Helios Underwriting — Active Lloyd’s risk management and promotion

Helios Underwriting (AIM: HUW)

Last close As at 22/05/2024

GBP1.68

0.00 (0.00%)

Market capitalisation

GBP128m

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Research: Financials

Helios Underwriting — Active Lloyd’s risk management and promotion

Helios Underwriting delivered a strong capacity increase in FY22 as well as improved portfolio diversification, enhanced by selective risk taking in existing Lloyd’s of London (Lloyd’s) syndicates and as a promoter of new initiatives. Its new CEO’s strategy aims to enhance risk selection and management, capital management and growth initiatives (organically and as a promoter and acquirer). The strategy includes increased investment in future growth through reinsurance, financing and capacity building strategies. The FY22 EPS loss was slightly higher than expected due to investment losses and a delay in underwriting turnaround. After allowing for Helios’s new strategic investment and adding conservatism for current global uncertainty, we have cut our FY23 and FY24 EPS forecasts by 31% to 15.1p and 15% to 26.6p respectively. This still represents meaningful near-term growth, while our confidence around long-term growth has been enhanced by impressive capacity accumulation prospects and strategic investment. As a result, we maintain our valuation of 252p/share, at a 47% premium to our FY23 forecast net asset value (NAV).

Marius Strydom

Written by

Marius Strydom

Analyst

Financials

Helios Underwriting

Active Lloyd’s risk management and promotion

Company outlook

Insurance

21 June 2023

Price

175p

Market cap

£136m

Net cash (£m) at 31 December 2022

10.3

Shares in issue

77.3m

Free float

54.5%

Code

HUW

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.5

7.7

7.7

Rel (local)

4.0

5.5

2.7

52-week high/low

175p

144p

Business description

Helios Underwriting was established in 2007 (as Hampden Underwriting) primarily to provide investors with a limited liability direct investment into the Lloyd’s insurance market. It is an AIM-quoted holding company, providing underwriting exposure across a diversified portfolio of selected Lloyd’s syndicates.

Next events

H123 results

29 September 2023

Analyst

Marius Strydom

+44 (0)20 3077 5700

Helios Underwriting is a research client of Edison Investment Research Limited

Helios Underwriting delivered a strong capacity increase in FY22 as well as improved portfolio diversification, enhanced by selective risk taking in existing Lloyd’s of London (Lloyd’s) syndicates and as a promoter of new initiatives. Its new CEO’s strategy aims to enhance risk selection and management, capital management and growth initiatives (organically and as a promoter and acquirer). The strategy includes increased investment in future growth through reinsurance, financing and capacity building strategies. The FY22 EPS loss was slightly higher than expected due to investment losses and a delay in underwriting turnaround. After allowing for Helios’s new strategic investment and adding conservatism for current global uncertainty, we have cut our FY23 and FY24 EPS forecasts by 31% to 15.1p and 15% to 26.6p respectively. This still represents meaningful near-term growth, while our confidence around long-term growth has been enhanced by impressive capacity accumulation prospects and strategic investment. As a result, we maintain our valuation of 252p/share, at a 47% premium to our FY23 forecast net asset value (NAV).

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/21

70.6

(1.9)

(0.8)

3.0

N/A

1.7

12/22

148.3

(5.2)

(4.9)

3.0

N/A

1.7

12/23e

202.8

14.6

15.1

6.0

11.6

3.4

12/24e

223.9

25.8

26.6

13.1

6.6

7.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Meaningful investment in future growth

After a 27% increase in underwriting capacity in FY22, Helios should benefit from strong organic growth through historically high pre-emptions, allowing it to actively manage capital allocation to existing syndicates and continue promotion activities in alternative and non-correlated risk classes using tenancy capacity. It will increase investment in reinsurance and financing arrangements to support this trend, while building its internal capacity. We forecast a 55% increase in its FY23 cost base, partially offset by higher investment income. A large increase in underwriting results forecast from FY23 and a strong outlook for reinsurance fees should result in aggressive growth in revenue and a sustainable pick-up in return on NAV (RONAV).

Healthy outlook despite higher costs

While increased investment for growth moderated our EPS outlook for Helios, we forecast a healthy turnaround to profitability in FY23 with EPS of 15.1p, growing to 26.6p in FY24. We forecast that RONAV will increase to 17% by FY25 (20%, including expected revaluations of its capacity fund).

Valuation: Maintained at 252p/share

We have maintained our valuation of 252p/share, at a 66% premium to FY22 NAV/share (a 44% premium to the current price). While we have cut near-term earnings forecasts, long-term growth has been meaningfully enhanced by strong capacity accumulation, reflected in our terminal growth assumption.

Investment summary

A growing portfolio of diversified Lloyd’s syndicates

Helios Underwriting is an AIM-quoted holding company providing investors with a limited liability direct investment into the Lloyd’s insurance market. Helios offers a unique opportunity to invest directly in a diversified portfolio of Lloyd’s syndicates, which is actively managed to reduce risk and capital requirements, delivering a track record of superior underwriting performance. It also has a proven track record of growing its portfolio through a recent upswing in pre-emptions, selective investment in syndicates and start-ups, and actively acquiring interests in syndicates and limited liability vehicles (LLVs).

We forecast that Helios will benefit from a continued upswing in the Lloyd’s underwriting cycle, with the current hard premium environment driving lower combined ratios and higher earnings. FY22 earnings faced pressure from a delay in the underwriting upswing and mark-to-market investment losses and missed our forecast by 3.7p, which represents 2.5% of starting NAV. While the company’s updated strategy for investing in growth and additional conservatism around the timing of the underwriting results upswing has led us to cut our near-term EPS forecasts, a very strong and improving capacity growth outlook has enhanced long-term prospects and strongly supports the value we see in Helios, with a forecast over-the-cycle RONAV of 15.5%.

An important store of value is Helios’s capacity fund or weighted average value (WAV), which is carried as an intangible asset on the balance sheet. WAV growth through pre-emptions and capacity accumulation results in superior RONAV and value creation for the company, supporting over-the-cycle forecasts and offering further potential upside.

Helios has been particularly successful in recent years at growing its Lloyd’s underwriting capacity through LLV acquisitions, direct syndicate investment and deploying tenancy capacity. Its tenancy or relationship capacity represents a key avenue for generating superior and diversified underwriting profits and, because it is not currently carried on its balance sheet, it provides potential for superior WAV growth (as relationships are formalised and recognised in WAV) and higher than forecast RONAV. It also allows Helios to actively support and promote syndicates, start-ups and risk categories in its drive for growth and diversification, including reducing exposure to natural catastrophe risks and increasing exposure to new and non-correlated risks.

