Professional Services

(1)

Professional Services

for the insurance market

Charles Taylor Consulting plc

Annual Report and Accounts 2011

C h a rle s T ayl or C on su lti n g p lc A n n u a l R ep or t a n d Ac co u n ts 2 01 1

Standard House

12–13 Essex Street

London WC2R 3AA

T: +44 20 3320 8888

F: +44 20 3320 8800

E: [email protected]

www.ctcplc.com

(2)

headquartered in London, is a leading

international provider of professional

services to clients in the global insurance

market. We have been providing

Professional Services to insurance clients

since 1885 and today have 900 staff in

47 offices spread across 23 countries

in the UK, the Americas, Asia Pacific,

Europe and the Middle East.

The Group offers services across the

whole insurance market, principally

on a fee-based model and operates

through three Professional Services

businesses – Management, Adjusting

and Insurance Support Services.

We also have a Run-off business

that owns insurance companies

which are closed to new business.

Our vision is to become the

professional services provider

of choice to the global

insurance market.

Overview

1 Business Highlights 2 Chairman’s Statement 4 Group Chief Executive’s Report

Business Strategy

6 Our business model 8 Our business strategy

Business Review

12 How we measure our performance 13 Professional Services review 13 Management Services business 15 Adjusting Services business 16 Insurance Support Services business 17 Insurance Companies Run-off review 18 How we manage risk

22 Finance Director’s Report

Governance

24 Board of Directors 26 Report of the Directors 29 Corporate Governance 33 Remuneration Report

Financial Statements

42 Directors’ Responsibilities Statement 43 Independent Auditor’s Report 44 Consolidated Income Statement 45 Consolidated Statement of

Comprehensive Income 46 Consolidated Balance Sheet 47 Company Balance Sheet 48 Cash Flow Statements 49 Consolidated Statement

of Changes in Equity 50 Company Statement

of Changes in Equity 51 Notes to the Financial

Statements

Other Information

89 Five Year Record 90 Shareholder Information 91 Financial Diary 92 Charles Taylor Offices

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Overview

Business Highlights

Revenue

£102.5m

2011

£99.1m 2010

+3%

Statutory profit before tax

£6.4m

2011

£12.5m 2010

–49%

Statutory earnings per share

12.79p

2011

16.79p 2010

–24%

Net debt

£34.0m

2011

£36.3m 2010

–6%

– Professional Services revenue and operating segment

profit increase

– Large prior year profit from non-life Insurance Companies

Run-off did not reoccur, reducing profit before tax.

Minimal impact on earnings per share

– Earnings per share down predominantly due to higher tax

charge in Professional Services businesses

– Ongoing initiative to drive down debt delivers early results

– Final dividend of 6.75p, maintaining the full year dividend

at 10.00p

– New growth strategy for Professional Services

– Run-off strategy to focus on life run-off with no further

non-life acquisitions

Professional Services operating

segment profit

£11.6m

2011

£11.2m 2010

+4%

Adjusted profit before tax

£9.2m

2011

£14.6m 2010

–37%

Adjusted earnings per share

19.86p

2011

22.00p 2010

–10%

Dividend per share

10.00p

2011

10.00p 2010

+0%

(4)

Charles Taylor Consulting plc Annual Report and Accounts 2011

2

2011 was a watershed year for Charles Taylor. We welcomed David Marock, our new Group Chief Executive Officer, to the business in July and he has made an immediate, positive impact. David initiated a thorough business review and planning process to identify and capture profitable growth by building on the Group’s strong fundamentals. The Board has now reviewed the findings, considered the opportunities available and agreed our priorities for growth.

The new strategy is already delivering benefits, with initiatives to drive organic growth underway across the Group and action taken to drive down debt reducing the Group’s borrowings at the year end. We have also taken important steps in clarifying our run-off business strategy and as a result have decided not to acquire further non-life run-off insurance companies. The Group’s new strategy is set out in this report and we will keep shareholders informed of progress as part of our reporting throughout 2012.

Results

Revenue was up 3% to £102.5m (2011: £99.1m). Group adjusted profit before tax was down 37% to £9.2m (2010: £14.6m) (statutory profit before tax 2011: £6.4m, 2010: £12.5m, down 49%). This was largely as a result of the non-reoccurrence of the large run-off profits generated in 2010. The Professional Services business continued to perform well, with revenue up 3.6% and operating segment profit up 3.9% on the year.

Adjusted earnings per share were down 10% at 19.86p (2010: 22.00p) (statutory earnings per share 2011: 12.79p, 2010: 16.79p, down 24%), principally as a result of a higher tax charge in the Professional Services businesses. The non-reoccurrence of the large run-off profits generated in 2010 had a minimal impact on earnings per share. Dividend

It is proposed that a final dividend of 6.75p per share (2010: 4.46p) be paid on 25 May 2012 to shareholders on the register on 13 April 2012. When added to the interim dividend of 3.25p per share (2010: 5.54p), this results in a total dividend per share for the year being maintained at 10.00p (2010: 10.00p).

Rupert Robson

Non-Executive Chairman

Key highlights

• Positive impact from new Group Chief Executive Officer • Professional Services businesses

perform well

• Annual dividend maintained at 10.00p

Chairman’s Statement

“ The new strategy is already

delivering progress, with initiatives

to drive organic growth underway

across the Group”

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Gearing and cash flow

Net debt at 31 December was £34.0m, compared to £36.3m at the previous year end and £38.6m at the half year. This figure includes £2.4m borrowed in the year to finance the acquisition of Alico Isle of Man Limited, which is expected to be repaid in 2012. Free cash flow for the year was £7.9m compared to £10.9m in 2010. Less cash was released from the closed life insurance business this year and our initiative to drive down debt did not commence until the second half. The initiative had an immediate, positive impact on second half cash flow.

Board

I am pleased to welcome Gill Rider to the Board as a Non-Executive Director. Gill worked for Accenture for 27 years, latterly as Chief Leadership Officer. Most recently, she spent five years as Director General in the UK government’s Cabinet Office and as Head of the Civil Service Capability Group. Judith Hanratty stood down from the Board in 2011 after nine years’ service. I would like to thank Judith for her substantial contribution to the development of the Group and to wish her well for the future.

