Half Yearly Report

RNS Number : 4385R

Hiscox Ltd

23 August 2010

 



Hiscox Ltd

Interim results for the six months ended 30 June 2010

A healthy profit in tough markets

Hamilton, Bermuda (23 August 2010) - Hiscox Ltd (LSE: HSX), the international specialist insurer, today announces its interim results for the half year ended 30 June 2010.

	H1 2010	H1 2009
Gross premiums written	£904.3m	£906.0m
Net premiums earned	£592.7m	£545.4m
Profit before tax	£97.2m	£141.4m
Earnings per share	20.9p	33.2p
Interim dividend per share	5.0p	4.5p
Net asset value per share	318.9p	259.3p
Group combined ratio	93.6%	87.8%
Group combined ratio before monetary FX	94.8%	78.6%
Return on equity (annualised)	14.8%	27.5%

 Financial highlights

· Interim pre-tax profit £97.2m (2009: £141.4m), despite catastrophe related claims from the UK winter freeze, Chile,

  Windstorm Xynthia and Deepwater Horizon, and a lower investment return environment

· Gross written premiums remained constant at £904.3m (2009: £906.0m)

· Earnings per share 20.9p (2009: 33.2p)

· Interim dividend increased by 11% to 5.0p (2009: 4.5p)

· Combined ratio before monetary FX of 94.8% (2009: 78.6%)

· Investment return of 1.7% for the half year, 3.5% annualised, (2009: 3.4%, 7.0% annualised)

· Return on equity 14.8% (2009: 27.5%)

Operational highlights

· Our local specialist businesses continue to grow well, with Hiscox UK up 11.6%, Hiscox Europe up 12.0% and

  Hiscox USA up 22.5%.

· Our successful brand building in the UK shows that customers are prepared to pay for quality.

· Hiscox London Market showed restraint in a weakening market and reduced income by 15.1%, but opportunities

  are arising in the energy markets.

· Hiscox Bermuda grew by 21.3% as it took advantage of favourable US catastrophe reinsurance rates in the first half on

  behalf of itself and third party capital.  

· $750 million bank facility gives us the capability to exploit market opportunities as they arise.

· Our estimates for the Chilean earthquake and Windstorm Xynthia remain unchanged at possible net claims of £100 million,

  based on an insured market loss of US$8 billion for Chile and US$3 billion for Xynthia. Our estimate for claims from the

  Deepwater Horizon event and the subsequent clean up is also unchanged at less than £10 million.

Robert Hiscox, Chairman, Hiscox Ltd, commented:

"The story remains the same and it is a good one.  Hiscox is defensively placed for these market conditions with a robust book of reinsurance balanced by growing specialist businesses.  When the market turns, which it inevitably will, and interest rates rise, which they must one day, we will have another surge of growth.  In the meantime, we will keep our tinder dry with disciplined, selective underwriting and cautious investing."

ENDS

Contacts

Hiscox
Charles Dupplin, Company Secretary, Bermuda	[phone]
Kylie O'Connor, Head of Communications, London	[phone]
Maitland	[phone]
Anthony Silverman
Rebecca Mitchell

About Hiscox

Hiscox, the international specialist insurer, is headquartered in Bermuda and listed on the London Stock Exchange (LSE:HSX). There are three main underwriting parts of the Group - Hiscox London Market, Hiscox UK and Europe and Hiscox International. Hiscox London Market underwrites internationally traded business in the London Market - generally large or complex business which needs to be shared with other insurers or needs the international licences of Lloyd's. Hiscox UK and Hiscox Europe offer a range of specialist insurance for professionals and business customers, as well as high net worth individuals. Hiscox International includes operations in Bermuda, Guernsey and USA.

For further information, visit www.hiscox.com.

 Chairman's statement

A pre-tax interim profit of £97.2 million against a backdrop of large natural catastrophes, much tougher investment markets and continued investment in our brand, our US offices and our direct operations is a testament to the strength of our business. Selective underwriting and sensible reinsurance buying reduced the impact of the losses, and shrewd investing helped produce a good return within the constraints of our conservative investment parameters.

The Group's long-term strategy of building a well-balanced international insurance group continues to develop well. Our regional businesses, which focus on specialist lines that are less prone to the pressures of the cycle, have shown healthy growth.  Europe's underwriting performance has rebounded in the absence of the series of unconnected claims that blighted the first half of 2009. Our London Market business continues to underwrite with discipline, trimming its sails to the prevailing market winds and will take advantage of improving conditions in the offshore energy market. We continue to reserve prudently and have released £93 million from prior years (2009: £73 million).   

Results

Pre-tax profits for the half year to 30 June 2010 of £97.2 million (2009: £141.4 million). Gross written premiums remained constant at £904.3 million (2009: £906.0 million). Net premiums earned improved to £592.7 million (2009: £545.4 million). The Group combined ratio rose to 93.6% (2009: 87.8%) as a result of the string of catastrophe losses and before monetary FX to 94.8% (2009: 78.6%). Earnings per share fell to 20.9p (2009: 33.2p) and net assets per share rose to 318.9p (2009: 259.3p).

Dividend, balance sheet and capital management

Continuing our policy of progressive dividend growth, the Board has approved an increase in the interim dividend of 11% to 5p (2009: 4.5p) which will be paid on 28 September to shareholders on the register at the close of business on 3 September.

We are focused on growing the value of the business for our shareholders, so I am pleased to report the total net asset value per share (the bedrock under the share price) rose 59.6 pence over the year and 19.7 pence from the end of 2009.

The $750 million banking facility, completed at a competitive rate, gives us the capability to exploit market opportunities that may arise.

We remain prepared to buy-back shares if their price falls to an irresistible level.

Overall comment

Dirk Stuurop resigned as Non Executive Director of Hiscox Ltd on 19 August 2010 due to personal commitments and the consequent difficulty in attending board meetings. We are deeply grateful for the very wise advice he has given us since he joined the board on 11 October 2006, especially in helping us keep our nerve during the banking crisis.

A year ago I wrote that the insurance cycle was alive and well, albeit split, with reinsurance more disciplined than insurance, and I hoped that CEO's would crack their whips to stop the decline in rates, especially when there are such slim investment pickings.  Well it would appear that the record profits last year have caused a triumph of optimism over discipline.  Despite the low investment returns and substantial losses of the first six months of this year, rates in many areas (particularly big ticket risks) have got steadily more competitive.  However, motor and household rates have increased, and the reinsurance market has been steadier.

We are defensively placed as 30% of our income comes from reinsurance and our specialist businesses are in control of their own pricing.  We are reaping the reward of our heavy investment in the brand (both financial and in living up to the promises) and clients are prepared to pay a little extra for quality.  The message is getting through that insurance is not a commodity and not all insurers behave the same.

Hiscox London Market

This division uses the global licences, distribution network and credit rating available through Lloyd's to serve clients throughout the world.

Profit before tax	£69.8 million (2009: £77.4 million)
Gross written premiums	£383.1 million (2009: £451.4 million)
Combined ratio	82.2% (2009: 86.6%)
Combined ratio before monetary FX	90.7% (2009: 66.4%)

Gross written premium income in our London Market unit reduced by 15% due to deliberate shrinking of lines where rates are under the greatest pressure, particularly large US property and catastrophe exposed small property. 

