Final Results
Monday 27 February 2012
Hiscox Ltd
Full year results for the year ended 31 December 2011
"Balance provides stability"
|
|
2011 |
2010 |
|
Gross premiums written |
£1,449.2m |
£1,432.7m |
|
Net premiums earned |
£1,145.0m |
£1,131.2m |
|
Profit before tax |
£17.3m |
£211.4m |
|
Profit after tax |
£21.3m |
£178.8m |
|
Earnings per share |
5.5p |
47.2p |
|
Total dividend per share for year |
17.0p |
16.5p |
|
Net asset value per share |
323.5p |
332.7p |
|
Group combined ratio excluding foreign exchange |
99.3% |
89.8% |
|
Group combined ratio |
99.5% |
89.3% |
|
Return on equity |
1.7% |
16.5% |
|
Investment return |
0.9% |
3.6% |
Financial highlights
· Pre-tax profit of £17.3 million (2010: £211.4 million) - a good result considering natural catastrophe losses of £270 million
· Gross written premiums level at £1,449.2 million (2010: £1,432.7 million)
· Earnings per share 5.5p (2010: 47.2p)
· Total dividend for the year increased by 3.0% to 17.0p (2010: 16.5p)
· Net assets per share decreased by 2.8% to 323.5p (2010: 332.7p)
· Combined ratio 99.5% (2010: 89.3%)
Operational highlights
· Robert Hiscox to step down from the Board in 2013
· UK retail business delivers good growth and another record profit of £49.0 million (2010: £28.8 million)
· Hiscox London Market achieved aprofit of £57.6 million (2010: £121.4 million), offsetting catastrophe reinsurance losses with profits in international property, marine, and other specialist lines
· Rates are rising in reinsurance and slowly increasing in other specialty lines
· Hiscox USA is progressing well with 29% growth in core broker lines and over 6,000 policies sold by the direct business in the first year of operation
Robert Hiscox, Chairman of Hiscox Ltd, commented:
"We have made a small profit in an unusually difficult year. Some key rates are rising, we are employing some brilliant talent, we have fledgling businesses poised for growth and profit, and our mature businesses have small market shares and enormous opportunities. I look forward to my final year as Chairman confident that the next era of the business will be rewarding to both shareholders and staff".
For further information:
Hiscox Ltd
Charles Dupplin, Group Company Secretary +1 441 278 8300
Kylie O'Connor, Head of Group Communications, London +44 (0)20 7448 6656
Brunswick +44 (0)20 7404 5959
Tom Burns
Notes to editors
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
Again we have been well and truly tested by Mother Nature and a small profit is a good result in the circumstances. By any measurement, it was a phenomenally catastrophic year with definitely more economic damage caused by natural catastrophes than ever before, including in the second half of the year the major international loss from the Bangkok floods. We were able to absorb these considerable losses, despite much reduced investment returns, through the profits from our specialist books in the London Market, and the retail businesses in the UK, Europe and Guernsey. In particular, a £49.0 million profit from the UK business, the most mature of our retail accounts, demonstrates the potential for our similar accounts in Europe and the US. Our strategy of balance worked well.
Results
The result for the year ending 31 December 2011 was a profit before tax of £17.3 million (2010: £211.4 million) on a gross written premium income of £1,449.2 million (2010: £1,432.7 million). The combined ratio was 99.5% (2010: 89.3%). Earnings per share 5.5p (2010: 47.2p) and net assets per share 323.5p (2010: 332.7p). The return on equity was 1.7% (2010: 16.5%).
Dividend, balance sheet and capital management.
The Board proposes to pay a final dividend of 11.9p (2010: 11.5p) on 19 June 2012 to shareholders on the register on 11 May 2012, making total dividends for the year of 17.0p (2010: 16.5p) an increase of 3%, in line with our policy of steady dividend growth. A scrip dividend alternative to the cash dividend will continue to be offered to shareholders.