Corporate governance

The Board is committed to high standards of governance. The Board provides leadership for the Group and is responsible for setting strategy, monitoring performance and ensuring that the necessary resources are in place to meet our objectives.

I would like to point to several areas which the Board chose to emphasise in its work during 2011. The first was the selection of our new Group Chief Executive Officer, a comprehensive process that we undertook with the assistance of a leading executive search firm. Following on from that, the Board spent a considerable amount of time on the development of the Group’s strategy. This was a process led by the new Group Chief Executive Officer but subject to extensive debate and challenge at board level. In addition, the Board spent an increased amount of time on the identification and management of risk during 2011. This is of course a continuing effort but the

environment over the last four years has meant that risk management in the Group is subject to significantly increased scrutiny by

the Board.

I am satisfied that the Board has a broad and diverse range of complementary skills and specialised knowledge, which enables us to achieve high standards of corporate governance, our approach to which is set out in full on page 29.

Current trading and outlook

Overall trading for the year to date has started satisfactorily. We believe that the Group is well positioned to capitalise on its position as a leading provider of professional services to the insurance market. We have a clear strategy for delivering profitable growth and are implementing initiatives to drive down debt and improve the Group’s cash flow, which are already showing real signs of progress. I am confident that the business will perform well despite the difficult economic environment.

2011 has been a year of positive change and development at Charles Taylor. This progress has been achieved by the hard work and commitment of everyone in the Group in continuing to deliver the excellent standards of professional services to our clients on which our reputation is built. I would like to offer all staff my sincere thanks for their efforts over the year.

Rupert Robson

Non-Executive Chairman

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4

David Marock

Group Chief Executive Officer

Group Chief Executive’s Report

Since joining the Group in July 2011, my belief that Charles Taylor is a fundamentally strong business, offering significant growth potential, has been reinforced. It has high quality businesses with longstanding client relationships and a skilled and committed professional staff. It is equally clear the Group has not realised its full potential in recent years, which has held back returns for shareholders. I am fully committed to reversing this trend, delivering real business growth and increasing shareholder value.

Business Strategy

Our new business strategy sets out how we will identify and capture growth for our core Professional Services businesses, which comprise Management Services, Adjusting Services and Insurance Support Services. We have also decided upon our approach to our Insurance Company Run-off businesses.

Professional Services business: Our core business is providing

highly technical, specialised professional services to the insurance market. We already enjoy leadership positions in a number of our business areas, notably mutual insurance management, larger and more complex insurance adjusting, claims management and outsourced insurance services in the Lloyd’s market. We have also established strong niche offerings in other related professional services, but these are still being developed.

Strategic approach: Our strategic approach is to seek organic

growth by capitalising on our areas of strength through offering related services to our clients, building our niche businesses to leadership positions, and by realising the significant, unrealised potential for cross referral and joint working across the Group. We are well positioned for organic growth and believe the demand for the professional services offered by the Group is substantial. We will also consider longer-term strategic options to enter new insurance-related professional services business lines.

Run-off strategy: The market for the acquisition of closed non-life

insurance businesses is highly competitive. Further, we do not appear to have any competitive ownership advantages over other market participants. As a result we have decided not to acquire further non-life businesses. We do, however, believe that we have a competitive advantage in acquiring and operating niche offshore life run-off businesses, thereby creating value for the Group, and we will continue to seek out such opportunities.

Implementation: We have already started initiatives in each of our

businesses focused on capturing attractive growth opportunities. We have strengthened the leadership of the Group with the creation of an Executive Committee, the appointment of Alistair Groom and Joe Roach as Co-Heads of the Management Services business and the formation of a new senior leadership team in our Adjusting Services business. Recognising we are a people business, we are continuing to invest in talent management to recruit and retain top professionals and to develop the next generation. We have started to drive down debt through a more robust and effective approach to billing and cash collection in our Adjusting Services business. This is having a positive effect on the Group’s working capital.

“ I firmly believe that the Group is well

positioned to deliver long-term organic

growth from our core Professional

Services businesses”

Key highlights

• New business strategy to capture growth for core Professional Services businesses • The Group will acquire no further non-life

run-off insurance companies • Group well positioned to achieve

(7)

Corporate identity: We are introducing a new global corporate

identity for the Group and the new look and feel of this report is the first step in articulating and demonstrating this identity, which creates a single consistent identity for all our businesses. It will help us to project a strong and cohesive image to the market and support our drive to increase joint working and cross-referral across the Group by emphasising the synergies between our businesses. We are also proposing to change the Company’s name to Charles Taylor plc from Charles Taylor Consulting plc at the AGM on 15 May 2012.

Business reporting: To ensure the Group is presented in a clear

and unambiguous manner we are reorganising the way we describe and report on our Management Services and Insurance Support Services businesses. With effect from January 2012 our Management Services businesses delivers our end-to-end business management services for insurance companies while the Insurance Support Services business provides professional services which our clients can access on a stand-alone basis, such as outsourced claims management. This involves moving our investment management, captive management and specialty risk businesses from Management Services to Insurance Support Services.

The businesses are now being managed in line with this new structure which is reflected in the business model and strategy sections of this report. IFRS requires us to present the business review for 2011 on the previous structure. We will start reporting our statutory numbers on the new basis from 2012.

2011 performance

Professional Services

The Group’s Professional Services businesses delivered overall revenue up 3.6% to £101.4m (2010: £97.9m) and operating segment profit up 3.9% to £11.6m (2010: £11.2m).

The Management Services business increased revenue by

3% on the year but operating segment profit reduced to £6.3m (2010: £7.0m). We earned increased fees from our mutual insurance company clients but profits were impacted by increased costs against budget and difficult market conditions for our captive management and specialty risk businesses.

The Adjusting Services business delivered a strong result in 2011

with total revenue up 6% on the previous year at £50.0m (2010: £47.0m) and adjusted operating profit up 25% at £5.7m (2010: £4.6m). This was driven by a good performance in energy and marine and an upturn in aviation, while non marine delivered a result slightly down on 2010.