The combined ratio improved despite the impact of claims from the Chilean earthquake, Windstorm Xynthia and the Deepwater Horizon energy loss, but helped by foreign exchange gains of £20.9 million. 

As ever I am writing this in the midst of the hurricane season. After a benign year in 2009, Mother Nature has shown how capricious she can be. We wait to see if her temper improves.

We are ready to take advantage of improving market conditions in the offshore energy area where we have seen rates rises in excess of 20%.  We expect a further tightening of capacity as competition retreats from the recent series of market losses.

As previously announced, aviation is another sector in which we see potential, and we have recruited a small but experienced team, led by David Slevin, to underwrite an aviation book, subject to the approval of Lloyd's.

If competitive market conditions remain in the big-ticket risk arena, we currently plan to reduce Syndicate 33's capacity to £900 million in 2011 (2010: £1 billion). However, we have doubled Syndicate 3624's capacity next year to £300 million (2010: £150 million) to cater for aviation, the US and a new agreement to provide capacity to Dual International, a professional liabilities underwriter in Europe and Australia. Capacity for Syndicate 6104, which is funded entirely by external capital providers, remains static at £45 million. 

Hiscox UK and Hiscox Europe

This unit comprises our specialist retail businesses in the UK and mainland Europe.

Profit before tax	£19.6 million (2009: £3.6 million)
Gross written premiums	£248.2 million (2009: £222.1 million)
Combined ratio	93.1% (2009: 106.3%)
Combined ratio before monetary FX	90.9% (2009: 103.0%)

UK

The UK's gross written premiums rose by 11.6% year on year, mainly as a result of growth in our direct and specialty commercial businesses.  We have recently been recognised by the Reputation Institute as having the best reputation among UK insurers in a consumer study of top companies, proof that our investment in marketing is helping to build a brand you can trust.  More tangible evidence is the overall 4% rate increase we have achieved across our household book whilst maintaining premium income.  In a market known for its cut-throat (and often irrational) competition, clients are willing to pay for a better product with better service from a name they can depend on.

The UK maintained a good loss ratio despite a high volume of claims from the winter freeze, the disruption or cancellation of events due to the volcanic ash cloud and claims activity in the solicitors account.  We have decided to withdraw from the solicitors' PI market, where we believe it is impossible to make a satisfactory return from the standard policy terms insurers are currently obliged to sell.

The combined ratio also improved as Hiscox UK continues to find efficiencies and to reduce its cost base. 

Europe

Europe has rebounded from the string of unrelated losses last year.  Good underwriting led by strong management has improved the loss ratio significantly in spite of the impact of Windstorm Xynthia. 

Gross written premiums rose by 12%, boosted by favourable retention rates at the start of the year and growth in the Professional Specialty Commercial and Technology, Media and Telecoms (TMT) businesses. 

Hiscox International

This division comprises our Bermuda, USA and Guernsey units.

Profit before tax	£-6.4 million (2009: £72.3 million)
Gross written premium	£273.1 million (2009: £232.5 million)
Combined ratio	114.0% (2009: 66.9%)
Combined ratio before monetary FX	106.8% (2009: 75.5%)

Bermuda

Gross written premiums grew by 21.3% as Hiscox Bermuda continued to find new opportunities, including the use of additional quota share capacity provided by third parties to take on more attractively priced business in the January renewal season.  Bermuda achieved a small profit despite the reserves we have made for the Chilean earthquake and Windstorm Xynthia.

Guernsey

Hiscox Guernsey remained profitable and stable.  Competition has increased for piracy risks, with new entrants quoting prices which seemingly ignore the amount of recent losses and the fact that the pirates have substantially increased their demands.  Although our underwriters have been raising prices for this niche dramatically, our leadership and expertise in this area has kept orders coming in as, again, buyers want quality and longevity in their insurer.

USA

Hiscox USA delivered solid growth up 22.5%, driven partly by a gradual expansion into admitted lines. The good news is that the core Miscellaneous Errors and Omissions business we started in 2006 is doing well. The bigger ticket business we expanded into in expectation of a hard market following the problems of AIG has found growth difficult due to the government supported AIG becoming even more competitive, but the underwriters are maintaining discipline, competing with intelligent underwriting and service, not just on price.  Their time will come.  The difficult area has been our longstanding Global Technology account (previously written in London) which has had a number of claims from the larger insured companies.  The competition has been more optimistic than us and continued to quote premiums we consider inadequate, so we have retreated from the larger risks, ready to return if rates improve.  We will continue to expand the specialist lines and be extremely selective in the larger business until conditions improve.  

Investments

Assets under management at 30 June 2010 totalled £2,705 million (2009: £2,379 million) and the annualised yield was 3.5% (2009: 7.0%), leading to an investment return on financial assets of £46.6 million (2009: £85.4 million).  Given the low yields on offer from cash and short dated government bonds, a repeat of 2009 was never on the cards.  In the context of what was available therefore, the portfolio delivered a creditable result.

The main contribution has come from our allocation to bonds and especially from the corporate exposure contained within the portfolios. We have benefited from the better returns available in the corporate sector where balance sheets and liquidity are improving compared to many sovereign borrowers where the reverse is true.  The Group continues to hold no sovereign debt of Greece, Italy, Ireland, Portugal or Spain.  The Government bond exposure is high in quality and short in duration. As the second quarter demonstrated, volatility is likely to rear its head from time to time causing short term price fluctuations but we are willing to hold our bonds to maturity if necessary.  Cash remains an unexciting asset class from an investment standpoint and we maintained a low but prudent level during the period. 

Our portfolio of equities and hedge funds proved particularly resilient during the second quarter's turbulence and comfortably outperformed the broader indices.  Exposure was held at approximately 5% of assets with some modest additions made at moments of market weakness in the second quarter.

Recent events and economic evidence point to the likelihood of interest rates staying lower for longer.  The higher yields on offer in certain areas of the non-government bond market are therefore likely to persist and we would expect to maintain our allocation, providing interest rate rises continue to be deferred and valuations do not become extreme. The outlook remains very uncertain and parts of the market are still being artificially supported. Our focus remains on caution and conservatism.

Outlook

Capacity in the world insurance market remains plentiful despite insured disaster losses of $22 billion in the first six months of this year, and is likely to continue to remain so in the absence of any market-turning hurricanes over the coming months.  But competition is the norm rather than the exception in our markets.

The Hiscox story remains the same and it is a good one.  Hiscox is defensively placed for these market conditions with a robust book of reinsurance balanced by growing specialist businesses.  When the market turns, which it inevitably will, and interest rates rise, which they must one day, we will make another surge of growth.  In the meantime, we will keep our tinder dry with disciplined, selective underwriting and cautious investing.

