MSL Legal Expenses Limited - Limited company accounts 11.7

REGISTERED NUMBER: 02210857 (England and Wales)

STRATEGIC REPORT,

REPORT OF THE DIRECTORS AND

AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2014

FOR

MSL LEGAL EXPENSES LIMITED

Page

Company Information

1

Strategic Report

2

to

4

Report of the Directors

5

to

6

Report of the Independent Auditors

7

Profit and Loss Account

8

Balance Sheet

9

Notes to the Financial Statements

10

to

16

DIRECTORS:

N D Garner

P J Cookson

SECRETARY:

S A Garner

REGISTERED OFFICE:

No. 1 Lakeside

Cheadle Royal Business Park

Cheadle

Cheshire

SK8 3GW

REGISTERED NUMBER:

02210857 (England and Wales)

AUDITORS:

Allens Accountants Limited

Statutory Auditor and

Chartered Accountants

123 Wellington Road South

Stockport

Cheshire

SK1 3TH

The directors present their strategic report for the year ended 31 December 2014.

REVIEW OF BUSINESS

The company income reduced comparative to 2013 with 2014 being the first full year following the implementation, on

the 1 April 2013, of the Legal Aid, Sentencing and Punishment of Offenders Act 2013 (LASPO). Under the LASPO

Act:

- A referral fee ban was introduced resulting in the payment and receipt of commissions to and from solicitors being

prohibited.

- After the Event Insurance premiums, in most cases, ceased to be recoverable from third party defendants.

- Solicitors are no longer able to recover a success fee from defendants.

- Qualified one way cost shifting was introduced which reduced the risk on legal expenses insurance policies.

As a consequence of the implementation of the LASPO Act, the company reviewed its activities in order to maintain a

regulatory compliant operating model going forward. Income from personal injury cases and after the event insurance

premiums has reduced significantly which reflect the changes to the fixed recoverable fees in personal injury cases, the

lower risk exposure on after the event policies and the prohibition of commission payments to solicitors.

The company has increased the balance sheet reserves in 2014 following a full review of the legal expenses insurance

business and will continue to monitor and amend the reserves regularly. The directors consider the current level of

reserves on the balance sheet to be adequate.

Staffing levels within the company are continually reviewed to ensure maximum efficiency whilst maintaining high

levels of customer service and the average staff numbers were reduced to 59 (2013: 66).

The company continues to focus on key areas of income generation and cost control throughout the 2015 financial year

and is achieving growth in profits, which are above forecast.

Finally, we would like to thank our customers and employees for their ongoing support of the business and their

contribution towards our success.

PRINCIPAL RISKS AND UNCERTAINTIES

Reserving risk

The company adopts a vigilant approach to reserving, ensuring that any assumptions are sufficiently robust to meet its

liabilities. The reserving policy is designed to reduce volatility, with any material changes to reserving policy being

subject to board approval.

Credit risk

The risks considered are that a bank defaults on amounts held for or due to the company. The company's exposure to

credit risk has been assessed in the context of the credit worthiness of the relevant counterparties and is controlled and

managed accordingly.

Liquidity risk

Liquidity is not a significant risk to the company as it has surplus cash reserves. Cash flow forecasts show no

requirement for additional funding and operations can be comfortably funded from existing cash reserves.

Future risk

The principal market in which the company operates is subject to 2 key areas of future risk:

1. The Government has implemented changes to the allocation of medical experts and introduced a system of

accreditation for low value personal injury claims in road traffic accidents. MedCo is a new system for sourcing medical

reports in soft tissue injury claims brought under the pre-action protocol with effect from 6 April 2015. The changes

present both a threat to current income in the company's in house agency MSL Medical Reporting relating to existing

business; however there is also an opportunity to generate new business through MedCo from 6 April 2015.

2. Potential reforms to an increase in the small claims limit which, if increased, would have a significant effect on the

personal injury, before and after the event insurance business. However, the government, in assessing whether to

increase the small claims limit, has decided to leave the limits unchanged, although such an increase may be considered

again at a later date.

In respect of the future risks and uncertainties the company will maintain a watching brief and monitor the position very

closely with a view to developing products and alternative models when all the changes and implementation dates are

finalised.

FINANCIAL KEY PERFORMANCE INDICATORS

The company turnover reduced for the year by 16% to £5.2m (2013: £6.2m).

The profit for the year, after taxation but before dividends, amounted to £0.2m (2013: £0.6m).

The shareholders' funds of the Company were £1.1m at 31 December 2014 (2013: £0.9m).

OTHER KEY PERFORMANCE INDICATORS

The number of before the event insurance policies sold in 2014 reduced by 30% from 2013. The significant reduction is

largely explained by the move away from global policy sales for motor following the implementation of LASPO on 1

April 2013.