A strategic imperative for Helios is to diversify its income stream away from underwriting profits towards fee-based income. It aims to achieve this via quota share and other reinsurance activities, receiving healthy fees in lieu of ceding capacity to third parties, while retaining upside in the form of fees earned on underwriting outperformance. Due to the lack of new entrants into the Lloyd’s market, the current environment is well suited for such arrangements, which will provide the company with a steady fee income stream.

Helios’s operational upside is well supported by Lloyd’s market dynamics and the outlook for improved return on capacity (RoC). Following declining rates since 2014, Lloyd’s has seen cumulative rate rises (premium increases), in excess of 50%, since 2017 and Helios has consistently outperformed Lloyd’s for all closed years of account (YOAs) since 2013.

Helios ended FY22 with free working capital of £10.3m, assisted by a £12.4m capital raise and £22m in new bank excess of loss (XoL) facilities. We forecast that increased syndicate underwriting results and distributions will be sufficient to fund working capital needs for capacity growth to reach 13.5% pa in the next few years. To exceed this growth rate, Helios has the option to increase its gearing as its capital base grows.

Helios benefits from diversification credits from Lloyd’s, which results in the requirement to carry less capital than the syndicates in which it invests, and puts it in a strong position when considering further LLV acquisitions and syndicate support.

Valuation: Over the cycle valuation of 252p/share

Helios has experienced EPS losses over the past three years due to the residual impact of a soft underwriting environment and mark-to-market investment losses due to rising yields. This has resulted in weak RONAVs, including -3.1% (-1.1% with WAV revaluation) in FY22. We forecast a strong improvement, with EPS turning positive in FY23 and RONAV rising to 17% in FY25 (20% including WAV revaluation). Although we have cut our near-term EPS forecasts, the long-term outlook has improved markedly, with increased confidence in strong capacity growth and margin enhancement via strategic investment and portfolio diversification. Our valuation of 252p/share is unchanged, thanks to improved and well-supported long-term growth prospects captured in our terminal growth assumption of 3% pa. Our valuation is based on an over-the-cycle RONAV assumption of 15.5% and represents a 47% premium to our FY23 forecast NAV of 169p/share and a 44% premium to the current share price.

Financials: Upcycle forecast to boost RoC

Helios reported an EPS loss of 4.9p in FY22 (£3.3m) and a total comprehensive loss of £1.3m. Syndicate underwriting profit of £0.1m was negatively affected by large mark-to-market losses on investment portfolios due to rising bond yields. Holding company P&L was affected by lower income and rising costs, while total comprehensive income benefited from a reduction in syndicate capacity revaluation. The combined ratio of 96% was weaker than the 94% in FY21 due to the impact of Ukraine reserves on the 2021 YOA and the impact of Hurricane Ian on the 2022 YOA. The COVID-affected 2020 YOA also closed less positively than expected.

We forecast a combined ratio improvement to 90% in FY23, 86.5% in FY24 and 86.8% in FY25, which includes more conservatism in the earlier years relative to our previous forecasts to allow for global uncertainty. We have further moderated our near-term forecasts to allow for Helios’s updated strategy to invest in reinsurance protection, capital efficiency measures and holding company capacity, which results in higher new business strain on a strong increase in retained capacity. This results in a 55% rise in FY23 holding company expenses, with the higher base affecting FY24 as well. This results in EPS of 15.1p in FY23, 26.6p in FY24 and 33.8p in FY25. We forecast RONAV at 9.7% in FY23, increasing to 17% in FY25 (20% allowing for capacity revaluation). The long-term outlook has been enhanced, with EPS outside our explicit forecast period expected to benefit from capacity growth of more than 10% pa and operational gearing driving EPS growth ahead of this level. We have increased our terminal growth rate assumption to 3% to reflect this.

Sensitivities: Debt and/or equity funding enhances valuation

In addition to the standard sensitivities typically tested, we include scenarios relating to capacity growth, change in combined ratio and change in interest rate.

Exhibit 1: Valuation sensitivities (p/share)

Source: Edison Investment Research

Our valuation rises by 6.1% for every 50bp decrease in our cost of equity assumption and increasing our terminal growth rate by 50bp results in a 7.6% increase. For every 2.5% increase in annual capacity growth (via pre-emptions), our valuation increases by 12.9%. The valuation is very sensitive to the combined ratio, with a 2.5% increase resulting in a 17.8% decrease (similar to an increase in expense ratio). For every 1% increase in interest rates, our valuation increases by 3.6%, with the impact of higher investment income more meaningful than any short-term portfolio impact.

Company description: Unique Lloyds exposure

Helios is a holding company that owns capacity in more than 30 Lloyd’s syndicates/managing agents, which allows it to participate in the underwriting results of these syndicates. Its exposure is on a limited liability basis and is backed by underwriting capital that it must deposit in the funds at Lloyd’s (FAL), akin to the solvency margins that all insurance operations hold. It participates in syndicate underwriting results based on the share of capacity (which is the upper limit of gross written premiums, GWP, that may be written in an underwriting year) that it owns in the syndicate and must contribute capital in the same proportion, varying between syndicates based on underlying risk.

Helios has actively increased its participation in Lloyd’s over recent years by acquiring LLVs and the associated syndicate capacity in which they participate, by buying capacity in the Lloyd’s auctions and by subscribing to tenancy capacity. The latter only provides access to a particular YOA, does not provide guaranteed renewal for subsequent YOAs and does not attract a value, but requires Helios to provide the capital required to write business. However, it can provide the opportunity to dip in/out of underwriting certain risks when the return is forecast to be particularly attractive. Helios has used this mechanism increasingly as a promoter to new syndicates and in support of alternative and non-correlated risk classes. Tenancy capacity not only allows Helios to promote new initiatives and alternative risks, but also allows it to manage its risk profile and diversification actively. Tenancy capacity is not included on Helios’s balance sheet and hence represents a store of value that can enhance earnings and WAV growth over time (as relationships are formalised).

Helios has recently shifted more focus to actively managing its risk portfolio and solvency. It has launched a syndicate performance and evaluation team, and insourced help from the Insurance Capital Markets Research consultancy at Lloyd’s, to obtain more granular data directly from syndicates, which will help it manage current syndicates and invest in new ones.

