The directors present their annual report and financial statements for the year ended 31 December 2020.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The result for the period, after taxation, amounted to a loss of £225,272 . The directors do not propose the payment of any dividend s for the period.
The directors consider the performance of the company for the period to have been satisfactory, and they are confident that satisfactory results will be achieved in the future.
The directors consider that its business of providing services to underwriting teams which operate under delegated underwriting authorities from leading insurers provides an excellent basis for successfully developing a profitable portfolio of insurance business. During the year the Group sought to recruit high quality underwriting teams. Accelerate Underwriting limited (AUL) , Falcon MGA Services Limited (FMGAS), and Trinity General Agency LLC (TGA) continued t heir operation s during the year . Trilogy Managing General Agents Limited (TMGA) was acquired with effect from 1 January 2020. Both AUL and FMGAS are Appointed Representatives of Resolution Underwriting Partnership Limited (RUPL). Following the acquisition of TMGA, its operational activities were transferred into its subsidiary, Trilogy Underwriting Limited (TUL). TUL is an Appointed Representative of TMGA. Both RUPL and TMGA are regulated by the Financial Conduct Authority.
On 19 February 2021 RUHL disposed of its shareholding in AUL.
The company has various financial assets and liabilities, such as trade receivables and trade payables, arising directly from its operations. These assets and operating cash arising are actively managed to avoid unnecessary currency exposure. The company has not undertaken hedging activity but may do so if such arrangements appear to be a suitable solution to minimising any currency exposures, especially for earnings in currencies other than sterling.
The company manages its own cash and borrowings to maximise interest income and minimise interest expense, whilst ensuring that sufficient liquid resources are available to meet operating needs. The group does not hold client money while insurers’ funds are held with approved banks in currencies appropriate to the settlement requirements of the business.
The company will become exposed to interest rate risk on bank deposits when interest rates recover.
The group’s principal foreign currency exposure risk potential could arise from income earned on trading operations with customers and suppliers in non sterling currency. Current and anticipated insurance business is predominantly denominated in sterling.
The company has advanced funds to trade investments which are Appointed Representatives of our Authorised Firm in order to provide start-up and working capital. The operating performance and financial targets of these debtors are closely monitored. Group companies act as an agent for insurers; while suitable vetting arrangements are operated to verify the credit worthiness of insurance brokers from whom business predominantly comes, the risk of non-payment rests largely with others. Investment of cash surpluses are made with banks which are considered by the Board to have adequate credit ratings to achieve the prudential standards applicable in our business.
The past year has seen the business perform according to budget and there is confidence that the group is building a solid base from which to grow a profitable business.
PKF Littlejohn LLP were appointed as auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
Impact of Covid-19 on RUHL
The operational aspects of the Resolution Group companies (“Resolution”) have largely been unaffected by Covid, with the exception of Falcon MGA Services (Falcon), since systems were in place to allow a smooth transition to working from home. When permitted, most employees have also been splitting their working week between attending the office and working from home. We have been offering our broker client base the same service as before. The renewal retention rate has remained much as normal and numbers of new business offers continue to be received. The MGAs have responded to the pressures on cashflow within its client base by offering rates based on reduced turnover and policy extensions. As businesses re-open, this will create a surge in premiums as turnovers revert to a more normal level. The fear that the SME client base would suffer failures, with an increased possibility of bad debts, has not been apparent on the book written by Resolution. The policy coverages offered have not caused issues in terms of an increase in claims activities following the British Supreme Court judgement.
RUHL Advantages
Resolution is not exposed to the lines of business that have been hardest hit by the pandemic. The market in the non-standard business in which Resolution operates shows continuing signs of hardening as capacity remains tight. Returns to capacity continue to be satisfactory and will improve further in a harder market. The capacity support for Resolution remains strong and only one area has been challenging, with a positive outcome in prospect that will further strengthen the capacity offered by Resolution. Only its aircraft flight disruption policies saw a significant impact as most flying by private jet ceased. The decision taken in March 2020 to put this business into hibernation but to keep it going in readiness for an upturn in demand once flights resumed has proved a prescient decision. There are already strong signs of growth in the interest in the policy and new insureds have already been signed up.
