting
excluding
the effect
of foreign
exchange on
Total
underwriting
after the
effect of
foreign
exchange on
Other non‑monetary non‑monetary non‑monetary
items
US$m
Effect of
foreign
exchange on
items
US$m
items
US$m
Direct Reinsurance Underwriting
US$m
US$m
US$m
Gross premiums written
Less premiums ceded to reinsurers
Premiums written, net of reinsurance
Gross earned premiums
Reinsurers’ share
Earned premiums, net of reinsurance
Investment return
Return on derivative contracts
Other income
Gains on other financial liabilities
Total revenue
Gross claims incurred
Reinsurers’ share
Claims incurred, net of reinsurance
Acquisition costs – commission
Acquisition costs – other
Other insurance related expenses
Other expenses
Net foreign exchange losses
1,758.0
(665.9)
1,092.1
1,738.6
(649.1)
1,089.5
(15.4)
(1.7)
12.2
–
1,084.6
(1,234.7)
675.4
(559.3)
(385.5)
(95.6)
(75.3)
–
–
452.1
(108.9)
343.2
444.9
(111.3)
333.6
(4.0)
(0.4)
1.8
–
331.0
(381.8)
113.4
(268.4)
(64.8)
(18.5)
(22.1)
–
–
29.0
18.1
47.1
18.6
24.4
43.0
(0.2)
(0.1)
–
4.9
2,239.1
(756.7)
1,482.4
2,202.1
(736.0)
1,466.1
(19.6)
(2.2)
14.0
4.9
47.6
1,463.2
(19.0)
(20.3)
(39.3)
(5.8)
(2.0)
(3.1)
–
–
(1,635.5)
768.5
(867.0)
(456.1)
(116.1)
(100.5)
–
–
Other
corporate
US$m
–
–
–
–
–
–
(81.6)
8.5
(3.4)
12.5
Total
US$m
2,239.1
(756.7)
1,482.4
2,204.7
(736.7)
1,468.0
(101.2)
6.3
10.6
17.4
2,239.1
(756.7)
1,482.4
2,204.7
(736.7)
1,468.0
(19.6)
(2.2)
14.0
4.9
–
–
–
2.6
(0.7)
1.9
–
–
–
–
1.9
1,465.1
(64.0)
1,401.1
–
–
(1,635.5)
768.5
–
–
(1,635.5)
768.5
–
(0.7)
(0.1)
–
–
(5.9)
(867.0)
(456.8)
(116.2)
(100.5)
–
(5.9)
–
–
–
–
(20.0)
(12.7)
(867.0)
(456.8)
(116.2)
(100.5)
(20.0)
(18.6)
Total expenses excluding finance costs
(1,115.7)
(373.8)
(50.2)
(1,539.7)
(6.7)
(1,546.4)
(32.7)
(1,579.1)
Operating loss
Finance costs
Share of net profit of associates
Loss on ordinary activities before tax
Tax income
Loss for the year
Claims ratio
Expense ratio
Combined ratio
(31.1)
(42.8)
(2.6)
(76.5)
(4.8)
(81.3)
(96.7)
(178.0)
(18.8)
6.5
(190.3)
23.8
(166.5)
58.2%
42.9%
101.1%
80.1%
31.2%
111.3%
63.1%
40.2%
103.3%
114
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
(b) Depreciation, amortisation and capital expenditure by segment
Year ended 31 December 2019
Depreciation and impairment of property, plant and equipment
Amortisation of intangibles
Capital expenditure
Year ended 31 December 2018
Depreciation of property, plant and equipment
Amortisation of intangibles
Capital expenditure
Brit Global
Specialty
Brit Global
Specialty
Other
Direct Reinsurance Underwriting
US$m
US$m
US$m
6.4
4.3
7.8
2.1
1.7
2.1
0.8
2.7
0.2
Brit Global
Specialty
Brit Global
Specialty
Other
Direct Reinsurance Underwriting
US$m
US$m
US$m
3.1
4.5
13.1
1.2
1.8
2.2
–
–
–
Total
US$m
9.3
8.7
10.1
Total
US$m
4.3
6.3
15.3
Capital expenditure consists of additions of property, plant and equipment and intangible assets but excludes assets recognised
on business combinations.
(c) Geographical information
The Group’s strategic business units operate mainly in five geographical areas, though the business is managed on a worldwide
basis. The segmental split shown below is based on the location of the underlying risk.
Gross premiums written
United States
United Kingdom
Canada
Europe (excluding UK)
Other (including worldwide)
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
1,207.3
141.0
103.8
69.5
771.9
1,016.4
139.4
83.7
94.0
905.6
2,293.5
2,239.1
The nature of the London Market business is such that the insureds and reinsureds are often operating on a multi‑territory
or worldwide basis and hence coverage is often provided on a worldwide basis. Premiums written on a multi‑territory or worldwide
basis are included in ‘Other’ in the table above.
Brit Limited Annual Report 2019
115
Financial Statements
6 Investment return
This Note shows the income generated through investing funds. It also shows the gains and losses generated on various types
of investment assets as a result of the movement in their market values.
Year ended 31 December 2019
Equity securities
Debt securities
Specialised investment funds
Cash and cash equivalents
Total investment return before expenses
Investment management expenses
Total investment return
Year ended 31 December 2018
Equity securities
Debt securities
Specialised investment funds
Cash and cash equivalents
Total investment return before expenses
Investment management expenses
Total investment return
7 Return on derivative contracts
Investment
Net
Net
unrealised
realised
income (losses)/gains gains/(losses)
US$m
US$m
US$m
Total
investment
return
US$m
5.7
71.8
–
9.8
87.3
(11.7)
75.6
(39.2)
(12.2)
(0.5)
–
(51.9)
–
(51.9)
129.7
22.4
(17.3)
–
134.8
–
134.8
96.2
82.0
(17.8)
9.8
170.2
(11.7)
158.5
Investment
Net
Net
unrealised
realised
income (losses)/gains gains/(losses)
US$m
US$m
US$m
Total
investment
return
US$m
11.5
54.0
–
10.0
75.5
(12.9)
62.6
32.3
1.5
5.8
–
39.6
–
39.6
(169.9)
(12.5)
(21.0)
–
(203.4)
–
(126.1)
43.0
(15.2)
10.0
(88.3)
(12.9)
(203.4)
(101.2)
This Note shows the effect on the income statement of derivative contracts held during the year, and which help manage exposure
to fluctuations in interest rates and foreign exchange rates. Derivatives are shown analysed between investment and currency
related derivatives, reflecting the way the business is managed.
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Investment‑related non‑currency options
Currency forwards
Return on derivative contracts
(2.8)
(14.8)
(17.6)
0.1
6.2
6.3
116
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
8 Other income (including gains/(losses) on other financial liabilities)
This Note shows the analysis of other income generated in the year, including gains/(losses) on other financial liabilities.
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Fees and commission from non‑aligned syndicate
Change in value of other financial liabilities*
Change in value of parent company shares held by Brit
Net commission fee income from intermediary activities
Consortium income
Other
Total
12.7
(10.5)
0.3
28.0
3.2
1.7
35.4
13.6
17.4
(3.4)
–
–
0.4
28.0
*Other financial liabilities are investments by third parties in structured insurance and investment entities consolidated by the Group.
9 Net foreign exchange gains/(losses)
The Group operates in multiple countries and currencies and is exposed to gains and losses arising as a result of movement
in various foreign currency exchange rates. This Note explains the foreign exchange gains or losses as a result of converting the
income, expenses, assets and liabilities from foreign currencies to US dollars.
The Group recognised foreign exchange gains of US$16.8m (2018: losses of US$18.6m) in the income statement in the year.
Foreign exchange gains and losses result from the translation of the statement of financial position to closing exchange rates
and the income statement to average exchange rates. However, as an exception to this, IAS 21 ‘The Effects of Changes in Foreign
Exchange Rates’ requires that net unearned premiums and deferred acquisition costs (UPR/DAC), being non‑monetary items, remain
at historic exchange rates. This creates a foreign exchange mismatch, the financial effects of which are shown in the table below.
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Gains/(losses) on foreign exchange arising from:
Translation of the statement of financial position and income statement
Maintaining UPR/DAC items in the income statement at historic rates
Net foreign exchange gains/(losses)
Principal exchange rates applied are set out in the table below.
Sterling
Canadian dollar
Euro
Australian dollar
14.0
2.8
16.8
(12.9)
(5.7)
(18.6)
Year ended
31 December
2019
Closing
0.755
1.297
0.891
1.423
Average
0.783
1.327
0.893
1.438
Year ended
31 December
2018
Closing
0.785
1.366
0.875
1.420
Average
0.749
1.296
0.847
1.338
In accordance with IAS 1 ‘Presentation of Financial Statements’, exchange gains and losses are presented on a net basis. They are
reported within revenue where they result in a net gain and within expenses where they result in a net loss.
Brit Limited Annual Report 2019
117
Financial Statements
10 Acquisition costs and other operating expenses
This Note shows the analysis of costs incurred in acquiring and underwriting insurance contracts and the running costs of our
business during the year. We have separated out the more material costs in order to provide a more detailed insight into
our cost base.
Salary, pension and social security costs (Note 11)
Other staff related costs
Accommodation costs
Legal and professional charges
IT costs
Travel and entertaining
Marketing and communications
Amortisation and impairment of intangible assets
Depreciation and impairment of property, plant and equipment
Regulatory levies and charges
Other
Expenses before commissions
Commission costs
Total acquisition costs and other operating expenses
11 Staff costs
Year ended 31 December 2019
Acquisition
costs
US$m
Other
operating
expenses
US$m
73.5
4.6
6.1
8.0
2.2
4.7
0.5
0.4
2.4
43.7
4.5
150.6
444.6
595.2
56.9
12.3
2.2
7.7
20.0
2.6
1.9
8.3
6.9
–
7.0
125.8
–
125.8
Total
US$m
130.4
16.9
8.3
15.7
22.2
7.3
2.4
8.7
9.3
43.7
11.5
276.4
444.6
721.0
Year ended 31 December 2018
Other
operating
expenses
US$m
Total
US$m
Acquisition
costs
US$m
57.2
2.8
7.1
1.9
1.4
4.2
0.7
0.1
0.3
39.2
1.3
53.1
9.0
7.2
7.6
19.2
3.3
1.2
6.2
4.0
–
9.7
116.2
456.8
573.0
120.5
–
120.5
110.3
11.8
14.3
9.5
20.6
7.5
1.9
6.3
4.3
39.2
11.0
236.7
456.8
693.5
This Note gives a breakdown of the total cost of employing staff (including executive and non‑executive Directors) and gives the
average number of people employed by the Group during the year.
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Wages and salaries
Social security costs
Pension costs
Total staff costs
112.0
13.3
5.1
130.4
94.6
10.8
4.9
110.3
118
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
The average number of employees during the year, including executive and non‑executive Directors, was as follows:
Year ended
Year ended
31 December 31 December
2018
Number
2019
Number
Front office staff
Underwriters
Claims staff
Other underwriting and direct support staff
Total front office staff
Back office staff
Management
Administration
Total back office staff
Total employees
213
58
156
427
107
176
283
710
184
57
126
367
84
152
236
603
‘Management’ includes non‑executive Directors and employees who have other members of staff reporting to them.
12 Finance costs
Finance costs arise from interest due on moneys borrowed by the Group and any other amounts payable in respect of those
borrowings or borrowing facilities. Finance costs also includes interest payable on lease liabilities. The Group’s borrowings consist
of a revolving credit facility and listed unsecured subordinated debt, details of which are set out in Note 26.
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Revolving credit facility and other bank borrowings
Interest payable on lease liabilities
Subordinated debt
Total finance costs
13 Auditor’s remuneration
7.9
1.8
14.0
23.7
4.4
–
14.4
18.8
The Group engages PricewaterhouseCoopers LLP to perform the audit of the Group and all subsidiaries except for the
Ambridge companies.
The remuneration of the auditors or their associates is analysed as follows:
Audit of the Group and Company financial statements
Audit of subsidiaries
Audit related assurance services
Total audit and audit related assurance services
Total non‑audit services
Total audit and non‑audit services
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
0.6
1.2
0.1
1.9
–
1.9
0.4
1.0
0.1
1.5
–
1.5
Brit Limited Annual Report 2019
119
Financial Statements
14 Investments in associated undertakings
This Note describes the investments made in associated undertakings and provides summarised income statements and statements
of financial position of those associates.
Camargue Underwriting Managers Proprietary Limited (‘Camargue’)
On 30 August 2016, the Group acquired 50% of the share capital of Camargue for ZAR65.5m plus £0.3m (US$4.9m) and entered into
a call and a put option to purchase the remaining 50% in 2021. The investment in Camargue is measured using the equity accounting
method. The principal place of business of Camargue is South Africa. Camargue is a leading managing general underwriter of a range
of specialised insurance products and specialist liability solutions in South Africa and is an important trading partner for Brit. The
summarised statement of financial position of Camargue and reconciliation to the carrying amount is as follows:
Statement of financial position
Current assets
Non‑current assets
Total assets
Current liabilities
Non‑current liabilities
Total liabilities
Net assets
50% not owned by Brit
Acquisition fair value, result since acquisition and other adjustments
Carrying value
Income statement
Commission revenue
Operating expenses
Net profit
50% not owned by Brit
Share of net profit of associate
31 December 31 December
2018
US$m
2019
US$m
5.6
1.6
7.2
(4.8)
(0.1)
(4.9)
2.3
(1.2)
5.0
6.1
2.8
1.5
4.3
(2.2)
–
(2.2)
2.1
(1.1)
4.7
5.7
31 December 31 December
2018
US$m
2019
US$m
5.4
(4.2)
1.2
(0.6)
0.6
5.5
(4.3)
1.2
(0.6)
0.6
120
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Sutton Special Risk Inc. (‘Sutton’)
On 2 January 2019, Brit Insurance Holdings Limited, acquired 49% of the issued shares of Sutton for a total purchase consideration
of CAD$17.2m and entered into a forward contract to purchase the remaining 51% in 2024. Sutton is a Canadian managing general
underwriter of a range of specialised insurance products, including Accident and Health. The summarised statement of financial
position of Sutton and reconciliation to the carrying amount is as follows:
Statement of financial position
Current assets
Non‑current assets
Total assets
Current liabilities
Total liabilities
Net assets
51% not owned by Brit
Acquisition fair value, result since acquisition and other adjustments
Carrying value
Income statement
Commission revenue
Operating expenses
Net profit
51% not owned by Brit
Share of net profit of associate
15 Tax expense
31 December
2019
US$m
16.2
3.0
19.2
(16.4)
(16.4)
2.8
(1.4)
11.9
13.3
31 December
2019
US$m
8.0
(6.6)
1.4
(0.7)
0.7
Income tax is tax charged on trading activities during the year. This Note shows the breakdown of tax payable in the current period
(current tax) and also tax that may become payable sometime in the future (deferred tax).
(a) Tax (charged)/credited to the income statement
Current tax:
Current taxes on income for the year
Overseas tax on income for the year
Double tax relief
Adjustments in respect of prior years
Total current tax
Deferred tax:
Relating to the origination and reversal of temporary differences
Adjustments in respect of prior years
Total deferred tax
Total tax (charged)/credited to the income statement
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
2.0
(1.6)
0.4
1.2
1.8
3.4
(10.6)
0.8
(9.8)
(6.4)
(12.9)
(4.5)
(17.4)
1.1
4.9
(11.4)
34.9
0.3
35.2
23.8
Brit Limited Annual Report 2019
121
Financial Statements
15 Tax expense (continued)
Overseas tax and double tax relief principally arise from taxes suffered as a result of the Group’s operations at Lloyd’s. Double tax
relief is effectively limited to an amount equal to the tax due at the UK tax rate on the same source of income.
(b) Tax credited/(charged) to other comprehensive income
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Deferred tax credit/(charge) on actuarial (losses)/gains on defined benefit pension scheme
6.4
(0.6)
(c) Tax reconciliation
The tax on the Group’s profit/(loss) before tax differs from the theoretical amount that would arise based on the weighted average
rate of tax as follows:
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Profit/(loss) on ordinary activities before tax
Tax calculated at weighted average rate of tax on income
Non‑deductible and non‑taxable items
Taxes on income at rates in excess of the domestic rate and where credit is unavailable
Effect of temporary differences not recognised
Effect of revaluation of deferred tax following change in rate of tax
Other items
Adjustments to tax charge in respect of prior years
Total tax (charged)/credited to income statement
186.3
(3.2)
1.8
1.2
7.2
(15.8)
(0.2)
2.6
(6.4)
(190.3)
34.3
2.3
(2.4)
(10.8)
(4.7)
(0.1)
5.2
23.8
The weighted average rate of tax is based on the geographic split of profit across Group entities in jurisdictions with differing tax
rates. As the mix of taxable profits changes, so will the weighted average rate of tax.