Robert Hiscox

Chairman

23 August 2010

Condensed consolidated interim income statement

for the six month period ended 30 June 2010

	Note	6 months to 30 June 2010	6 months to  30 June 2009	Year to   31 Dec 2009
		£000	£000	£000
Income
Gross premiums written	7	904,326	906,029	1,435,401
Outward reinsurance premiums		(220,627)	(214,625)	(278,378)
Net premiums written		683,699	691,404	1,157,023
Gross premiums earned		735,218	668,169	1,363,698
Premiums ceded to reinsurers		(142,469)	(122,770)	(265,596)
Net premiums earned		592,749	545,399	1,098,102
Investment result - financial assets	10	46,600	85,433	182,769
Investment result - derivatives	10	4,149	2,476	396
Other revenues	11	10,595	8,228	19,498
Revenue		654,093	641,536	1,300,765
Expenses
Claims and claim adjustment expenses, net of reinsurance		(324,909)	(231,071)	(463,218)
Expenses for the acquisition of insurance contracts		(147,217)	(127,853)	(256,634)
Administration expenses		(52,868)	(47,566)	(112,627)
Other expenses	11	(50,860)	(48,409)	(116,939)
Foreign exchange gains/(losses)	19	22,022	(42,820)	(25,554)
Total expenses		(553,832)	(497,719)	(974,972)
Results of operating activities		100,261	143,817	325,793
Finance costs	12	(3,179)	(2,429)	(5,293)
Share of profit of associates after tax		70	-	118
Profit before tax		97,152	141,388	320,618
Tax expense	13	(18,542)	(19,309)	(40,121)
Profit for the period (all attributable to owners of the Company)		78,610	122,079	280,497
Earnings per share on profit attributable to owners of the Company
Basic	15	20.9p	33.2p	75.2p
Diluted	15	20.0p	31.8p	72.3p

The notes to the condensed consolidated interim financial statements are an integral part of this document.

Condensed consolidated interim statement of comprehensive income

For the six month period ended 30 June 2010, after tax

		6 months to 30 June 2010 £000	6 months to  30 June 2009 £000	Year to   31 Dec 2009 £000
Profit for the period		78,610	122,079	280,497
Other comprehensive income Currency translation differences (net of tax of £nil)		34,363	(78,075)	(69,589)
Total other comprehensive income/(expense)		34,363	(78,075)	(69,589)
Total comprehensive income recognised (all attributable to owners of Company)		112,973	44,004	210,908

The notes to the condensed consolidated interim financial statements are an integral part of this document.

Condensed consolidated interim balance sheet

at 30 June 2010

	Note	30 June 2010	30 June 2009	31 Dec 2009
		£000	£000	£000
Assets
Intangible assets		53,283	49,775	50,413
Property, plant and equipment		19,230	19,120	22,244
Investment in associates		7,388	7,200	7,318
Deferred tax		19,049	7,761	14,077
Deferred acquisition costs		172,685	172,991	141,505
Financial assets carried at fair value	17	2,361,504	1,945,448	2,413,300
Reinsurance assets	14	586,905	528,069	420,126
Loans and receivables including insurance receivables		622,020	592,496	488,782
Cash and cash equivalents		357,544	434,099	259,647
Total assets		4,199,608	3,756,959	3,817,412
Equity and liabilities
Shareholders' equity
Share capital		20,267	20,115	20,158
Share premium		14,864	10,701	11,831
Contributed surplus		264,023	320,300	303,465
Currency translation reserve		72,091	29,242	37,728
Retained earnings		830,956	584,493	748,104
Total equity (all attributable to owners of the Company)		1,202,201	964,851	1,121,286
Deferred tax		34,186	27,895	69,673
Insurance liabilities	14	2,528,114	2,289,707	2,122,351
Financial liabilities	17	239	98,000	138,539
Current tax		59,516	34,790	26,080
Trade and other payables		375,352	341,716	339,483
Total liabilities		2,997,407	2,792,108	2,696,126
Total equity and liabilities		4,199,608	3,756,959	3,817,412

The notes to the condensed consolidated interim financial statements are an integral part of this document.

Condensed consolidated interim statement of changes in equity

for the six month period ended 30 June 2010

	Share capital	Share premium	Contributed surplus	Currency translation reserve	Retained earnings	Total
	£000	£000	£000	£000	£000	£000
Balance at 1 January 2010	20,158	11,831	303,465	37,728	748,104	1,121,286
Total recognised comprehensive income/(expense) for the period (all attributable to owners of the Company)	-	-	-	34,363	78,610	112,973
Employee share options :
Equity settled share based payments	-	-	-	-	5,991	5,991
Proceeds from shares issued	109	3,033	-	-	-	3,142
Deferred tax	-	-	-	-	(1,749)	(1,749)
Dividends paid to owners of the Company (note 16)	-	-	(39,442)	-	-	(39,442)
Balance at 30 June 2010	20,267	14,864	264,023	72,091	830,956	1,202,201

The notes to the condensed consolidated interim financial statements are an integral part of this document.

Condensed consolidated interim statement of changes in equity

for the six month period ended 30 June 2009

	Share capital	Share premium	Contributed surplus	Currency translation reserve	Retained earnings	Total
	£000	£000	£000	£000	£000	£000
Balance at 1 January 2009	20,067	9,418	352,078	107,317	462,146	951,026
Total recognised comprehensive income/(expense) for the period (all attributable to owners of the Company)	-	-	-	(78,075)	122,079	44,004
Employee share options :
Equity settled share based payments	-	-	-	-	2,049	2,049
Proceeds from shares issued	48	1,283	-	-	-	1,331
Deferred tax	-	-	-	-	(1,781)	(1,781)
Dividends paid to owners of the Company (note 16)	-	-	(31,778)	-	-	(31,778)
Balance at 30 June 2009	20,115	10,701	320,300	29,242	584,493	964,851

The notes to the condensed consolidated interim financial statements are an integral part of this document.

Condensed consolidated interim cash flow statement

for the six month period ended 30 June 2010

	Note		6 months to 30 June 2010	6 months to  30 June 2009	Year to  31 Dec 2009
			£000	£000	£000
Profit before tax			97,152	141,388	320,618
Adjustments for:
Interest and equity dividend income			(32,351)	(36,568)	(78,298)
Interest expense	12		3,179	2,429	5,293
Net fair value gains on financial investments, derivatives and borrowings			(14,150)	(40,821)	(87,692)
Depreciation and amortisation			3,062	2,797	6,046
Charges in respect of share based payments			5,991	2,049	5,260
Other non-cash movements			(812)	(1,842)	(975)
Effect of exchange rate fluctuations on cash presented separately			(2,890)	38,154	30,844
Changes in operational assets and liabilities:
Insurance and reinsurance contracts			163,754	(88,751)	(58,366)
Financial assets carried at fair value			117,029	63,266	(338,556)
Financial liabilities			-	(48,430)	(52,533)
Other assets and liabilities			(68,906)	753	36,560
Cash flows from operations			271,058	34,424	(211,799)
Interest received			31,422	33,956	74,584
Equity dividends received			929	2,612	3,714
Interest paid			(2,532)	(2,240)	(5,066)
Current tax paid			(27,314)	(8,526)	(1,463)
Net cash flows from operating activities			273,563	60,226	(140,030)
Cash flows from the purchase of property, plant and equipment			(1,147)	(4,644)	(8,802)
Cash flows from the purchase of intangible assets			(2,809)	(2,949)	(2,911)
Net cash flows from investing activities			(3,956)	(7,593)	(11,713)
Proceeds from the issue of ordinary shares			3,142	1,331	2,504
Dividends paid to owners of the Company	16		(39,442)	(31,778)	(48,613)
Net (repayments)/increase of borrowings and financial liabilities			(138,300)	9,445	47,721
Net cash flows from financing activities			(174,600)	(21,002)	1,612
Net increase/(decrease) in cash and cash equivalents			95,007	31,631	(150,131)
Cash and cash equivalents at 1 January			259,647	440,622	440,622
Net  increase/(decrease) in cash and cash equivalents			95,007	31,631	(150,131)
Effect of exchange rate fluctuations on cash and cash equivalents			2,890	(38,154)	(30,844)
Cash and cash equivalents at end of period	20		357,544	434,099	259,647

The notes to the condensed consolidated interim financial statements are an integral part of this document.

