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Operating & Financial Review
Balance sheet management - increasing financial strength
and flexibility |
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Insurance leverage and cash flow
The business has continued to benefit from growth in net cash and investments (net cash
and investments is cash and investments less debt capital). This is illustrated below.
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The growth has been achieved through:
- Equity financing of £215 million;
- Reinsurance of third party capital liabilities of Syndicate 2001 which settled through a transfer of matching assets; and
- Continued growth from policyholders' funds in a profitable trading environment.
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Cash and investments now represents a multiple of 2.7 times (2004: 3 times) shareholders' equity.
Management of cash flow is interlinked with the capital strategy and flexibility. Management of premium and reinsurance assets has been an area of increased focus over the last few years. Extra resources have been committed to premium credit control and consequently overdue debt has fallen significantly.
The rapid collection of reinsurance following settlement of hurricane claims is a key priority for our reinsurance team. For the 2004 hurricanes we have collected recoveries of US$171 million, almost 100% of total reinsurance recoveries requested. For 2005 we have already made reinsurance collections of US$148 million, 87% of total collections requested.
Management of our reinsurance assets has also been an area of increased focus. Debt management has been centralised into one London Market team which has successfully controlled the level and age of debt.
The credit quality of our reinsurance debt remains good and we have begun to commute older balances with reinsurers in run-off.
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