(d) Effect of post balance sheet rate changes
UK legislation was substantively enacted on 9 September 2016 to reduce the main rate of UK corporation tax from 19% to 17%
from 1 April 2020.
The reduction in rate from 19% to 17% has been used in the calculation of the UK’s deferred tax assets and liabilities
as at 31 December 2019.
During 2019 it was announced that further legislation is expected that will instead maintain the main rate of UK corporation tax
at 19%. If such legislation is introduced and the rate is maintained at 19% from April 2020, the impact would be to increase the
total deferred tax asset to US$48.7m with an additional US$2.7m unrecognised deferred tax asset in respect of undeclared year
of account losses.
122
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
16 Intangible assets
An intangible asset is an asset without any physical substance but which has long‑term value to the business. With the exception
of goodwill, syndicate participation rights at Lloyd’s, trade names and the regulatory licences, which are classified as indefinite
life assets, the value of these assets are reduced according to their useful life by way of amortisation. Amortisation is included
as an expense in the income statement.
Goodwill Trade names
US$m
US$m
Distribution
Syndicate
channels Participations
US$m
US$m
Regulatory
licenses
US$m
Employee
related
US$m
Software
US$m
Total
US$m
Cost:
At 1 January 2018
Additions
Disposals
Foreign exchange effect
At 31 December 2018
At 1 January 2019
Additions
Additions through acquisitions
Foreign exchange effect
At 31 December 2019
Amortisation:
At 1 January 2018
Charge for the year
Disposals
Foreign exchange effect
At 31 December 2018
At 1 January 2019
Charge for the year
Foreign exchange effect
At 31 December 2019
Carrying amount:
At 31 December 2018
At 31 December 2019
–
–
–
–
–
–
–
45.9
–
45.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
–
0.5
–
–
–
–
–
–
–
–
–
9.8
–
–
–
9.8
9.8
–
42.6
–
52.4
4.5
0.6
–
–
5.1
5.1
2.7
–
7.8
70.8
–
–
–
70.8
70.8
–
–
–
70.8
–
–
–
–
–
–
–
–
–
–
7.5
–
–
7.5
7.5
–
–
–
7.5
–
–
–
–
–
–
–
–
–
–
45.9
–
0.5
4.7
44.6
70.8
70.8
7.5
7.5
–
–
–
–
–
–
–
1.2
–
1.2
–
–
–
–
–
–
0.3
–
0.3
–
0.9
38.5
6.4
(6.0)
(2.2)
36.7
36.7
5.2
0.9
1.4
44.2
16.8
5.7
(6.0)
(1.2)
15.3
15.3
5.7
0.8
21.8
119.1
13.9
(6.0)
(2.2)
124.8
124.8
5.2
91.1
1.4
222.5
21.3
6.3
(6.0)
(1.2)
20.4
20.4
8.7
0.8
29.9
21.4
22.4
104.4
192.6
Additional information
On 30 April 2018, as part of Brit’s acquisition of Commonwealth Insurance Company of America from TIG Insurance Company,
an intangible asset was recognised in respect of the US$7.5m paid for its operating licences in 48 US states.
The gross cost of software fully amortised but still in use is US$8.1m (2018: US$7.2m). All software additions in 2019 and 2018 were
internally developed. The software amortisation charge for the year of US$5.7m (2018: US$5.7m) is included in the ‘other operating
expenses’ line in the income statement. There were no impairments to software in 2019 (2018: nil). Assets not yet in use with a total
cost of US$0.6m (2018: US$1.5m) are included in software. Further information is given in Note 5(b).
Brit Limited Annual Report 2019
123
Financial Statements
16 Intangible assets (continued)
Impairment testing
Goodwill
Goodwill is reviewed annually for impairment and has been allocated to the Ambridge cash‑generating unit (CGU):
Ambridge Group
31 December
2019
US$m
45.9
The goodwill arising in 2019 relates to the Ambridge acquisition and the recoverable amounts have been determined using a value
in use calculation.
The value in use calculation uses cash flow projections based on business plans approved by senior management covering
a three‑year period and subsequent cash flows which assume a nil growth rate. These cash flows have been discounted using a risk
adjusted discount rate of 9.2%. In the goodwill impairment review, the recoverable amount significantly exceeds the carrying value
of the CGU including its associated goodwill and it is considered that a reasonably possible change in key assumptions will not cause
the carrying value of the CGU to exceed its recoverable amount.
The key assumptions used for the impairment calculations were that cash flows and profit levels will mainly depend on the level
of commissions earned by Ambridge. The business plan reflects senior management’s best estimates based on historical experience,
growth rates for the respective insurance industry sector, the insurance pricing cycle and expected results from ongoing and future
strategic business unit product and distribution strategies.
Syndicate participations
Syndicate participations are indefinite life intangible assets and are therefore reviewed annually for impairment. They have been
allocated to cash‑generating units (CGUs) as follows:
Global Specialty Direct
Global Specialty Reinsurance
Total
31 December 31 December
2018
US$m
2019
US$m
52.7
18.1
70.8
52.7
18.1
70.8
These CGUs are based upon operating segments which earn revenues and incur expenses and whose results are regularly reviewed
by management.
The recoverable amounts of the CGUs have been determined using a value in use calculation.
Each value in use calculation uses pre‑tax cash flow projections based on business plans approved by senior management covering
a three‑year period and subsequent cash flows which assume a nil growth rate. These cash flows have been discounted using
a risk adjusted pre‑tax discount rate of 9.2% (2018: 9.2%). In each syndicate participation impairment review, the recoverable
amount significantly exceeds the carrying value of the CGU including its associated syndicate participations and it is considered that
a reasonably possible change in key assumptions will not cause the carrying value of the CGU to exceed its recoverable amount.
124
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
The key assumptions used for the impairment calculations were that cash flows and profit levels will mainly depend on the level
of premiums written by each strategic business unit, the rates at which these premiums are written and the claims activity on both
prior and future underwriting years. The business plans reflect senior management’s best estimates based on historical experience,
growth rates for the respective insurance industry sector, the insurance pricing cycle and expected results from ongoing and future
strategic business unit product and distribution strategies.
Commissions and other insurance related expenses are assumed to remain materially in line with current amounts relative
to premium levels.
Trade names
Trade names are indefinite life intangible assets and are therefore reviewed annually for impairment. They have been allocated
to cash‑generating units (CGUs) as follows:
Ambridge Group
31 December
2019
US$m
0.5
The trade names were acquired in 2019 as part of the Ambridge acquisition and the recoverable amounts have been determined
using a relief from royalty approach to estimate the fair value.
Each calculation of the current fair value of the trade names uses revenue projections based on business plans approved by senior
management. A royalty rate is applied as a percentage of the revenue stream and these cash flows have been discounted using
a risk adjusted discount rate of c.13%.
The key assumptions used for the impairment calculations are the level of projected revenue cash flows and the estimated royalty
rate. The revenue estimates reflect senior management’s best estimates based on historical experience, growth rates for the
respective industry sector and expected results from the product and distribution strategies of the CGUs. The royalty rate used
of 0.25% was determined post‑acquisition following consideration of comparable market royalty rates.
Regulatory licenses
This asset is not yet in use as the business to which it relates has not yet started trading. As the licenses remain valid and available
to the related business when it commences trading, the licenses remain unimpaired.
Brit Limited Annual Report 2019
125
Financial Statements
17 Property, plant and equipment
This Note gives a breakdown of the type of assets in use such as computer equipment, office fixtures and fittings and furniture.
The value of these assets are reduced according to their useful life by way of depreciation. Depreciation is included as an expense
in the income statement. An annual assessment of the carrying value of these assets is carried out and, if necessary, an impairment
charge to the income statement is made.
Cost:
At 1 January 2018
Additions
Disposals
Foreign exchange effect
At 31 December 2018
At 1 January 2019
Additions
Additions through acquisitions
Disposals
Foreign exchange effect
At 31 December 2019
Depreciation:
At 1 January 2018
Charge for the year
Disposals
Foreign exchange effect
At 31 December 2018
At 1 January 2019
Charge for the year
Impairments
Disposals
Foreign exchange effect
At 31 December 2019
Carrying amount:
At 31 December 2018
At 31 December 2019
Computers
and office
machinery,
Office furniture and
equipment
US$m
refurbishment
US$m
Right of
use assets
US$m
21.1
0.4
–
(1.1)
20.4
20.4
3.1
0.2
–
0.8
24.5
4.5
1.7
–
(0.2)
6.0
6.0
1.7
–
–
0.3
8.0
12.0
1.0
(0.8)
(0.5)
11.7
11.7
0.9
0.3
–
0.4
13.3
7.3
2.6
(0.8)
(0.4)
8.7
8.7
1.7
–
–
0.3
10.7
–
–
–
–
–
50.4
0.9
1.5
(0.1)
2.0
54.7
–
–
–
–
–
–
5.7
0.2
(0.1)
0.1
5.9
Total
US$m
33.1
1.4
(0.8)
(1.6)
32.1
82.5
4.9
2.0
(0.1)
3.2
92.5
11.8
4.3
(0.8)
(0.6)
14.7
14.7
9.1
0.2
(0.1)
0.7
24.6
14.4
16.5
3.0
2.6
–
48.8
17.4
67.9
Right of use assets have been recognised for the first time in 2019 as a result of the adoption of IFRS 16. For further details please
see Note 2.1(a).
126
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
The gross cost of property, plant and equipment fully depreciated but still in use is US$8.7m (2018: US$3.4m). The depreciation
charge for the year of US$9.1m (2018: US$4.3m) is included in the ‘other operating expenses’ line in the income statement.
An impairment charge of US$0.2m (2018: nil) was recognised in respect of an onerous property lease and is included in the ‘other
operating expenses’ line in the income statement. A dilapidations provision of US$3.5m (2018: US$2.2m) has been set up in respect
of the refurbishment of rented property.
Further information on depreciation and capital expenditure by segment is given in Note 5(b).
18 Deferred acquisition costs
Acquisition costs are costs incurred in underwriting insurance risks and include commissions paid to third parties and some
internally generated costs such as underwriter salaries. These costs are deferred and are charged to the income statement over
the duration of the contract. The movement in these deferred costs and releases to the income statement is shown in this Note.
At 1 January
Costs deferred during the year
Amortisation charge for the year
At 31 December
19 Deferred taxation
2019
US$m
2018
US$m
244.1
594.7
(595.2)
243.6
235.7
581.4
(573.0)
244.1
This Note describes the tax that may have to be paid in the future. Deferred tax arises from differences in the way that tax
is calculated for accounting purposes and tax purposes.
The deferred tax asset is attributable to temporary differences arising on the following:
At 1 January 2018
Movements in the year:
(Charged)/credited to income statement
Foreign exchange effect
At 31 December 2018
Set‑off of deferred tax liabilities pursuant to set‑off provisions
Net deferred tax asset at 31 December 2018
At 1 January 2019
Movements in the year:
(Charged)/credited to income statement
Foreign exchange effect
At 31 December 2019
Set‑off of deferred tax liabilities pursuant to set‑off provisions
Net deferred tax asset at 31 December 2019
Intangible
assets Underwriting
US$m
US$m
2.3
61.1
(0.7)
(0.1)
1.5
31.7
–
92.8
Other
US$m
4.2
(0.2)
(0.1)
3.9
Total
US$m
67.6
30.8
(0.2)
98.2
(42.1)
56.1
1.5
92.8
3.9
98.2
(0.6)
–
0.9
0.2
–
93.0
1.0
(0.1)
4.8
0.6
(0.1)
98.7
(57.6)
41.1
Brit Limited Annual Report 2019
127
Financial Statements
19 Deferred taxation (continued)
Deferred tax assets, all of which arise in the United Kingdom, are considered recoverable where it is expected that there will be
future taxable income based on the approved business plans and budgets of the Group. The net deferred tax asset recorded
in the year arises from significant catastrophe‑related activity, which is not expected to recur. The losses can be carried forward
indefinitely and have no expiry date. Please see Note 3.9 for further detail on the estimation of deferred tax assets.
Deferred tax assets arising on decelerated capital allowances of US$0.6m (2018: US$0.7m) have not been provided for due
to uncertainty over the timing of their utilisation.
Deferred tax has not been set up in respect of certain losses carried forward of US$18.8m (2018: US$96.9m) and in respect
of undeclared year of account losses of US$14.1m (2018: US$51.2m) as it is not considered probable that they can be utilised in the
foreseeable future.
Deferred tax has not been provided in respect of the profits of subsidiaries in the Group as certain tax exemptions are not
expected to apply.
The deferred tax liability is attributable to temporary differences arising on the following:
At 1 January 2018
Movements in the year:
(Charged)/credited to income statement
Tax relating to components of other comprehensive income (Note 15(b))
Foreign exchange effect
At 31 December 2018
Set‑off of deferred tax assets pursuant to set‑off provisions
Net deferred tax liability at 31 December 2018
At 1 January 2019
Movements in the year:
(Charged)/credited to income statement
Acquisition of Ambridge
Tax relating to components of other comprehensive income (Note 15(b))
Foreign exchange effect
At 31 December 2019
Set‑off of deferred tax assets pursuant to set‑off provisions
Net deferred tax liability at 31 December 2019
Intangible
Pensions
US$m
assets Underwriting
US$m
US$m
Other
US$m
Total
US$m
(8.3)
(13.5)
(23.1)
(2.3)
(47.2)
(0.7)
(0.6)
0.5
(9.1)
(0.3)
–
–
4.8
–
0.8
0.6
–
–
4.4
(0.6)
1.3
(13.8)
(17.5)
(1.7)
(42.1)
42.1
–
(9.1)
(13.8)
(17.5)
(1.7)
(42.1)
(14.9)
–
6.4
(0.6)
(18.2)
0.3
(10.5)
–
–
4.2
–
–
0.4
(24.0)
(12.9)
–
–
–
(0.8)
(2.5)
(10.4)
(10.5)
6.4
(1.0)
(57.6)
57.6
–
128
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
20 Insurance and reinsurance contracts
This Note deals with balances carried in respect of insurance contracts (liabilities) and reinsurance contracts (assets). It examines
the statement of financial position, splitting both insurance and reinsurance balances into their component parts, and explains the
assumptions applied in arriving at these figures. The Note also shows how claims have developed over a period (before and after
the effects of reinsurance) of time by setting out the cumulative development at the end of each calendar year in respect of claims
arising from business written in a particular underwriting year. It ends by analysing the movements in insurance and reinsurance
contracts during the year.
(a) Balances on insurance and reinsurance contracts
Gross
Claims reported and loss adjustment expenses
Claims incurred but not reported
Unearned premiums
Total gross liabilities
Recoverable from reinsurers
Claims reported and loss adjustment expenses
Claims incurred but not reported
Unearned premiums
Total reinsurers’ share of liabilities
Net
Claims reported and loss adjustment expenses
Claims incurred but not reported
Unearned premiums
Total net insurance liabilities
31 December 31 December
2018
US$m
2019
US$m
1,705.1
2,591.6
4,296.7
969.4
5,266.1
1,719.4
2,629.1
4,348.5
925.6
5,274.1
550.2
795.1
1,345.3
282.8
1,628.1
639.0
807.5
1,446.5
253.3
1,699.8
1,154.9
1,796.5
1,080.4
1,821.6
2,951.4
686.6
2,902.0
672.3
3,638.0
3,574.3
Insurance contracts – assumptions and changes in assumptions
Process used to decide on assumptions required
The risks associated with these insurance liabilities and in particular with casualty insurance liabilities are complex and subject
to a number of variables that complicate quantitative analysis.
The Group uses several statistical methods to incorporate the various assumptions made in order to estimate the ultimate costs
of claims. The two methods more commonly used are the chain‑ladder and the Bornhuetter‑Ferguson methods.
Chain‑ladder methods may be applied to premiums, paid claims or incurred claims (i.e. paid claims plus case estimates). The basic
technique involves the analysis of historical claims development factors and the selection of estimated development factors based
on these historical patterns. The selected development factors are then applied to cumulative claims data for each underwriting year
that is not yet fully developed to produce an estimated ultimate claims cost for each underwriting year.
Brit Limited Annual Report 2019
129
Financial Statements
20 Insurance and reinsurance contracts (continued)
Chain‑ladder techniques are most appropriate for mature classes of business that have a relatively stable development pattern.
Chain‑ladder techniques are less suitable in cases in which the insurer does not have a developed claims history for a particular
class of business or for underwriting years at early stages of development where the outcome is still highly uncertain.
The Bornhuetter‑Ferguson method uses a combination of a benchmark or market‑based estimate and an estimate based on claims
experience. The former is based on a measure of exposure such as premiums; the latter is based on the paid or incurred claims
to date. The two estimates are combined using a formula that gives more weight to the experience‑based estimate as time passes.