The Insurance Support Services business’s total revenue was

slightly down on the previous year at £12.0m (2010: £12.7m) and overall the business made an operating segment loss of £0.3m (2010: £0.2m loss). This was principally due to the non-life run-off servicing business not being successful in winning new business. Despite this, good progress was made in 2011 with a solid improvement

in the performance of a number of our service areas. In particular, the former Axiom business, acquired by the Group as a loss making business in 2009, renamed Charles Taylor Insurance Services and absorbed into the Insurance Support Services business, delivered an operating profit in 2011. We will build on this progress in 2012 by implementing our plans to deliver profitable growth.

Insurance Companies Run-off

The business delivered an overall operating segment loss of £0.7m (2010: profit of £5.4m). This had a negligible impact on earnings per share because the results were largely attributable to third parties. The life insurance business performed profitably and we successfully completed the acquisition of another closed life business, Alico Isle of Man Limited. We expect to be able to pay down the debt used to finance this acquisition later in 2012 when its consolidation into our existing life company generates cash. The non-life insurance businesses made a loss and we have decided to make no further acquisitions in this sector.

Balance Sheet

We have a clear balance sheet focus and have taken a number of important steps to further strengthen our position. These include improving our working capital, by reducing debt and by capping the Group’s obligations to pay deferred consideration to the original vendors of specific run-off insurance companies owned by the Group, detailed on page 17.

The liabilities of our defined benefit pension schemes have risen over the year, principally as a result of lower discount rates. The Bank of England’s Quantitative Easing programme has driven down yields on gilts and high quality corporate bonds, which are used to measure the scheme’s liabilities. Having previously closed all our defined benefit schemes to new members, we closed the largest scheme to future accrual from 1 July 2011. We have recovery plans in place for these scheme deficits.

Our good performance from Professional Services and robust debt reduction initiatives have had a positive impact on our balance sheet and we believe we can deliver the Group’s new business strategy from within our existing financial resources.

Outlook

I firmly believe that the Group is well positioned to achieve long-term organic growth from our core Professional Services businesses and to make shorter term opportunistic gains from the acquisition of offshore life insurance companies in run-off. While our full organic growth potential will take time to be realised, we have already started to implement many of our strategic initiatives and I am excited about the Group’s prospects for 2012 and beyond.

David Marock

Group Chief Executive Officer

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6 Our business model – how we generate

value over the longer term

Charles Taylor has a long established business model

which delivers reliable revenues through the delivery of

professional services predominantly on a fee based model.

We also create value through the consolidation and

efficient management of run-off insurance companies.

Our business model

Our core values

We deliver highly

regarded professional

services to the global

insurance market

We deliver professional services to clients in the global insurance market. The Group offers services across the whole insurance company value chain and operates through three Professional Services businesses: Management, Adjusting and Insurance Support Services. Our principal services are the end-to-end management of mutual insurance companies, the adjusting of large and complex insurance claims, and the provision of outsourced technical insurance services to clients worldwide. We also own and provide professional services to insurance companies which are closed to new business.

By highly experienced,

technically excellent

staff

Our services are usually highly technical and specialist in nature and we differentiate ourselves through the quality of our people, their professional expertise, and their commitment to service excellence. Many of our professional staff are graduates or hold professional qualifications. Our senior employees also offer superior technical knowledge gained through many years’ practical experience.

Through offices

located where our

clients need us

Insurance is a global business and we have offices strategically located around the world to be near where our clients are based and to be able to provide our services where they are required. We have almost 900 staff in 47 offices spread across 23 countries in the Americas, Asia Pacific, Europe and the Middle East.

With our Professional

Services revenue

principally provided

by fees

We are typically remunerated through professional fees

arrangements, which are adapted to suit the differing needs of our different clients. We also create value through the consolidation and efficient management of run-off insurance companies.

Thereby delivering

sustainable long term

profitable growth and

shareholder value

Our shareholders seek sustainable long term returns, and it is our responsibility to ensure that our business model supports this. We aim to increase revenue and profit from our professional services, principally through organic growth.

We are enthusiastic about the potential for long term growth in the market for insurance services. Global trade flows will continue to grow, driving an increasing demand for insurance and the services that support insurers and insureds. We believe that Charles Taylor is embedded within the fabric of the international insurance market and accordingly is well positioned to benefit from these trends.

Our business model is

underpinned by our

core values

Excellence

We recruit, retain, and develop highly skilled, technically excellent professional staff.

Partnership

We have a partnership mind-set and work closely with our clients to deliver mutually beneficial outcomes.

Quality

We have a genuine pride in delivering high quality work. We live by our reputation in professional services and it is this focus on quality which underpins our offering to clients.

Support

We work within a supportive, collegiate culture across the Group.

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Our Professional Services businesses

How we are

remunerated

Our Run-off

business

Management

Services

The Management Services business provides end-to-end management of insurance companies.

We deliver a complete

outsourced management service covering every aspect of the companies’ operations from the management of underwriting and claims, the provision of regulatory, accounting and administrative operations, corporate governance and company secretarial services.

We are remunerated through annual fees for the management of the mutual insurance companies.

Adjusting

Services

The Adjusting Services business provides loss adjusting services across four main sectors: energy, marine, aviation and non marine along with average adjusting services for ship owners.

The business primarily focuses on larger and more complex commercial losses arising from major insured incidents and claims.

We are predominantly remunerated by professional fees, charged on a time and materials basis.

Insurance Support

Services

The Insurance Support Services business provides professional services which enables our clients to select the specific stand-alone services they require:

• Outsourced insurance support services

• Insurance company run-off services

• Investment management • Captive management • Specialty risks

We are remunerated through: • Professional fees • Investment management fees • Commissions

Insurance Companies

Run-off

The Insurance Companies Run-off business owns insurance companies which are closed to new business and runs off their liabilities in an orderly manner.

We create value by

consolidating small life run-off companies to achieve economies of scale and by settling non-life claims efficiently.

How we create

value

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8 Our business strategy for

long term growth

We will deliver growth in revenue, profit and shareholder value by focusing on

Professional Services. Our business strategy is to achieve leadership positions

in all the Group’s Professional Services businesses and extend the range of

insurance services we provide. While our focus is on Professional Services we

also seek tactical opportunities to acquire offshore life insurance companies in

run-off which we believe will provide near-term cash releases.