Management and strategy

Helios has a very light corporate structure, relying on external service providers for most of its operations. Martin Reith became Helios’s CEO in April 2023. Martin has taken on responsibility for Helios’s portfolio curation and capital management. The finance, investments and operations functions are overseen by the CFO, Arthur Manners. Both Reith and Manners have considerable Lloyd's experience, ranging from broking and underwriting to member agencies. Nigel Hanbury (Helios’s previous CEO) remains one of the biggest shareholders in the company and still has an executive role.

Helios will continue to meaningfully increase its investment in both operational capacity and through reinsurance and capital efficiency initiatives in support of its new strategy. These initiatives carry a near-term cost, which is forecast to increase operational and reinsurance expenses by 55% in FY23, with growth in line with capacity thereafter. On the flipside, the enhancement to solvency will help Helios benefit from a higher interest rate environment and we forecast that income from reinsurance fees will rise from c £0.6m in FY22 to more than £2.0m in FY25.

Diversified syndicate exposure outperforming the market

Helios has outperformed Lloyd’s in terms of combined ratio and RoC since 2013, thanks to careful portfolio selection, with the latest midpoint RoC forecasts for 2021 (3.9%) being largely in line with Lloyd’s (4.2%), although we forecast this will rise to 8.1% once the year is closed out. We forecast that this outperformance will continue and we expect a continued positive trend from RoC in the 2022 and 2023 YOAs. We forecast a rise from 8.1% for the 2021 YOA to 11.2% and 13.4% for the 2022 and 2023 YOAs, respectively, which will emerge in FY24 and FY25.

Exhibit 2: Comparison of Lloyd’s and Helios’s combined ratios (CR) and RoC by YOA*

Source: Helios Underwriting, Edison Investment Research. Note: Combined ratios on left axis and RoC on right axis. *YOA corresponds to FY+2 (eg 2020 was closed in FY22 and 2021e will be closed in FY23).

Helios curates its portfolio on a year-to-year basis, with tactical management considering likely market conditions for the coming year and rebalancing needed as newly acquired tenancy capacity and LLVs are added. Its newly formed syndicate performance and evaluation team will further add to this capability by assessing new and diversified risk pools and optimising capital efficiency.

In the same way as a trading member of Lloyd’s, Helios was offered pre-emptions that amounted to £36.6m in 2023, a record-high due to the hard Lloyd’s underwriting environment and limited new entrants into the market. The company is optimistic that pre-emptions could add 10–15% to capacity and we forecast a conservative level of 10% pa. Helios buys and sells capacity in the Lloyd’s auctions to optimise its portfolio each year and in FY22 disposed of £31.6m in capacity, which boosted its working capital. We forecast further disposals of 2.5–5.0% of capacity over the next few years as Helios rebalances its portfolio and generates working capital for new investments.

During 2022, Helios diversified its portfolio even further by reducing exposure to natural catastrophe (natcat) heavy syndicates like Tokio Marine and Lancashire, while increasing exposure to Atrium and Managing Agency Partners, among others.

Exhibit 3: Helios freehold capacity portfolio – start of 2023 (£m)

Syndicate

Managing agent

2022 starting capacity

% of total

Capacity added in 2022

2023 starting capacity

% of total

% change

0623

Beazley Furlonge

21.6

15%

5.9

27.5

19%

4%

0510

Tokio Marine Kiln Syndicates

32.3

22%

-5.2

27.1

18%

(4%)

0218

IQUW Syndicate Management

7.1

5%

10.5

17.6

12%

7%

0609

Atrium Underwriters

12.1

8%

5.0

17.1

12%

3%

0033

Hiscox Syndicates

13.8

10%

0.6

14.4

10%

0%

2791

Managing Agency Partners

9.2

6%

2.2

11.4

8%

1%

5886

Asta Managing Agency

4.8

3%

4.3

9.1

6%

3%

2010

Lancashire Syndicates

10.1

7%

-3.2

7.0

5%

(2%)

0386

QBE Underwriting

2.5

2%

0.4

2.9

2%

0%

1176

Chaucer Syndicates

2.8

2%

0.1

2.9

2%

0%

Subtotal

116.3

80%

20.6

136.9

93%

13%

Other

28.5

20%

-18.1

10.4

7%

(13%)

Total

144.8

100%

2.4

147.3

100%

 

Source: Helios Underwriting, Edison Investment Research

Helios has taken an active decision to moderate its natcat exposure, both through the rebalancing of its freehold capacity portfolio and through growing its tenancy exposure to speciality, non-aggregating lines and business not gravitating to the London market.

During the course of 2022, Helios increased its tenancy capacity to £149m, with £49m investment in new syndicates. Its tenancy capacity is spread between more than 10 syndicates, with the top five exposures to Dale Partners (Asta), Blenheim, Beazley, Flux Acrisure and Click for Cover.

Exhibit 4: Helios tenancy capacity exposure

Source: Helios Underwriting, Edison Investment Research

Tenancy capacity allows Helios to improve its portfolio diversification and invest in new and growing risk classes not typically available through traditional syndicates. Click for Cover specialises in cyber cover for small and medium enterprises and attracts business that would not normally come to Lloyd’s. It has a strong cyber underwriting track record with low loss ratios. Flux is a new syndicate that uses Acrisure’s tech-driven retail distribution systems to attract new buyers to the Lloyd’s market. MIC Global (included in Other above) offers companies highly relevant, affordable insurance products, which can easily be embedded into their existing digital processes. This will accelerate the delivery of micro insurance products (including in India) when and where customers need them, allowing them to gain access to cover that is not readily available through traditional insurance methods.

From the beginning of 2021 to the beginning of 2023, Helios actively reduced its property and reinsurance risk class exposure to limit the impact of natcat claims in the near term, while its casualty exposure (in particular relating to US dollar non-marine liability) increased meaningfully and its exposure to other classes (particularly through the use of tenancy capacity) grew steadily.

Exhibit 5: Helios’s exposure to different insurance risk classes

Source: Helios Underwriting, Edison Investment Research

With meaningful growth in capacity delivered by Helios in FY21, its risk exposure has shifted somewhat from property and reinsurance to casualty (reflecting focus by the syndicates on specialist liability risks).

Key drivers of value: What makes Helios attractive?