This technique is used in situations in which developed claims experience is not available for the projection (recent underwriting
years or new classes of business).
The choice of selected results for each year of each class of business depends on an assessment of the technique that has
been most appropriate to observed historical developments. In certain instances, this has meant that different techniques
or combination of techniques have been selected for the individual underwriting year or groups of underwriting years within the
same class of business.
Standard statistical techniques may not be solely appropriate for assessing ultimate claims for a number of classes of business
(e.g. casualty treaty) and particular events (e.g. natural catastrophes), therefore alternative methodologies may be employed
to add additional rigour to the process. Examples include reviewing potential exposure on a policy by policy basis and taking account
of market intelligence to determine Brit’s share of the loss.
In addition to the estimation of claims reserves certain estimates are produced for unearned premiums. For open market business,
earned premium is calculated at policy level. However, premium derived from delegated underwriting authorities is calculated
by applying the 144ths method to estimated premiums applied to the master policy. This assumes that attachments to master policies
arise evenly throughout the period of that master policy.
Reinsurance outwards premiums are earned according to the nature of the cover. ‘Losses occurring during’ policies are earned
evenly over the policy period. ‘Risks attaching’ policies are earned on the same basis as the inwards business being protected.
Changes in assumptions
The Group did not change its estimation techniques for the insurance contracts disclosed in this Note during the year.
Claims development tables
The tables below show the development of claims over a period of time on a gross and net of reinsurance basis.
The claims development tables have been presented on an underwriting year basis.
The tables show the cumulative incurred claims, including both notified and IBNR claims, for each successive underwriting year at the
end of each year, together with cumulative paid claims at the end of the current year.
The claims have been adjusted to make them comparable on a year by year basis.
They have been grossed up to include 100% of the managed syndicate claims rather than the claims that reflects the Group
percentage ownership of each syndicate’s underwriting capacity during the respective underwriting years. In addition, claims
in currencies other than US dollars have been retranslated at 31 December 2019 exchange rates.
130
Brit Limited Annual Report 2019
notes to the consolidated financial statements Financial Statements
Ultimate gross claims
Underwriting year
Claims ratio:
At end of
underwriting year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Total ultimate
2010
and prior
years
2011
2012
2013
2014
2015
2016
2017
2018
Intra Group
and other
underwriting
2019 adjustments
Total
75.7%
70.5%
76.6% 101.4% 89.3%
71.4% 85.5% 109.1% 96.4%
73.5% 89.4% 109.1%
72.4%
88.1%
70.4%
75.9% 80.8% 76.1% 69.9% 70.2%
86.5% 78.3% 71.6% 70.0% 73.6%
90.5% 78.6% 72.4% 70.1% 73.3%
74.6%
90.9% 78.3% 70.5% 69.8%
89.8% 78.9% 73.1% 71.2%
74.1%
87.6% 77.4% 74.0% 70.6% 73.0%
87.3% 76.5% 73.4% 69.6%
85.7% 76.4% 72.3%
84.4% 76.5%
84.7%
US$m
US$m
US$m
US$m
US$m
US$m
US$m
US$m
US$m
US$m
US$m
US$m
gross claims at
31 December 2019 9,230.2 848.3 953.7 977.5 1,118.4 1,027.5 1,343.4 1,707.5 1,551.1 1,284.1
20.3 20,062.0
Less accumulated
gross paid claims
Unearned premium
portion of gross
ultimate claims
Claims handling
provision and
other corporate
adjustments
Total outstanding
gross claims at
31 December 2019
(8,914.5) (770.2) (794.8) (778.7) (858.1)
(677.7)
(840.4)
(926.7) (518.0)
(43.7)
(7.4) (15,130.2)
–
–
–
–
–
–
–
–
(54.2) (647.0)
(0.7)
(701.9)
4.4
1.2
2.3
3.0
3.9
5.3
7.1
10.0
12.6
7.6
9.4
66.8
320.1
79.3
161.2 201.8
264.2
355.1
510.1
790.8
991.5
601.0
21.6
4,296.7
Brit Limited Annual Report 2019
131
Financial Statements
20 Insurance and reinsurance contracts (continued)
Ultimate net claims
Underwriting year
Claims ratio:
At end of
underwriting year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Total ultimate
net claims at
31 December 2019
Less accumulated
gross paid claims
Unearned premium
portion of gross
ultimate claims
Claims handling
provision, bad debt
provision and
other corporate
adjustments
Total outstanding
net claims at
31 December 2019
2010
and prior
years
2011
2012
2013
2014
2015
2016
2017
2018
Intra Group
and other
underwriting
2019 adjustments
Total
83.1% 100.2% 95.7% 82.2%
76.1%
77.7%
79.5% 86.6% 82.5% 75.4%
87.7% 84.0% 78.1% 76.7% 79.3% 80.5% 90.3% 101.4% 102.4%
89.7% 83.2% 77.8% 76.4% 78.4% 81.2%
79.7%
79.1%
89.8% 81.4% 75.6% 76.4%
87.7% 81.4% 76.6% 77.0% 79.0%
77.2%
86.5% 79.9% 76.7% 75.4% 78.2%
86.4% 78.7% 76.0% 74.0%
84.3% 78.4% 74.5%
83.2% 79.0%
83.5%
92.2% 101.3%
91.5%
US$m
US$m
US$m
US$m
US$m
US$m
US$m
US$m
US$m
US$m
US$m
US$m
6,777.2 691.3
743.1 750.5 856.6
805.9
934.9 1,053.3 1,079.1
877.0
20.1 14,589.0
(6,603.7) (629.6) (636.9) (618.4) (675.7) (545.4)
(610.7)
(579.3) (375.2)
(39.3)
(7.4) (11,321.6)
–
–
–
–
–
(0.1)
–
–
(36.8) (432.0)
(0.7)
(469.6)
3.3
1.2
2.3
3.0
3.9
5.3
7.1
10.0
12.6
7.6
97.3
153.6
176.8
62.9
108.5
135.1
184.8
265.7
331.3
484.0
679.7
413.3
109.3
2,951.4
The percentages in the gross and net triangles are shown on an ultimate loss basis inclusive of catastrophe losses
by year of account.
The 2010, 2016, 2017 and 2018 years of account include the impact of natural catastrophes which occurred in the following calendar
year and which attached back to policies incepting in those respective years of account. The 2017 and prior years of account will
also be impacted by the loss portfolio reinsurance contract entered into in 2018 with RiverStone Managing Agency Limited (for and
on behalf of Lloyd’s syndicate 3500).
During 2019, the net aggregate reserve releases from prior years amounted to US$46.5m, which included reserve strengthening
of US$29.6m in respect of 2018 more than offset by a reserve release of US$76.1m (164% of the net aggregate reserve release)
derived from the 2018 and prior underwriting years (2018: US$89.5m/90.0% from the 2017 and prior underwriting years). Reserves
in Brit Global Specialty Direct experienced releases of US$33.0m (2018: releases of US$52.3m) and Brit Global Specialty Reinsurance
experienced releases of US$4.4m (2018: US$8.7m) with releases of US$9.1m (2018: US$38.3m) within Other Underwriting.
132
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
(b) Movements in insurance and reinsurance contracts
(i) Claims and loss adjustment expenses
As at 1 January
Cash paid for claims settled in the year
Increase in liabilities
Net foreign exchange differences
As at 31 December
(ii) Unearned premiums
As at 1 January
Premiums written in the year
Premiums earned during the year
As at 31 December
21 Employee benefits
31 December 2019
Gross Reinsurance
US$m
US$m
Net
US$m
Gross
US$m
31 December 2018
Reinsurance
US$m
Net
US$m
4,348.5
(1,366.6)
1,283.4
31.4
(1,446.5) 2,902.0
(857.5)
914.5
(7.6)
509.1
(368.9)
(39.0)
4,136.1
(1,345.5)
1,635.5
(77.6)
(1,116.2) 3,019.9
(938.2)
867.0
(46.7)
407.3
(768.5)
30.9
4,296.7
(1,345.3) 2,951.4
4,348.5
(1,446.5) 2,902.0
31 December 2019
Gross Reinsurance
US$m
US$m
Net
US$m
Gross
US$m
31 December 2018
Reinsurance
US$m
Net
US$m
925.6
2,293.5
(2,249.7)
(253.3)
(637.3)
607.8
969.4
(282.8)
891.2
672.3
2,239.1
1,656.2
(1,641.9) (2,204.7)
925.6
686.6
(233.3)
(756.7)
736.7
(253.3)
657.9
1,482.4
(1,468.0)
672.3
This Note explains the pension schemes operated by the Group for its employees. For the Group’s defined benefit scheme (in which
no further benefits are being accrued), it sets out the amount carried on the Group statement of financial position, gains and losses
incurred during the year, amounts paid into the scheme, together with further information about the scheme. For the Group’s defined
contribution schemes, it sets out the costs incurred during the year.
(a) Brit Group Services Limited – Defined Benefit Pension Scheme
Through Brit Group Services Limited, the Group operates a funded defined benefit pension scheme providing pensions benefits to its
members. The scheme closed to new entrants on 4 October 2001 and closed to future accrual of benefits on 31 December 2011.
Following closure to future accrual, benefits now increase broadly in line with inflation. The weighted average duration to payment
of the scheme’s expected cash flows is 16 years (2018: 15 years).
The scheme is approved by HMRC for tax purposes. The scheme is operated from a trust, which has assets which are held
separately from the Group. The trust is managed by an independent Trustee. The Trustee is responsible for payment of the benefits
and management of the scheme’s assets. The scheme is subject to UK regulations overseen by the Pensions Regulator, which require
the Group and Trustee to agree a funding strategy and contribution schedule for the scheme every three years. The most recent
triennial review of the scheme was undertaken as at 31 July 2018 and identified a funding surplus of £9.5m.
Following the 2018 valuation, the Group agreed to continue to pay contributions of £2.0m a year until 31 July 2024. These
contributions are now paid into a designated Brit Group Services Limited bank account over which the scheme has a charge.
These contributions are payable by Brit Group Services Limited and backed‑up by cross‑company guarantees from Brit Insurance
Holdings Limited.
If there is a shortfall against the funding target, then the Company and Trustee will agree on deficit contributions to meet this
deficit over a period. There is a risk to the Company that adverse experience could lead to a requirement for the Company to make
additional contributions in excess of those above to recover any deficit that arises.
Brit Limited Annual Report 2019
133
Financial Statements
21 Employee benefits (continued)
Net amount recognised in the statement of financial position for the scheme:
Present value of defined benefit obligation
Fair value of scheme assets
Net pension asset
Changes in the net pension asset recognised in the statement of financial position:
Opening statement of financial position
Credit to income statement
Foreign exchange effect
Amount recognised outside income statement
Contributions paid
Closing statement of financial position
31 December 31 December
2018
US$m
2019
US$m
(193.3)
245.2
51.9
(174.5)
227.6
53.1
31 December 31 December
2018
US$m
2019
US$m
53.1
1.5
2.0
(4.7)
–
51.9
48.6
1.2
(3.2)
3.8
2.7
53.1
A net pension asset is recognised on the statement of financial position as there is an unconditional right of the Group to be refunded
the surplus in the scheme. The measurement of the net pension asset is impacted by a number of factors, including the actuarial
assumptions used, the effects of changes in foreign exchange rates, and the contributions paid to the scheme by the Group. The
Group expects this asset to be available as a refund to the sponsoring employer. Under UK legislation, surplus payments made from
a UK pension scheme to the sponsoring employer are received net of an income tax deduction of 35%.
Net credit recognised in the income statement comprised:
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Net interest on net defined benefit asset
1.5
1.2
This credit has been recognised in the ‘other operating expenses’ line in the income statement. Contributions to the Group’s defined
contribution pension arrangements are in addition to those set out in this Note and are charged directly to the income statement.
The allocation of the scheme’s assets was as follows:
Equities
Index‑linked UK government bonds
Other debt securities
Cash and net current assets
Gold and gold mining equities
Other scheme assets
Fair value of scheme assets
31 December 31 December
2018
US$m
2019
US$m
12.6
154.0
66.9
7.4
2.1
2.2
245.2
35.4
118.0
64.2
6.1
2.4
1.5
227.6
All scheme assets have quoted prices in active markets. The scheme does not invest directly in property occupied by the Group
or in financial securities issued by the Group.
134
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Investment strategy
The Trustee determines the scheme’s investment strategy after taking appropriate advice from their investment consultants. The
management of the assets is delegated to State Street Global Advisors Limited, Ruffer LLP and Insight Investment Management
(Global) Limited. The Trustee’s investment objectives are to ensure that the scheme has adequate resources to meet the
members’ entitlements under the Trust Deed and Rules as they fall due, and thereafter to minimise long‑term costs of the scheme
by maximising the return on the assets. Investment risk is managed by diversifying the assets across asset classes whose return
patterns are not highly correlated, and by periodically rebalancing asset classes. The assets include a portfolio of UK index‑linked
government bonds which aim to match a significant part of the scheme’s inflation‑linked benefits and therefore help to reduce the
Group’s exposure to investment and inflation risks.
Movements in the present value of the defined benefit obligation were as follows:
Opening defined benefit obligation
Interest on defined benefit obligation
Remeasurements due to:
Changes in financial assumptions
Changes in demographic assumptions
Experience on benefit obligations
Foreign exchange effect
Benefits paid
Closing defined benefit obligation
Movements in the fair value of the scheme assets were as follows:
Opening fair value of scheme assets
Interest income
Actual return excluding interest income
Foreign exchange effect
Contributions by the employer
Benefits paid
Closing fair value of scheme assets
The principal actuarial assumptions at the year‑end were:
Discount rate
Retail Prices Index (RPI) inflation
Consumer Prices Index (CPI) inflation
Pension increases in payment
Mortality assumptions:
Life expectancy of male aged 60 at statement of financial position date
Life expectancy of female aged 60 at statement of financial position date
Life expectancy of male retiring in 20 years’ time aged 60
Life expectancy of female retiring in 20 years’ time aged 60
31 December 31 December
2018
US$m
2019
US$m
174.5
4.8
19.2
–
0.5
7.5
(13.2)
193.3
211.1
5.1
(9.4)
(5.9)
(2.4)
(11.2)
(12.8)
174.5
31 December 31 December
2018
US$m
2019
US$m
227.6
6.4
15.0
9.4
–
(13.2)
245.2
259.7
6.4
(13.8)
(14.4)
2.6
(12.9)
227.6
31 December
2019
31 December
2018
2.11%
3.10%
2.30%
2.98%
2.88%
3.30%
2.30%
3.14%
27.8 years
29.9 years
29.3 years
31.4 years
27.7 years
29.8 years
29.2 years
31.4 years
Brit Limited Annual Report 2019
135
Financial Statements
21 Employee benefits (continued)
The assumptions used to determine end‑of‑year benefit obligations are also used to calculate the following year’s cost.
Sensitivity analysis:
Assumption
Discount rate
Future RPI inflation increases
Future CPI inflation increases
Assumed life expectancy at age 60
Change in assumption
Decrease by 0.5%
Increase by 0.5%
Increase by 0.5%
Increase by 1 year
Change in defined benefit
obligation at end of the year
Increase by US$16.4m
Increase by US$12.5m
Increase by US$2.6m
Increase by US$8.1m
The calculations in this section have been carried out using the same method and data as the Group’s pensions and accounting
figures with each assumption adjusted as shown above. Each assumption has been varied individually and a combination of changes
in assumptions could produce a different result.
Risks:
The Group is exposed to a number of risks in relation to its defined benefit scheme, the most significant of which are detailed below:
Risk
Investment strategy
Changes in asset values are not matched by changes in the scheme’s defined benefit
obligations. For example, if equity values fall with no changes in corporate bond yields,
the net pension asset would reduce.
Investment returns
Future investment returns are lower than anticipated and so additional contributions are
required from the Group to pay all the benefits promised.
Improvements in life expectancy
Scheme members live longer and so benefits are payable for longer than anticipated.
Inflation
Regulatory
Actual inflation is higher and so benefit payments are higher than anticipated.
In future the scheme may have backdated claims or liabilities arising from future legislation,
emerging practice or court judgements.
(b) Brit Group Services Limited – Defined Contribution Personal Pension Plan
Brit Group Services Limited operates a defined contribution group personal pension plan. The assets of the scheme are held
separately from those of the Group in an independently administered fund.
The pension cost charge represents contributions payable by Brit Group Services Limited to the fund and amounted to US$5.5m
(2018: US$5.2m).
At 31 December 2019 no contributions were payable to the fund (2018: nil).
(c) Brit Insurance Services USA Inc. – 401(k) Safe Harbor Plan
Brit Insurance Services USA Inc. operates a ‘401(k) Safe Harbor Plan’. The assets of the scheme are held separately from those
of the Group in an independently administered fund.