The market
As usual, the CEO Bronek Masojada will comment in detail on conditions in the general markets and the performance of our various businesses in them. I can see that rates are rising in many of our key areas, especially those which have suffered large losses, which bodes well for 2012. Some comment that the rises are not big enough but they suit me. If we get a great surge in rates, which happens only rarely and then after a major event following a lean period, prices go too high and start coming down almost immediately. In an ideal world rates would bump along at a level at which good underwriters could make money and the bad ones wither and die. Given that the insurance market is remorselessly cyclical, I like small rises which help margins for the good without encouraging foolishness in the bad.
There is still too much capacity in the insurance world, some of it new from hedge funds and the like. The reinsurance market is more stable than the insurance market as there are fewer well rated reinsurers and more disciplined adherence to catastrophe models. In the insurance market, we daily walk away from risks where uneducated capacity has plunged into the market at rates which can only lose them money. The curse of the industry is that we sell a product the cost of which is only discovered years later when the claims roll in. This breeds optimism, and nobody is more optimistic than the new entrant with no legacy problems (they think), but also no legacy book of business or experience. All existing business in the world is already placed with an insurer, and which broker is going to switch it to a new entrant unless they cut the price or widen the terms?
When I started underwriting (with unlimited liability for the first 21 years - and nothing could make an underwriter more conscious of risk than taking it with everything they own), there was no computer adding up aggregate liabilities. Premium income could be counted, but not the exposure, and claims come from exposure not income. Statistics and management information have improved enormously over the years, and every year I believe that management of our competitors will force commercial discipline on their underwriters, but some foolish underwriting continues. In Lloyd's, if rates are being cut foolishly, the Franchise Director moves in to test the business plan, and if necessary to stop it. I hope the discipline of Solvency II will similarly test the "we will beat whatever price the competition has quoted" underwriting that you even see advertised regularly.
Corporate Governance
I have decided to step down as Chairman of the Board while I still feel near the top of my game and have informed my fellow directors that I would like to retire from the board this time next year when I will have just turned 70. My passion for the business remains undiminished, and I will be available if the new chairman or others wish to draw on my 47 years of experience. The independent directors have instituted a search from both within and without the company, and I know that they will find a suitable candidate to lead the board for the next exciting era of the business.
There is no better fun than building a business. It has been an enormous privilege to lead Hiscox since 1970 when my father died and I am very grateful to those who have helped me to achieve what has been achieved so far. I have always aimed to employ people brighter than I am, and have always believed that a businessman should only be judged a success if the business thrives after he has gone. I am convinced that the current top executives prove that I have achieved my employment ambition, and I know that they have the talent and the drive to create a truly great business well into the future. Since before we became publicly quoted in 1993 we have had strong non-executive directors and I am grateful to them for their excellent advice on our strategy and tactics, and their robust challenge when they see the need. The regulator likes to see evidence of regular robust challenge, but it has to be said that challenge for its own sake is pointless, and if correct decisions are being made, calm agreement can be found without artificial contrarian debate.
We first expanded from Lloyd's into the UK regions in 1989, then into Europe from 1993. We bought an ailing UK insurance company in 1996 which was on the regulator's monthly watch list and have turned it into a thriving company which made £49.2 million last year. We have built successful insurance companies in Guernsey and Bermuda, and have started an insurance company in the US which is growing to profitability. We have developed direct businesses in the UK, France and the US. We have grown from a Lloyd's syndicate to a truly international insurance business, headquartered in Bermuda.
We also have a very strong corporate ethical culture which has led us through some very stormy waters in our early days at Lloyd's when it went through its period of lack of integrity and appalling underwriting in the 1980's and 1990's. I was privileged to play an early part in regulation at Lloyd's when basic standards were being imposed, and a substantial part in the Reconstruction and Renewal of Lloyd's (together with Bronek Masojada who was on the McKinsey team), especially the Renewal through the introduction of Corporate Membership which created a renaissance of the UK insurance industry. With Solvency II the industry is now going through a massive assessment of the capital each business needs by codifying all the risks in great detail into a computer model, and I am glad that our massive housekeeping exercise has thrown up no surprises. Risk is our business and I have spent 47 years assessing it, and as I said before, 21 of them with unlimited liability.