The complaints ratio (no. complaints received / annual policy sales) in 2014 was 0.11% against an approximate

complaints ratio for the general insurance industry of 0.40%. All complaints settled via the Financial Ombudsman

Service (FOS) were found in favour of the company.

FUTURE DEVELOPMENTS & GOING CONCERN

The financial statements for the company are prepared on a going concern basis in accordance with UK Generally

Accepted Accounting Standards.

The directors have a reasonable expectation that the company has adequate resources to continue in operational

existence for the foreseeable future. The directors have reached this conclusion giving due consideration to the projected

future performance of the company and any potential risk that might impact the company's ability to meet its required

solvency levels. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

ON BEHALF OF THE BOARD:

N D Garner - Director

27 April 2015

The directors present their report with the financial statements of the company for the year ended 31 December 2014.

PRINCIPAL ACTIVITY

The principal activity of the Company is the underwriting of legal expenses insurance and associated claims handling

including first notification of loss, personal injury, medical reporting, rehabilitation, credit hire, credit repair and

uninsured loss recovery. The Company also provided employment law solutions for small and medium sized

enterprises; however this division was transferred to Group Company Opsium Limited with effect from 1st January

2014.

DIVIDENDS

No dividends will be distributed for the year ended 31 December 2014.

DIRECTORS

The directors shown below have held office during the whole of the period from 1 January 2014 to the date of this

report.

N D Garner

P J Cookson

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Report of the Directors and the financial statements in accordance with

applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors

have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting

Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not

approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the

company and of the profit or loss of the company for that period. In preparing these financial statements, the directors

are required to:

-	select suitable accounting policies and then apply them consistently;

-	make judgements and accounting estimates that are reasonable and prudent;

-	state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

-	prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the

company's transactions and disclose with reasonable accuracy at any time the financial position of the company and

enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for

safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud

and other irregularities.

STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS

So far as the directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies Act

2006) of which the company's auditors are unaware, and each director has taken all the steps that he ought to have taken

as a director in order to make himself aware of any relevant audit information and to establish that the company's

auditors are aware of that information.

AUDITORS

The auditors, Allens Accountants Limited, will be proposed for re-appointment at the forthcoming Annual General

Meeting.

ON BEHALF OF THE BOARD:

N D Garner - Director

27 April 2015

We have audited the financial statements of MSL Legal Expenses Limited for the year ended 31 December 2014 on

pages eight to sixteen. The financial reporting framework that has been applied in their preparation is applicable law and

United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the

Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those

matters we are required to state to them in a Report of the Auditors and for no other purpose. To the fullest extent

permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's

members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Statement of Directors' Responsibilities set out on page five, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give

reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.

This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and

have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by

the directors; and the overall presentation of the financial statements. In addition, we read all the financial and

non-financial information in the Strategic Report and the Report of the Directors to identify material inconsistencies with

the audited financial statements and to identify any information that is apparently materially incorrect based on, or

materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of

any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

-	give a true and fair view of the state of the company's affairs as at 31 December 2014 and of its profit for the year then ended;

-	have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

-	have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Strategic Report and the Report of the Directors for the financial year for

which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you

if, in our opinion:

-	adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

-	the financial statements are not in agreement with the accounting records and returns; or

-	certain disclosures of directors' remuneration specified by law are not made; or

-	we have not received all the information and explanations we require for our audit.

Paul Wright (Senior Statutory Auditor)

for and on behalf of Allens Accountants Limited

Statutory Auditor and

Chartered Accountants

123 Wellington Road South

Stockport

Cheshire

SK1 3TH

27 April 2015

TURNOVER

2

5,232,343

6,227,410

Administrative expenses

5,003,285

5,408,760

OPERATING PROFIT

4

229,058

818,650

Interest receivable and similar income

233

-

229,291

818,650

Interest payable and similar charges

5

-

2,880

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

229,291

815,770

Tax on profit on ordinary activities

6

53,673

184,022

PROFIT FOR THE FINANCIAL YEAR

175,618

631,748

Retained profit brought forward

860,301

823,972

1,035,919

1,455,720

Dividends

7

-

(595,419

)

RETAINED PROFIT CARRIED FORWARD

1,035,919

860,301

CONTINUING OPERATIONS

None of the company's activities were acquired or discontinued during the current year or previous year.

TOTAL RECOGNISED GAINS AND LOSSES

The company has no recognised gains or losses other than the profits for the current year or previous year.