A unique vehicle for Lloyd’s participation

Helios offers investors the opportunity to participate in the Lloyd’s market through a listed vehicle, providing much greater liquidity and requiring a smaller capital commitment than direct investment. Investors benefit from Helios’s specialist skills and relationships within the Lloyd’s market, as they relate to syndicate selection and promotion, risk monitoring and diversification, capital management and solvency, reinsurance utilisation, working capital management and growth through organic means and through acquisition (LLVs).

The diversification benefits that Helios experiences are quantifiable and have consistently emerged in an RoC that has outperformed the Lloyd’s market as a whole in all closed underwriting years since 2013. Strategically, Helios aims to improve its diversification by implementing more active monitoring and influencing syndicate exposure, and backing and supporting new ventures, with a particular focus on non-correlated risks.

Demonstrable track record of growth

Underwriting capacity is the lifeblood of Lloyd’s syndicates and of Helios as an aggregator of syndicate exposure. The capacity owned by syndicates or by Helios through its exposure to syndicates determines the level of premiums that the syndicate can write in a given year and, as a result, underwriting profit potential.

Exhibit 6: More than sevenfold increase in capacity since FY18

Source: Helios Underwriting, Edison Investment Research

Since FY17, Helios increased its capacity from £41.0m to £232.8 in FY21. During this period, LLV acquisitions added £69m in capacity, while investment in tenancy capacity amounted to £87.9m. Pre-emptions added another £22.4m to capacity. Over the past year, pre-emptions became more instrumental and contributed £36m of the increase from £232.8m to £296.6m at the start of 2023, while further investment in new syndicate tenancy capacity added £49.4m. LLV acquisitions only contributed £5.7m over the last year. Since FY17, Helios has increased its retained capacity from £16.1m to £238.4m to 80% (from 31%) through the reduced utilisation of quota share reinsurance (QS), meaningfully increasing its participation in the harder Lloyd’s underwriting market.

Much of the capacity growth over recent years was funded through a capital raise of £79m, as well as debt financing (£15m in FY22) and the increased use of XoL reinsurance (£25m over the period), offset by the reduced utilisation of QS. Capacity growth was further enabled by a meaningful increase in capital efficiency through the increased diversification credits reducing the FAL from Lloyd’s. The marked forecast turnaround in underwriting profits, together with a very strong outlook for pre-emptions, is forecast to drive organic capacity growth of up to 15% pa over the coming years. This could be enhanced through additional gearing and capital raising.

Continued growth through managing and investing in risks

Because of its historical acquisition strategy, Helios’s working capital was quickly eroded by the addition of capacity, with replenishment delayed until underwriting conditions improved. With the current improved outlook, both from an underwriting and investment income point of view, the company is facing an inflection point where a strong turnaround in profits is set to provide increasing working capital to fund growth. This growth is expected to be less dependent on LLV acquisitions, with pre-emptions becoming more significant and providing capacity growth potential of 10–15%.

In addition, Helios’s current Lloyd’s syndicates are market leading and market shaping, and there have been no new entrants so far in 2023. This allows Helios to focus on shifting capital around in different syndicate exposures, enhancing underwriting upside, while using its tenancy capacity to pursue growth opportunities in new and non-correlated risks.

During FY22, working capital utilisation came mainly from increases to FAL to support investment in tenancy capacity and following pre-emption capacity. With limited profit contribution in the year, largely due to the effects of the investment market, residual underwriting pressure and investment in reinsurance and operating capacity, the company utilised its capital raise and additional gearing to fund this FAL increase. We expect FAL contributions (largely from following pre-emptions) to be funded by enhanced operating profits and capital efficiencies.

Exhibit 7: Summarised working capital build-up

£m

FY20

FY21

FY22

FY23e

FY24e

FY25e

Opening balance (free cash)

3.0

5.0

16.2

10.5

8.4

11.0

Changes in FAL

(4.8)

(11.9)

(26.8)

(4.6)

4.0

7.6

Gearing changes

2.0

(4.0)

15.0

0.0

0.0

0.0

Capital items

11.3

51.2

10.1

(2.3)

(4.6)

(10.0)

Profit

(2.7)

3.2

(4.8)

8.9

15.2

19.2

Acquired LLVs

(5.4)

(24.6)

(4.8)

(7.8)

(14.3)

(16.3)

Other

1.6

(2.7)

5.6

3.7

2.2

2.8

Closing working capital

5.0

16.2

10.5

8.4

11.0

14.3

Source: Helios Underwriting, Edison Investment Research

We expect the capital needs for further LLV acquisitions to be largely self-funded due to the FAL unlock that Helios’s Lloyd’s solvency diversification credits should provide. The amount of working capital available to fund the cost of LLV acquisitions will be dependent on enhanced profit generation, the ability to continue acquiring LLVs at discounts and the extent to which LLV acquisitions can be funded by share issuance.

Our forecast working capital profile above does not allow for increases in gearing or further capital raising. Such steps could increase the available working capital to fund LLV acquisitions in particular. In addition, Helios’s investment in implementing more active monitoring and influencing syndicate exposure, and backing and supporting new ventures with a particular focus on non-correlated risks, could result in more meaningful profit upside than we have allowed for in our current forecasts.

Financials

Near-term earnings pressure

Helios reported an EPS loss of 4.9p in FY22 (net loss of £3.3m) and a total comprehensive loss of £1.3m. Syndicate underwriting operating profit of £0.1m was negatively affected by weaker than forecast underwriting results as well as mark-to-market losses on investment portfolios due to rising bond yields. The combined ratio of 96% was weaker than the 94% in FY21 due to the impact of Ukraine reserves on the 2021 YOA and the impact of Hurricane Ian on the 2022 YOA. The COVID-affected 2020 YOA also closed less positively than expected. The net impact was a £3.6m miss on syndicate underwriting operating result in FY22 relative to our forecast.

Holding company income faced modest pressure in FY22 due to lower investment income from a high base in FY21 (including one-offs) and a zero contribution from goodwill on bargain purchases (LLV acquisition at a discount to fair value). Fees from reinsurers, which is a combination of fees on ceded QS capacity and QS profit share, moderated due to the higher syndicate combined ratio.

Holding company expenses for FY22 were slightly better than forecasts (£6.5m versus £6.9m), with stop-loss costs lower than forecast (due to GAAP accounting allowing costs to be spread over two years), while operating costs were ahead of our forecast (holding company costs were £3.6m, with transaction costs of £0.7m and finance costs of £0.9m).