RUHL Forecasts
Resolution has prepared re-forecasts for 2021 and 2022 based on current levels of business and its growth potential. Its cost base remains under control and it is anticipated that it will continue to make profits in both of these years. Consequently the directors believe it will continue as a going concern for the foreseeable future.
This report has been prepared in accordance with the provisions applicable to companies entitled to the small companies exemption.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit :
the information given in the directors' r eport for the financial year for which the financial statements are prepared is consistent with the financial statements ; and
the directors' report has been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' r esponsibilities s tatement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors 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 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 company or to cease operations, or have no realistic alternative but to do so.
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 auditor's 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 .
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
We obtained an understanding of the company and the sector in which it operates to identify laws and regulations that could reasonably be expected to have a direct effect on the financial statements. We obtained our understanding in this regard through discussions with management, and application of cumulative audit knowledge and experience of the sector.
We determined the principal laws and regulations relevant to the company in this regard to be those arising from FCA Rules, FRS102, Companies Act 2006 and relevant tax compliance regulations in the UK.
We designed our audit procedures to ensure the audit team considered whether there were any indications of non-compliance by the company with those laws and regulations. These procedures included, but were not limited to making enquiries of management, review of minutes and review of regulatory correspondence.
We also identified the risks of material misstatement of the financial statements due to fraud. We considered, in addition to the non-rebuttable presumption of a risk of fraud arising from management override of controls, that included the potential for management bias in relation to the impairment of debtors and we addressed this by challenging the assumptions and judgements made by management when auditing their assessment of the recoverability of debtors.
As in all of our audits, we addressed the risk of fraud arising from management override of controls by performing audit procedures which included, but were not limited to: the testing of journals; reviewing accounting estimates for evidence of bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Resolution Underwriting Holdings Limited is a private company limited by shares incorporated in England and Wales . The registered office is Number One, Vicarage Lane, Stratford, London, England, E15 4HF.
The financial statements are prepared in sterling , which is the functional currency of the company. Monetary a mounts in these financial statements are rounded to the nearest £.
The Company is the holding company of a group that has interests in several managing general agents (“MGA(s)”) underwriting insurance on behalf of major insurance companies and Lloyd’s syndicates (“Carriers”). The business of insurance underwriting is conducted through Appointed Representatives (“AR(s)”) of the Company’s wholly-owned subsidiar ies Resolution Underwriting Partnership Limited (“RUPL”) and Trilogy Managing General Agents Limited (TMGA) , wh o are regulated by the UK Financial Conduct Authority (“FCA”) and are also an approved Lloyd’s coverholder. The Company acts as an incubator of these ARs and in all of them the Company has a significant shareholding commensurate with the level of working capital provided to them.
As at 31 December 20 20 the Company has advanced short term loans of £1, 513 , 413 to Accelerate Underwriting Limited (“AUL”), as well as a further £700,000 being advanced through its 100% owned subsidiary Resolution Underwriting Partnership Limited (“RUPL”). As at 31 December 20 20 the Company had advanced long term loans to Falcon MGA Services Limited (“FMGAS”) totalling £540,905 of which £471,726 was provided against during 2019, and U SD2,000,000 to Trinity General Agency Holding Inc .
Subsequent to 31 December 20 20 the Company purchased 45 % of Sportscover Europe Limited and Active Underwriting Specialists Limited, both MGA 's regulated by the FCA and a Lloyd’s approved coverholder, for which no funding is expected to be required. The Company also sold its shareholding in AUL after the year end.
Covid-19 has continued to result in major disruptions throughout the United Kingdom and the whole world, generally affecting both people and the business world. The situation continu es to evolv e and the restrictions on movement initially led to a slowdown in trade, which have lead to lower incomes across many sectors of business. This will include the purchase of insurance although, aside from the business written by Falcon, none of the ARs write classes of insurance that are unusually vulnerable to Covid.