Developing our business strategy

In 2011 we undertook a review

of our business to identify how

Charles Taylor would deliver

long-term, sustainable growth.

The review:

Our vision is to become the

professional service provider of

choice to the global insurance

market by:

Our vision

Evaluated

each of our businesses to identify which offered compelling opportunities for growth in its market and whether our business model gave us sustainable competitive advantages over other market participants.

Consulted

with all of the Group’s staff to identify opportunities for growth and areas for business improvement.

Delivered

structured business plans for each of our businesses and support teams.

Building

a substantially larger Professional Services business in sectors where superior technical skills matter.

Achieving

leading market positions for each of our businesses and expanding into growing economies and markets where we are currently underrepresented.

Establishing

new services and associated revenue sources within our existing business model.

Capitalising

on the opportunities for cross referral and business synergies between our businesses and across our international network.

(11)

Our Professional Services business vision

Reinforce the foundations

We concluded that Charles Taylor has significant competitive advantages in delivering specialist

professional services to insurers, their clients and advisers on a worldwide basis. We have now set

out our vision and business strategy for delivering sustainable growth.

Our Professional Services

business strategy has three

key elements:

1.

Reinforce the foundations:

strengthen the Group’s core capabilities and support services to underpin growth.

2.

Create growth in the core Professional Services businesses:

achieve leadership positions in all the Group’s businesses and develop new, closely-related, insurance services.

3.

Explore medium term strategic options:

develop new Professional Services business lines, organically, through joint ventures or through M&A opportunities.

Charles Taylor is

fundamentally a people

business; we have a high

quality, technically excellent

professional staff with a

strong ethos of service to our

clients. Underlying our

strategy is a belief in

developing our staff and

providing a supportive

environment which allows

entrepreneurial ideas to

flourish.

We will reinforce our business management structures to provide the right conditions to deliver growth. Our business plan initiatives focus on the following key strategic initiatives: People, Leadership, Joint working and Business development & marketing.

Initiative

Strategy

Progress

People

We will continue to strengthen the support for our professional staff by creating the right environment to recruit, retain and develop the best talent.

• Strengthening global HR

function.

• Enhancing performance

review system.

Leadership

We will develop an effective leadership and governance approach to enable the businesses to capitalise on growth opportunities.

• Created Executive

Committee.

• Formed new senior

leadership team in our Adjusting Services business.

• Appointed new Management

Services business Co-Heads for the Americas and Rest of World.

Joint

working

We will increase efficiency by combining shared business services across the Group and improve the client experience by encouraging joint working and referrals across business lines.

• Improved debt management

by co-locating London collection teams.

• Merged global ICT teams.

Business

development

& marketing

We will enhance and coordinate business development and marketing across the Group.

• Initiated internal survey of

joint business development and marketing opportunities.

• Created new Group

corporate identity.

• Appointed senior Group

marketing and business development consultant.

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10 Our business strategy for long term growth

continued

We enjoy market leading positions in a number of our business areas and have strong niche offerings in other related professional services. Our strategic approach is to seek organic growth by building our niche businesses into leadership positions and capitalising further on our areas of strength by offering new and expanded services to clients of those businesses.

However we will also consider other opportunities to deliver medium term sustainable growth. These may include developing new professional services for the insurance market, exploring joint ventures to extend our service

We have adopted a clear approach to identifying opportunities for growth in our business plans. The most straightforward is to deliver more of our existing services to existing clients, through greater marketing, increased joint working and cross-referrals. We have also identified opportunities to develop new related services for existing clients and sell existing services to new clients.

offering and the consideration of well-targeted, M&A opportunities. We will only take initiatives forward where we are confident that they will be a good fit strategically, culturally and financially.

Create growth in the core Professional Services businesses

Explore medium term strategic options

Charles Taylor has a strong

Professional Services business,

providing a full range of

services in all areas of the

insurance value chain, and

benefiting from long-standing,

loyal client relationships.

We believe that organic growth

offers the best potential for

development.

Business

Growth opportunities

Drivers of profitable growth

Management

Services

business

• End-to-end insurance

company management. • _•Grow mutual membership._{Introduce new products and services}

for mutual clients.

• Identify opportunities for new insurance

collectives.

• Reputation for service excellence.

• Financial strength of our managed mutuals.

• Greater regulation and solvency

requirements driving insureds to higher quality mutuals.

Adjusting

Services

business

• Loss adjusting for larger and

more complex losses.

• Average adjusting for ship

owners.

• Expand office network into new territories.

• Extend service offering in each office.

• Recruit and retain top producing adjusters

in existing offices.

• Develop and retain the next generation of

adjusters.

• Excellent technical abilities and reputation.

• Strong insurance market and client

relationships.

• Global network.

• Larger and more complex insured losses

requiring adjusting services.

• Ability to attract and retain high

performing, top quality, adjusters.

Insurance

Support

Services

business

• Professional support services

for clients in the Lloyd’s, London and international insurance markets.

• Non-life and offshore life run-off

servicing.

• Specialty stand-alone

professional services.

• Expand claims management services.

• Develop Coverholder management

services.

• Develop MGA services.

• Secure more run-off servicing.

• Explore niche opportunities.

• Increased demand for improved claims

management processes.

• Lloyd’s Claims Transformation Programme,

driving demand for increased outsourcing.

• Growing demand for outsourcing to drive

efficiencies.

• Increased demand for specialist

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Our Run-off business strategy

Our primary focus is on

building our Professional

Services business. However,

we have also adopted a new

strategic approach to run-off,

which will capitalise on

opportunities in the offshore life

insurance run-off sector and

reduce our exposure to the

non-life insurance run-off sector.

Offshore life run-off

UK offshore life insurance companies were primarily established in the Channel Islands and Isle of Man to provide investment, savings, life insurance or critical illness cover to individuals in a tax efficient manner. A number of these offshore life businesses have been closed and placed into run-off. Through our Isle of Man business, we own one of the few offshore life aggregators actively making acquisitions. We are thus well positioned in this market where potentially attractive opportunities appear likely. So, we will continue to seek such acquisitions.