Notes to the condensed consolidated interim financial statements

1. Reporting entity

Hiscox Ltd (the 'Company') is a public limited company registered and domiciled in Bermuda. The condensed consolidated interim financial statements for the Company as at, and for the six months ended, 30 June 2010 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interest in associates. The Chairman's statement accompanying these condensed interim financial statements forms the Interim Management Report for the half year ended 30 June 2010.

The Directors of Hiscox Ltd are listed in the Group's 2009 Report and Accounts. A list of current Directors is maintained and available for inspection at the registered office of the Company located at 4th Floor, Wessex House, 45 Reid Street, Hamilton, Bermuda HM 12.

2. Basis of preparation

These condensed consolidated interim financial statements have been prepared in accordance with the Listing Rules issued by the Financial Services Authority. The information presented herein does not include all of the disclosures typically required for full consolidated financial statements. Consequently these financial statements should be read in conjunction with the full consolidated financial statements of the Group as at, and for the year ended, 31 December 2009 which are available from the Company's registered office or at www.hiscox.com. Except where otherwise indicated, all amounts are presented in Pounds Sterling and rounded to the nearest thousand.

After making enquiries, the Directors have an expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason the condensed consolidated interim financial statements have been prepared on a going concern basis and are prepared on the historical cost basis except that pension scheme assets included in the measurement of the employee retirement benefit obligation, and certain financial instruments including derivative instruments are measured at fair value.

The comparative amounts reported herein for the period ended 30 June 2009, are as per those previously reported for that period, except that they have been adjusted for the reclassification of acquisition costs on the purchase of reinsurance contracts from 'Outward reinsurance premiums' to 'Expenses for the acquisition of insurance contracts'. The effect of the reclassification for the period ended 30 June 2009 is an increase to 'Outward reinsurance premiums' of £23,749,000, a decrease in 'Net premiums earned' of £19,766,000 and a decrease in 'Expenses for the acquisition of insurance contracts' of £19,766,000. The effect on the balance sheet for 30 June 2009 is an increase to 'Reinsurance assets' and an increase to 'Trade and other payables' of £20,057,457. The presentational adjustment has no impact on the Group's previously reported profit before tax, shareholders' equity or result from operating activities. The Directors believe that the amended classification of  the expense and commissions provides a more appropriate presentation of their operating nature.

The Group has also reclassified the 30 June 2009 comparative for deferred tax assets arising from overseas tax jurisdictions from net deferred tax liabilities to deferred tax assets. The reclassification provides a more appropriate presentation due to the increase in the size of the asset. The effect of the reclassification is an increase to deferred tax assets and deferred tax liabilities of £7,761,000. The presentational adjustment has no impact to the Group's previously reported profit after tax, shareholders equity or results from operating activities.

From 1 July 2009, following a new management structure for the geographic lines and as a result of new business written through Syndicate 3624, the Group changed its segmental reporting in order to provide more effective financial reporting for the evaluation of business segments by the chief operating decision maker in order to make decisions about future allocation of resources. The 2009 half year segmental results have been restated accordingly.

Taxes on income for the interim period are accrued using the estimated effective tax rate that would be applicable to estimated total annual earnings.

The independent auditors have reported on the Group's full consolidated financial statements as at, and for the year ended, 31 December 2009. The report of the independent auditors was not qualified. The amounts presented for the 30 June 2010 and 30 June 2009 periods are unaudited.

These condensed consolidated interim financial statements were approved by the Board of Directors on 23 August 2010.

3. Accounting policies and methods of computation

The accounting policies applied in these condensed consolidated interim financial statements are consistent with those applied by the Group in its consolidated financial statements as at, and for the year ended, 31 December 2009. The consolidated financial statements as at, and for the year ended, 31 December 2009 were compliant with International Financial Reporting Standards as adopted by the European Union and in accordance with the provisions of the Bermuda Companies Act 1981. The Interim Report is compliant with IAS 34 Interim Financial Reporting as adopted by the European Union.

The accounting policies are consistent with those of the annual financial statements for the year ended 31 December 2009, except as described below.

IFRS 3 (revised), 'Business combinations', and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 38, 'Investments in associates', and IAS 31, 'Interests in joint ventures', are effective prospectively to business combinations for which the acquisition date is on or after 1 January 2010.

The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared to IFRS 3. The changes will impact the amount of goodwill recognised and the results reported in the period of the combination and future reporting periods. The amendments in IAS 27 require that a change in the ownership interest of a subsidiary, provided that control is maintained, to be accounted for as an equity transaction. As such, a transaction of this nature will no longer give rise to goodwill or gains or losses.  The revised standard has no impact on the Group's results for the period. 

4. Financial, Insurance and other risk management

The Group's financial, insurance and other risk management objectives and policies are consistent with that disclosed in note 3 of the full consolidated financial statements as at, and for the year ended, 31 December 2009. The principal risks and uncertainties are unchanged and may be summarised as insurance risk, equity price risk, interest rate risk, liquidity risk, credit risk, currency risk, capital risk and operational risk.

Since the onset of global concerns regarding sub prime and credit issues during Autumn 2007, the Group has been mindful of the ongoing dislocation in specific asset classes and their resultant impact on investment markets and the solvency of counterparties more generally. The Group continues to monitor all aspects of its financial risk appetite and the resultant exposure taken with caution, and has consequently suffered insignificant defaults on investments held during the period under review.

As detailed in note 17, the Group's investment allocation is broadly comparable to that at 31 December 2009 as outlined in the Group Report and Accounts. The Group also continues to be mindful of the processes required for establishing the reliability of fair values obtained for some classes of financial assets affected by ongoing periods of diminished liquidity. In order to assist users, the Group has disclosed the measurement attributes of its investment portfolio in a fair value hierarchy in note 18 in accordance with the Amendments to IFRS 7, Financial Instruments: Disclosures.

The Group remains susceptible to fluctuations in rates of foreign exchange. In particular between Pound Sterling and the US Dollar.

Profitable trading and strong treasury management has ensured that the Group's balance sheet remains well capitalised and its operations are financed to accommodate foreseen liquidity demands together with a high level of capital sufficient to meet future catastrophe obligations even if difficult investment market conditions were to prevail for a period of time.