The FY22 headline loss of £3.3m included a tax rebate of £1.9m and resulted in a £2.4m miss relative to our forecast. The net impact was for an EPS loss of 4.9p relative to our forecast loss of 1.2p for FY22.

Exhibit 8: FY22 earnings and forecast comparison

£m

FY22e

FY22a

FY23 (old)

FY23 (new)

FY24 (old)

FY24 (new)

FY25 (old)

FY25 (new)

Underwriting result (ex-investment income)

13.4

5.6

27.1

20.8

31.2

31.2

36.0

36.5

Underwriting operating result

3.7

0.1

27.9

21.2

36.6

34.9

43.4

42.3

Reinsurance income

0.9

0.6

1.6

1.0

2.5

1.6

2.6

2.1

Investment income on FAL

1.0

0.6

0.6

3.6

1.1

3.6

1.6

4.3

Stop-loss costs

(2.9)

(1.3)

(3.3)

(4.2)

(3.6)

(6.2)

(4.1)

(7.1)

Operating costs

(4.0)

(5.2)

(3.5)

(5.9)

(3.6)

(6.1)

(3.7)

(6.3)

Other

0.0

(0.0)

(1.5)

(0.6)

(1.6)

(1.0)

(1.5)

(1.1)

Headline earnings

(0.9)

(3.3)

16.7

11.6

24.0

20.4

29.2

25.9

Total comprehensive income

1.2

(1.3)

20.6

15.3

28.3

24.0

34.0

29.5

Source: Helios Underwriting, Edison Investment Research

We forecast a combined ratio improvement to 90% in FY23, from a weaker base in FY22, but still reflecting a bottom-of-the-cycle hangover, with the claims ratio for the 2022 YOA still under pressure and the 2021 YOA reflecting Ukraine conservatism. We forecast RoC for the closed 2021 YOA to rise to 8.1%, which is lower than our previous forecast. Despite Helios’s reduced natcat exposure, it still faces the risk of an expensive hurricane season and we have opted to take a more conservative approach to FY23 than our previous forecast. As a result, we have reduced our FY23 underwriting operating result forecast by £6.7m to £21.2m, which is still a meaningful £20.1m increase on the FY22 level.

We forecast that holding company income in FY23 will benefit from a sharp increase in investment income, offset by a slower than previously forecast increase in reinsurance income. After only earning c 1% on holding company assets in FY22, Helios has changed its investment strategy (using an investment manager to manage FAL in a higher-yielding portfolio), which will result in a yield closer to 4%. This results in a meaningful increase in investment income to £3.6m, much higher than our previous FY23 forecast of £0.6m (which included an allowance for finance costs – now included in our operating cost forecast). We have also taken a more conservative view on reinsurance income until there is more certainty about an expected marked uptick in QS profit share as underwriting results improve.

We forecast a 55% increase in holding company expenses in FY23 to allow for Helios’s strategy to invest in its new syndicate performance and evaluation team, the impact of its increased financing costs and its increased use of XoL and other reinsurance. Holding company expenses are a combination of pre-acquisition costs (allowing for timing differences on syndicate capacity growth), stop-loss costs and operating costs. We forecast a marked increase in stop-loss costs from £1.3m in FY22 to £4.2m in FY23, which is higher than our previous forecast of £3.3m.

Stop-loss costs can be more accurately described as reinsurance costs as they include both the cost of stop-loss insurance (which provides a 10% indemnity band for any YOA loss over 36 months exceeding 107.5% of capacity) and the cost of reinsurance XoL protection. XoL costs are paid at a percentage of cover, which amounted to c £0.5m in FY22 and will increase to £2m in FY23 on the back of increased cover (from £5m to £25m). We forecast stop-loss protection of £3.9m in FY23, which rises with growth in capacity. GAAP accounting allows for reinsurance costs to be spread over two years, which moderates the forecast FY23 cost impact to £4.2m (versus the £5.9m sum of the above two items).

Helios’s investment in its syndicate performance and evaluation team is forecast to increase holding company costs by 15% to £4.2m in FY23. We forecast that bank XoL finance costs will grow to £1.2m and remain flat thereafter. Allowing for c £0.5m in transaction costs results in an increase in FY23 operating costs to £5.9m, well ahead of our previous forecast of £3.5m (note that we have now correctly included finance costs within this item as opposed to offsetting from investment income).

The net impact of our lower underwriting operating result forecast and the 55% increase in holding company expenses, offset by much higher investment income, is for a large increase in our forecast headline earnings from a loss of £3.3m in FY22 to a profit of £11.6m (£5.1m lower than our previous forecast). This results in a 31% cut in our FY23 EPS forecast to 15.1p (due to meaningful investment in the business and more conservatism applied to near-term underwriting profit improvement). We forecast RONAV of 9.7% (13.1% with pre-emption-driven revaluations) in FY23.

Enhanced capacity outlook and operational gearing drives long-term earnings growth forecasts

We forecast a very strong 76% increase in FY24 EPS to 26.6p, driven by robust top-line growth and a healthy reduction in combined ratio from 90% to 86.5% as the Lloyd’s underwriting cycle continues its upswing. Our forecast underwriting operating result of £34.9m is slightly lower than our previous forecast of £36.6m as we continue to exercise caution with regard to Ukraine and natcat claims. Our RoC forecast for the closed 2022 YOA increases to 11.2%. It is important to note that our FY24 forecasts do not allow for the potential benefits from Helios’s investment in its syndicate performance and evaluation team and hence provide additional potential upside on concrete delivery. Despite the strong forecast growth in FY24 EPS, it represents a 15% cut relative to our previous forecast of 31.3p.

We forecast 27% growth in FY25 EPS to 33.8p on the back of 13.5% capacity growth, rising RoC and operational gearing as underwriting operating growth outpaces growth in holding company expenses. RoC for the closed 2023 YOA is forecast to rise to 13.4%, which is in line with long-term pricing targets and compares to 3.6% for the 2020 YOA (disclosed in FY22). While we forecast 21% growth in the underwriting operating result, we forecast that holding company expenses will grow at only 9%, which results in improved operational gearing.

We expect strong levels of capacity growth to continue after FY25 and operational gearing to help deliver superior earnings growth outside of our explicit forecast period. This strongly supports the inclusion of terminal growth of 3% in our valuation. We forecast that RONAV will increase from 9.7% in FY23 to 17% in FY25 (almost 20% including revaluations) and remain at superior levels thereafter. We employ a 15.5% over-the-cycle RONAV in our valuation.