The pension cost charge represents contributions payable by Brit Insurance Services USA Inc. to the fund and amounted to US$0.9m
(2018: US$0.7m).
At 31 December 2019 no contributions were payable to the fund (2018: nil).
136
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
(d) Brit Insurance Services USA Inc. – Nonqualified deferred compensation plan
Brit Insurance Services USA Inc. operates a ‘409(a) Nonqualified deferred compensation plan’. The assets of the scheme are not held
separately from those of the Group.
No pension payments were made by Brit Insurance Services USA Inc. to the fund in 2019 (2018: nil).
(e) BGS Services (Bermuda) Limited – Registered plan
BGS Services (Bermuda) Limited operates a registered plan for Bermudan employees. The assets of the scheme are held separately
from those of the Group in an independently administered fund.
The pension cost charge represents contributions payable by BGS Services (Bermuda) Limited to the fund and amounted to US$28k
(2018: US$54k).
At 31 December 2019 no contributions were payable to the fund (2018: nil).
(f) BGS Services (Bermuda) Limited – Unregistered plan
BGS Services (Bermuda) Limited operates an unregistered plan for non‑Bermudan employees. The assets of the scheme are held
separately from those of the Group in an independently administered fund.
The pension cost charge represents contributions payable by BGS Services (Bermuda) Limited to the fund and amounted to US$37k
(2018: US$36k).
At 31 December 2019 no contributions were payable to the fund (2018: nil).
(g) Sussex Capital Management Limited – Unregistered plan
Sussex Capital Management Limited operates an unregistered plan for non‑Bermudan employees. The assets of the scheme are held
separately from those of the Group in an independently administered fund.
The pension cost charge represents contributions payable by Sussex Capital Management Limited to the fund and amounted
to US$56k (2018: US$20k).
At 31 December 2019 no contributions were payable to the fund (2018: nil).
(h) Ambridge Partners LLC – 401(k) Safe Harbor Plan, Profit sharing plan and trust
Ambridge Partners LLC. operates a ‘401(k) Safe Harbor Plan’. The assets of the scheme are held separately from those of the Group
in an independently administered fund. Employees may elect to contribute a percentage of their compensation. Ambridge Partners
LLC does not match employee contributions.
(i) Ambridge Europe Limited – Defined Contribution Personal Pension Plan
Ambridge Europe Limited operates a defined contribution group personal pension plan. The assets of the scheme are held separately
from those of the Group in an independently administered fund.
The pension cost charge represents contributions payable by Ambridge Europe Limited to the fund and amounted to US$65k (2018: nil).
At 31 December 2019 no contributions were payable to the fund (2018: nil).
(j) Brit Reinsurance (Bermuda) Limited – Registered plan
Brit Reinsurance (Bermuda) Limited operates an unregistered plan for Bermudan employees. The assets of the scheme are held
separately from those of the Group in an independently administered fund.
The pension cost charge represents contributions payable by Brit Reinsurance (Bermuda) Limited to the fund and amounted
to US$30k (2018: nil).
Brit Limited Annual Report 2019
137
Financial Statements
22 Financial investments
This Note summarises the total value of the financial assets of the Group and shows how much has been invested in each class
of asset. It also explains how each asset is categorised under three different levels of hierarchy, the methods used to value assets
within each level and assets transferred between levels.
Equity securities
Debt securities
Specialised investment funds
Total
31 December 31 December
2018
US$m
2019
US$m
403.9
2,951.1
285.6
3,640.6
575.8
2,513.1
56.2
3,145.1
All financial investments have been designated as held at fair value through profit or loss.
Basis for determining the fair value hierarchy of financial instruments
The Group has classified the fair value measurements using a fair value hierarchy that reflects the significance of the inputs used
in making those measurements. The fair value hierarchy comprises the following levels:
(a) Level one – quoted prices (unadjusted) in active markets for identical assets;
(b) Level two – inputs other than quoted prices included within level one that are observable for the asset, either directly (i.e.
as prices) or indirectly (i.e. derived from prices); and
(c) Level three – inputs for the assets that are not based on observable market data (unobservable inputs).
Assets are categorised as level one where fair values determined in whole directly by reference to an active market relate to prices
which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and
those prices represent actual and regularly occurring market transactions on an arm’s‑length basis, i.e. the market is still active.
For assets and liabilities that are recognised at fair value on a recurring basis, the Group determines whether transfers have
occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level of input that is significant to the
fair value measurement as a whole) at the end of each reporting period. Fair values for level two and level three assets include:
• Values provided at the request of the Group by pricing services and which are not publicly available or values provided by external
parties which are readily available but relate to assets for which the market is not always active; and
• Assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market
transactions and observable data.
For all assets not quoted in an active market or for which there is no active market, the availability of financial data can vary and
is affected by a wide variety of factors, including the type of financial instrument, whether it is new and not yet established in the
marketplace, and other characteristics specific to each transaction. To the extent that valuation is based on the models or inputs
that are unobservable in the market, the determination of fair value requires more judgement. Accordingly, the degree of judgement
exercised is higher for instruments classified in level three and the classification between level two and level three depends highly
on the proportion of assumptions used, supported by market transactions and observable data.
Valuation techniques
Level one
Inputs represent unadjusted quoted prices for identical instruments exchanged in active markets (where transactions occur with
sufficient frequency and volume). The fair values of securities sold short and the majority of the company’s equities are based
on published quotes in active markets. These also include government bonds and treasury bills issued in the US and in the UK.
138
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Level two
Inputs include directly or indirectly observable inputs (other than level one inputs) such as quoted prices for similar financial
instruments exchanged in active markets, quoted prices for identical or similar financial instruments exchanged in inactive markets
and other market observable inputs.
Level two securities contain certain investments in US and non‑US government agency securities, US and non‑US corporate debt
securities and specialised investment funds. US government agency securities are priced using valuations from independent pricing
vendors who use discounted cash flow models supplemented with market and credit research to gather specific information. Market
observable inputs for these investments may include broker‑dealer quotes, reported trades, issuer spreads and available bids.
Non‑US government agency securities are priced with OTC quotes or broker‑dealer quotes. Other market observable inputs include
benchmark yields and reported trades. Issuer spreads are also available for these types of investments.
Level two common stocks are priced using a combination of independent pricing service providers and internal valuation models that
rely on directly or indirectly observable inputs.
Level three
Level three equities include investments in limited partnerships where the fund’s underlying investments are not traded/quoted
in an active market. In some instances, limited partnerships are classified as level three because they may require at least three
months’ notice to liquidate.
Level three debt instruments include corporate loans with unobservable inputs used in the measurement of financial instruments.
Management is required to use its own assumptions regarding unobservable inputs as there is little, if any, market activity in these
instruments or related observable inputs that can be corroborated at the measurement date.
Level three specialised investment funds include securities that are valued using techniques appropriate to each specific investment.
The valuation techniques include fair value by reference to net asset values (NAVs) adjusted and issued by fund managers based
on their knowledge of underlying investments and credit spreads of counterparties. In some instances, certain investment funds are
classified as level three because they may require at least three months’ notice to liquidate.
Disclosures of fair values in accordance with the fair value hierarchy
31 December 2019
Equity securities
Debt securities
Specialised investment funds
31 December 2018
Equity securities
Debt securities
Specialised investment funds
Level one
US$m
Level two
US$m
Level three
US$m
Total
US$m
220.7
1,443.2
–
–
1,492.7
268.8
183.2
15.2
16.8
403.9
2,951.1
285.6
1,663.9
1,761.5
215.2 3,640.6
Level one
US$m
Level two
US$m
Level three
US$m
Total
US$m
382.5
1,248.0
–
52.8
1,221.4
41.4
1,630.5
1,315.6
140.5
43.7
14.8
199.0
575.8
2,513.1
56.2
3,145.1
All unrealised gains of US$134.8m (2018: losses of US$203.4m) and realised losses of US$51.9m (2018: gains of US$39.6m)
on financial investments held during the year, are presented in investment return in the consolidated income statement.
Brit Limited Annual Report 2019
139
Financial Statements
22 Financial investments (continued)
Transfers between fair value levels
Fair values are classified as level one when the financial instrument or derivative is actively traded and a quoted price is available.
In accordance with the Group’s policy if an instrument classified as level one subsequently ceases to be actively traded, it is
immediately transferred out of level one. In such cases, instruments are classified into level two, unless the measurement of its fair
value requires the use of significant unobservable inputs, in which case it is classified as level three. All fair value measurements
above are recurring as they are required to be measured and recognised at the end of each reporting period.
Transfers from level one to level three
There were no equity transfers from level one to level three. In 2018 US$14.6m of equity transfers took place due to the investments
no longer being listed (at 1 January 2018 the transferred items had a value of US$17.2m).
Transfers from level two to level one
There were no equity transfers from level two to level one during 2019 (2018: US$62.0m).
Transfers from level three to level two
There were no equity transfers (2018: US$29.8m) from level three to level two during 2019.
Reconciliation of movements in level three financial investments measured at fair value
At 1 January 2018
Transfers from level one to level three
Transfers from level three to level two
Total losses recognised in the income statement
Purchases
Sales
Foreign exchange gains
At 31 December 2018
Total gains/(losses) recognised in the income statement
Purchases
Sales
Foreign exchange gains
At 31 December 2019
Equity
securities
US$m
Debt
securities
US$m
Specialised
investment
funds
US$m
191.1
17.2
(29.8)
(35.8)
36.1
(35.3)
(3.0)
140.5
17.5
35.4
(11.0)
0.8
183.2
75.6
–
–
(2.7)
–
(28.3)
(0.9)
43.7
(15.3)
14.3
(27.9)
0.4
15.2
16.0
–
–
(1.2)
–
–
–
14.8
2.0
–
–
–
16.8
Total
US$m
282.7
17.2
(29.8)
(39.7)
36.1
(63.6)
(3.9)
199.0
4.2
49.7
(38.9)
1.2
215.2
Total net gains recognised in the income statement under ‘investment return’ in respect of level three financial investments for the
period amounted to US$4.2m (2018: losses of US$39.7m). Included in this balance are US$19.1m of unrealised gains (2018: losses
of US$7.3m) attributable to assets still held at the end of the year.
140
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Sensitivity of level three financial investments measured at fair value to changes in key assumptions
The following table shows the sensitivity of the fair value of level three financial investments to changes in key assumptions.
Equity securities
Debt securities
Specialised investment funds
31 December 2019
31 December 2018
Effect of
possible
alternative
Carrying assumptions
(+/–)
amount
US$m
US$m
183.2
15.2
16.8
215.2
1.4
0.5
0.7
Effect of
possible
alternative
assumptions
(+/–)
US$m
6.1
4.4
0.3
Carrying
amount
US$m
140.5
43.7
14.8
199.0
In order to determine reasonably possible alternative assumptions, the Group has monitored the price movements of the securities
invested on a month by month basis during 2019, or since acquisition if acquired during the year. This has resulted in an average
expected percentage change due to the change in assumptions, which forms the basis of this analysis.
23 Derivative contracts
This Note summarises the total value of the derivative contracts of the Group. It also explains how each derivative contract
is categorised under three different levels of hierarchy, the valuation methods used to value derivative contracts and amounts
transferred between levels. At 31 December 2019 and 31 December 2018, the options formed part of the investment management
strategy, while the currency forwards formed part of the foreign exchange management strategy.
The disclosure provided in the tables below include derivatives recorded in the Group’s statement of financial position.
Derivative contract assets
31 December 2019
Currency forwards
Options
Industry loss warranty contracts
Call and put option over Camargue
Sutton forward contract
Total
31 December 2018
Currency forwards
Options
Call and put option over Ambridge
Total
Gross amounts of
receivables on derivative
contract assets
US$m
Gross amounts of
payables on derivative
contract assets
US$m
Derivative contract
assets presented
in the statement
of financial position
US$m
561.6
0.4
0.1
10.4
9.3
581.8
(548.0)
–
–
(9.6)
(8.5)
(566.1)
Gross amounts of
receivables on derivative
contract assets
US$m
Gross amounts of
payables on derivative
contract assets
US$m
647.5
1.1
49.5
698.1
(633.7)
–
(47.0)
(680.7)
13.6
0.4
0.1
0.8
0.8
15.7
Derivative contract
assets presented
in the statement
of financial position
US$m
13.8
1.1
2.5
17.4
Brit Limited Annual Report 2019
141
Derivative contract
liabilities presented
in the statement
of financial position
US$m
(14.2)
(14.2)
Derivative contract
liabilities presented
in the statement
of financial position
US$m
(13.9)
(0.2)
(14.1)
Total
US$m
15.7
(14.2)
Total
US$m
17.4
(14.1)
Financial Statements
23 Derivative contracts (continued)
Derivative contract liabilities
31 December 2019
Currency forwards
Total
31 December 2018
Currency forwards
Call and put option over Camargue
Total
Gross amounts of
payables on derivative
contract liabilities
US$m
Gross amounts of
receivables on derivative
contract liabilities
US$m
(668.4)
(668.4)
654.2
654.2
Gross amounts of
payables on derivative
contract liabilities
US$m
Gross amounts of
receivables on derivative
contract liabilities
US$m
(707.0)
(9.3)
(716.3)
693.1
9.1
702.2
Disclosures of fair values in accordance with the fair value hierarchy
31 December 2019
Derivative contract assets
Derivative contract liabilities
31 December 2018
Derivative contract assets
Derivative contract liabilities
Valuation techniques
Level two
US$m
Level three
US$m
13.6
(14.2)
2.1
–
Level two
US$m
Level three
US$m
13.8
(13.8)
3.6
(0.3)
Level two
The fair value of the vast majority of the Group’s derivative contracts are based primarily on non‑binding third‑party broker‑dealer
quotes that are prepared using level two inputs. Where third‑party broker‑dealer quotes are used, typically one quote is obtained
from a broker‑dealer with particular expertise in the instrument being priced.
The valuation technique used to determine the fair value of currency forwards is derived from observable inputs such as active
foreign‑exchange and interest‑rate markets that may require adjustments for certain unobservable inputs.
Level three
CPI‑linked derivatives are classified as level three and valued using broker‑dealer quotes which management has determined
utilise market observable inputs except for the inflation volatility input which is not market observable. The reasonableness of the
fair values of CPI‑linked derivative contracts are assessed by comparing the fair values received from third‑party broker‑dealers
to recent market transactions where available and values determined using third‑party pricing software based on the Black‑Scholes
option pricing model for European‑style options that incorporates market observable and unobservable inputs such as the current
value of the relevant CPI underlying the derivative, the inflation swap rate, nominal swap rate and inflation volatility. The fair values
of CPI‑linked derivative contracts are sensitive to assumptions such as market expectations of future rates of inflation and related
inflation volatilities.
The put and call options the Group has in respect of its associated undertakings have been classified as level three as the valuation
of the options is derived from unobservable inputs which is linked to EBITDA calculations.
142
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Put options
US$m
4.7
0.1
(3.5)
2.0
3.3
(0.9)
(0.3)
2.1
Reconciliation of movements in level three derivative contracts measured at fair value
At 1 January 2018
Total gains recognised in the income statement
Sales
Foreign exchange gains
At 31 December 2018
Total losses recognised in the income statement
Foreign exchange losses
At 31 December 2019
Sensitivity of level three derivatives measured at fair value to changes in key assumptions
The following table shows the sensitivity of the fair value of level three derivatives to changes in key assumptions.
Put options
31 December 2019
Effect of
possible
alternatives
Carrying assumptions
(+/‑)
amount
US$m
US$m
31 December 2018
Effect of
possible
alternatives
assumptions
(+/‑)
US$m
Carrying
amount
US$m
2.0
0.6
3.3
1.0
In order to determine reasonably possible alternative assumptions, the Group adjusted key unobservable model inputs, including
inflation volatility inputs and credit risk inputs.
24 Insurance and other receivables
This Note sets out the various categories of amounts which are owed to the Group.
Arising out of direct insurance operations
Arising out of reinsurance operations
Receivables from contracts with customers
Prepayments
Accrued income
Outstanding settlements on investments
Other assets
Other debtors
Total
31 December 31 December
2018
US$m
2019
US$m
601.7
470.0
19.6
14.2
14.3
6.1
58.6
55.7
554.6
378.0
8.7
9.4
10.9
5.8
32.0
9.4
1,240.2
1,008.8
Other assets relate to shares purchased to settle share‑based payment awards. For further information, refer to Note 32.
Brit Limited Annual Report 2019
143
Financial Statements
25 Cash and cash equivalents
This Note analyses the amounts of cash and cash equivalents. Cash equivalents are investment instruments with less than 90 days
left to maturity when purchased by the Group. Additional analysis which explains where cash and cash equivalents are held and why
they are being held is also provided.