Non-life run-off

Following a review of our competitive position in the non-life run-off market, we have concluded that we do not appear to have any competitive ownership

advantages over other market participants. As a result we have decided not to acquire further non-life businesses. We will continue to run off the insurance

companies owned by the Group, while also exploring other options available to us.

We do, however have an excellent reputation and strong service capability in managing life and non-life insurance companies through our Insurance Support Services business and we will continue to provide these services as part of our Insurance Support Services business.

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12

2011 2010 22.00p 19.86p 2011 2010 £36.3m £34.0m 2011 2010 7.5 5.9 2011 2010 £10.9m £7.9m 2011 2010 £97.9m £101.4m 2011 2010 £11.2m £11.6m 2011 2010 11.4% 11.6% 2011 2010 4.4 4.0 2011 2010 5.9 5.8

How we measure

our performance

Our key performance indicators show continued progress in increasing the revenue and profit of

the Professional Services businesses, and an improving trend in working capital and net debt.

Profit margins are similar to last year, although earnings per share are lower because of the

higher tax rate.

Professional Services

Group

Adjusted earnings per share Revenue

Net debt Operating segment profit

Interest cover (times) Operating segment profit margin

Free cash flow

Adjusted earnings per share is explained in note

11 to the Financial Statements. Our policy for revenue recognition is explained in note 1 to the Financial Statements. The KPI relates to the total of the Management, Adjusting and Insurance Support Services businesses.

Net debt is explained in note 20 to the Financial

Statements. Operating segment profit is adjusted operating profit, before finance costs and tax. The KPI relates to the total of the Management, Adjusting and Insurance Support Services businesses.

Interest cover is adjusted profit from operations plus interest receivable and similar income divided by finance costs.

Operating segment profit margin is operating segment profit as a percentage of revenue. The KPI relates to the total of the Management, Adjusting and Insurance Support Services businesses.

Free cash flow is net cash from operating activities excluding movement in client monies, plus interest received, less expenditure on acquisition of tangible and intangible assets, plus disposal proceeds.

Debtor months

Work in progress months

Work in progress months is the value of unbilled time divided by the value of time recorded on a count back basis.

Adjusting Services working

capital

Debtor months is trade debtors divided by invoiced fees on a count back basis.

(15)

Professional Services

review

Charles Taylor’s three Professional Services

businesses, Management Services, Adjusting

Services and Insurance Support Services

delivered overall revenue up 3.6% to £101.4m

(2010: £97.9m) and operating segment

profit

1

_{up 3.9% to £11.6m (2010: £11.2m).}

The Management Services business delivered

a solid performance, our Adjusting Services

business delivered a good performance

and the Insurance Support Services

business made important steps towards

achieving profitability.

Revenue

2011 2010

Management Services £39.4m £38.2m

Adjusting Services £50.0m £47.0m

Insurance Support Services £12.0m £12.7m

Professional Services total £101.4m £97.9m +3.6%

Operating segment profit

1

2011 2010

Management Services £6.3m £7.0m

Adjusting Services £5.7m £4.6m

Insurance Support Services £(0.3)m £(0.2)m

Unallocated £(0.1)m £(0.2)m

Professional Services total £11.6m £11.2m +3.9%

////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////

Professional Services performance 2011

This review reports on the performance of the businesses in 2011 on the same basis as previous years, that is, before the move of investment management, captive management and specialty risk businesses from the Management Services to the Insurance Support

Management Services business

The Management Services business provides end to

end insurance management services to our insurance

company clients.

We deliver a complete outsourced management and

operational service to our mutual insurance company

clients, reporting directly to their independent boards

of directors. This covers every aspect of the companies’

operations from underwriting, claims management and

delivery of safety services to regulatory, accounting

and administrative operations, investment management,

corporate governance and company secretarial services.

The mutuals we manage are the Standard Clubs, Signal

and SCALA.

This review includes those insurance services that have

been within Management Services but which are moving

to Insurance Support Services in 2012: investment

management, captive management and specialty risks.

The business employs 241 staff and operates from offices

in Europe, Asia and the Americas.

Key points

• Revenue up by 3% to £39.4m.

• Operating segment profit down 11% to £6.3m due to higher costs, principally in meeting more stringent regulatory requirements for the Standard Clubs, and a difficult market for our captive management and specialty risk businesses.

• Growth of underlying businesses of mutual insurance company clients along with associated fee income.

• Successful restructure of the five Standard Club entities into two principal underwriting entities to mitigate the impact of increasing regulatory requirements.

• Robust Signal performance with 13 new members representing $185m additional payroll pa.

• Lower revenue and profit from SCALA.

• Investment management business performed well.

Our mutual management businesses had a busy year, securing important new members for our mutual insurance company clients, responding to regulatory change, delivering effective underwriting performance, promoting safety services and managing significant insurance claims.

We are remunerated by fees to manage the mutual insurance companies. Growth in the size of the mutuals, the number of services we deliver and the volume of work generally lead to growth in management activities and hence the level of management fees. Our margins are affected by our activities during the year. At times we need to invest additional resources to meet our clients’ requirements which increases our expenses and reduces margins, while conversely delivering our services more efficiently against ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////

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14

and in effect are investments in growth which is reflected in future years’ fee income.

Overall the Management Services business delivered increased revenue of 3% on the year as a result of increased fee income from our clients. Adjusted operating profit was reduced at £6.3m (2010: £7.0m) as a result of higher costs, principally in meeting more stringent regulatory requirements, for the Standard Clubs, and a difficult market for our captive management and specialty risk businesses.

The Standard Clubs provide protection and indemnity insurance to

over 9% of world shipping. We have managed the clubs for 126 years, delivering increased membership and a strong underlying performance. Ship owners are attracted by the clubs’ financial strength and quality reputation and at the end of the 2011 policy year, insured gross tonnage had grown to 131m gt, up from 123m gt in 2010. A significant project in 2011 involved restructuring the five club entities into two principal underwriting entities – Standard Europe and Standard Asia, to limit the impact of increasing regulatory requirements and the demands of the EU’s Solvency II Directive.