FIXED ASSETS

Tangible assets

8

30,842

46,973

Investments

9

-

2

30,842

46,975

CURRENT ASSETS

Debtors: amounts falling due within one year

10

2,607,243

1,896,190

Debtors: amounts falling due after more than one year

10

1,383,129

500,000

Cash at bank

135,656

603,635

4,126,028

2,999,825

CREDITORS

Amounts falling due within one year

11

2,355,904

1,238,456

NET CURRENT ASSETS

1,770,124

1,761,369

TOTAL ASSETS LESS CURRENT LIABILITIES

1,800,966

1,808,344

PROVISIONS FOR LIABILITIES

13

715,047

898,043

NET ASSETS

1,085,919

910,301

CAPITAL AND RESERVES

Called up share capital

14

50,000

50,000

Profit and loss account

1,035,919

860,301

SHAREHOLDERS' FUNDS

19

1,085,919

910,301

The financial statements were approved by the Board of Directors on 27 April 2015 and were signed on its behalf by:

N D Garner - Director

1.	ACCOUNTING POLICIES

Accounting convention

The financial statements have been prepared under the historical cost convention and are in accordance with

applicable accounting standards.

The financial statements for the Company are prepared on a going concern basis in accordance with UK

Generally Accepted Accounting Standards.

The directors have a reasonable expectation that the Company has adequate resources to continue in operational

existence for the foreseeable future and will continue to have the support of the parent company. The directors

have reached this conclusion giving due consideration to the projected future performance of the Company and

any potential risk that might impact the company's ability to meet its required solvency levels. For this reason,

they continue to adopt the going concern basis in preparing the financial statements.

Preparation of consolidated financial statements

The financial statements contain information about MSL Legal Expenses Limited as an individual company and

do not contain consolidated financial information as the parent of a group. The company is exempt under

Section 400 of the Companies Act 2006 from the requirements to prepare consolidated financial statements as it

and its subsidiary undertaking are included by full consolidation in the consolidated financial statements of its

parent, Arete Commercial Holdings Limited, a company registered in England and Wales..

Turnover

Turnover is measured at the fair value of the consideration receivable and represents the total amount receivable

by the company for services provided in the normal course of business, excluding value added tax and trade

discounts.

Tangible fixed assets

Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life.

Fixtures & fittings

-

33% on cost, 20% on cost and 10% on reducing balance

Deferred tax

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance

sheet date.

Hire purchase and leasing commitments

Assets obtained under hire purchase contracts or finance leases are capitalised in the balance sheet. Those held

under hire purchase contracts are depreciated over their estimated useful lives. Those held under finance leases

are depreciated over their estimated useful lives or the lease term, whichever is the shorter.

The interest element of these obligations is charged to the profit and loss account over the relevant period. The

capital element of the future payments is treated as a liability.

Rentals paid under operating leases are charged to the profit and loss account on a straight line basis over the

period of the lease.

Pension costs and other post-retirement benefits

The company operates a defined contribution pension scheme. Contributions payable to the company's pension

scheme are charged to the profit and loss account in the period to which they relate.

Financial reporting standard 1

Under Financial Reporting Standard 1 (Revised 1996) 'Cash Flow Statements', the company is exempt from the

requirement to prepare a cash flow statement on the grounds that it is a wholly owned subsidiary undertaking and

its cash flows appear in a consolidated cash flow statement of a parent company which is available to the public.

2.

TURNOVER

The turnover and profit before taxation are attributable to the one principal activity of the company.

An analysis of turnover by class of business is given below:

31/12/14

31/12/13

£

£

Principal operating activities

3,540,443

3,763,868

Group related activities

1,691,900

2,463,542

5,232,343

6,227,410

3.	STAFF COSTS

31/12/14

31/12/13

£

£

Wages, salaries and social security costs

1,574,480

1,793,574

Other pension costs

34,119

32,965

1,608,599

1,826,539

The average monthly number of employees during the year was as follows:

31/12/14

31/12/13

Office and administration

45

51

Sales and marketing

14

15

59

66

4.	OPERATING PROFIT

The operating profit is stated after charging:

31/12/14

31/12/13

£

£

Hire of plant and machinery

10,319

19,538

Depreciation - owned assets

16,131

30,426

Auditors' remuneration

13,783

13,783

Auditors' remuneration for non audit work

3,620

3,583

Other operating leases

209,271

217,124

Directors' remuneration

7,878

9,199

Directors' pension contributions to money purchase schemes

8,760

8,760

The number of directors to whom retirement benefits were accruing was as follows:

Money purchase schemes

1

1

5.

INTEREST PAYABLE AND SIMILAR CHARGES

31/12/14

31/12/13

£

£

Hire purchase

-

2,880

6.

TAXATION

Analysis of the tax charge

The tax charge on the profit on ordinary activities for the year was as follows:

31/12/14

31/12/13

£

£

Current tax:

UK corporation tax

54,133

196,025

Adjustment in respect of prior years

-

(10,005

)

Total current tax

54,133

186,020

Deferred tax

(460

)

(1,998

)

Tax on profit on ordinary activities

53,673

184,022

Factors affecting the tax charge

The tax assessed for the year is higher than the standard rate of corporation tax in the UK. The difference is

explained below:

31/12/14

31/12/13

£

£

Profit on ordinary activities before tax

229,291

815,770

Profit on ordinary activities

multiplied by the standard rate of corporation tax

in the UK of 21% (2013 - 23%)

48,151

187,627

Effects of:

Expenses not deductible for tax purposes

4,257

3,425

Depreciation in excess of capital allowances

494

2,894

Adjustments to tax charge in respect of previous periods

-

(10,005

)

Change in corporation tax rate

1,231

2,079

Current tax charge

54,133

186,020

7.