The Company assessed the effects of Covid-19 on its own business as follows:
• The effect on its staff and their continuing ability to work safely and efficiently
• The effect on its customers and insurance Carriers
• The potential reduction of the Company’s cost base
• Re-forecasting budgets and cashflows
Currently the employees of each MGA have mostly been working from home. They all have full access to the various software systems and lines of communication and are working effectively and efficiently and continuing to provide swift service to their client base. They have contacted their major customers to assess the impact of the virus on their own businesses and have also contacted the insurance Carriers. Somewhat surprisingly, the most important impact of Covid has been significantly to increase the numbers of enquiries for insurance and the number of quotes being requested on new business. This has much to do with the continuing levels of service that the MGAs have offered and the fact that many insurance companies have been struggling to offer any sort of decent levels of service.
The AR ' s have prepared budget for 2020 and 2021. Based on these budgets , which have been prepared on a prudent basis, the Directors have considered the outlook for the Company and believe that the Company will re turn to profitability in 2022 . Accordingly, the financial statements of the Company as at 31 December 20 20 have been prepared on a going concern basis.
The directors of the Company have considered the outlook for its subsidiaries and ARs. This they consider to be positive and the budgets prepared for the period to 31 December 202 2 have been prepared on a prudent basis and indicate that no further funding will be required other than modest amounts for FMGAS. The business written by FMGAS consists of aviation contingency for executive jets and the almost total cessation of travel caused by Covid has in effect put FMGAS into hibernation. There are already strong signs that, as travel re-starts, there will be an increased use of executive jets as an alternative to scheduled airlines and there will be considerable opportunity for FMGAS to grow.
The directors have considered whether the various loans are recoverable and have concluded that the underlying strengths of the businesses of AUL and TGA are such that the loans and interest will be paid in full. Due to the impact of Covid-19 the outstanding loans with FMGAS were provided for during 2019. The gradual increase in jet travel has seen some significant business opportunities for FMGAS and it has started to trade again during 2020. As such the directors believe that no further write downs of loans is necessary. The directors are confident about the Company's prospects but recognise that the success or otherwise of it being able to meet its forecasts is inevitably uncertain.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors , bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future paymen ts discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. A m ounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
Taxation
Current tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. |
The average monthly number of persons (including directors) employed by the company during the year was 5 (2019 - 6).
On 25th February 2020 Resolution Underwriting Holding Limited acquired the whole of the issued share capital of Trilogy Managing General Agents Limited.
On 19 February 2021 the company disposed of its shareholding in Accelerate Underwriting Limited. On the same date all loans owed to the company by Accelerate Underwriting Limited were repaid, other than an intercompany loan of £228,883, which was written off by the Company.
In addition, during 2021 the company has continued to acquire stakes and provide financing to companies operating in the insurance sector.
Dividends totalling £0 (2019 - £0) were paid in the year in respect of shares held by the company's directors.
As at 31 December 2020, the company owed £827,500 (2019: £837,500 ) to Mr C G Harman, a director and shareholder. This is repayable by the company in accordance with the loan agreement which detail the loan is repayable during 2020 and therefore is shown as due within one year. Interest is due on £787,500 at 0.5% and £40,000 at 11% to Mr C G Harman and totalled £10,367 (2019: £3,800) for the period. As at December 2020, the Company owed interest of £22,449 (2019: £12,082) in respect of these loans.
As at 31 December 2020, the company owed £30,000 (2019: £nil) to Mr N H Topche, a director and shareholder. This is repayable by the company in accordance with the loan agreement which detail the loan is repayable during 2020 and therefore is shown as due within one year. Interest is due at 11% to Mr N H Topche and totalled £3,309 (2019: £1,148) for the period. As at December 2020, the Company owed interest of £4,457 (2019: £1,148) in respect of these loans.