5. Seasonality and weather

Historically the Group's most material exposure to catastrophe losses on certain lines of business such as reinsurance inwards and marine and major property risk have been greater during the second half of the calendar year, broadly in line with the most active period of the North Atlantic hurricane season. In contrast a majority of gross premium income written in these lines of business occurs during the first half of the calendar year. The Group actively participates in many regions and if any catastrophic events do occur, it is likely that the Group will share some of the market's losses. Consequently, the potential for significantly greater volatility in expected returns remains during the second half of the year. Details of the Group's recent exposures to these classes of business are disclosed in note 3 of the Group's 2009 Report and Accounts.

6. Related party transactions

Transactions with related parties during the period are consistent in nature and scope with those disclosed in note 39 of the Group's 2009 Report and Accounts.

7. Operating Segments

The Group's operating segments consist of four segments which recognise the differences between products and services, customer groupings and geographical areas. Financial information is used in this format by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The format is representative of the management structure of the segments.

From 1 July 2009, following a new geographic management structure including new business written through Syndicate 3624, the Group changed its segmental reporting to provide more effective financial reporting for the evaluation of business segments by the chief operating decision maker in order to aide decisions regarding the future allocation of resources. Accordingly, the 2009 half year segmental comparatives have been restated in order to enable comparison of results by the user.

The Group's four operating segments are:

London Market comprises the results of Syndicate 33, excluding the results of fine art, UK regional events coverage and non US household business which is included within the results of the UK and Europe. In addition, it excludes the larger TMT business which is allocated to the International segment and an element of kidnap and ransom and terrorism included in UK and Europe.

UK and Europe comprises the results of Hiscox Insurance Company Limited, the results of Syndicate 33's fine art, UK regional events coverage and non US household business, together with the income and expenses arising from the Group's retail agency activities in the UK and continental Europe. It also includes an element of kidnap and ransom and terrorism written in Syndicate 33. It excludes the results of the larger TMT business written by Hiscox Insurance Company Limited.

International comprises the results of Hiscox Insurance Company (Guernsey) Limited, Hiscox Insurance Company (Bermuda) Limited, Syndicate 3624, Hiscox Inc. and Hiscox Insurance Company Inc.. It also includes the results of the larger TMT business written by Hiscox Insurance Company Limited and Syndicate 33.

Corporate Centre comprises the investment return, finance costs and administrative costs associated with Group management activities. Corporate Centre also includes the majority of foreign currency items on economic hedges and intragroup borrowings, further details of these can be found in note 14 of the Group's Report and Accounts for the year ended 31 December 2009. Corporate Centre forms a reportable segment due to its investment activities which earn significant external coupon revenues.

				6 Months ended 30 June 2010
	London Market £000	UK and Europe £000	International  £000	Corporate Centre           £000	Total £000
Gross premiums written	383,072	248,165	273,089	-	904,326
Net premiums written	246,412	234,595	202,692	-	683,699
Net premiums earned	216,787	210,105	165,857	-	592,749
Investment result - financial assets	24,025	4,142	11,367	7,066	46,600
Investment result - derivatives	979	1,604	1,571	(5)	4,149
Other revenues	6,675	1,139	2,774	7	10,595
Revenue	248,466	216,990	181,569	7,068	654,093
Claims and claim adjustment expenses, net of reinsurance	(120,393)	(99,618)	(104,898)	-	(324,909)
Expenses for the acquisition of insurance contracts	(56,501)	(50,469)	(40,247)	-	(147,217)
Administration expenses	(12,886)	(25,424)	(14,437)	(121)	(52,868)
Other expenses	(9,371)	(17,383)	(16,757)	(7,349)	(50,860)
Foreign exchange gains/(losses)	20,893	(4,487)	(11,426)	17,042	22,022
Total expenses	(178,258)	(197,381)	(187,765)	9,572	(553,832)
Results of operating activities	70,208	19,609	(6,196)	16,640	100,261
Finance costs	(382)	(6)	(225)	(2,566)	(3,179)
Share of profit of associates after tax	-	-	-	70	70
Profit before tax	69,826	19,603	(6,421)	14,144	97,152
100% ratio analysis
Claims ratio (%)	55.3	46.6	64.4	-	54.8
Expense ratio (%)	35.4	44.3	42.4	-	40.0
Combined ratio excluding foreign exchange impact (%)	90.7	90.9	106.8	-	94.8
Foreign exchange impact (%)	(8.5)	2.2	7.2	-	(1.2)
Combined ratio (%)	82.2	93.1	114.0	-	93.6
Combined ratio excluding non monetary foreign exchange impact(%)	83.9	92.5	114.0	-	94.3
Total assets before intragroup items and eliminations	2,510,171	851,520	1,296,982	985,991	5,644,664
Intragroup items and eliminations					(1,445,056)
Total assets					4,199,608

				6 Months ended 30 June 2009 Restated
	London Market £000	UK and Europe £000	International £000	Corporate Centre           £000	Total £000
Gross premiums written	451,419	222,103	232,507	-	906,029
Net premiums written	319,164	204,399	167,841	-	691,404
Net premiums earned	235,615	174,660	135,124	-	545,399
Investment result - financial assets	44,399	11,495	27,405	2,134	85,433
Investment result - derivatives	-	2,213	-	263	2,476
Other revenues	5,763	1,303	1,162	-	8,228
Revenue	285,777	189,671	163,691	2,397	641,536
Claims and claim adjustment expenses, net of reinsurance	(75,630)	(99,031)	(56,410)	-	(231,071)
Expenses for the acquisition of insurance contracts	(56,941)	(40,404)	(30,508)	-	(127,853)
Administration expenses	(13,275)	(24,758)	(9,533)	-	(47,566)
Other expenses	(14,311)	(15,941)	(6,914)	(11,243)	(48,409)
Foreign exchange gains/(losses)	(48,034)	(5,910)	12,149	(1,025)	(42,820)
Total expenses	(208,191)	(186,044)	(91,216)	(12,268)	(497,719)
Results of operating activities	77,586	3,627	72,475	(9,871)	143,817
Finance costs	(234)	(12)	(199)	(1,984)	(2,429)
Share of profit of associates after tax	-	-	-	-	-
Profit before tax	77,352	3,615	72,276	(11,855)	141,388
100% ratio analysis
Claims ratio (%)	32.0	56.9	42.3	-	41.2
Expense ratio (%)	34.4	46.1	33.2	-	37.4
Combined ratio excluding foreign exchange impact (%)	66.4	103.0	75.5	-	78.6
Foreign exchange impact (%)	20.2	3.3	(8.6)	-	9.2
Combined ratio (%)	86.6	106.3	66.9	-	87.8
Combined ratio excluding non monetary foreign exchange impact (%)	77.4	104.2	66.9	-	82.3
Total assets before intragroup items and eliminations	2,309,402	730,903	1,274,814	844,322	5,159,441
Intragroup items and eliminations					(1,402,482)
Total assets					3,756,959