Cash at bank and on deposit
Cash equivalents
Total
The carrying amounts disclosed above, reasonably approximate fair values.
The source of these amounts can be further analysed as follows:
Classification
Definition
Cash within segregated fund mandates
Lloyd’s trust funds
Self‑managed cash
Total
26 Borrowings
Short‑term investment funds, money market funds,
treasury bills or cash held within segregated mandates.
Cash within the Lloyd’s Overseas Deposits trust funds
held to meet regulatory requirements.
Highly liquid instruments held to meet ongoing
working capital requirements.
31 December 31 December
2018
US$m
2019
US$m
229.9
290.2
520.1
235.3
582.9
818.2
31 December 31 December
2018
US$m
2019
US$m
77.0
453.0
41.6
51.4
401.5
520.1
313.8
818.2
This Note describes the main sources of borrowing available to the Group and the amounts currently borrowed from each
of those sources.
Non‑current
Subordinated debt
Revolving credit facility
Maturity
Call
31 December 2019
31 December 2018
Effective
interest rate
Amortised
cost
US$m
Fair value
US$m
Amortised
cost
US$m
Fair value
US$m
2030
2022
2020
–
8.3%
LIBOR +1.5%
176.2
140.0
316.2
182.9
140.0
322.9
166.9
8.0
174.9
173.3
8.0
181.3
As at 31 December 2019 and 31 December 2018, the fair value of the subordinated debt was determined by reference to trading
market values on recognised exchanges and was therefore categorised as a level one measurement in the fair value hierarchy. For
further information relating to the fair value hierarchy, refer to Note 22.
Subordinated debt
The subordinated debt is listed and callable in whole by the Group on 9 December 2020. Following this date, the interest rate resets
to the higher of:
i) 3.4% above the gross redemption yield of the 4.75% Treasury Gilt due 2030 quoted on the reset date; or
ii) 3.4% above the gross redemption yield of the 8% Treasury Stock due 2021 quoted on the reset date.
The effective interest rate method of accounting has been applied over the term up to the call date.
144
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Revolving credit facility
The Group has a US$450.0m (2018: US$450.0m) revolving credit facility which expires on 31 December 2023.
At 31 December 2019, a US$80.0m (2018: US$80.0m) letter of credit had been utilised. In addition, there was a cash
drawing of US$140.0m.
27 Other financial liabilities
This Note sets out the amount of financial liabilities owing to external investors in respect of structured entities that are consolidated
by the Group.
The statement of financial position of the Group includes financial liabilities arising from third‑party investments in structured entities
that are consolidated by the Group.
These financial liabilities have been designated as held at fair value through profit or loss. As at 31 December 2019, the fair value
of the investments by independent third parties was US$75.5m (2018: US$241.8m), of which US$75.5m (2018: US$78.9m) related
to other financial liabilities owing to investors in collateralised reinsurance arrangements. As at 31 December 2018 US$162.9m was
recorded in respect of amounts owing to an investor in the Group’s consolidated UCITS fund. This liability was repaid in March 2019
and the UCITS fund unwound.
The fair value of these liabilities was determined by reference to the underlying net assets of the vehicles and was therefore
categorised as level three in the fair value hierarchy. Further information relating to the Group’s approach to fair value measurement
is available in Note 22.
28 Insurance and other payables
This Note sets out the various categories of amounts which are owed by the Group.
Arising out of direct insurance operations
Arising out of reinsurance operations
Other taxes and social security costs
Accruals and deferred income
Lease liabilities
Outstanding settlements on investments
Other creditors
Total
31 December 31 December
2018
US$m
2019
US$m
62.2
437.0
2.8
68.7
60.5
6.8
38.0
676.0
17.5
322.5
2.8
66.6
–
2.6
10.2
422.2
The carrying amounts disclosed above reasonably approximate fair values as all amounts are payable within one year of the date
of the statement of financial position.
Of the total lease liabilities recognised above, US$6.5m is a current liability (2018: nil).
Brit Limited Annual Report 2019
145
Financial Statements
29 Called up share capital
This Note sets out the number of shares the Company has in issue and their nominal value.
Ordinary shares:
Allotted, issued and fully paid
At 1 January 2018
Issue of class B shares
Purchase and cancellation of class A shares
At 31 December 2018
At 1 January 2019
Issue of class B shares
At 31 December 2019
31 December
2019
US$m
31 December
2018
US$m
31 December
2019
1p each
Number
31 December
2018
1p each
Number
7.0
6.8
446,977,185
430,549,278
Share premium
US$m
Share capital
US$m
Share capital
Number
–
435.1
–
435.1
435.1
70.4
505.5
6.4
1.2
(0.8)
6.8
6.8
0.2
7.0
387,608,230
101,491,572
(58,550,524)
430,549,278
430,549,278
16,427,907
446,977,185
48,000,000 shares are class A shares and the remainder are class B shares. The class A and B shares rank pari passu except that
on a distribution of profits by the Company, the class A shareholders are entitled to a cumulative annual dividend which must be
settled ahead of any equivalent distribution to class B shareholders.
The number of shares reported is for Brit Limited, the parent of the Group.
On 29 April 2019, 4,800,000 class B Ordinary Shares were issued by Brit Limited, each with a nominal value of 1p, for US$20.6m.
Following this share issuance, US$20.5m was recorded in the share premium accounts.
On 24 June 2019, 11,627,907 class B Ordinary Shares were issued by Brit Limited, each with a nominal value of 1p, for US$50.0m.
Following this share issuance, US$49.9m was recorded in the share premium accounts and Fairfax increased its percentage
shareholding to 89.26%.
30 Dividends
This Note gives details of the amounts paid to shareholders during 2019 and 2018 by way of dividends.
Dividend paid in respect of prior year
Dividend paid in respect of shares repurchased
2019
US$
0.43
–
2018
US$
0.43
0.43
2019
US$m
20.6
–
20.6
2018
US$m
45.8
12.8
58.6
A US$20.6m dividend in respect of the year‑ended 31 December 2018 was paid to the class A shareholders on 29 April 2019
in accordance with the shareholders’ agreement at an amount equal to US$0.43 per share (2018: US$45.8m/US$0.43 per share).
On 5 July 2018, a US$12.8m dividend was paid to the class A shareholders, being the pro‑rata accrued dividend outstanding
on shares re‑purchased in respect of the 2018 accounting period and based on a dividend entitlement for the full year equal
to US$0.43 per share.
146
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
31 Cash flows provided by operating activities
The tables below show how the profit for the year translates into cash flows generated from operating activities and provide
a reconciliation of the liabilities arising from financing activities.
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Profit/(loss) on ordinary activities before tax
Adjustments for non‑cash movements:
Realised and unrealised (gains)/losses on investments
Realised and unrealised losses/(gains) on derivatives
Amortisation of intangible assets
Depreciation and impairment of property, plant and equipment
Foreign exchange (gains)/losses on cash and cash equivalents
Share of gains after tax of associated undertakings
Profit on disposal of associated undertaking
Unrealised (gains)/losses on shares held for share based payments
Charges in respect of share‑based payment schemes
Interest income
Dividend income
Finance costs on borrowing
Changes in working capital:
Deferred acquisition costs
Insurance and other receivables excluding accrued income
Insurance and reinsurance contracts
Financial investments
Derivative contracts
Other financial liabilities
Insurance and other payables
Employee benefits
Provisions
Cash flows used in operating activities
186.3
(190.3)
(82.9)
17.6
8.7
9.3
(3.8)
(0.3)
(10.2)
(0.3)
7.0
(81.6)
(5.7)
23.7
0.5
(138.9)
63.7
(404.1)
(15.8)
(166.3)
123.6
1.2
1.3
(467.0)
163.8
(6.3)
6.3
4.3
6.1
(6.5)
–
3.4
1.7
(64.1)
(11.4)
18.8
(8.4)
(95.7)
(103.5)
(587.2)
8.8
159.7
(117.4)
(4.5)
0.2
(822.2)
Brit Limited Annual Report 2019
147
Financial Statements
31 Cash flows provided by operating activities (continued)
Reconciliation of liabilities arising from financing activities
31 December 2019
Long‑term borrowings
Subordinated debt
Short‑term borrowings
Revolving credit facility
Total liabilities from financing activities
31 December 2018
Long‑term borrowings
Subordinated debt
Short‑term borrowings
Revolving credit facility
Total liabilities from financing activities
32 Share‑based payments
Year ended
31 December
2018
US$m
Cash flows
US$m
Foreign
exchange
movement
US$m
Year ended
Other 31 December
2019
US$m
changes
US$m
Non‑cash changes
166.9
(11.9)
8.0
174.9
129.4
117.5
6.8
–
6.8
14.4
176.2
2.6
17.0
140.0
316.2
Year ended
31 December
2016
US$m
Cash flows
US$m
Foreign
exchange
movement
US$m
Year ended
Other 31 December
2018
US$m
changes
US$m
Non‑cash changes
174.8
(11.9)
(10.3)
14.3
166.9
45.0
219.8
(37.0)
(48.9)
–
(10.3)
–
14.3
8.0
174.9
The Group rewards its employees through various share‑based incentive schemes. This Note explains the different schemes
used to facilitate those share‑based payments and the charge recognised in the consolidated income statement in respect
of these schemes.
The compensation cost recognised in the income statement under IFRS 2 ‘Share‑based Payments’ for the Group’s share‑based
payments arrangements are shown below:
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Equity‑settled plans
Long‑Term Incentive Plan (Performance Share Plan replacement)
Employee Share Ownership Plan
Cash‑settled plans
Long‑Term Incentive Plan
Total
–
0.8
6.2
7.0
0.3
0.9
0.5
1.7
The total liability in respect of cash‑settled plans at 31 December 2019 was US$11.4m (2018: US$5.9m). In regard to the Long‑Term
Incentive Plan, no gain or loss (2018: US$0.2m gain) is included in the consolidated statement of changes in equity in respect of equity
settled plans and US$1.4m (2018: US$0.8m) is included within other creditors in respect of national insurance contributions on these
shares. A further US$0.8m (2018: US$0.9m) of charges relating to the Employee Share Ownership Plan are equity‑settled in nature
but physically‑settled in cash and so were not recorded in the consolidated statement of changes in equity.
148
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
(a) Long‑Term Incentive Plan (Performance Share Plan replacement)
On the Fairfax acquisition of Brit Limited, the 65% of PSP awards that did not immediately vest were converted by Fairfax into
awards under this scheme. The conversion terms allowed for 60% of the 280p Brit Limited acquisition share price to be converted
into the equivalent value of options to acquire shares in Fairfax at a nil exercise price. The options vested in November 2018 and
there are a further seven years to exercise the options.
Reconciliation of movement in the number of awards
Outstanding at 1 January
Exercised
Forfeited
Outstanding at 31 December
Year ended
Year ended
31 December 31 December
2018
Number
of awards
2019
Number
of awards
1,271
(406)
–
865
7,400
(5,403)
(726)
1,271
In order to settle share‑based payment awards, in 2015 the Group purchased US$10.7m of preference shares in FFHL Share Option
1 Corp and that company has purchased shares in Fairfax. Of the purchase, US$3.9m related to this scheme and was recorded
within equity so as to offset the share‑based payment charges recorded in equity on exercise of the awards. There were no
additional shares purchased for this scheme in 2018 and 2019. The remaining 865 shares were exercisable at the year end.
(b) Long Term Incentive Plan
The Company awards selected employees options to acquire shares in Fairfax at a nil exercise price. Subject to continued service,
the options vest between two and ten years after the grant date and there are a further five years to exercise the options.
The fair value of the awards are determined by the market price of the underlying shares at the valuation date. The calculation of the
compensation cost recognised in the income statement in respect of these awards assumes forfeitures due to employee turnover
of 10% per annum prior to vesting, with subsequent adjustments to reflect actual experience.
Reconciliation of movement in the number of awards
Outstanding at 1 January
Granted
Net transfers in
Forfeited
Outstanding at 31 December
Year ended
Year ended
31 December 31 December
2018
Number
of awards
2019
Number
of awards
55,981
61,309
–
(2,839)
35,161
30,855
2,769
(12,804)
114,451
55,981
There were no options exercisable at the end of the year (2018: nil). The weighted average fair value at date of grant for awards
granted during 2019 was US$459.56 (2018: US$463.88).
In order to settle share‑based payment awards, in 2019 the Group purchased US$25.0m (2018: US$11.2m) of preference shares
in FFHL Share Option 1 Corp and that company has purchased shares in Fairfax. This has been recorded within Other Assets
so as to offset the share‑based payment recorded as a liability within Other Creditors that accrues over the vesting period
of the awards.
Brit Limited Annual Report 2019
149
Financial Statements
32 Share‑based payments (continued)
(c) Employee Share Ownership Plan
Under the terms of the ESOP which was established in 2015, eligible employees are given the election to purchase common
shares in Fairfax in an amount up to 10% of their annual base salary. The Company purchases, on the employee’s behalf, a number
of Fairfax’s common shares equal in value to 30% of the employee’s contribution. In the event that the Company achieves certain
performance targets, additional shares are purchased by the Company for the employee’s benefit, to an amount equal in value
to 20% of the employee’s contribution during that year. In respect of both shares purchased by employees and matched by the
Company, during the year ended 31 December 2019, the Company purchased a total of 7,001 common shares in Fairfax (2018: 6,676)
at an average price of US$464.93 (2018: US$518.44) in respect of this plan.
33 Consolidated entities
This Note sets out all the entities which are members of the Brit Limited Group and whose results and financial positions are
consolidated to produce the Group result and financial position.
All subsidiaries of the Company are 100% owned apart from the Group’s special purpose vehicles. For these vehicles, funding
is provided through preference share capital or other unitised issuances. The Group holds 54% of the capital of the Versutus
segregated account consolidated by Brit. The Group also holds 38% and 100% investments in The Diversified Fund and the Specialty
Insurance Fund respectively, which are segregated accounts within Sussex Capital Limited. The issued preference share capital
of Sussex Re Limited is owned 100% by Sussex Capital Limited.
On 16 October 2018 Advent Capital (Holdings) Limited, another subsidiary of the Fairfax group, invested US$165.5m in the HWIC Long‑
Term Value Strategies UCITS CCF resulting in a reduction of Brit’s ownership in the fund from 100% to 64.2%. This investment was
divested in Q1 2019 and the UCITS vehicle was subsequently liquidated.
As mentioned in Note 2.2, only 18.46% of the 2018 year of account result and assets of syndicate 2988 is included in these
consolidated financial statements.
On 11 July 2018 and 26 July 2018, the Henderson Horizon Core Credit Fund and the Pimco Dynamic Global Investment Grade Credit
Fund respectively were unwound and the assets consolidated within a segregated mandate. Therefore, these structured entities are
no longer consolidated in the Group financial statements.
The subsidiaries of the company at 31 December 2019, together with their main function, are listed below by country
of incorporation. The registered address and principal place of business of each entity is The Leadenhall Building, 122 Leadenhall
Street, London, EC3V 4AB unless otherwise stated.
150
Brit Limited Annual Report 2019
notes to the consolidated financial statements Financial Statements
Subsidiary
Principal activity
Registered address and principal place of business
United Kingdom
Brit Insurance Holdings Limited
Brit Syndicates Limited
Brit UW Limited
Brit Insurance Services Limited
Brit Investment Holdings Limited
Brit Group Services Limited
Brit Group Finance Limited
BGS Services (Bermuda) Limited
Brit Pension Trustee Limited
Brit Corporate Services Limited
Brit Corporate Secretaries Limited
Sussex Capital UK PCC Limited
Ambridge Europe Limited
Intermediate holding company
Lloyd’s managing agent
Lloyd’s corporate member
Service company
Service company
Group services company
Group services company
Service company
Service company (Dormant)
Service company (Dormant)
Service company (Dormant)
Special purpose vehicle
Insurance intermediary
Ambridge European Holdings Limited
Service company
The Leadenhall Building
The Leadenhall Building
The Leadenhall Building
The Leadenhall Building
The Leadenhall Building
The Leadenhall Building
The Leadenhall Building
The Leadenhall Building
The Leadenhall Building
The Leadenhall Building
The Leadenhall Building
The Leadenhall Building
c/o PKF Littlejohn 15 Westferry Circus,
Canary Wharf, London, E14 4HD
c/o PKF Littlejohn 15 Westferry Circus,
Canary Wharf, London, E14 4HD
United States of America
Brit Insurance Services USA Inc.
Service company
Brit Insurance USA Holdings Inc.
Intermediate holding company
Scion Underwriting Services Inc.