Exhibit 9: Helios’s segmental forecasts and key metrics

£m

FY20

FY21

FY22

FY23e

FY24e

FY25e

Capacity (for deployment in the next year)

110.4

232.8

296.6

327.8

372.5

422.8

Capacity added through LLV acquisitions

10.9

34.9

5.7

8.9

16.4

18.6

Key parent company assets

 

 

 

 

 

 

FAL (required capital)

19.7

43.6

73.8

70.5

80.4

88.7

WAV (intangible assets)

30.8

59.8

60.0

65.8

76.5

87.9

Free working capital

5.0

16.2

10.5

8.4

11.0

14.3

Key syndicate assets

 

 

 

 

 

 

Insurance assets

65.6

110.3

152.2

273.4

314.9

376.0

Equity (members’ balances at Lloyd’s)

(5.7)

(3.5)

(5.1)

(1.9)

3.3

9.6

Group NAV (syndicate plus parent equity)

18.9

46.6

55.7

63.0

71.6

79.8

Syndicate level results*

GWP

76.1

134.6

250.9

314.9

329.5

373.3

Net earned premiums

55.7

92.7

156.6

208.2

231.6

276.6

Claims

(37.9)

(54.1)

(96.8)

(116.5)

(122.6)

(146.9)

Expenses

(19.5)

(32.9)

(54.2)

(70.9)

(77.8)

(93.3)

Underwriting result

(1.7)

5.7

5.6

20.8

31.2

36.5

Investment income on financial assets

2.4

0.0

(3.5)

8.5

12.5

15.0

Quota share reinsurance

(0.1)

(2.3)

(2.0)

(8.1)

(8.8)

(9.2)

Underwriting operating result

0.6

3.4

0.1

21.2

34.9

42.3

Parent level results

 

 

 

 

 

 

Reinsurance income**

0.1

0.2

0.6

1.0

1.6

2.1

Investment income on FAL

1.6

1.2

0.6

3.6

3.6

4.3

Stop-loss costs

(1.1)

(1.9)

(1.3)

(4.2)

(6.2)

(7.1)

Operating costs

(2.0)

(3.6)

(5.2)

(5.9)

(6.1)

(6.3)

Other***

1.2

(0.1)

(0.0)

(0.6)

(1.0)

(1.1)

Combined pre-tax profit

0.3

(0.6)

(5.2)

15.2

26.8

34.1

Tax

(0.0)

0.2

1.9

(3.7)

(6.4)

(8.2)

Profit after tax

0.3

(0.4)

(3.3)

11.6

20.4

25.9

WAV revaluation after tax

4.0

5.4

2.0

3.8

3.6

3.6

Total comprehensive income

4.3

4.9

(1.3)

15.3

24.0

29.5

NAV/share (p)

150.8

157.0

151.9

169.0

194.4

220.1

WAV/share (p)

93.4

88.2

78.7

86.3

100.4

115.3

EPS (p)

1.6

(0.8)

(4.9)

15.1

26.6

33.8

DPS (p)

3.0

3.0

3.0

6.0

13.1

16.7

Capacity growth

59.8%

110.9%

27.4%

10.5%

13.6%

13.5%

EPS growth

(93.8%)

N/A

N/A

N/A

76.4%

27.0%

RONAV

1.0%

(0.5%)

(3.1%)

9.7%

15.3%

17.0%

RONAV plus WAV revaluations

(4.9%)

5.5%

(1.1%)

13.1%

18.4%

19.7%

Group insurance ratios****

 

 

 

 

 

 

Claims ratio

69.9%

64.5%

63.7%

59.7%

56.9%

56.6%

Expense ratio

43.0%

43.3%

40.9%

41.5%

41.0%

40.2%

Combined ratio

112.9%

107.8%

104.6%

101.2%

97.9%

96.9%

Underwriting portfolio insurance ratios*****

 

 

 

 

 

 

Claims ratio

68.0%

58.4%

61.8%

56.0%

52.9%

53.1%

Expense ratio

35.0%

35.5%

34.6%

34.1%

33.6%

33.7%

Combined ratio

103.1%

93.9%

96.4%

90.0%

86.5%

86.8%

RoC (closed YOA)

(0.2%)

3.3%

3.6%

8.1%

11.2%

13.4%

Year 3 (accounting year)

4.7%

6.1%

3.9%

7.5%

7.4%

6.6%

Year 2 (previous year)

4.2%

1.3%

4.4%

4.6%

7.8%

7.5%

Year 1 (underwriting year)

(9.0%)

(4.2%)

(4.6%)

(4.0%)

(4.0%)

(0.6%)

Source: Helios Underwriting, Edison Investment Research. Note: *Syndicate results before pre-acquisition & other parent items & after quota share reinsurance. **Quota share fees & profit commission. ***Goodwill on bargain purchase & pre-acquisition impact. ****Using consolidated premiums (after pre-acquisition impact) & including parent items. *****Using syndicate accounts excluding pre-acquisition & parent impacts. Syndicate revenue is higher than consolidated revenue, but so are claims & expenses (pre-acquisition impact).

Valuation: An over-the-cycle return approach

Our base case valuation of 252p/share uses a 15.5% over-the-cycle RONAV, derived as the average return (excluding revaluations) forecast from FY23 to FY25 of 14% plus a conservative allowance of 1.5% pa for revaluations (on the back of our forecast of 10% pa pre-emptions and the company’s guided range of 10–15%). It is important to note that our forecasts make no allowance for the potential uplift to WAV and NAV from converting the current tenancy capacity of £149m (not valued in WAV or NAV) to freehold capacity. Such uplifts could provide healthy NAV uplifts over the long term.

We have lifted our cost of equity from 9.8% to 10.7%, based on a risk-free rate of 4.2%, a risk premium of 6.5% and a beta of 1x. On the back of the potential upside from tenancy capacity NAV uplifts, improved visibility on underwriting outlook and the company’s investment in its new strategy, we have made an important change to our valuation methodology by introducing a terminal growth rate of 3% (versus zero previously). Our valuation without this change would be 225p/share, 11% lower than our base case.

Our valuation of 252p/share is unchanged and is well supported by Helios’s operating outlook and our EPS forecasts, despite the downgrades that we have employed in the near term, as well as a higher discount rate.