DIVIDENDS

31/12/14

31/12/13

£

£

Interim

-

595,419

8.	TANGIBLE FIXED ASSETS

Fixtures

& fittings

£

COST

At 1 January 2014

486,161

Disposals

(212,869

)

At 31 December 2014

273,292

DEPRECIATION

At 1 January 2014

439,188

Charge for year

16,131

Eliminated on disposal

(212,869

)

At 31 December 2014

242,450

NET BOOK VALUE

At 31 December 2014

30,842

At 31 December 2013

46,973

9.	FIXED ASSET INVESTMENTS

Shares in

group

undertakings

£

COST

At 1 January 2014

2

Disposals

(2

)

At 31 December 2014

-

NET BOOK VALUE

At 31 December 2014

-

At 31 December 2013

2

The company's investments at the Balance Sheet date in the share capital of companies include the following:

Opsium Ltd

Nature of business: Employment law solutions

%

Class of shares:

holding

During 2014 the ownership of this company was transferred to the group's ultimate parent company, Arete

Commercial Holdings Ltd.

10.

DEBTORS

31/12/14

31/12/13

£

£

Amounts falling due within one year:

Trade debtors

1,046,123

557,901

Amounts owed by group undertakings

1,291,563

566,660

Other debtors

11,500

25,000

Deferred tax asset

Accelerated capital allowances

6,434

5,974

Prepayments and accrued income

251,623

740,655

2,607,243

1,896,190

Amounts falling due after more than one year:

Amounts owed by group undertakings

1,383,129

500,000

Aggregate amounts

3,990,372

2,396,190

11.

CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

31/12/14

31/12/13

£

£

Trade creditors

706,075

416,250

Amounts owed to group undertakings

227,916

-

Corporation Tax

24,126

54,469

Social security and other taxes

40,302

46,770

VAT

63,714

79,309

Other creditors

6,762

2,004

Directors' current accounts

11,060

7,808

Accruals and deferred income

1,275,949

631,846

2,355,904

1,238,456

12.	OPERATING LEASE COMMITMENTS

The following operating lease payments are committed to be paid within one year:

Land and buildings

Other operating leases

31/12/14

31/12/13

31/12/14

31/12/13

£

£

£

£

Expiring:

Within one year

-

-

4,149

2,983

Between one and five years

-

-

-

5,346

In more than five years

188,541

189,374

-

-

188,541

189,374

4,149

8,329

13.	PROVISIONS FOR LIABILITIES

31/12/14

31/12/13

£

£

Other provisions

Legal expenses policy

claims

715,047

898,043

715,047

898,043

Deferred

Other

tax

provisions

£

£

Balance at 1 January 2014

(5,974

)

898,043

Provided during year

(460

)

(182,996

)

Balance at 31 December 2014

(6,434

)

715,047

The legal claims provision relates to anticipated claim costs on policies sold by the Company and underwritten

by Financial & Legal Insurance Company Limited, a fellow group subsidiary company. Following a change in

2012 to the terms of these underwritten policies, Financial & Legal Insurance Company Ltd only acts as a

guarantor for the policies in the event of the Company being unable to meet its claim liabilities.

Provisions for claims outstanding are determined on an aggregate basis with estimates being made on

information available at the time. The basis of determining the provision incorporates the use of case estimates,

average claim payments and average claim settlements.

Although provisions for claims are based upon the information currently available, subsequent information and

events may show the ultimate liability to be greater, or less, than the amount provided. The methods used and

estimates made are continually reviewed and any resulting adjustments will be reported in the year of settlement

or re-appraisal.

14.	CALLED UP SHARE CAPITAL

Allotted, issued and fully paid:

Number:

Class:

Nominal

31/12/14

31/12/13

value:

£

£

50,000

Ordinary

£1

50,000

50,000

15.	ULTIMATE PARENT COMPANY

The company's immediate parent company is MSL Business Group Limited, a company incorporated and

registered in England and Wales.

The largest group in which the results are consolidated is that headed by its ultimate holding company, Arete

Commercial Holdings Limited, incorporated and registered in England and Wales.

16.	CONTINGENT LIABILITIES

The company is a member of a group registration for Value Added Tax purposes. Under the terms of the

registration, each member is jointly and severally liable for the Value Added Tax liability for all members.

The group liability at the year end was £13,704 (2013 £44,206).