				Year ended 31 December 2009
	London Market £000	UK and Europe £000	International £000	Corporate Centre                 £000	Total £000
Gross premiums written	663,034	420,982	351,385	-	1,435,401
Net premiums written	483,611	391,461	281,951	-	1,157,023
Net premiums earned	453,281	367,326	277,495	-	1,098,102
Investment result - financial assets	80,901	34,935	57,765	9,168	182,769
Investment result - derivatives	(1,192)	1,967	(83)	(296)	396
Other revenues	12,841	3,955	2,700	2	19,498
Revenue	545,831	408,183	337,877	8,874	1,300,765
Claims and claim adjustment expenses, net of reinsurance	(175,823)	(195,967)	(91,428)	-	(463,218)
Expenses for the acquisition of insurance contracts	(101,518)	(87,393)	(67,723)	-	(256,634)
Administration expenses	(25,794)	(56,057)	(29,531)	(1,245)	(112,627)
Other expenses	(26,384)	(41,136)	(31,597)	(17,822)	(116,939)
Foreign exchange gains/(losses)	(35,800)	(7,065)	6,989	10,322	(25,554)
Total expenses	(365,319)	(387,618)	(213,290)	(8,745)	(974,972)
Results of operating activities	180,512	20,565	124,587	129	325,793
Finance costs	(616)	(20)	(407)	(4,250)	(5,293)
Share of profit of associates after tax	-	-	-	118	118
Profit before tax	179,896	20,545	124,180	(4,003)	320,618
100% ratio analysis
Claims ratio (%)	38.8	53.4	33.0	-	41.8
Expense ratio (%)	32.2	49.9	45.6	-	40.4
Combined ratio excluding foreign exchange impact (%)	71.0	103.3	78.6	-	82.2
Foreign exchange impact (%)	7.8	1.8	(2.3)	-	3.8
Combined ratio (%)	78.8	105.1	76.3	-	86.0
Combined ratio excluding non monetary foreign exchange impact(%)	71.5	103.9	76.3	-	81.7
Total assets before intragroup items and eliminations	2,096,749	794,228	1,047,645	1,007,587	4,946,209
Intragroup items and eliminations					(1,128,797)
Total assets					3,817,412

8. Net asset value per share

	30 June 2010		30 June 2009		31 Dec 2009
	Net asset value (total equity) £000	NAV per share pence	Net asset value (total equity) £000	NAV per share pence	Net asset  value (total equity) £000	NAV per share pence
Net asset value	1,202,201	318.9	964,851	259.3	1,121,286	299.2
Net tangible asset value	1,148,918	304.7	915,076	246.0	1,070,873	285.7

The net asset value per share is based on 377,003,655 shares (30 June 2009: 372,035,093; 31 December 2009: 374,819,025), being the adjusted number of shares in issue at each reference date. Net tangible assets comprise total equity excluding intangible assets.

9. Return on equity

	6 months to 30 June 2010 £000	6 months to 30 June 2009             £000	Year to 31 Dec 2009          £000
Profit for the period	78,610	122,079	280,497
Opening shareholders' equity	1,121,286	951,026	951,026
Adjusted for the time weighted impact of capital distributions and issuance of shares	(19,485)	(4,565)	(20,429)
Adjusted opening shareholders' equity	1,101,801	946,461	930,597
Annualised return on equity (%)	14.8	27.5	30.1

10. Investment result

i)  Analysis of investment result

The total investment result for the Group before taxation comprises:	6 months to 30 June 2010 £000	6 months to 30 June 2009             £000	Year to 31 Dec 2009          £000
Investment income including interest receivable	31,001	38,947	75,740
Net realised gains on financial investments at fair value through profit or loss	5,598	8,141	19,733
Net fair value gains/(losses) on financial investments at fair value through profit or loss	10,001	38,345	87,296
Investment result - financial assets	46,600	85,433	182,769
Fair value gains/(losses) on derivative financial instruments	4,149	2,476	396
Total result	50,749	87,909	183,165

Investment expenses are presented within other expenses (note 11).  Included within fair value gains/(losses) on derivative instruments above, are derivative gains/(losses) on foreign exchange contracts.

ii)  Annualised investment return

	6 months to 30 June 2010		6 months to 30 June 2009		Year to 31 Dec 2009
	Return £000	Yield %	Return £000	Yield %	Return £000	Yield %
Debt and fixed income securities	48,738	4.4	77,611	8.3	152,954	7.7
Equities and shares in unit trusts	(2,679)	(3.9)	6,141	10.6	26,360	20.7
Deposits with credit institutions/cash and cash equivalents	541	0.3	1,681	0.7	3,455	0.8
	46,600	3.5	85,433	7.0	182,769	7.2

11. Other revenues and expenses

	6 months to 30 June 2010 £000	6 months to 30 June 2009          £000	Year to 31 Dec 2009          £000
Agency related income	2,351	3,166	6,651
Profit commission	6,549	5,049	12,248
Other underwriting income, catastrophe bonds	323	-	410
Other income	1,372	13	189
Other revenues	10,595	8,228	19,498
Managing agency expenses	10,656	12,366	33,051
Overseas underwriting agency expenses	23,840	14,566	47,943
Connect agency expenses	6,107	5,599	11,795
Investment expenses	1,496	1,193	2,690
Other Group expenses including central overheads	8,761	14,685	21,460
Other expenses	50,860	48,409	116,939

12. Finance costs

	6 months to 30 June 2010 £000	6 months to 30 June 2009          £000	Year to 31 Dec 2009          £000
Interest and expenses associated with bank borrowings	1,556	1,118	2,493
Interest and charges associated with Letters of Credit	1,617	1,299	2,780
Interest charges arising on finance leases	6	12	20
	3,179	2,429	5,293

As at 30 June 2010, the total amount drawn by way of Letter of Credit to support the Funds at Lloyd's requirement was $225 million (30 June 2009: £180 million, 31 December 2009: $225 million).

13. Tax expense

The Company and its subsidiaries are subject to enacted tax laws in the jurisdictions in which they are incorporated and domiciled.

The amounts charged in the condensed consolidated income statement comprise the following:

	6 months to 30 June 2010 £000	6 months to 30 June 2009 £000	Year to 31 Dec 2009 £000
Current tax expense	60,750	69,606	53,375
Deferred tax credit	(42,208)	(50,297)	(13,254)
Tax expense	18,542	19,309	40,121

The Group records its income tax expense based on the expected effective rate for the full year.

14. Insurance liabilities and reinsurance assets

	30 June 2010 £000	30 June 2009          £000	31 Dec 2009              £000
Gross
Claims and loss adjustment expenses outstanding	1,775,154	1,556,483	1,549,323
Unearned premiums	752,960	733,224	573,028
Total insurance liabilities, gross	2,528,114	2,289,707	2,122,351
Recoverable from reinsurers
Claims and loss adjustment expenses outstanding	415,072	358,314	328,890
Unearned premiums	171,833	169,755	91,236
Total reinsurers' share of insurance liabilities	586,905	528,069	420,126
Net
Claims and loss adjustment expenses outstanding	1,360,082	1,198,169	1,220,433
Unearned premiums	581,127	563,469	481,792
Total insurance liabilities, net	1,941,209	1,761,638	1,702,225

Net claims and claim adjustment expenses include releases of £93m (30 June 2009: £73m, 31 December 2009: £139m) of reserves established in prior reporting periods.