The work we are doing should make us a safer business which brings me comfort as my family and I have a substantial percentage of our worth in Hiscox shares and as I get older I get more risk averse as I cannot make it again. We have always encouraged our staff to buy or hold shares in the company as we strongly believe that a feeling of ownership breeds responsibility, and I know that our investors like the fact that we have plenty of skin in the game.
The future
The general insurance market has had an excellent record for the last 10 years despite enormous natural and man-made catastrophes (although it feels unrecognized with the ever increasing blanket of regulation with which we are smothered). It is an exciting business being in reality bookmaking as we quote odds on almost every conceivable event, loss or tragedy happening around the world. It is a fulfilling career as we enable private ownership and commercial endeavour to flourish through adversity. I think that the boring image, which could not be further from the truth, is dissipating, and we are attracting some extremely talented young people into our business which again bodes well for the future.
We have built a brand based on trust and service and have been rated as the most trusted insurer in the UK. The value of our brand depends on our integrity and our fair treatment of customers which acts as a sharp pencil in the small of the back of every member of staff to live up to the advertised standard. I would like to thank them all for carrying the flag so well.
Some key rates are rising, we are employing some brilliant talent, we have fledgling businesses poised for growth and profit, and our mature businesses have small market shares and enormous opportunities. I look forward to my final year as Chairman confident that the next era of the business will be rewarding to both shareholders and staff.
Robert Hiscox
27 February 2012
2011 Chief Executive's report
As the Chairman has said, 2011 was a year dominated by natural catastrophes. Earthquakes, floods, tornadoes, hurricanes and a tsunami caused insured losses in excess of $100 billion making it one of the most expensive years on record for the industry. The fact that Hiscox made a profit of £17.3 million for the year (2010: £211.4 million) is a demonstration of the strength and resilience of our Group. The UK, Guernsey and European operations and several of our London Market divisions contributed strong profits, which offset the net £270 million (2010: £165 million) in catastrophe related claims reserved in our London and Bermuda reinsurance units, and the lower investment returns.
Our strategy of balance and diversification has therefore shown its value once again. Wewill continue, with ever greater effort, to grow our retail-focused businesses around the world and invest in our specialist businesses in London. This will further enhance our capacity to weather future catastrophes and provide attractive returns to shareholders.
Hiscox London Market
Our London Market business navigated its way through the thick of the storm in 2011 with amazing resilience thanks to its spread of business. Profits in international property, marine, and other specialist lines offset reinsurance losses allowing it to make an aggregate profit of £57.6 million (2010: £121.4 million). This is a fantastic achievement given the exposure it had to the global catastrophes of 2011. Revenues increased marginally to £585.4 million (2010: £572.7 million) showing yet again the truth of the mantra "profit is sanity: revenue vanity". Looking at each business line in turn:
· Reinsurance. Although underweight in most loss affected areas, this team was impacted by the many natural catastrophes in 2011. The team took advantage of distressed conditions following the events in the first half to expand their writings at the important mid-year renewals. They have also continued to build their partnerships with third party providers of reinsurance support. The team retains their nerve and are optimistic about 2012.
· Property. Discipline over many years has seen our core property account shrink, but the result is good. The team have expanded their book into insuring non-catastrophe exposed contractors equipment for fire and theft and this is developing well. In 2012 they have seen upward pressure on rates, and business which had threatened 'never to come back to London', unless written at uneconomic prices, is returning from the US domestic market. This augurs well for the future. The division has also benefited from subrogation recoveries on property claims resulting from the events of 9/11.