Service company
Commonwealth Insurance Company of America
Insurance company
Ambridge Partners LLC
Ambridge Due Diligence Services LLC
Insurance intermediary
Service company (Dormant)
161 N. Clark Street, Suite 3200,
Chicago, IL, 60601
161 N. Clark Street, Suite 3200,
Chicago, IL, 60601
3,333 Lee Parkway, Suite 627,
Dallas, TX, 75219
250 Commercial Street, Suite 5000,
Manchester, NH, 03101
251 Little Falls Drive, Wilmington, DE 19808
251 Little Falls Drive, Wilmington, DE 19808
Bermuda
North America Property Insurance
Series 2017 Account A‑3 (a segregated
account within Versutus Limited)
Sussex Capital Management Limited
Special purpose vehicle
Clarendon House, 2 Church Street,
Hamilton HM 11
Service company
Sussex Capital Limited
Special purpose vehicle
Sussex Re Limited
Special purpose vehicle
Brit Reinsurance (Bermuda) Limited
Insurance company
Ground Floor Chesney House,
The Waterfront, 96 Pitts Bay Road,
Pembroke, HM 08
Wessex House, 3rd Floor, 45 Reid Street,
Hamilton HM 12
Wessex House, 3rd Floor, 45 Reid Street,
Hamilton HM 12
Ground Floor Chesney House,
The Waterfront, 96 Pitts Bay Road,
Pembroke, HM 08
Brit Limited Annual Report 2019
151
Financial Statements
33 Consolidated entities (continued)
Subsidiary
Principal activity
Registered address and principal place of business
Singapore
Brit Global Specialty Singapore Pte. Ltd.
The Netherlands
Brit Insurance Holdings B.V.
Germany
Ambridge Europe GmbH & Co. KG
Service company
138 Market St., #04‑03 CapitaGreen, 048946
Former holding company
The Leadenhall Building
Ambridge German Holdings GmbH
Service company
Insurance intermediary
Grüneburgweg 58 – 62,
60322 Frankfurt am Main, Germany
Grüneburgweg 58 – 62,
60322 Frankfurt am Main, Germany
On 21 August 2019 the 100% owned subsidiary, Brit Overseas Holdings S.à R.L, was liquidated. Its results up to the date of liquidation
have been consolidated.
On 2 September 2019 the 100% owned subsidiary, Brit Group Finance (Gibraltar) Limited was put into liquidation. Its results up to the
date of liquidation have been consolidated.
34 Related party transactions and Ultimate Parent Company
The Group has a number of related parties which includes its principal investors and its Directors. Sometimes it transacts business
with these related parties. This Note sets out those transactions.
The Group carries out a number of transactions with related parties which include, paying management fees, carrying out insurance
and reinsurance activities with affiliates of the ultimate parent company, Fairfax Financial Holdings Limited, and trading with its
associates. All the transactions with related parties are undertaken on an arm’s‑length basis.
(a) Ultimate Parent Company
The ultimate parent company and controlling entity, and the largest group of which the Group is a member, is Fairfax Financial
Holdings Limited (Fairfax) which is registered in Canada and listed on the Toronto Stock Exchange. The consolidated financial
statements for Fairfax are publicly available and can be obtained from the Corporate Secretary, 95 Wellington Street West, Suite
800, Toronto, Ontario, Canada, M5J 2N7 or from the website at www.fairfax.ca.
(b) Fairfax Financial Holdings Limited
In June 2015, Hamblin Watsa Investment Counsel Limited (HWIC), an affiliate of Fairfax, was appointed as an investment manager
to a number of Group companies. During the year ended 31 December 2019, the Group incurred and paid investment management
fees to HWIC of US$9.8m (2018: US$10.3m).
The Group has historically entered into various reinsurance arrangements with affiliates of Fairfax.
152
Brit Limited Annual Report 2019
notes to the consolidated financial statements Financial Statements
In respect of insurance and ceded outwards reinsurance activity, the amounts included in the income statement relating to trading
with affiliates of Fairfax were as follows:
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Gross premiums written
Less premiums ceded to reinsurers
Premiums written, net of reinsurance
Gross amount of change in provision for unearned premiums
Reinsurers’ share of change in provision for unearned premiums
Net change in provision for unearned premiums
Earned premiums, net of reinsurance
Gross claims paid
Reinsurers’ share of claims paid
Claims paid, net of reinsurance
Gross change in the provision for claims
Reinsurers’ share of change in the provision for claims
Net change in the provision for claims
Commission income
Commission expense
48.0
(18.6)
29.4
(2.4)
5.7
3.3
32.7
(12.9)
43.6
30.7
(0.3)
(39.3)
(39.6)
–
(10.7)
17.8
(182.2)
(164.4)
(1.5)
(0.1)
(1.6)
(166.0)
(3.1)
9.7
6.6
(10.1)
151.7
141.6
0.5
(4.7)
The amounts included in the statement of financial position outstanding with Fairfax and its affiliates as at 31 December 2019
were as follows:
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Debtors arising out of direct insurance and reinsurance operations:
Insurance premium receivable
Recoverable from reinsurers
Creditors arising out of direct insurance and reinsurance operations:
Payable to reinsurers
Unpaid claims liabilities
Deferred acquisition costs
Gross unearned premiums
Unearned premium recoverable from reinsurers
7.9
157.9
22.8
197.7
(8.1)
(50.7)
1.9
(9.9)
6.2
(0.9)
(51.3)
1.9
(8.4)
0.5
Brit Limited Annual Report 2019
153
Financial Statements
34 Related party transactions and Ultimate Parent Company (continued)
(c) Business combinations – Ambridge Partners LLC
Ambridge
On 11 April 2019 the Brit Group exercised a call option to acquire the remaining 50% of the issued shares of Ambridge Partners
LLC (Ambridge), following the initial acquisition of 50% in December 2015. The acquisition was completed on 18 April 2019 for a total
purchase consideration of US$46.6m. Ambridge is a leading MGU focusing on Transactional Insurance, Complex Management Liability
Insurance and Intellectual Property Insurance products, writing business on behalf of a broad consortium of Lloyd’s of London
syndicates and international insurers including Brit.
Prior to 18 April, Brit’s investment in Ambridge was recorded as an investment in associated undertaking and valued under equity
method accounting requirements. As a result, the Brit Group’s share of pre‑acquisition year‑to‑date losses of US$1.0m have been
reported within the ‘Share of (loss)/profit after tax of associated undertakings’ line of the Income Statement.
In addition, at the acquisition date the investment in associate was derecognised from the balance sheet of the Group and
remeasured at fair value for the purposes of acquisition accounting under IFRS 3 and subsequent consolidation of Ambridge. This
process resulted in the recognition of a gain of US$10.2m being recorded in the Income Statement (‘Gain on business combination’)
for the year ending 31 December 2019. Accordingly, Brit’s investment in associated undertakings decreased.
The fair value of assets and liabilities recognised as a result of the acquisition are as follows:
Assets
Acquired intangible assets
Property, plant and equipment
Cash and cash equivalents
Trade receivables
Other receivables
Liabilities
Deferred tax liability
Trade payables
Other payables
Net identifiable assets acquired
Add: goodwill
Net assets acquired
As at 18 April
2019
US$m
45.2
2.0
15.5
59.8
0.8
123.3
10.5
61.9
3.6
76.0
47.3
45.9
93.2
Acquired intangible assets and goodwill
Ambridge is a specialised managing general underwriter of complex risks, with core products in transactional insurance, complex
management liability insurance and intellectual property insurance. Established in 2000, Ambridge has built a strong brand and
relationships in these core product areas. Following the acquisition, an exercise to allocate the purchase price under IFRS 3 was
performed, including the identification and valuation of acquired intangible assets. The findings of this exercise identified US$45.2m
of acquired intangible assets and US$45.9m of goodwill.
Trade receivables
The fair value is determined through the contractual amount receivable less any amounts uncollectible.
154
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Trade payables
The fair value is based on the contractual amount required to be settled with insurers in respect of business underwritten on their
behalf, less any commissions due thereon that are deductible at source.
Revenue and profit contribution
The acquired business contributed US$30.4m to revenue and US$8.2m to profit for the period from 18 April 2019 to 31 December 2019.
(d) Associated undertakings
Camargue Underwriting Managers Proprietary Limited
On 30 August 2016, the Group acquired 50% of the share capital of the South African company, Camargue Underwriting Managers
Proprietary Limited (Camargue) and also entered into a call and a put option to purchase the remaining 50% in 2021. Camargue
is a leading managing general underwriter of a range of specialised insurance products and specialist liability solutions in South
Africa and is an important trading partner for Brit.
Trading with Camargue is undertaken on an arm’s‑length basis and is settled in cash. The amounts in the income statement relating
to trading with Camargue for the year ended 31 December 2019 included commission for introducing insurance business of US$2.9m
(2018: US$3.2m).
Amounts recorded in the statement of financial position in respect of premium net of commissions due from, and fees payable to,
Camargue as at 31 December 2019 and 2018 were not material.
Sutton Special Risk Inc
On 2 January 2019, Brit Insurance Holding Limited, acquired 49% of the issued shares of Sutton for a total purchase consideration
of CAD$17.2m and entered into a forward contract to purchase the remaining 51% in 2024. Sutton is a Canadian MGU, specialising
in Accident and Health business.
Trading with Sutton is undertaken on an arm’s‑length basis and is settled in cash. The amounts in the income statement relating
to trading with Sutton for the period from 8 January 2019 to 31 December 2019 included commission for introducing insurance
business of US$1.1m.
Amounts recorded in the statement of financial position in respect of premium net of commissions due from, and fees payable to,
Sutton as at 31 December 2019 were not material.
(e) Advent Capital (Holdings) Limited
On 30 August 2018, the Group entered into a service agreement with Advent Capital (Holdings) Limited, another subsidiary of the
Fairfax group, whereby in exchange for consideration of US$0.8m the Group would provide Advent with agreed services for up
to two years.
In 2018 Brit was the majority investor in the HWIC Long‑Term Value Strategies UCITS CCF, which was consolidated by the Group.
On 16 October 2018 Advent Capital (Holdings) Limited invested US$175.5m in this UCITS, resulting in an ownership of 35.8% of the
fund. However, in early 2019, work was completed by HWIC and FFS Management Services to open two new fund structures (the
Global Equity QIAIF and the Value Opportunities QIAIF) to investors within the Fairfax group of companies and, as a consequence
of this, the HWIC Long‑Term Value Strategies UCITS CCF ceased operation in March 2019, resulting in Advent’s disinvestment
from the vehicle.
(f) RiverStone Managing Agency Limited
On 30 November 2018, the Group entered into a loss portfolio reinsurance contract with RiverStone Managing Agency Limited
(for and on behalf of Lloyd’s syndicate 3500), another subsidiary of the Fairfax group. The agreement covered the Group’s
non‑US Professional Indemnity (2014 and prior), Employers’ Liability UK/Professional Liability UK and legacy books of business, for
a premium of US$186.3m.
Brit Limited Annual Report 2019
155
Financial Statements
34 Related party transactions and Ultimate Parent Company (continued)
(g) Crum and Forster commission agreement
On 1 May 2018, Brit Insurance Services USA, Inc. (BISI) entered into a binding authority agreement with Crum & Forster Specialty
(C&F), another subsidiary of the Fairfax group. C&F has authorized BISI to bind certain commercial insurance contracts on their
behalf. BISI earns a commission of up to 25.5% for this business including external broker commission. The agreement will continue
in perpetuity until BISI or C&F provide written notice of cancellation. In 2019, C&F paid BISI US$0.8m (2018: US$0.3m) commission.
US$0.1m was outstanding at the year‑end (2018: nil).
(h) Key management compensation
The amount of the emoluments granted in respect of the financial year to the members of the administrative, managerial and
supervisory bodies by reason of their responsibilities, and any commitments arising or entered into in respect of retirement pension
for former members of those bodies, are broken down as follows:
Year ended
Year ended
31 December 31 December
2018
US$m
2019
US$m
Salaries and other short‑term employee benefits
Post‑employment benefits
Share‑based payments
Total compensation
6.5
0.7
3.9
11.1
7.3
0.9
0.3
8.5
For the purposes of IAS 24, ‘Related Party Disclosures’, key managers are defined as the Board of Directors and members of the
Executive Committee which is the primary vehicle for implementing Board decisions in respect of UK‑managed operations.
35 Guarantees and contingent liabilities
This Note explains guarantees issued by Group companies and any contingent liabilities they may be exposed to.
(a) Lloyd’s
Assets have been pledged, as Funds at Lloyd’s, by way of deposits and fixed and floating charges for Brit UW Limited, the corporate
member of the Group. As at 31 December 2019 the Funds at Lloyd’s requirement amounted to US$1,285.5m (2018: US$1,184.8m).
(b) Revolving credit facility
The Group has a US$450.0m (2018: US$450.0m) revolving credit facility which expires on 31 December 2023.
At 31 December 2019, a US$80.0m (2018: US$80.0m) letter of credit had been utilised. In addition, there was a cash drawing
of US$140.0m (2018: US$8.0m).
(c) Taxation
The Group operates in a wide variety of jurisdictions around the world through its Lloyd’s syndicate and uncertainties therefore exist
with respect to the interpretation of complex tax laws and practices of those territories. The Group establishes provisions for taxes
other than current and deferred income taxes, based upon various factors which are continually evaluated, if there is a present
obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation and a reliable estimate of the amount of the obligation can be made.
Income taxes are provided for as set out in accounting policy Note 2.5.11.
156
Brit Limited Annual Report 2019
notes to the consolidated financial statements
Financial Statements
Introduction to the Parent Company
Financial Statements
Index to the Parent Company
Financial Statements
Statement of Financial Position
The statement of financial position is a summary of assets
and how the assets have been funded through liabilities and
equity investment by shareholders.
Statement of Changes in Equity
The statement of changes in equity shows how the various
lines in the equity section of the Company’s statement
of financial position have moved during the year.
Statement of Financial Position
Statement of Changes in Equity
Notes to the Financial Statements
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Accounting policies and basis of preparation
Auditor’s remuneration
Shares in Group undertakings
Loans to Group undertakings
Debtors: Amounts falling due within one year
Creditors: Amounts falling due within one year
Creditors: Amounts falling due after more
than one year
Called up share capital
Directors’ emoluments
Note 10
Guarantees and contingent liabilities
Note 11
Dividends
Note 12
Share–based payments
Note 13
Disclosure exemptions
Note 14
Ultimate Parent Company
158
159
160
160
161
161
161
162
162
162
162
163
163
164
164
164
164
Brit Limited Annual Report 2019
157
contents
Financial Statements
statement of financial position
At 31 December 2019
Fixed assets
Investments:
Shares in Group undertakings
Loans to Group undertakings
Current assets
Debtors: Amounts falling due within one year
Cash at bank and in hand
Current liabilities
Creditors: Amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: Amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium
Capital redemption reserve
Retained earnings
Total equity
Note
31 December
2019
US$m
31 December
2018
US$m
3
4
5
6
7
8
1,050.5
136.6
1,187.1
78.7
0.3
79.0
(0.7)
78.3
1,265.4
(179.4)
1,086.0
7.0
505.5
1.0
572.5
1,086.0
1,050.5
131.3
1,181.8
33.1
0.1
33.2
(0.7)
32.5
1,214.3
(173.0)
1,041.3
6.8
435.1
1.0
598.4
1,041.3
The accompanying Notes are an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 12 February 2020 and were signed on its behalf by:
Matthew Wilson
Group Chief Executive Officer
Mark Allan
Group Chief Financial Officer
158
Brit Limited Annual Report 2019
statement of changes in equity
For the year ended 31 December 2019
Financial Statements
1 January 2019
Total comprehensive income for the year
Issuance of share capital
Dividend
At 31 December 2019
For the year ended 31 December 2018
1 January 2018
Total comprehensive income for the year
Issuance of share capital
Repurchase of class A shares
Cancellation of share capital
Dividend
At 31 December 2018
Note
8
11
Note
8
8
8
11
Called up
share
capital
US$m
6.8
–
0.2
–
7.0
Share
premium
US$m
435.1
–
70.4
–
505.5
Capital
redemption
reserve
US$m
Retained
earnings
US$m
Total
equity
US$m
1.0
598.4
1,041.3
–
–
–
(5.3)
–
(20.6)
(5.3)
70.6
(20.6)
1.0
572.5
1,086.0
Called up
share
capital
US$m
Capital
redemption
reserve
US$m
6.4
–
1.2
–
(0.8)
–
6.8
–
–
435.1
–
–
–
435.1
0.2
–
–
–
0.8
–
1.0
Retained
earnings
US$m
Total
equity
US$m
908.4
915.0
1.5
–
(252.9)
–
(58.6)
1.5
436.3
(252.9)
–
(58.6)
598.4
1,041.3
Brit Limited Annual Report 2019
159
Financial Statements
notes to the financial statements
1 Accounting policies and basis of preparation
This Note provides details of the basis of preparation and accounting policies applied in producing these parent company
financial statements.