The development of net claims reserves by accident years are detailed below.

Insurance claims and claims expenses reserves - net at 100%

Accident year ending 31 December **	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	Total
	£000	£000	£000	£000	£000	£000	£000	£000	£000	£000	£000
Estimate of ultimate claims costs as adjusted for foreign exchange*:
at end of accident year**	346,852	282,017	375,897	600,926	708,968	549,710	717,419	805,630	712,520	498,080	5,598,019
one period later**	390,137	307,794	397,341	657,537	815,964	541,194	652,404	719,359	631,590	-	5,113,320
two periods later**	466,454	318,843	360,882	631,264	806,933	523,644	631,478	702,061	-	-	4,441,559
three periods later**	507,564	292,861	371,698	592,065	780,783	479,634	599,185	-	-	-	3,623,790
four periods later**	495,391	287,009	362,919	593,051	769,863	499,873	-	-	-	-	3,008,106
five periods later**	479,974	272,166	357,229	576,926	771,054	-	-	-	-	-	2,457,349
six periods later**	471,509	265,947	353,537	587,087	-	-	-	-	-	-	1,678,080
seven periods later**	473,849	271,802	356,271	-	-	-	-	-	-	-	1,101,922
eight periods later**	474,600	260,903	-	-	-	-	-	-	-	-	735,503
nine periods later**	464,507	-	-	-	-	-	-	-	-	-	464,507
Current estimate of cumulative claims	464,507	260,903	356,271	587,087	771,054	499,873	599,185	702,061	631,590	498,080	5,370,611
Cumulative payments to date	(389,931)	(231,966)	(305,480)	(495,716)	(650,330)	(425,241)	(429,286)	(452,952)	(263,978)	(61,023)	(3,705,903)
Liability recognised at 100% level	74,576	28,937	50,791	91,371	120,724	74,632	169,899	249,109	367,612	437,057	1,664,708
Liability recognised in respect of prior accident years at 100% level											39,804
Total net liability to external parties at 100% level											1,704,512

Reconciliation of 100% disclosures above to Group's share - net

Accident year	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	Total
	£000	£000	£000	£000	£000	£000	£000	£000	£000	£000	£000
Current estimate of cumulative claims	464,507	260,903	356,271	587,087	771,054	499,873	599,185	702,061	631,590	498,080	5,370,611
Less: attributable to external Names	(109,055)	(51,397)	(79,450)	(137,384)	(186,143)	(106,053)	(118,867)	(133,596)	(100,862)	(79,609)	(1,102,416)
Group share of current ultimate claims estimate	355,452	209,506	276,821	449,703	584,911	393,820	480,318	568,465	530,728	418,471	4,268,195
Cumulative payments to date	(389,931)	(231,966)	(305,480)	(495,716)	(650,330)	(425,241)	(429,286)	(452,952)	(263,978)	(61,023)	(3,705,903)
Less: attributable to external Names	88,915	43,902	66,169	117,069	157,623	90,178	81,369	75,558	37,351	9,377	767,511
Group share of cumulative payments	(301,016)	(188,064)	(239,311)	(378,647)	(492,707)	(335,063)	(347,917)	(377,394)	(226,627)	(51,646)	(2,938,392)
Liability for 2001 to 2010 accident years recognised on Group's balance sheet	54,436	21,442	37,510	71,056	92,204	58,757	132,401	191,071	304,101	366,825	1,329,803
Liability for accident years before 2001 recognised on Group's balance sheet											30,279
Total Group liability to external parties included in the balance sheet, net†											1,360,082

* The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 30 June 2010.

** With the exception of the most recent development data for each accident year, which only relates to the 6 months ending 30 June 2010, the term period refers to one full calendar year.

^† This represents the claims element of the Group's insurance liabilities and reinsurance assets.

15. Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by the Group and held in treasury as own shares.

	6 months to 30 June 2010	6 months to 30 June 2009	Year to 31 Dec 2009
Profit for the period attributable to owners of the Company (£000)	78,610	122,079	280,497
Weighted average number of ordinary shares in issue (thousands)	375,956	368,209	372,848
Basic earnings per share (pence per share)	20.9p	33.2p	75.2p

Diluted

Diluted earnings per share is calculated by adjusting the assumed conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares, share options and awards. For the share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

	6 months to 30 June 2010	6 months to 30 June 2009	Year to 31 Dec 2009
Profit for the period attributable to owners of the Company (£000)	78,610	122,079	280,497
Weighted average number of ordinary shares in issue (thousands)	375,956	368,209	372,848
Adjustment for share options (thousands)	17,313	15,139	14,966
Weighted average number of ordinary shares for diluted earnings per share (thousands)	393,269	383,348	387,814
Diluted earnings per share (pence per share)	20.0p	31.8p	72.3p

Diluted earnings per share has been calculated after taking account of outstanding options under both employee share schemes  and also SAYE schemes.

16. Dividends paid to owners of the Company

	6 months to 30 June 2010 £000	6 months to 30 June 2009          £000	Year to 31 Dec 2009          £000
Second Interim dividend for the year ended:
- 31 December 2009 of 10.5p (net) per share	39,442	-	-
Interim dividend for the year ended:
- 31 December 2009 of 4.5p (net) per share	-	-	16,835
Final dividend for the year ended:
- 31 December 2008 of 8.5p (net) per share	-	31,778	31,778
	39,442	31,778	48,613

An interim dividend of 5p (net) per ordinary share has been declared payable on 28 September 2010 to shareholders registered on 3 September 2010 in respect of the six months to 30 June 2010 (30 June 2009: 4.5p (net) per ordinary share). The dividend was approved by the Board on 19 August 2010 and accordingly has not been included as a distribution or liability in this interim consolidated financial information in accordance with IAS 10 Events after the balance sheet date.

17. Financial assets and liabilities

i)  Analysis of financial assets carried at fair value

	30 June 2010 £000	30 June 2009             £000	31 Dec 2009                £000
Debt and fixed income securities	2,199,561	1,815,855	2,255,737
Equities and shares in unit trusts	139,635	120,748	133,841
Deposits with credit institutions	7,839	8,745	11,394
Total investments	2,347,035	1,945,348	2,400,972
Catastrophe bonds	14,071	-	11,310
Derivative financial instruments	398	100	1,018
Total financial assets carried at fair value	2,361,504	1,945,448	2,413,300

ii)  Analysis of financial liabilities

	30 June 2010 £000	30 June 2009             £000	31 Dec 2009                £000
Borrowing from credit institutions carried at amortised cost	-	98,000	138,000
Derivative financial instruments	239	-	539
Total financial liabilities	239	98,000	138,539

iii)  Investment and cash allocation

	30 June 2010		30 June 2009		31 Dec 2009
	£000	%	£000	%	£000	%
Debt and fixed income securities	2,199,561	81.3	1,815,855	76.3	2,255,737	84.8
Equities and shares in unit trusts	139,635	5.2	120,748	5.1	133,841	5.0
Deposits with credit institutions/cash and cash equivalents	365,383	13.5	442,844	18.6	271,041	10.2
Total	2,704,579		2,379,447		2,660,619

iv)  Investment and cash allocation by currency

	30 June 2010 %	30 June 2009                  %	31 Dec 2009                     %
Sterling	26.6	23.6	20.6
US Dollars	63.1	66.1	69.1
Euro and other currencies	10.3	10.3	10.3

