Chairman's Statement

Business Review

2011 has been another year of very strong growth for Personal Group.

Profit before tax (PBT) is up 6.8 per cent, to £10.0m. EBITDA is up 3.9 per cent, to £10.2m. Earnings per share are up 9.7 per cent, to 24.8p. Each of these comparisons is with 2010, which itself was a record year in all these areas.

Our balance sheet has been further strengthened through the addition to reserves of £2.2m. Shareholders’ funds at 31 December 2011 were £25.7m (2010: £23.5m) representing 85p (2010: 78p) per share.

These results reflect the consistently strong levels of new business generation in our personal hospital, convalescence, death benefit and voluntary group income protection (“VGIP”) plans. Annualised value of new business generated for these core products in 2011 is 13.9 per cent higher than the previous record year, 2010.

Of particular note is the group’s annual commission income for our death benefit plan, which has grown by 24.3 per cent in the past two years, to £2.9m. VGIP commission also increased in 2011 to a record level, albeit from a lower level of activity than our other core products.

During the year our underwriting subsidiary Personal Assurance Plc (“PA”) handled 30,648 hospital plan, convalescence plan and income protection plan claims (2010: 29,511), the vast majority of which were settled within 48 hours. The gross claims ratio of PA was slightly lower in 2011 than in 2010 and remains in line with levels experienced in previous years.

The group has continued during the year to identify new areas for profitable growth within a framework of limited risk exposure. With effect from 1 July 2011 PA has begun to underwrite private medical insurance business sold by Universal Provident Limited (“UP”) an insurance intermediary specialising in private medical expenses insurance which Personal Group acquired as part of the Berkeley Morgan Group (“BMG”) in 2005. We have had the opportunity over the past six years to monitor the UP gross claims loss ratio which, although at a higher level than PA experiences in relation to its core products, has nevertheless shown itself to be a sufficiently attractive risk to justify our participation. PA is accepting 20 per cent of the claims risk, having put in place a substantial reinsurance programme.
Arrangements have also been made for PA to begin to underwrite the VGIP plan with effect from 1 January 2012. For these policies PA is initially accepting only 10 per cent of the claims risk, as a 90 per cent quota share agreement has been arranged.

The disposal of Personal Insurance and Reinsurance Brokers Limited to Robert Pease, a former director, was completed during the year and this further enables the group to focus on the core business.

There have been significant developments during the year within BMG, our IFA and broker subsidiary. The disposal of Rapidinsure.co.uk Limited was completed in November 2011, resulting in a net profit on disposal of £0.3m. With the implications of the Retail Distribution Review coming into effect from 1 January 2013, the decision has been taken no longer to accept new investment business into Berkeley Morgan Limited (“BML”) with effect from 1 April 2012. General insurance will not be affected. Whilst this will adversely affect BML revenue in the future, substantial cost savings relating to compliance and other support services should ensure that the ongoing profitability of BML in the next few years should not be adversely affected.

Despite these changes within BMG during 2011 it has performed in line with our expectations, and no impairment of the carrying value of the goodwill has been necessary.

New Chief Executive

I am particularly pleased to mention the arrival of Mark Scanlon as the new chief executive, as announced on 29 November 2011. Mark brings new energy and drive to our senior management team along with a successful track record of business development in other sectors. We look forward to working with him in the further realisation of the growth potential which Personal Group enjoys. Following Mark’s appointment Ken Rooney has resumed his previous role of group operations officer. In his short tenure during 2011 as chief executive he has made a very considerable impact on the business, for which we thank him.

Balance Sheet

The group balance sheet remains strong, with no material debt. PA’s balance sheet has available qualifying assets as at 31 December 2011 of £10.2m. These provide a margin of solvency which allows PA to write further significant increases in premium income without the requirement for new capital. The board expects this to remain the case when Solvency II is introduced.

The impact of the transfer of UP business to PA last year, referred to previously, has been insignificant in terms of revenue and profit in 2011, although the effect on the group balance sheet has been more noticeable. UP’s private medical expenses plans are annual policies, with the bulk of the premiums being collected by monthly direct debit. In the group balance sheet this has resulted in substantial increases in the value of trade and other receivables, and in trade and other payables.

Dividends and Dividend Policy

Our first quarterly dividend for 2012 of 4.45p (2011: 4.35p) per share has already been announced and paid. Following the pattern re-established last year, if business continues as anticipated we expect to pay further dividends of the same amount in June, September and December 2012. This would make dividends payable in 2012 of 17.8p (2011: 17.4p) per share, an increase of 2.3 per cent.

Prospects for 2012

Our core products continue to enjoy strong demand and to be very well received. Their further development and growth represent an exciting business opportunity for which the group is well positioned and resourced, not least with our new chief executive now in post. We are therefore looking to a period of investment for growth which in the shorter term is likely to be reflected in some cost increases. In addition Solvency II compliance will continue to require significant additional costs which we have not had to incur in previous years. As a result we expect a continuing increase in operating revenues which, given the future investment in the business, is expected to feed into profit growth after 2012.

The continuing success of Personal Group in what remains an extremely challenging economic environment reflects the attractiveness and resilience of our products and is a great testimony to the skill and hard work of our employees and associates and to the loyalty of our host companies and policy holders. My fellow directors and I thank you all.

Chris Curling
Chairman
23 March 2012