1.1 Basis of preparation
The Company financial statements present the information about the company as a separate entity. The Company is incorporated
and registered in England and Wales with registration number 08821629. The registered office of the company at the date of this
report is The Leadenhall Building, 122 Leadenhall Street, London EC3V 4AB.
The Company has prepared its financial statements in accordance with Financial Reporting Standard ‘FRS 102’, the Financial
Reporting Standard applicable in the United Kingdom and Republic of Ireland and provisions of Section 396 of the Companies Act 2006.
No individual income statement is presented for the Company, as permitted by Section 408 of the Act. The comprehensive income
dealt with in the financial statements of the parent company was a US$5.3m loss (2018: US$1.5m profit).
The Company financial statements are presented in US dollars and all values are rounded to the nearest US$0.1m except where
otherwise indicated.
1.2 Accounting policies
(a) Investments
Investments in subsidiary undertakings are stated at cost less provisions for any impairment.
(b) Income from fixed asset investments
Dividend income is recognised when the shareholders’ right to receive the payment is established.
(c) Long‑term debt
Long‑term debt is recognised initially at transaction price which is the fair value. It is subsequently measured at amortised cost using
the effective interest rate method, in accordance with section 11 of FRS 102 (Basic Financial Instruments).
Interest payable is recognised using the effective interest rate method.
(d) Loans to Group undertakings
Loans to Group undertakings are recognised initially at transaction price which is the fair value, (including transaction costs
incurred except in the initial measurement of financial liabilities that are measured at fair value through profit or loss) and
subsequently measured at amortised cost using effective interest rate method, in accordance with section 11 of FRS 102 (Basic
Financial Instruments).
Interest receivable is recognised using the effective interest rate method.
(e) Expenses
All expenses are accounted for on an accruals basis.
(f) Foreign currencies
Transactions in foreign currencies other than US dollars are converted at the rate of exchange ruling at the date the transaction
is processed. Unless otherwise stated, transactions are converted at the average rates of the exchange for the period. Assets
and liabilities in currencies other than Sterling are converted at the rate of exchange ruling at 31 December of each year. Exchange
differences arising on conversion are dealt with in the income statement.
160
Brit Limited Annual Report 2019
Financial Statements
(g) Deferred taxation
Deferred tax is recognised in respect of all timing differences which are differences between taxable profits and total
comprehensive income that arise from the inclusion of income and expenses in tax assessments in periods different from those
in which they are recognised in the financial statements, except that:
• provision is made for deferred tax that would arise on remittance of the retained earnings of overseas subsidiaries, associates
and joint ventures only to the extent that, at the statement of financial position date, dividends have been accrued as receivable;
• where there are differences between amounts that can be deducted for tax for assets (other than goodwill) and liabilities
compared with the amounts that are recognised for those assets and liabilities in a business combination a deferred tax
asset/liability shall be recognised. The amount attributed to goodwill is adjusted by the amount of the deferred tax recognised; and
• unrelieved tax losses and other deferred tax assets are recognised only to the extent that the Directors consider that
it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing
differences reverse, based on tax rates and laws enacted or substantively enacted at the statement of financial position date.
2 Auditor’s remuneration
This Note sets out the fees paid in respect of the annual audit performed on the Company.
Audit fees borne by the Company amounted to US$15,525 (2018: US$15,000).
3 Shares in Group undertakings
This Note explains the direct shareholdings of the Company in other Group entities.
Investment in Brit Insurance Holdings Limited
There was no movement in shares in Group undertakings in the year.
31 December 31 December
2018
US$m
2019
US$m
1,050.5
1,050.5
The subsidiaries of the Company at 31 December 2019, and their principal activities, are disclosed in the Brit Limited consolidated
financial statements.
4 Loans to Group undertakings
This Note sets out moneys lent by the Company to other Group companies.
Loans to Group undertakings
31 December 31 December
2018
US$m
2019
US$m
136.6
131.3
On 8 September 2014, a long‑term loan to another Group company was novated to Brit Limited at fair value. The agreement expires
on 9 December 2020 and carries interest at an annual interest rate of 7.05%.
Brit Limited Annual Report 2019
161
Financial Statements
5 Debtors: Amounts falling due within one year
This Note sets out moneys owed to the Company that are due before 31 December 2020.
Interest receivable on loans to Group undertakings
Amounts owed by Group undertakings
Prepayments
Total
6 Creditors: Amounts falling due within one year
This Note sets out moneys owed by the Company that are due before 31 December 2020.
Accruals and deferred income
Total
31 December 31 December
2018
US$m
2019
US$m
12.2
65.9
0.6
78.7
2.5
29.9
0.7
33.1
31 December 31 December
2018
US$m
2019
US$m
0.7
0.7
0.7
0.7
7 Creditors: Amounts falling due after more than one year
This Note sets out moneys owed by the Company that are due after 31 December 2020.
Maturity
Effective
interest rate
Call
31 December 2019
31 December 2018
Amortised
cost
US$m
Fair value
US$m
Amortised
cost
US$m
Fair value
US$m
Subordinated debt
2030
2020
8.3%
179.4
182.9
173.0
173.3
The fair value of the subordinated debt has been determined by reference to trading market values on recognised exchanges and
is categorised as level one in the fair value hierarchy.
The subordinated debt was novated to the Company from another Group company on 8 September 2014 at fair value.
The subordinated debt is listed and callable in whole by the Company on 9 December 2020. Following this date the interest rate
resets to the higher of:
(i) 3.4% above the gross redemption yield of the 4.75% Treasury Gilt due 2030 quoted on the reset date; or
(ii) 3.4% above the gross redemption yield of the 8% Treasury Stock due 2021 quoted on the reset date.
The effective interest rate method of accounting has been applied over the term up to the call date.
8 Called up share capital
This Note sets out the number of shares in issue and their nominal value.
Ordinary shares:
Allotted, issued and fully paid
162
Brit Limited Annual Report 2019
31 December
2019
US$m
31 December
2018
US$m
31 December
2019
1p each
Number
31 December
2018
1p each
Number
7.0
6.8
446,977,185
430,549,278
notes to the financial statements
Financial Statements
48,000,000 shares are class A shares and the remainder are class B shares. The class A and B shares rank pari passu except that
on a distribution of profits by the Company, the class A shareholders are entitled to a cumulative annual dividend which must be
settled ahead of any equivalent distribution to class B shareholders.
At 1 January 2018
Issue of new class B shares
Purchase and cancellation of own shares
At 31 December 2018
At 1 January 2019
Issue of new class B shares
At 31 December 2019
Share
premium
US$m
–
435.1
–
435.1
435.1
70.4
505.5
Share
capital
US$m
6.4
1.2
(0.8)
6.8
6.8
0.2
7.0
Share
capital
Number
387,608,230
101,491,572
(58,550,524)
430,549,278
430,549,278
16,427,907
446,977,185
On 29 April 2019, 4,800,000 class B Ordinary Shares were issued by Brit Limited, each with a nominal value of 1p, for US$20.6m.
Following this share issuance, US$20.5m was recorded in the share premium accounts.
On 24 June 2019, 11,627,907 class B Ordinary Shares were issued by Brit Limited, each with a nominal value of 1p, for US$50.0m.
Following this share issuance, US$49.9m was recorded in the share premium accounts and Fairfax increased its percentage
shareholding to 89.26%.
9 Directors’ emoluments
This Note gives a breakdown of emoluments paid to Directors both in total and in respect of the highest paid Director.
Aggregate remuneration
Aggregate contributions to money purchase pension schemes
Total
The Directors’ remuneration disclosed above includes the following amounts paid to the highest paid Director:
Aggregate remuneration
Number of Directors with benefits accruing under money purchase pension schemes
Number of Directors in respect of whose qualifying services, shares were received
or receivable under long‑term incentive schemes
31 December 31 December
2018
US$m
2019
US$m
4.7
0.1
4.8
3.9
0.1
4.0
2.7
1.4
Number
Number
1
2
1
3
Shares were received or receivable by the highest paid Director in respect of qualifying services under a long‑term incentive scheme
during 2019 and 2018.
10 Guarantees and contingent liabilities
This Note explains guarantees issued by the Company. The Company has no contingent liabilities.
The Company has access to a US$450.0m (2018: US$450.0m) revolving credit facility which expires on 31 December 2023.
Guarantees have been made by Brit Limited and a subsidiary company to the syndicated banks providing the facility.
Brit Limited Annual Report 2019
163
Financial Statements
11 Dividends
This Note gives details of the amounts paid to shareholders during 2019 and 2018 by way of dividends.
Dividend paid in respect of prior year
Dividend paid in respect of shares repurchased
2019
US$
0.43
–
2018
US$
0.43
0.43
2019
US$m
20.6
–
20.6
2018
US$m
45.8
12.8
58.6
A US$20.6m dividend in respect of the year ended 31 December 2018 was paid to the class A shareholders on 29 April 2019
in accordance with the shareholders’ agreement at an amount equal to US$0.43 per share (2018: US$45.8m/US$0.43 per share).
On 5 July 2018, a US$12.8m dividend was paid to the class A shareholders, being the pro‑rata accrued dividend outstanding
on shares re‑purchased in respect of the 2018 accounting period and based on a dividend entitlement for the full year equal
to US$0.43 per share.
12 Share–based payments
The Company rewards its employees through various share‑based incentive schemes. This Note explains the different schemes used
to facilitate those share‑based payments.
Further detail in respect of the Group’s share‑based incentive schemes can be found in Note 32 of the notes accompanying the
Brit Limited Group consolidated Financial Statements.
13 Disclosure exemptions
This Note explains the Company’s approach to qualifying exemptions available in FRS 102.
The Company has taken advantage of the disclosure exemptions provided by paragraph 1.12 of FRS 102. Accordingly, these financial
statements do not include the following:
• Statement of cash flows;
• A reconciliation of shares outstanding at the beginning and end of the period;
• Specific information relating to financial instruments that is included within equivalent disclosures for the Group;
• Specific information relating to share‑based payments that is included within equivalent disclosures for the Group; and
• Disclosure of key management personnel compensation.
The Brit Limited consolidated financial statements and accompanying notes provide further detail in respect of these areas.
14 Ultimate Parent Company
The ultimate parent company and controlling entity, and the largest group of which the Company is a member, is Fairfax Financial
Holdings Limited (Fairfax) which is registered in Canada and listed on the Toronto Stock Exchange. The consolidated financial
statements for Fairfax are publicly available and can be obtained from the Corporate Secretary, 95 Wellington Street West, Suite
800, Toronto, Ontario, Canada, M5J 2N7 or from the website at www.fairfax.ca.
164
Brit Limited Annual Report 2019
notes to the financial statements
Additional Information
Return on net tangible assets before FX movements and corporate activity costs (RoNTA)
Return on net tangible assets before foreign exchange movements and corporate activity costs (RoNTA) shows the return being
generated by our operations compared to the adjusted net tangible assets deployed in our business.
PAT
Add back: Tax adjusted amortisation
Add back: Tax adjusted FX
PAT, adjusted for RoNTA calculation
Comment / financial statements reference
Consolidated income statement
Amortisation of intangibles, adjusted by the tax rate
FX effect for the year, adjusted by the tax rate
Adjusted NTA at start of year
External distributions and share issuances
See ‘Total Value Created’ section below.
Weighted adjustment to reflect distributions and
shares issued during the year.
NTA, adjusted for RoNTA calculation
RoNTA
2019
US$m
179.9
7.1
(2.8)
184.2
2018
US$m
(166.5)
5.2
10.2
(151.1)
992.9
1,043.7
25.8
1,018.7
18.1%
5.5
1,049.2
(14.4%)
Total value created
The total value created measures the increase in adjusted NTA (including distributions) in a year. It reflects the after tax result
recorded in the income statement and all other value movements.
Comment / financial statements reference
Total equity attributable to owners of the parent
Less: Intangible assets
Consolidated statement of financial position
Consolidated statement of financial position
Net tangible assets
Add back deferred tax liability on intangible assets
Note 19: Deferred taxation
Adjusted net tangible assets
Adjusted NTA at end of year
Less: Adjusted NTA at start of year
Movement in adjusted NTA
Add: Intangibles and goodwill acquired
on acquisition of Ambridge
Less: Issuance of share capital, repurchase
Note 34(c): Related Party Transactions ‑
Business Combinations
of shares and dividend paid
Consolidated statement of changes in equity
Total value created
2019
US$m
2018
US$m
1,319.9
(192.6)
1,127.3
23.1
1,150.4
1,085.0
(104.4)
980.6
12.3
992.9
1,150.4
(992.9)
157.5
992.9
(1,043.7)
(50.8)
91.1
–
50.0
198.6
(124.8)
(175.6)
Combined ratio
The combined ratio is our key underwriting metric and measures the profitability of our underwriting. It shows how much of every
US$1 of premium is spent in the total costs of sourcing and underwriting the business and settling claims. A combined ratio under
100% indicates underwriting profitability.
Brit Limited Annual Report 2019
165
reconciliation of key performance indicators to the financial statements
Additional Information
Comment / financial statements reference
Note 5: Segmental information
See Note (i) below
See Note (ii) below
Earned premium, net of reinsurance
Adjustments for share of third‑party vehicles
Adjustment for loss portfolio reinsurance
Adjusted earned premium, net of reinsurance
Attritional losses
Major claims
Reserve releases
Claims incurred, net of reinsurance
Note 5: Segmental information
Attritional losses – Adjustments for share
of third‑party vehicles
Attritional losses – Adjustment for loss
portfolio reinsurance
Major losses – Adjustments for share
of third‑party vehicles
Reserve releases – Adjustments for
share of third‑party vehicles
Adjusted claims incurred, net of reinsurance
Acquisition costs – commissions
Acquisition costs – other and Other insurance
See Note (i) below
See Note (ii) below
See Note (i) below
See Note (i) below
Note 5: Segmental information
related expenses
Note 5: Segmental information
Other income
Acquisition costs – commissions – Adjustments for
share of third‑party vehicles
See Note (i) below
Acquisition costs – other and Other insurance
related expenses – Adjustments for
share of third‑party vehicles
Adjusted underwriting expenses
See Note (i) below
Derivative contracts
Underwriting profit/(loss)
Attritional loss ratio
Major claims ratio
Reserve release ratio
Claims ratio
Commission ratio
Operating expense ratio
Underwriting expense ratio
Combined ratio
Attritional losses / Earned premium, net of reinsurance
Major claims / Earned premium, net of reinsurance
Reserve releases / Earned premium, net of reinsurance
Note 5: Segmental information
Acquisition costs – commissions / Earned premium,
net of reinsurance
Acquisition costs – other and Other insurance
related expenses / Earned premium, net of reinsurance
Note 5: Segmental information
Claims ratio + Underwriting expense ratio;
Note 5: Segmental information
2019
US$m
2018
US$m
1,638.5
(14.8)
–
1,623.7
(899.4)
(61.6)
46.5
(914.5)
1,466.1
(18.8)
186.3
1,633.6
(751.8)
(214.5)
99.3
(867.0)
5.7
3.1
–
(186.3)
3.2
1.4
(904.2)
(443.3)
17.7
0.8
(1,031.7)
(456.1)
(255.7)
45.6
(216.6)
14.0
1.7
1.9
0.2
(651.5)
0.4
68.4
55.0%
3.6%
(2.9%)
55.7%
0.2
(656.6)
(2.2)
(56.9)
57.2%
12.0%
(6.1%)
63.1%
27.2%
27.8%
12.9%
40.1%
12.4%
40.2%
95.8%
103.3%
Note (i): On the face of the consolidated income statement, the third party share of our underwriting is consolidated, with the net
impact eliminated through ‘gains on other financial liabilities’. These adjustments reallocate this elimination on a line by line basis,
thereby giving a fairer view of Brit’s underwriting performance as attributable to its shareholders.
Note (ii): We have adjusted for the impact of the loss portfolio reinsurance in ‘Earned premium, net of reinsurance’ with an equal and opposite
adjustment in ‘Claims incurred, net of reinsurance’. This adjustment eliminates the distorting effect this contract would have on the ratios.
166
Brit Limited Annual Report 2019
reconciliation of key performance indicators to the financial statements
Additional Information
Investment return
We assess the performance of our investment portfolio by comparing the return generated by our invested assets, net of external
investment related expenses, against the value of those invested assets.