· Energy and Marine. This team suffered from the large Maersk Gryphon loss - a North Sea oil platform which was put out of production by poor weather - in the early part of the year, but discipline and its smart spread of business have allowed it to make a profit in the year. In 2012, we reserved $20 million net for the sinking of the Costa Concordia. We expect that this event will result in upward pressure on rates in the marine market.
· Global Response. Our team has continued to serve clients around the world in the terrorism, kidnap and ransom, piracy and political risk areas. Piracy remains challenging as prices are inadequate for the risks being run and our book continues to shrink. The Arab Spring created repatriation losses but again the spread of business allowed the division to perform well in the year.
· Specialty. This division consists of the bloodstock, contingency, personal accident, specie, media and technology businesses written in the London market. It had a very good year. The specie and technology accounts benefited from the settlement of some old claims which resulted in substantial releases from reserves. Our contingency team supported the Rugby World Cup organizers in New Zealand as they dealt with the impact of the Christchurch earthquakes on their seminal event, demonstrating our claims handling ability in such an unusual situation. During the course of the year we closed our bloodstock account as poor rating had caused it to shrink to a size where it was no longer viable.
· Casualty. This was once one of our biggest and most profitable lines, but relentless rate reductions and disciplined underwriting by the team has seen it shrink to less than a sixth of its cyclical high. The account remains profitable: we think that the suicidal competition in the 2012 renewal season will make a turn in pricing inevitable so we are investing in extending our capability in this area.
· Aviation and space. We have had a presence in the space market for many years and this business continues to perform well. Our aviation venture is now in its second year and we have established a small market presence with a reputation as a considered and disciplined participant.
Our London Market business is primarily conducted in London through Lloyd's with a focus on large internationally traded syndicated risks and on the specialist and the unusual. Hiscox is a brand to be proud of, but we know in the global insurance market the continued high regard for the Lloyd's brand and the success of the market as whole is necessary for us to out-perform. We therefore believe in the value of the Lloyd's licenses, the need for a secure, well supervised market and the benefits of shared central services such as policy production, money collection and claims settlement and payment. Some of our competitors believe that they can gain individual advantage by performing many of these tasks themselves, independent of the market. We do not, as we believe that fragmentation will lead to poorer service to clients and brokers leading to an erosion of Lloyd's, and hence our own competitiveness. We are therefore supportive of efforts to improve the volume claims service which acts on behalf of the market and will continue to oppose efforts to fragment this community resource. We are also supportive of Lloyd's efforts to invest in upgrading the central market processing environment, but again with the concern that fragmentation must not be allowed. In all these matters we believe in holding Lloyd's and other central service providers to account, as if they do the job well, more business will flow to London and Lloyd's and we will win more than our fair share of the best business.
Hiscox UK and Europe
Our businesses in the UK and Europe focus on insuring higher net worth personal insurances and small businesses active in areas such as marketing, consulting and other office-based professional services. We market these products both through brokers and direct to the customer. The year saw continued growth, pushing premium income up 9.5% to £498.0 million (2010: £454.7 million). At the same time, we were able to increase our profits in this segment to £51.4 million (2010: £39.6 million), a fantastic result.
· Hiscox UK. Our UK business has become a powerhouse, achieving another record profit of £49.0 million (2010: £28.8 million) despite a big fall in investment income and the competitive market conditions which prevailed. It had substantial top-line growth of 12.3% to £367.1 million (2010: £327.0 million). This result was driven by a focus on disciplined underwriting and by the strength of the Hiscox brand. Most satisfying has been the performance of our high net worth team. They reaped the rewards of their efforts in 2009 and 2010 when, against prevailing market trends, they maintained discipline, increased prices marginally and as a result made a very healthy profit this year. Their nascent luxury motor account also made a good profit - a real achievement in its third year. The commercial business had a reasonable year, despite being challenged by claims arising from mistakes by some of the professionals we insure which have been revealed by the recession.