Signal is the largest provider of Longshore workers’ compensation

insurance to the US maritime industry and has been managed by Charles Taylor since it was founded. The performance of the mutual remained robust in 2011. Growth in payroll reported by the members to Signal is an effective measurement of growth and in 2011 this increased by over 8% from $2.3bn p.a. to $2.5bn p.a. The mutual also saw strong new business growth with 13 new members joining in the 2010/11 membership year, representing $185m p.a. additional payroll. The 2011/12 year has also started strongly for new business.

SCALA provides workers’ compensation cover to the majority of

Canada’s ship owners. In 2011, this business delivered slightly lower revenue and profit than 2010.

Other management services. The investment management

business performed well, but the captive management and specialty risk businesses found trading conditions difficult. Demand for new captive insurance companies was slow due to adverse market conditions. We saw a slight improvement in our risk management business and our coverholder business launched new niche insurance products, albeit these delivered limited revenue in 2011.

Case Study – Signal Safety

Safety matters to Signal. It not only saves lives and avoids injuries to employees in shipyards, ports and terminals, but also attracts new members to join the mutual, which in turn benefits Charles Taylor.

We deliver a wide range of safety services to Signal, including the “Arrive Home Alive” campaign which has made a significant contribution to Signal’s commercial success. Signal’s reputation for safety has been an important factor in attracting new Members to the mutual.

Members benefit directly from safety improvements. Premiums are based on a member’s claims record, meaning that any improvement in claims can reduce the amount paid. Our programmes have proved highly successful, reducing overall claims frequency by over 50% since 2002.

Larry Toepper, Vice President, Safety Resources in Houston, Texas, heads a team of five safety managers who are based around the USA. In 2011, the team delivered a major programme for a leading global port operator, in its ten US-based terminals. This included working closely with the member’s teams to undertake in-depth customised safety audits in each terminal, developing a new, consistent approach to safety and introducing tailored staff training. The

programme has been so successful that the Member won the 2011 Signal Safety Excellence Award.

In an effective example of business referral across the Group, Charles Taylor’s technical team is now running a programme to analyse the safe use of equipment for the movement of containers in terminals. In 2012 we will be exploring opportunities to create additional revenue streams by developing safety services for organisations which are not members of Signal.

Professional Services review

continued

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Adjusting Services business

The Adjusting Services business provides loss adjusting

services across four main sectors: energy, marine,

aviation and non marine and average adjusting

services for shipowners.

The business focuses on larger and more complex losses

arising from major onshore and offshore energy incidents,

maritime casualties, aircraft losses, large infrastructure

losses, financial institution frauds and other property and

casualty losses.

The Adjusting Services business employs 372 staff and

operates from offices in Europe, Asia, the Middle East and

Americas.

Key points

• Revenue up 6% to £50.0m.

• Operating segment profit up 25% to £5.7m. • Driving down debt initiative achieves progress.

• Strong energy adjusting performance winning good share of offshore energy losses.

• Marine adjusting achieved high caseloads.

• Aviation adjusting delivered increased revenue and profits. • Non Marine result slightly down on 2010.

The Adjusting Services business maintained a high overall level of quality instructions in 2011, being appointed on a number of the largest energy losses in the world in 2011. It delivered a strong result driven largely by the good performance in energy adjusting, supported by a good marine performance and an improved performance from aviation loss adjusting. Total revenue was up 6% on the previous year at £50.0m (2010: £47.0m) and operating profit was up 25% at £5.7m (2010: £4.6m).

High levels of work in progress (WIP) and slow payment of fee invoices are issues that affect many loss adjusting businesses which handle large and complex losses, particularly in the international insurance markets. The early indications are that our initiatives to drive down working capital requirements in the business with more rapid invoice issuing, coupled with faster cash collections, are delivering results. Working capital management will remain an important focus throughout 2012.

Energy adjusting: Energy adjusting delivered a good performance

in 2011, winning a good share of offshore energy losses and making important progress in growing its onshore energy business. In particular, major new instructions were secured following losses in the North Sea, Canada and Nigeria.

Marine adjusting: Marine adjusting achieved a good result in 2011,

against a background of difficult shipping market conditions. The business is made up of one of the largest average adjusters in the world and it also achieved high caseloads in its marine loss adjusting business, particularly in the UK and Asian offices, and in its ports and terminals business.

//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////

/////////////////////// Aviation adjusting: Aviation adjusting had a good year, delivering

increased revenue and profits. The business is seeking growth from regions where major aircraft fleets are based, including Asia and the Middle East, where the volume of claims is growing. The small aviation asset management business, which forms part of the aviation adjusting business also delivered an improved performance after a disappointing 2010.

Non Marine adjusting: Non Marine delivered a result slightly down

on 2010. The London-based financial institutions group had a strong year, winning a high volume of claims resulting from fraud and commercial crime cases. Overall business from property and casualty losses was down, largely as a result of difficult global economic conditions, which is believed to have reduced claims volume in the sector.

Case Study – Canadian Oil Sands claim

A major fire in the oil sands, Alberta, Canada led to an important appointment for our loss adjusters, involving joint working by teams from our Calgary, London and Geneva offices.

The fire broke out in January 2011, causing significant damage to coke drums, used to break down the oil sand into synthetic crude oil. A combination of physical damage and business interruption made it one of the largest single insurance claims of 2011.

Oil sands are an increasingly important source of hydrocarbons. Canada has one of the largest reserves in the world, estimated to

be equal to the world’s total reserves of conventional crude oil. Oil sand contains a mixture of sand, clay, water and a viscous form of petroleum referred to as bitumen. The oil is extracted in various ways and refined to produce synthetic crude oil. The damage resulted in massive interruption and problems were exacerbated by the freezing conditions with temperatures falling below –40 degrees.

Joe McMahon, Chairman, Charles Taylor Adjusting, worked alongside Bob Moore and Dallas Hirsche in Calgary, Luke Smallman, Paul Bates and Regina Kosek in London, and Eric Capewell in Geneva. The team used advanced software to analyse and adjust this claim, which was successfully brought to a quick resolution.

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16 Professional Services review

continued

Insurance Support Services business

The Insurance Support Services business provides

professional support services to clients in the Lloyd’s,

London and international insurance markets. It delivers

services to more than half of all Lloyd’s managing agents.