As at 31 December 2020, the company owed £97,977 (2019: £97,977) to Mr I M Winchester, a director and shareholder. This is repayable by the company in accordance with the loan agreement which detail the loan is repayable during 2020 and therefore is shown as due within one year. Interest is due at 11% to Mr I M Winchester and totalled £10,807 (2019: £5,138) for the period. As at December 2020, the Company owed interest of £15,945 (2019: £5,138) in respect of these loans.
As at 31 December 2020, the company owed £10,000 (2019: £nil) to Mr R C Hayes, a director and shareholder. This is repayable by the company in accordance with the loan agreement which detail the loan is repayable during 2020 and therefore is shown as due within one year. Interest is due at 11% to Mr R C Hayes and totalled £469 (2019: £nil) for the period. As at December 2020, the Company owed interest of £469 (2019: £nil) in respect of these loans.
As at 31 December 2020, the company was owed £739 , 714 (2019: £593,455) by its wholly owned subsidiary Resolution Underwriting Partnership Limited, of which £552,500 (2019: £552,500) relates to subordinated loans.
In addition to these items, in 2015 upon the acquisition of Resolution Underwriting Partnership Limited, the Company acquired loan stock of £195,873 for nil cost and they continue to be held at nil value.
Mr C G Harman, Mr R C Hayes and Mr N H Topche are also directors in Resolution Underwriting Partnership Limited.
As at the balance sheet date, the company was owed £1 , 513 , 413 (2019: £2,028,252) from its associate company Accelerate Underwriting Limited, of which £ 1, 513 , 413 (2019: £1,653,089) is payable on demand and £nil (2019: £375,163) is repayable in accordance with the loan agreement and is interest bearing. The above balance as at 31 December 2020 is after making allowance for a £228,883 impairment (2019: £nil) of the loan to reflect the amount that has been agreed to be paid as a full settlement of the loan in February 2021 as a result of the sale of RUHL’s investment Accelerate Underwriting Limited at that date. Interest is due at 6% from Accelerate Underwriting Limited and totalled £92,297 (2019: £96,152) for the period. As at December 2020, the Company was owed interest of £ 2 13 , 020 (2019: £120,723) in respect of these loans.
Mr C G Harman and Mr N H Topche, who are directors in the company, are also directors in Accelerate Underwriting Limited.
During the year, the Company advanced £140,040 (2019: £602,068) to Trinity General Holdings Inc which is wholly owned holding company incorporated in the State of Delaware, USA. Trinity General Holdings Inc owns 43% of the profit participation interests in a managing general agent Trinity General Agency LLC. As at 31 December 2020, the Company was owed £1,774,095 (2019: £1,587,696) from Trinity General Holdings Inc in respect of these loans. Interest is due 6% from Trinity General Holdings Inc and totalled £74,771 (2019: £52,539) for the period. As at 31 December 2020, the Company was owed interest of £144,010 (2019: £69,238) in respect of these loans. The Company also paid legal fees on behalf of Trinity Holdings in a previous year amounting £27,211 which remain outstanding as at 31 December 2020.
During the year, the Company advanced £37,450 to Falcon MGA Services Limited which is repayable as per the terms of the loan agreement and interest bearing. Interest is due at 6% from Falcon MGA Services Limited and totalled £28,229 (2019: £20,515) for the period. As at 31 December 2020, the Company was owed £481,950 (£2019: £444,500) in respect of these loans and interest of £55,456 (2019: £27,226) from Falcon MGA Services Limited. Due to the uncertainty that Falcon MGA Services Limited will be able to repay these loans, included in exceptional items is a bad debt provision of £471,726 (2019: £471,726) against the value of the loan.
Mr C G Harman and Mr R C Hayes are also directors in Resolution Group Services Limited. As at 31 December 2020, the Company owed £48,000 (2019: £nil) to Resolution Underwriting Group Services Limited and included in administration expenses is a management charge of £48,000 (2019: £nil) from Resolution Group Services Limited.
Mr C G Harman and Mr R C Hayes are also directors in Trilogy Managing General Agents Limited. As at 31 December 2020, the Company owed £79,214 (2019: £nil) to Trilogy Managing General Agents Limited.