Exhibit 10: Valuation

 

FY20

FY21

FY22

FY23e

FY24e

FY25e

Over-the-cycle valuation (p)

252

 

 

 

 

 

EPS (p)

1.6

(0.8)

(4.9)

15.1

26.6

33.8

DPS (p)

3.0

3.0

3.0

6.0

13.1

16.7

NAV/share (p)

150.8

157.0

151.9

169.0

194.4

220.1

Valuation-implied P/E (x)

158.4

N/A

N/A

16.7

9.5

7.5

Valuation-implied dividend yield (%)

1.2%

1.2%

1.2%

2.4%

5.2%

6.6%

NAV multiple (x)

1.65

1.59

1.64

1.47

1.28

1.13

Source: Helios Underwriting, Edison Investment Research

Our fair value for Helios is at a 1.47x multiple of its FY23 forecast NAV of 169p/share and at a 44% premium to the current share price. The valuation is very well supported by FY24 and FY25 EPS forecasts, with forward earnings multiples implied by our valuation of 9.5x and 7.5x, respectively. Similarly, the dividend yield becomes attractive from FY24.

Exhibit 11: Peer group share price performance

Source: Refinitiv, Edison Investment Research

Helios has underperformed its peer group over the last two years, with Beazley and Hiscox performing particularly well. Helios’s underperformance can be explained partly by its aggressive capacity growth, funded by share issuance. This leaves the company in a very strong position for delivering healthy EPS growth and RONAV pick-up in coming years, which could help to narrow the underperformance discount.

Exhibit 12: Peer group P/NAV (x) and dividend yield comparison

Source: Refinitiv, Helios Underwriting, Edison Investment Research. Note: Priced at 14 June 2023. Helios’s NAV includes WAV at fair value, while the NAV of peers does not.

While our valuation for Helios indicates relative value on an implied forward earnings and NAV multiple basis, the company undershoots the peer group on dividend yield. This is because Helios chooses to retain most of its earnings to fund capacity growth.

Sensitivities

In addition to the standard sensitivities we typically test, including discount rate, terminal growth and combined ratio, we have conducted scenarios on the impact of higher growth from pre-emptions and higher interest rates.

Exhibit 13: Sensitivities

 

Valuation (p/share)

% change

Base case

252

 

0.5% higher cost of equity

237

(6.1%)

0.5% higher terminal growth

271

7.6%

2.5% higher capacity growth from pre-emptions

284

12.9%

2.5% higher expense ratio

206

(18.2%)

2.5% higher combined ratio

207

(17.8%)

1.0% higher interest rate

261

3.6%

Source: Edison Investment Research

Our valuation increases by 6.9% and decreases by 6.1% for every 50bp decrease or increase in discount rate assumption, while increasing our terminal growth rate by 0.5% results in a 7.6% increase. For every 2.5% increase in annual capacity growth (via pre-emptions), our valuation increases by 12.9%. The valuation is very sensitive to the combined ratio, with a 2.5% increase resulting in a 17.8% decrease (similar for an increase expense ratio). For every 1% increase in interest rates, our valuation increases by 3.6%, with the impact of higher investment income more meaningful than any short-term portfolio impact.

Exhibit 14: Financial summary (consolidated at group level)

2020

2021

2022

2023e

2024e

2025e

Year end 31 December, £000s

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue*

52,594

70,615

148,345

202,762

223,865

269,271

Net insurance claims and loss adjustment expenses*

(51,996)

(70,149)

(149,667)

(184,004)

(193,831)

(231,925)

Gross Profit*

598

466

(1,322)

18,757

30,034

37,346

EBITDA

(924)

(1,864)

(5,169)

14,646

25,777

32,935

Operating Profit (before amort. and except.)

(924)

(1,864)

(5,169)

14,646

25,777

32,935

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

1,260

1,219

0

568

1,046

1,189

Other

(1,522)

(2,330)

(3,847)

(4,111)

(4,257)

(4,411)

Operating Profit

336

(645)

(5,169)

15,214

26,823

34,125

Net Interest

Profit Before Tax (norm)

(924)

(1,864)

(5,169)

14,646

25,777

32,935

Profit Before Tax (FRS 3)

336

(645)

(5,169)

15,214

26,823

34,125

Tax

(35)

211

1,852

(3,661)

(6,444)

(8,234)

Profit After Tax (norm)

(959)

(1,653)

(3,317)

10,984

19,332

24,702

Profit After Tax (FRS 3)

301

(434)

(3,317)

11,553

20,379

25,891

Average Number of Shares Outstanding (m)

25.3

50.4

72.0

76.2

76.2

76.2

EPS - normalised (p)

1.6

(0.8)

(4.9)

15.1

26.6

33.8

EPS - normalised fully diluted (p)

1.6

(0.8)

(4.9)

14.9

26.2

33.3

EPS - (IFRS) (p)

1.6

(0.8)

(4.9)

14.9

26.2

33.3

Dividend per share (p)

3.0

3.0

3.0

6.0

13.1

16.7

Gross Margin (%)

1.1%

0.7%

(0.9%)

9.3%

13.4%

13.9%

EBITDA Margin (%)

(1.8%)

(2.6%)

(3.5%)

7.2%

11.5%

12.2%

Operating Margin (before GW and except.) (%)

(1.8%)

(2.6%)

(3.5%)

7.2%

11.5%

12.2%

BALANCE SHEET

Fixed Assets

220,937

380,720

567,249

722,948

784,688

905,696

Intangible Assets

31,601

60,890

61,434

67,228

77,971

89,329

Tangible Assets

104,059

165,986

279,803

311,779

311,360

351,655

Investments

85,277

153,844

226,012

343,942

395,357

464,712

Current Assets

8,495

24,624

25,300

32,163

35,330

39,795

Stocks

0

0

0

0

0

0

Debtors

0

0

0

0

0

0

Cash

8,495

24,624

25,300

32,163

35,330

39,795

Other

0

0

0

0

0

0

Current Liabilities

7,293

4,699

22,488

23,237

24,060

24,967

Creditors

3,293

4,699

7,488

8,237

9,060

9,967

Short term borrowings

4,000

0

15,000

15,000

15,000

15,000

Long Term Liabilities

171,590

293,156

452,883

601,659

646,351

751,392

Long term borrowings

0

0

0

0

0

0

Other long term liabilities

171,590

293,156

452,883

601,659

646,351

751,392

Net Assets

50,549

107,489

117,178

130,216

149,607

169,133

CASH FLOW

Operating Cash Flow

(11,629)