It also delivers our non-life and offshore life run-off

servicing services from London, Dublin and the Isle of

Man. The business is the leading provider of third party

life insurance administration on the Isle of Man.

This review does not include the other management

services that are moving from Management Services in

2012: investment management, captive management and

specialty risks.

The business employs 130 staff and operates from offices

in the UK, Isle of Man and Republic of Ireland.

Key points

• Revenue down 6% to £12.0m.

• Operating segment loss worsened by 41% to £0.3m. • Good progress in insurance outsourcing.

• Strong revenues from static claims contract.

• Higher levels of staff utilisation and lower expenses in London outsourcing office.

• Poor performance in non-life run-off servicing addressed. • Life run-off servicing expected to benefit from Alico acquisition. The Insurance Support Services business produced total revenue slightly down on the previous year at £12.0m (2010: £12.7m) and overall the business made an operating segment loss of £0.3m (2010: £0.2m loss). This was principally due to the non-life run-off servicing business not being successful in winning new business. Despite this result, good progress was made in 2011, with a solid improvement in the performance of a number of our service areas. In particular, the former Axiom business, acquired by the Group as a loss making business in 2009, renamed Charles Taylor Insurance Services and absorbed into Insurance Support Services, delivered an operating profit in 2011. We will build on this progress in 2012 by implementing plans to deliver profitable growth through initiatives such as expanding our claims management services, further developing our coverholder management services and launching new services for Managing General Agencies.

Managed claims services: Our managed claims services delivered

a notable performance, with strong revenues from our remit to review static claims for the Lloyd’s market, which commenced in April 2011.

Coverholder services: Our outsourced support services provision

for underwriters and brokers was ahead of budget and is generating positive interest in its services from the market.

Financial reporting service: We are the largest and longest

established provider of outsourced accounting services to Lloyd’s managing agents and corporate members of Lloyd’s. After a weaker performance in 2010, this business was ahead of budget in 2011.

//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////

/////////////////////// Non-life run-off servicing: Non-life run-off servicing had a poor

year in 2011, with high business management costs and a disappointing new business record. We have now taken action to reduce management costs. We will continue to seek profitable non-life run-off servicing contracts in 2012.

Offshore life run-off servicing: Our offshore life run-off servicing

operation in the Isle of Man had a solid year, in line with 2010. We anticipate that the business will benefit from increased servicing revenues in 2012 following the acquisition of Alico Isle of Man by our Insurance Companies Run-off business.

Case Study – Lloyd’s Static Claims

Charles Taylor has implemented an effective programme to reduce the number of static claims in Lloyd’s, helping the market to build upon its reputation for fast and fair claims handling.

Static claims are those which have been notified to insurers but no update has been received over a twelve month period. Existing systems intended to address static claims were not effective and by 2011 the number of static claims, below £100,000 Lloyd’s market share, had grown to over 47,000. Following a competitive tender, we were appointed by the Lloyd’s Market Association (LMA) in September 2010 to address the problem.

We established a dedicated team of static claims specialists, led by Michael Campbell, Client Relationship Director, and created new systems to effectively handle, track and update the static claims. The systems were sufficiently flexible to work effectively with both paper-based claims and newer electronic claims files.

Since the programme commenced on 1 April 2011, we have signed up 32 managing agents representing over 80% of static claims by volume, reviewed over 15,500 static claims files and delivered a 35% reduction in the value of static claims. We have now been invited to extend our services by many managing agents to address additional static claims.

Photo top: (left to right) Tracy Burnham, Amanda Morris Photo bottom: Michael Campbell

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Insurance Companies Run-off review

The Insurance Companies Run-off business owns life and

non-life insurance companies which are closed to new

business and runs off their liabilities in an orderly manner.

It is supported by our Insurance Support Services business,

which provides it with run-off servicing.

The business owns a life insurance company in the Isle of

Man which acquires and integrates UK offshore life

insurance companies in run-off. It enjoys a strong market

position, being one of the only offshore life businesses

capable of acquiring these businesses.

It also owns two non-life insurance companies in the UK,

and one non-life company in the Republic of Ireland.

Key points

• Revenue down 6% to £3.6m.

• Operating segment profit down 112% to loss of £0.7m. • Life insurance business performed solidly.

• Successful completion of Alico Isle of Man Limited acquisition. • Liability to deferred consideration successfully capped. • Non-life businesses experienced adverse claims developments. • The Group will not seek further non-life run-off acquisitions. The Insurance Companies Run-off business had a mixed year in 2011. The life insurance run-off business performed solidly, albeit less so than in 2010, while the non-life insurance run-off businesses made an overall loss. In total, the business delivered a small operating segment loss of £0.6m (2010: operating segment profit of £5.4m). However, this had a negligible impact on earnings per share in either 2011 (0.08p) or 2010 (0.43p) because the operating results are largely distributed to non-controlling interests.

During the year, we reached agreement with the original vendors of one of the non-life businesses and the life business to simplify the basis of their entitlement to deferred consideration and make it entirely contingent on the cash flows from the life business after any further acquisition costs. The maximum amount potentially payable under the new agreement is capped at £8.0m and the total deferred

consideration liability including sums to which other third parties are entitled on a contingent basis is now £9.3m (2010: £10.5m). The Group will continue to seek opportunities to acquire closed offshore life insurance companies, but will not acquire further non-life businesses.

//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////

/////////////////////// The life run-off business on the Isle of Man continues to operate

profitably. In November we completed the acquisition of Alico Isle of Man Limited, which provides investment life insurance products and was closed to new business in 2008. We have rationalised its operations by integrating its management into our insurance services business and are in the process of transferring the life business into our life run-off insurance company. The acquisition had little impact on 2011 results as it occurred so late in the year.

The non-life run-off businesses made an overall loss for the year. Their fourth quarter results experienced a variety of adverse developments and Cardrow suffered a number of small losses mainly attributable to legal costs concerning third party personal injury claims.

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18 How we manage risk

The Group’s risks reflect the fact that our activities largely involve providing professional

services to global insurance businesses. We do not underwrite new insurance risks on our

own account and the risks we take in relation to run-off insurance are limited by deferred

consideration mechanisms, reinsurance and other risk management measures. The principal

risks fall into the four categories of business, financial, information technology and regulatory

compliance risks. Risk management is an important component of the Group’s governance

process (as explained on page 32).