Share of net profit of associates
Return on financial investments and cash
and cash equivalents (Note 1)
Return on investment related derivatives
Return on invested assets
Investment in associated undertakings
Financial investments
Derivative contracts (investment related)
Cash and cash equivalents
Invested assets
Opening invested assets
Closing invested assets (Note 1)
Average invested assets
Return (%)
Note 1 – Adjusted for third‑party share of UCITS
Comment / financial statements reference
Note 14: Investment in associated undertakings
Note 6: Investment return
Note 7: Return on derivative contracts
Note 14: Investment in associated undertakings
Note 22: Financial investments
Note 23: Derivative contracts
Note 25: Cash and cash equivalents
Return on invested assets / Average invested assets
2019
US$m
0.3
150.6
(2.8)
148.1
2018
US$m
6.5
(88.7)
0.1
(82.1)
19.4
3,640.6
2.1
520.1
4,182.2
43.0
3,145.1
3.3
818.2
4,009.6
3,846.7
4,182.2
4,014.5
3.6%
4,316.1
3,846.7
4,081.4
(2.0%)
Capital ratio
The capital ratio measures the strength of our balance sheet by comparing our available capital resources to the capital we need
to hold to meet our management entity capital requirements. It is calculated as follows:
Total equity attributable to owners of the parent
Less: Intangible assets
Consolidated statement of financial position
Consolidated statement of financial position
Net tangible assets
Comment / financial statements reference
Add: Deferred tax liability on intangible assets
Note 19: Deferred taxation
Adjusted net tangible assets
Subordinated debt
Letters of credit / contingent funding
Total available capital resources
Management entity capital requirements
Excess of resources over management
entity capital requirements
Capital ratio
Note 26: Borrowings
Under our capital policy we have identified a
maximum of US$250.0m of our revolving credit
facility to form part of our capital resources.
The capital required by an entity for business
strategy and regulatory requirements.
2019
US$m
2018
US$m
1,319.9
(192.6)
1,127.3
1,085.0
(104.4)
980.6
23.2
1,150.5
176.2
12.3
992.9
166.9
250.0
1,576.6
250.0
1,409.8
(1,227.7)
(1,081.1)
348.9
128.4%
328.7
130.4%
Brit Limited Annual Report 2019
167
Additional Information
Ratio of front office employees to back office employees
This measure monitors the efficiency of our business model by comparing the number of front office client‑facing revenue
generators and service providers to the number of back office employees. An increase in the ratio would suggest that the back office
is becoming more efficient in supporting the client‑facing activities of the front office.
Total front office staff
Total back office staff
Total employees
Ratio of front office employees
to back office employees
Comment / financial statements reference
Note 11: Staff costs
Note 11: Staff costs
Note 11: Staff costs
2019
Number
2018
Number
427
283
710
367
236
603
Total front office staff / Total back office staff
150.9%
155.5%
168
Brit Limited Annual Report 2019
reconciliation of key performance indicators to the financial statements
Directors
Mr Gordon Campbell – Chair*
Mr Matthew Wilson – Group Chief Executive Officer
Mr Mark Allan – Group Chief Financial Officer
Mr Andrew Barnard – Non‑executive Director
Mr Jeremy Ehrlich – Non‑executive Director
Ms Andrea Welsch – Non‑executive Director
*Mr Campbell was appointed a non‑executive Director on 1 January 2018.
On 1 January 2019, he was appointed Chair.
Company Secretary
Mr Tim Harmer
Registered Office
The Leadenhall Building
122 Leadenhall Street
London EC3V 4AB
UK
Telephone: +44 (0) 20 3857 0000
Website
www.britinsurance.com
The Company website provides information about Brit Limited
including information on the business, annual reports, half yearly reports
and announcements to the London Stock Exchange.
Registered Number
08821629
Auditor
PricewaterhouseCoopers LLP
7 More London Riverside
London
SE1 2RT
Company Information
Brit Limited Annual Report 2019
169
company information
Glossary
A
Acquisition costs: Costs incurred in the course of writing
business and issuing policies including commissions paid
to intermediaries and related internal expenses such
as underwriter related costs.
Adjusted net tangible assets or adjusted NTA: Total equity,
less intangible assets net of the deferred tax liability on those
intangible assets.
Adjusted net tangible assets per share: Calculated as closing
adjusted net tangible assets divided by the number of shares
in issue at the balance sheet date, less own shares.
Aggregate exposure: The expected maximum total
of claims that could be incurred by an insurer in respect
of any event or series of similar events. Also see ‘realistic
disaster scenarios’.
Asset allocation: The allocation of our investments across
different kinds of asset classes, such as equities, bonds, and
cash, in order to achieve a balance between return and risk.
Attritional losses: Common losses, as opposed to major
or catastrophe losses, incurred from ordinary insurance
and/or reinsurance operations.
Available capital resources: Adjusted net tangible assets,
subordinated debt and letters of credit / contingent funding.
B
BGSB: Brit Global Specialty Bermuda, the business of the Group
operating in Bermuda.
BGSU: Brit Global Specialty USA, the business of the Group
operating in the United States, of which BISI is the managing
general agent.
Binder business: Business conducted by a coverholder acting
under a binding authority.
Binding authority: See ‘delegated underwriting authority’.
BISI: Brit Insurance Services USA, Inc., a company incorporated
in Illinois, USA.
Brit Re: Brit Reinsurance (Bermuda) Limited.
BMA: Bermuda Monetary Authority, the integrated regulator
of financial services in Bermuda, established under the
Bermuda Monetary Authority Act 1969.
Broker: An intermediary who negotiates contracts of insurance
or reinsurance, receiving a commission for placement and other
services rendered.
C
Captive: An entity that provides risk‑mitigation services for
other entities within the same Group only.
Catastrophe or Cat: Perils including earthquakes, hurricanes,
hailstorms, severe winter weather, floods, fires, tornadoes,
explosions and other natural or man‑made disasters.
Catastrophe losses may also arise from acts of war, acts
of terrorism and political instability.
Claims: Moneys demanded by an insured for indemnity under
an insurance contract.
Claims development triangles: Tabulations of claims
development data, set out with underwriting years along one
axis and calendar years of development along the other.
Claims incurred: Claims arising from events that have
occurred, regardless of whether or not they have been
reported to the insurer.
Constant FX rates: An increase or decrease in figures between
two years after eliminating the effect of foreign exchange
rate movements.
Corporate member: A company providing the capital to support
the underwriting activity of a syndicate at Lloyd’s. Brit’s
corporate member is Brit UW Limited.
Coverholder: An entity authorised by an insurer to enter into
a contract of insurance on its behalf.
D
Deferred acquisition costs or DAC: Costs incurred for
the acquisition or renewal of insurance policies which are
capitalised and amortised over the term of those policies.
Delegated underwriting authority: An authority granted
by an underwriter to an agent (known as a coverholder)
whereby that agent is entitled to accept, within certain
limits, insurance business on behalf of the underwriter. The
coverholder has full power to commit the underwriter within the
terms of the authority.
E
Earned premium: That proportion of a premium which relates
to the portion of a risk which has expired during a given period.
ESOS: The energy savings opportunity scheme, or ESOS,
is a mandatory government initiative to promote energy
efficiency in large businesses.
Excess and Surplus or E&S: A generic US regulatory
classification referring to insurance coverage not ordinarily
written by insurers fully admitted in various states. The E&S
lines business is largely unregulated as to rate and form but
insurers must be authorised to write such business in a state
by the local regulator.
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glossary Glossary
Excess of loss or XL: A type of reinsurance that covers
specified losses incurred by the reinsured party in excess
of a stated amount (the excess) up to a higher amount of limit,
for example US$5m excess of US$1m. Such coverage can
operate on a per loss basis or an aggregate basis.
Executive Committee or EC: A committee at Brit consisting
of the senior management and the Group CEO.
F
FCA: The UK Financial Conduct Authority, established pursuant
to the Financial Services Act 2012 and responsible for, among
other things, the conduct regulation of all firms authorised and
regulated under FSMA and the prudential regulation of firms
which are not regulated by the PRA.
First Dollar: An insurance policy written with low excess and
deductible, and written in the admitted market.
Funds at Lloyd’s or FAL: Funds held in trust at Lloyd’s to support
a Lloyd’s underwriter’s underwriting activities.
G
Gearing ratio: Calculated as total borrowings (subordinated
debt, revolving credit facility cash drawdowns and
uncollateralised drawn letters of credit) divided by adjusted net
tangible assets and subordinated debt.
Gross written premium or gross premiums written or GWP:
Amounts payable by the insured, including any brokerage
or commission deducted by intermediaries but excluding any
taxes or duties levied on the premium.
H
Hardening or hard market: An insurance market where
prevalent prices are high, with more restrictive terms and
conditions offered by insurers.
HMRC: Her Majesty’s Revenue and Customs.
I
ILS or Insurance‑linked securities: ILSs are essentially financial
instruments which are sold to investors whose value is affected
by an insured loss event.
Incurred but not reported or IBNR: Claims incurred but
not reported, including claims which are incurred but not
enough reported (i.e. where the amount of the notification
is insufficient).
International Accounting Standards or IAS: See ‘International
Financial Reporting Standards’.
International Financial Reporting Standards or IFRS:
Accounting and reporting Standards established by the
International Accounting Standards Board, as adopted by the
European Commission for use in the European Union. UK listed
entities have reported on an IFRS basis since 2005.
Invested assets: Financial investments, investment
in associated undertakings, cash and cash equivalents and
investment related derivatives.
Investment related derivatives: Includes options and interest
rate swaps. Excludes currency forwards.
Investment return percentage: Investment return expressed
as a percentage of average invested assets, calculated
on a month by month basis.
L
Lead underwriter or lead: A lead underwriter (usually
a specialist in the field of the insurance concerned) is the first
underwriter to take a portion of a risk, quote an appropriate
rate of premium and set terms and conditions.
Letter of credit or LoC: A written undertaking by a financial
institution to provide funding if required.
LIBOR: The daily London Interbank Offered Rate set by the
British Banking Association.
Line size: The proportion of an insurance or reinsurance risk
that is accepted by an underwriter or which an underwriter
is willing to accept.
Lloyd’s Brussels (LBS): The insurance company of Lloyd’s
located in Brussels, authorised and regulated by the National
Bank of Belgium, which writes all non‑life risks from the
European Economic Area.
Lloyd’s China Platform: The branch of Lloyd’s in Shanghai in the
People’s Republic of China operated through Lloyd’s Insurance
Company (China) Limited, on which certain Lloyd’s syndicates
have representation.
Lloyd’s of London: The Society of Lloyd’s and Corporation
of Lloyd’s created and governed by the Lloyd’s Acts 1871‑1982,
including the Council of Lloyd’s (and its delegates and
other persons through whom the Council may act), as the
context may require.
London Market: The London insurance market, which includes
the Lloyd’s market.
Long‑tail: The term used to describe business where the
difference between the timing of the average premium receipt
and the timing of the average claim payment is over three years.
M
Major claims or Major losses: Major claims are defined
as claims which are initially assessed as having the potential
to exceed US$15.0m (net of reinsurance and allowing for
reinstatements), incurred from natural or man‑made
catastrophes, or from large single risk loss events.
Management entity capital requirement: The capital required
by an entity for business strategy and regulatory requirements.
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Glossary
N
Net earned premium or NEP: The net written premium adjusted
by the change in net unearned premium (i.e. the premium for
which insurance exposure has yet to be incurred) for a year.
Net tangible assets or NTA: The total assets of a company,
minus any intangible assets, less all liabilities.
Net written premiums or NWP: Gross premiums written during
a specified period less outwards reinsurance premiums ceded.
O
Outstanding claims: Claims which have been notified at the
balance sheet date but not settled.
Own risk and solvency assessment or ORSA: The name given
to the entirety of the processes and procedures employed
by an insurer to identify, assess, monitor, manage and report
the short and long term risks it faces or may face and
to determine the capital necessary to ensure that the insurer’s
overall solvency needs are met at all times.
P
PRA: The UK Prudential Regulation Authority established
pursuant to the Financial Services Act 2012 and responsible
for the prudential regulation and supervision of banks, building
societies, credit unions, insurers and major investment firms.
Protected cell company or PCC: A company that has been
separated into legally distinct portions or cells. The revenue
streams, assets and liabilities of each cell are kept separate
from all other cells. Each cell has its own separate portion of the
PCC’s overall share capital, allowing shareholders to maintain
sole ownership of an entire cell.
Q
Quota share or QS: A type of reinsurance which provides
that the reassured shall cede to the reinsurer a specified
percentage of all the premiums that it receives in respect
of a given section or of all of its underwriting account for a given
period in return for which the reinsurer is obliged to pay the
same percentage of any claims and specified expenses arising
on the reinsured business.
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R
Ratio of front office employees to back office employees:
Calculated as the average number of front office staff divided
by the average number of back office staff employed during the
year. Front office employees are defined as underwriters, other
underwriting staff, claims staff and direct support staff. The
balance of employees are classified as back office.
Realistic Disaster Scenarios or RDS: Specific scenarios which
the Group uses to test its ability to settle claims arising from
certain types of disaster.
Reinsurance: The transfer of some or all of an insurance risk
to another insurer. The company transferring the risk is called
the ‘ceding company’ and the company assuming the risk
is called the ‘assuming company’ or the ‘reinsurer’.
Representative office: An office established by Brit to conduct
marketing and other non‑transactional operations overseas.
Reserves: Outstanding claims and claims incurred
but not reported.
Reserve releases: The amount of the reserves at the end of the
previous period determined as being excess to requirements
at the end of the current period.
Retention rate: The ratio, in percent, of the value of premiums
relating to risks written in one year renewed in the following
year. The data used is risk adjusted (i.e. it allows for changes
to terms and conditions).
Risk adjusted rate change: Change in premium rates during the
year expressed as a percentage of opening premium rates. The
data reflects internal estimates by Brit’s underwriters, based
on available year‑on‑year underlying renewal data after allowing
for changes to terms and conditions.
Risk management framework or RMF: The Group’s own internal
framework for risk management.
Running yield: The income return, expressed either
as a percentage or a monetary amount, on invested assets.
S
Service companies: Subsidiary companies set up to operate
a binding authority on behalf of the Syndicate to write business
from non‑Lloyd’s brokers or direct from policymakers.
Short‑tail: The term used to describe business where the
difference between the timing of the average premium
receipt and the timing of the average claim payment
is under three years.
Softening or soft market: An insurance market where
prevalent prices are low, and terms and conditions offered
by insurers are less restrictive.
Solvency capital requirement or SCR: The higher of the two
capital levels required by Solvency II. The SCR is the prudent
amount of assets to be held in excess of liabilities and functions
as an early warning mechanism if it is breached. The SCR
is calculated using either the standard formula or an approved
internal model.
glossary Glossary
U
Ultimate claims: The total forecast claims expected to arise
from a policy or class of business. Ultimate claims include those
losses paid, those notified and IBNR.
Underlying operating expenses: Calculated as Total operating
expenses less project costs and other timing differences.
Underlying operating expenses include bonus costs.
Underwriting capacity: The maximum premium income which
a Lloyd’s syndicate is permitted to underwrite. A capacity
figure is assigned to each underwriting year and the relevant
premium income is defined as gross written premiums less
commission payable.
Underwriting profit: Operating profit generated by our
underwriting segments less investment return.
Unearned premium reserve or UPR: The portion of premium
income written in the calendar year that is attributable
to periods after the balance sheet date. It is accounted for
as unearned premiums in the underwriting provisions.
Unrealised gains or Unrealised losses:
Gains or losses that are yet to be crystallised in the form
of a cash movement from disposals of invested assets.
Solvency matched: The matching of the currencies of the
Group’s liabilities and management entity capital requirements
with the currencies of the assets held by the Group.
Solvency II: A combination of several EU Directives that codify
and harmonise EU insurance regulation, primarily concerning
the amount of capital that EU insurance companies must
hold to reduce the risk of insolvency. Principal components
are Directive 2009/138/EC on the taking‑up and pursuit
of the business of insurance and reinsurance and Directive
2012/23/EU on the financial position of insurance undertakings.
Solvency II came into force in all EU member states
on 1 January 2016.
Strategic asset allocation or SAA: The Group’s strategic asset
allocation defines the overall Group investment strategy and
reflects entity‑level considerations and governance matters.
See ‘asset allocation’.
Syndicate: A group of underwriting members of Lloyd’s
or a single corporate member managed as a unit to underwrite
insurance business at Lloyd’s to which a particular syndicate
number is assigned by or with the authority of Lloyd’s of London.
T
Tail: See ‘short‑tail’ and ‘long‑tail’.
Technical price: The price for the risk which is expected
to produce the long‑term required return on capital
for the Group.
The Company: Brit Limited.
The Group: Brit Limited and its subsidiaries.
The Syndicate: Brit Syndicate 2987.
Total available resources: Sum of the closing adjusted net
tangible assets, subordinated debt and letters of credit /
contingent funding.
Total invested assets: See ‘invested assets’.
Total operating expenses: These represent all expenses
incurred by the Group, excluding commission costs.
Treaty: A reinsurance contract pursuant to which the reinsurer
is obliged to accept, within agreed limits, all risks underwritten
by the reinsured within specified classes of business
in a given time period.
Brit Limited Annual Report 2019
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Brit Limited
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