(16,350)

(24,798)

16,891

26,252

36,149

Net Interest

(1,474)

(1,566)

(2,870)

(7,192)

(10,716)

(12,233)

Tax

(312)

(675)

-166

(3,661)

(6,444)

(8,234)

Capex

(186)

(2,983)

-696

3684

2232

2791

Acquisitions/disposals

2,889

(9,880)

3,459

(,572)

(3,585)

(4,019)

Financing

13,170

49,601

27,781

0

0

0

Dividends

0

(2,018)

(2,034)

(2,286)

(4,571)

(9,990)

Net Cash Flow

2,458

16,129

676

6,863

3,167

4 464

Opening net (debt)/cash

4,037

4,495

24,624

10,300

17,163

20,330

HP finance leases initiated

0

0

0

0

0

0

Change in borrowings

(2,000)

4,000

(15,000)

0

0

0

Closing net (debt)/cash

4,495

24,624

10,300

17,163

20,330

24,795

Source: Helios Underwriting accounts, Edison Investment Research. Note: *Shown after pre-acquisition impact and parent reinsurance result, investment income, costs and other items (see Exhibit 9 for a segmental view of syndicate result and parent result).


Glossary

Excess of loss reinsurance (XoL)

Type of loss reinsurance in which the reinsurer indemnifies, or compensates, the ceding company for claims above an agreed retained loss up to an agreed maximum loss.

FAL

Funds at Lloyd’s. The total capital each member of Lloyd’s is required to provide as security to support their total Lloyd’s underwriting business (members’ FAL).

Free working capital

Liquid capital available in the Helios parent company after allowing for its FAL. These are the resources available to Helios for adding capacity.

Hard premium environment

The part of the underwriting cycle when premium rates rise strongly in response to weak underwriting profits and there are a limited number of new entrants into the market.

LLV

Limited liability vehicles are designed specifically for individuals trading at Lloyd’s. The LLV limits the FAL exposure to only those assets used to support underwriting plus the value of any other assets in the LLV.

Pre-emption capacity

An invitation by a syndicate to its member to increase their nominal capacity in line with any increase in a syndicate’s capacity.

Quota share reinsurance (QS)

A reinsurance contract in which the insurer and reinsurer share premiums and losses according to a fixed percentage.

Retained capacity

The capacity remaining after ceding a proportion of total capacity to reinsurers (typically via quota share reinsurance).

RoC

Return on capacity. The cumulative underwriting profits earned on deployed capacity for a particular YOA. The final RoC can only be calculated after the YOA has closed at the end of the third year of accounting.

Solvency capital requirement

An internal Lloyd’s measure that determines the amount of capital required to support the syndicate business written. It is backed by FAL and members’ balances.

Stop-loss reinsurance

A type of excess of loss reinsurance wherein the reinsurer is liable for the insured’s losses incurred over a certain period.

Syndicate

An annual underwriting joint venture supported by a single member or group of members at Lloyd’s.

Tenancy capacity

The value of the right to remain in a syndicate. Has no cost or impact on NAV, but affects solvency and income stream.

Underwriting capacity

A Lloyd’s measure of the maximum amount of business a syndicate can write in a year, excluding acquisition costs.

Underwriting cycle

Refers to the peaks and troughs of (re)insurance prices, alternating between periods of soft market conditions (low premiums) and hard market conditions (high premiums), manifesting in rising combined ratios in the down-cycle and declining combined ratios as the cycle turns. A soft market tends to deplete the capital needed to underwrite new business, while a hard market attracts fresh capital.

WAV

Weighted average value. Actual carrying value of capacity, based on weighted average prices during the Lloyd’s auction in the past year.

YOA

Underwriting year of account. The first year in which a new set of capacity is deployed and business is written.

Contact details

Revenue by geography

Helios Underwriting
40 Gracechurch Street
London, EC3V 0BT
United Kingdom
+44 (0)20 7863 6655
www.huwplc.com

Contact details

Helios Underwriting
40 Gracechurch Street
London, EC3V 0BT
United Kingdom
+44 (0)20 7863 6655
www.huwplc.com

Revenue by geography

Management team

CEO: Martin Reith

FD: Arthur Manners

Martin was appointed CEO in April 2023. He has nearly 40 years’ experience across underwriting, management and leadership, and was the founder and CEO of Ascot Underwriting. Prior to joining Helios as a non-executive director in 2021, he held board positions at Neon Underwriting, was CEO from 2015 to 2019 and assumed a non-executive role until 2020. For the last 12 months, Martin has been heavily involved in advising the board on the curation of Helios’s capacity portfolio.

Arthur has more than 20 years’ experience in the insurance industry. He has been a consultant to Helios since June 2015 and joined the board in April 2016. He previously worked for Beazley Group from 1993 to 2009 as finance director and latterly as company secretary. He remains chairman of the Trustees of the Beazley Furlonge Pension Scheme.

Management team

CEO: Martin Reith

Martin was appointed CEO in April 2023. He has nearly 40 years’ experience across underwriting, management and leadership, and was the founder and CEO of Ascot Underwriting. Prior to joining Helios as a non-executive director in 2021, he held board positions at Neon Underwriting, was CEO from 2015 to 2019 and assumed a non-executive role until 2020. For the last 12 months, Martin has been heavily involved in advising the board on the curation of Helios’s capacity portfolio.

FD: Arthur Manners

Arthur has more than 20 years’ experience in the insurance industry. He has been a consultant to Helios since June 2015 and joined the board in April 2016. He previously worked for Beazley Group from 1993 to 2009 as finance director and latterly as company secretary. He remains chairman of the Trustees of the Beazley Furlonge Pension Scheme.

Principal shareholders

(%)

ILS Capital Management

17.3

Hudson Structured Capital Management

16.2

Polar Capital Funds

13.6

N J Hanbury (either personally or has an interest in)

12.1

Odey Asset Management

8.3

Will Roseff

6.7

Ardnave Capital

3.8


General disclaimer and copyright

This report has been commissioned by Helios Underwriting and prepared and issued by Edison, in consideration of a fee payable by Helios Underwriting. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Helios Underwriting and prepared and issued by Edison, in consideration of a fee payable by Helios Underwriting. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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