1. Business risks

Type of risk Risk description Risk mitigation

Revenue

concentration

Around 35% of the Group’s revenues are derived from our management of the Standard Clubs and Signal Mutual.

We invest significant senior time and resource in client relationship management to ensure our mutual clients’ current and future needs are consistently met.

Mutual management is a very long term relationship with deep connections between manager and mutual, which provides opportunities to identify and address any issues.

Our strategy to grow our Professional Services businesses across the insurance market will dilute revenue concentration over time.

Service quality

As a professional services business our reputation, and the potential for repeat business is dependent on the delivery of a quality work product.

We have policies, procedures and training to minimise the risk of failure to carry out the provision of services with the required level of competence, care and efficiency.

Service levels are monitored and control processes are regularly reviewed, including procedures for supervision and peer review of work.

We purchase professional indemnity insurance to mitigate the financial impact of claims that may arise.

People

All our businesses depend on experienced and well qualified professionals to deliver our services. Loss of business could result from individuals or teams leaving for competitors.

We ensure that remuneration and benefits, career opportunities, working conditions and staff recruitment processes are carefully planned and implemented to ensure that suitable personnel are attracted to work in the Group and are retained.

Job roles, organisation structures and management processes and procedures are intended to ensure that staff across the world are properly managed and know their responsibilities and limits within the authority delegated to them. Management processes are intended to align employees’ objectives with those of shareholders.

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1. Business risks

(continued)

Geographical

spread and

range of

services

The Group has a large number of business units, business lines and widespread office locations. There is a risk that we could fail to properly manage one area of the business or spot a breakdown in the management reporting.

We have established clear budgetary and other financial control processes within the management of business units. Organisation structures are planned to ensure that control is maintained and that business units are managed by personnel of suitable quality and experience.

Our senior management maintains contact with all businesses, both through the business management structure and directly.

Conflicts of

interest

The Group faces potential conflicts of interests in our loss adjusting business where we may find ourselves instructed on both sides of a claim or on a claim involving one of our mutual clients. We also face potential conflicts between the ownership and fair settlement of claims of run-off insurance companies.

We operate clear policies and procedures to manage the risk that work performed for one client may be in conflict with the interests of another client.

We have adopted a philosophy of transparency and openness, to ensure that potential conflicts are identified and managed appropriately.

Acquisitions

We are exposed to risks in the evaluation of acquisition targets involving an inaccurate assessment of the profitability, management qualities, difficulty of integrating the business or due diligence failures.

Our focus is on organic growth, however, where relevant, appropriate resources are devoted to acquisition search, evaluation, due diligence, negotiation with vendors and post-acquisition planning, in terms of both management time and external professional advice. All significant acquisitions are approved by the Board, having typically received prior approval from subsidiary boards and/or management committees.

Insolvency of

insurance

companies in

run-off

The non-life insurance companies owned by Charles Taylor are all subject to a varying but small probability of becoming insolvent. The most likely triggers for this would be asset failure or severe deterioration of liabilities.

The solvency of insurance companies in run-off is carefully monitored and steps are taken to optimise assets and reduce liabilities wherever appropriate. The Group is under no obligation to contribute further capital and does not intend to do so.

Business

continuity

The business is exposed to the risk of major business continuity disasters, such as avian flu, fire, terrorist attack or other disaster. The difference between avian flu and most other disasters is that over a period it could disrupt activity in multiple offices around the world.

The Business Continuity Planning (“BCP”) Committee regularly reviews the Group’s readiness for business continuity events. We run regular BCP trials at our major offices, including a full BCP trial at our head office in 2011.

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20 How we manage risk

continued

2. Financial risks

Liquidity

Cash inflow may be insufficient to cover outgoings, or outgoings may be planned at an unaffordable level. Banking facilities might be withdrawn or not renewed. Refinancing may not be secured for amounts outstanding when a facility expires. Facility headroom may be insufficient.

We carefully manage working capital and credit control and monitor relevant performance indicators in order to identify appropriate management steps.

Further information on management of liquidity and foreign exchange risks is given in note 25 to the accounts. There are regular cash flow forecasts to project the future funding position and to monitor expected headroom against banking facilities and covenants.

We have initiated our “driving down debt initiative” in 2011 to reduce the Group’s working capital requirements.

Pensions

The Group operates four defined benefit pension schemes. We face the risk that the outstanding pension scheme deficits may need to be funded within a short timescale.

The condition of the Group’s defined benefit pension schemes is regularly monitored. There is regular dialogue between the Group and the schemes’ trustees covering investment policy and an assessment of asset and liability risks. All the defined benefit pension schemes are closed to new members and the largest scheme was closed to future accrual from 1 July 2011. Pensionable salary increases are capped by reference to inflation. Trustees and the employer negotiate funding formally every three years.

Tax

We face the risk of a challenge by tax authorities on

Group profits from businesses located in lower-tax jurisdictions, or material increase in tax rates in key jurisdictions.

We operate procedures to ensure compliance with tax legislation and take professional advice when required.

Interest rates

and foreign

currencies

As a business which earns revenues in multiple jurisdictions, we are exposed to the risk of exchange rate movements impacting our performance.

We manage currency risk through operational controls and by the non-speculative use of financial instruments such as swaps and forward contracts.

Credit

exposure

We are exposed to credit risks when work is performed for clients who do not pay in advance and when funds are deposited with financial institutions.

Credit risk is managed by monitoring and managing counterparty exposure and by conventional credit control procedures.

We have initiated our “driving down debt initiative” to reduce working capital requirements in our Adjusting Services business.

Our major mutual clients pay fees in advance for our services.

Fraud

The Group faces risks of misappropriation of

Company assets or client funds by deceptive means such as creating false employee or supplier records or circumventing internal controls.

The Group has a range of policies and procedures to prevent and detect fraud, along with compliance and internal audit reviews and whistleblowing processes.

Financial

reporting

Errors in financial reporting expose us to the risk that our senior management is materially misinformed and is unable to take action in response to financial trends and variances.

There are processes in place to prevent and detect errors in management information and in published accounts and other published financial information.