18. Fair value measurements

In accordance with the amendments to IFRS 7 Financial Instruments: Disclosures,  the fair value of financial instruments based on a three-level fair value hierarchy that reflects the significance of the inputs used in measuring the fair value is set out below:

As at 30 June 2010	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Debt and fixed income securities	483,947	1,715,614	-	2,199,561
Equities and shares in unit trusts	174	134,519	4,942	139,635
Deposits with credit institutions	7,839	-	-	7,839
Catastrophe bonds	-	14,071	-	14,071
Derivative financial instruments	-	398	-	398
Total	491,960	1,864,602	4,942	2,361,504
As at 30 June 2009	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Debt and fixed income securities	562,915	1,252,940	-	1,815,855
Equities and shares in unit trusts	210	118,516	2,022	120,748
Deposits with credit institutions	8,745	-	-	8,745
Catastrophe bonds	-	-	-	-
Derivative financial instruments	-	-	100	100
Total	571,870	1,371,456	2,122	1,945,448
As at 31 December 2009	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Debt and fixed income securities	627,702	1,628,035	-	2,255,737
Equities and shares in unit trusts	162	129,419	4,260	133,841
Deposits with credit institutions	11,394	-	-	11,394
Catastrophe bonds	-	11,310	-	11,310
Derivative financial instruments	-	1,018	-	1,018
Total	639,258	1,769,782	4,260	2,413,300

As at 30 June 2010, the Group had derivative financial liabilities of £239,000 which are classified as level 2 (30 June 2009: £nil, 31 December 2009: £539,000).

The levels of the fair value hierarchy are defined by IFRS 7 as follows:

- Level 1 - fair values measured using quoted prices (unadjusted) in active markets for identical instruments,

- Level 2 - fair values measured using directly or indirectly observable inputs or other similar valuation techniques for which all significant inputs are based on observable market data,

- Level 3 - fair values measured using valuation techniques for which significant inputs are not based on market observable data.

The fair values of the Group's financial assets are based on prices provided by investment managers who obtain market data from numerous independent pricing services. The pricing services used by the investment managers obtain actual transaction prices for securities that have quoted prices in active markets. For those securities which are not actively traded, the pricing services use common market valuation pricing models. Observable inputs used in common market valuation pricing models include, but are not limited to, broker quotes, credit ratings, interest rates and yield curves, prepayment speeds, default rates and other such inputs which are available from market sources.

The fair value of the Group's investment in catastrophe bonds is based on quoted market prices or, where such prices are not available, by reference to broker or underwriter bid indications.

Investments in mutual funds comprise a portfolio of stock investments in trading entities which are invested in various quoted investments. The fair value of shares in unit trusts are based on the net asset value of the fund reported by independent pricing sources or the fund manager.

Included within Level 1 of the fair value hierarchy are Government bonds, Treasury bills and exchange traded equities which are measured based on quoted prices.

Level 2 of the hierarchy contains US Government Agencies, Corporate Securities, Asset Backed Securities and Catastrophe bonds. The fair value of these assets are based on the prices obtained from both investment managers and investment custodians as discussed above. The Group records the unadjusted price provided and validates the price through a number of methods including a comparison of the prices provided by the investment managers with the investment custodians and the valuation used by external parties to derive fair value. Quoted prices for US Government Agencies and Corporate Securities are based on a limited number of transactions for those securities and as such the Group considers these instruments to have similar characteristics as those instruments classified as Level 2. Also included within Level 2 are units held in traditional long funds and long and short special funds and over the counter derivatives.

Level 3 contains investments in a limited partnership and unquoted equity securities which have limited observable inputs on which to measure fair value. Unquoted equities are carried at cost which is deemed to be comparable to fair value. The effect of changing one or more of the inputs used in the measurement of fair value of these instruments to another reasonably possible assumption would not be significant and no further analysis has been performed.

In certain cases, the inputs used to measure the fair value of a financial instrument may fall into different levels within the fair value hierarchy. In this instance, the fair value of the instrument in its entirety is classified based on the lowest level of input that is significant to the fair value measurement.

During the period, there were no significant transfers made between Level 1 and Level 2 of the fair value hierarchy.  In addition, there were no significant movements in the Level 3 assets from 31 December 2009.

19. Impact of foreign exchange related items

The net foreign exchange gains/(losses) for the year include the following amounts:

	6 months to 30 June 2010 £000	6 months to 30 June 2009            £000	Year to 31 Dec 2009             £000
Exchange gains/(losses) recognised in the consolidated income statement	22,022	(42,820)	(25,554)
Exchange gains/(losses) classified as a separate component of equity	34,363	(78,075)	(69,589)
Overall impact of foreign exchange related items on net assets	56,385	(120,895)	(95,143)

The above excludes profit or losses on foreign exchange derivative contracts which are included within the investment result.

Net unearned premiums and deferred acquisition costs are treated as non monetary items in accordance with IFRS.  As a result, a foreign exchange mismatch arises caused by these items being translated at historical rates of exchange prevailing at the original transaction date and not being retranslated at the end of each period.  The impact of this mismatch on the income statement is shown below.

	6 months to 30 June 2010 £000	6 months to 30 June 2009          £000	Year to 31 Dec 2009          £000
Opening balance sheet impact of non retranslation of non monetary items	(3,207)	50,525	50,525
Gain/(loss) included within profit representing the non retranslation on non monetary items	5,136	(59,468)	(53,732)
Closing balance sheet impact of non retranslation of non monetary items	1,929	(8,943)	(3,207)

20. Condensed consolidated interim cash flow statement

The purchase, maturity and disposal of financial assets is part of the Group's insurance activities and is therefore classified as an operating cash flow. The purchase, settlement and disposal of derivative contracts is also classified as an operating cash flow.

Included within cash and cash equivalents held by the Group are balances totalling £78,428,000 (30 June 2009: £85,321,000; 31 December 2009: £31,607,000) not available for use by the Group outside of the Lloyd's Syndicates within which they are held.

Directors' responsibility statement

The Directors confirm, to the best of our knowledge, that the Chairman's statement and condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and the Interim Statement includes a fair review of the information required by sections 4.2.7R and 4.2.8R of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority, being:

1)    an indication of important events during the first six months of the current financial year and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year;  and

2)    related party transactions that have taken place in the first six months of the current year and that have materially affected  the consolidated financial position or performance of Hiscox Ltd during that period, and any changes in the related party transactions described in the last annual report that could have such a material effect.

The individuals responsible for authorising the responsibility statement on behalf of the Board are the Chairman, RRS Hiscox and the Group Finance Director, SJ Bridges. The statements were approved for issue on 23 August 2010.

 

END

 

 

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