TheFortheringtonInsuranceGroup

02/04/10 March Financials Released

The Financial Statements for the month of March 2010 have been released today and the detailed statements (Profit & Loss account, Balance Sheet and Cashflow statement) are available at www.thefotheringtongroup.com/financials/Fins201003/Fins201003.html

In summary:
revenues L$10,000 (L$10,850)
earnings L$10,000 = L$0.017 per share (L$10,820 = L$0.018 per share)
earnings pre one-off gains L$0.017 (L$0.018)
Cash L$696,130 (L$696,130)
Insurance Reserve L$250,000 (L$250,000)
net assets L$614,450 = L$1.02 per share (L$613,950 = L$1.02 per share)
shares in issue 600,000

Dividends:
Interim paid on 19 March 10 L$0.008
Final paid today 02 April 10 L$0.008

Commentry on the Financials:
Our March results came in below the mid range we expected at the beginning of March. This was primarily due to an expected increase business done with Second Life Corporates not materialising.

We are today paying a final dividend of L$0.008 for March bringing the total dividend for March to L$0.016. We kept our dividend payout ratio at 95% of earnings vs 95% in the prior month. We remain more than willing to pay out all our monthly earnings in the form of a dividend at times when we have no need to reinvest the profits back into the company. In line with our policy special dividends are only paid as and when we make one-off gains and we do not expect to make such gains on a normal basis. there were no special one-off gains this month.

Our monthly return on equity was 1.6% (1.8%), reflecting the decrease in earnings.

Our cash position remains healthy at L$696,130 and generally follows retained profits after dividends. This month we had a working capital outflow due to much less business being written in advance (i.e. when we write business we are paid in advance which helps our cashflow, of course, when this stops we then lose that benefit), as discussed below. We write short term business and therefore our profits almost entirely convert to cash on a monthly basis. There is of course a small timing difference - we get payment when we write the insurance business but the profits come in at the end of the period relating to the business. However, during this time of largely flat revenues the timing difference is offset by the timing difference in the prior month. During this month we saw a slight timing difference, but nothing of note.

Our insurance reserve remains flat at L$250,000 providing us ample buffer against claims called on our insurance written.

Our net assets increased slightly to L$614,450, equivalent to L$1.02 per share.

We aim to maintain our cash levels to meet the 4 largest potential insurance exposures we have - during February we met this criteria by a factor of 1.3x (1.3x in February). We also aim to cover our largest exposure by 4x - in November our cover was 4.1x (4.1x in February).

Shareholders are also reminded that we plan to pay out at least 90% of earnings in the form of a dividend in the initial months of the company to build a track record. Hence, NAV growth will be limited.

Commentry on the Business:
As has always been the case, from a top level view, the health of the markets we operate in is governed by the level of business within Second Life. The level of business determines the requirement for insurance and the frequencey of the requirement for insurance. We benefit not only by the level of the SL economy but also by the number of transactions done. Almost every transaction potentially needs insurance.

Our revenues (insurance written) is aimed at two groups: (1) Corporates in SL; (2) reseidents in SL who wish to insure their investments going to nil through events other than normal business failure.

For both business groups, we resist pressure to reduce our rates or lengthen our insurance terms - risk does not change with a decline (perhaps goes up even) and therefore we are hold our prices.

During March we aimed to increase our business written to corporates. In January / February we took a decision to increase our exposure to this area whilst reducing our exposure to SL Residents in order to bring our Corporate exposure up towards inline with our SL Resident exposure.

However, in the event we were unable to do this and therefore our business remained flat. Hence, as at the end of the month, we had a total exposure to Corporates of L$450,000. It should be noted that this is a month end number and the average was higher The mix of our business to Corporates does vary during the month and from month to month.

The main reaons for being unable to increase our business done with SL Corporates was due to a number of customers in the newer business areas (non land, non currency) experiencing slower trading and the steady stream of one-off events just not occuring.

Furthermore, one of our customers has suffered a loss on some business that we insured. It was a transaction insurance where we have decided to call a halt to proceedings before the potential loss gets too much by ceasing to provide insurance to further parts of this transaction. At this stage we continue to be in negotiation with this client about where our insurance covered their loss, if at all.

Shareholders should be aware that we have a process to go through when we pay a claim, the final point being is that we take ownership of loss (in effect, we pay the insurance to the client and the client then gives us the right to pursue the loss on our own account). At this stage we have not reached agreement as to where the loss resides.

Hence, we are not yet recognising any loss but we have been able to quantify the loss at L$4,000 - L$6,000. We expect to know during April where we stand and hence it is likely that we recognise the loss, if at all, during April. We would have two choices of what to do with this loss. We could either take the hit in the P&L and therefore reduce the ability to pay a dividend in that month, or we could reduce our insurance reserve and so lessen our insurance capacity going forwards.

We will update shareholders when further news becomes apparent.

We continue to turn away many companies seeking our business. The reasons mostly fall into the categories of: lack of track record; CEOs with a poor track record; or corporates under current issues.

We feel we must emphasis that our business to SL Corporates is not affected by poor trading, we never write insurance to guard against poor trading.

Our insurance written to residents remains focused on companies trading on the ISE. Hence, our business here is driven by the number and value of customers dealing on the ISE.

Whilst our business has been stable for some five months now we took a decision to reduce our exposure to SL Residents in January / February. Our main driver to reducing our exposure to SL Residents is that we wanted to bring our target Corporate exposure up towards half our business.

Our business to SL Residents has become more concentrated reflecting a recent review of our insurance written. Visibility does, however, remain uncertain and business is sporadic at best. At this stage, we do not have plans to expand onto other exchanges. We have noted additional competition coming into the market and we will monitor the ongoing environment.

Outlook:
As we announced to the Exchange on the 26 March it was apparent in the final week of March that many of our non-traditional business customers (i.e. non-land, non-currency) either planed to do less business over the Easter weekend or none at all, and therefore did not require our insurance for that period, some extending to the first half of the month.

We estimate that this will reduce our earnings by 15% to 20% = cL$1,500. We do not yet know when these customers will come back after Easter though we would expect to have a much better view by the second weekend in April.

However, shareholders should be warned that if they dont all come back and if we need to recognise the loss described above then we are unlikely to generate any profits during April.

Hence, at this stage we are unable to give any earnings guidance for April and therefore also unable to give any dividend guidance.

We will update shareholders of any developments in a timely manner as the month progresses.

The accounting policies can be found at this link: www.thefotheringtongroup.com/financials/accountingpolicies/accountingpolicies.html