We have worked for several years to build our distribution with a broader range of partners. In late 2010 we entered into an agreement with the Dual underwriting agency, for them to underwrite and market our products, and our business together has developed well. We have also created a specialist team to focus on Marsh, Aon and Willis, the three largest national brokers with whom we have strong Group relationships but with whom we do little business in the UK. Our business with them is growing slowly, but much remains to be done. We have also created new relationships with a number of independent brokers who have moved books of specialist business to us. We have won their support because our underwriters and operations staff respond to their requests for assistance faster than the competition and because of our reputation for paying valid claims fast and fairly. Not all of our underwriting partnerships have gone well, and at the end of 2011 we cancelled a household partnership which had not performed to our expectations. This will have a negative impact on Hiscox UK's 2012 top-line growth, but we expect that it will have a positive effect on profitability.
Our direct business continues to go from strength to strength and is now a £65 million business. Both our commercial and personal lines units achieved excellent profits in 2011. We have added a new travel product to our personal lines offering and expect to follow with more choices of cover during 2012.
Building the direct business requires us to spend significant amounts on our marketing which offers very tangible benefits to the whole Group and in 2011 we were short-listed as one of the five best brands in the UK at the Marketing Society Awards alongside household names such as John Lewis and British Airways. It is a real achievement for our UK team to have created such a recognizable brand when we operate in what is thought of as a grey industry.
· Hiscox Europe. Although its profits fell to £2.4 million (2010: £10.8 million), 2011 is Europe's third successive year of overall profitability. Most of the profit fall was due to a decline in investment income and a single large reserve. Hiscox Europe is now at the same stage of development as the UK business in 2001 and as its scale grows I expect that profits will grow. The top line was flat at £130.9 million (2010: £127.6 million), though this masks some changes in its business mix. Our art and private client business shrank, as expected, as the impact of underwriting actions taken in 2010 fed through. This decline was offset by growth in the commercial area where our specialist kidnap and ransom, media, technology and related products performed well, as have our partnerships with other financial institutions. Our relationship with the bank BBVA in Spain, through whose branches we sell our specialist commercial products, has performed particularly well.
Despite the economic challenges that Europe faced, and will no doubt face in 2012, we are continuing to invest on the continent. For the past two years we have been building a direct business in France focusing on small commercial lines. In 2012 we will be supporting this direct business with an expanded marketing campaign - in fact our first French television commercial aired in January. Early responses have been positive, and if all goes well we hope to build a direct business to match that in the UK.
Hiscox International
Hiscox International has suffered most visibly from the catastrophe losses in 2011. It swung to a loss of £89.5 million (2010: profit of £43.1 million) and its premiums shrank 9.7% to £365.8 million (2010: £405.2 million). As trends in each business unit within the division vary materially I comment on each separately below:
· Hiscox Bermuda. The focus of our business in Bermuda is overwhelmingly on catastrophe reinsurance so in a year like 2011 it is not surprising that the unit suffered a big loss. Hiscox Bermuda's disciplined underwriting saw its written premiums reducing by 9.5% to £177.7 million (2010: £196.4 million). It is the nature of reinsurance to be volatile but on average the results are very attractive. Since we created our business in Bermuda in 2006 it has achieved an aggregate combined ratio, including 2011, of around 80% - a very respectable result.
· Hiscox USA. The US has made good progress in 2011. Its revenue fell by 15.5% to £108.3 million (2010: £128.2 million) which was mainly due to the withdrawal from two lines of business at the end of 2010 and the transfer of our large technology and media portfolios to Hiscox London Market. It saw strong growth of 29.0% in our core areas of kidnap and ransom, construction, terrorism, media and professional lines and we believe this progress will continue. Our network of offices across the US has been crucial in helping us attract business.
2011 also saw the launch of our US direct commercial offering aimed at start ups and small businesses. We have been building the brand in the US through traditional and digital marketing. We have been using social media in the form of a branded entertainment web TV series called Leap Year, aimed at budding entrepreneurs which has been watched by over 4 million viewers. The series won a coveted Digital Luminary award for branded entertainment in the company of brands like Yahoo and NASA. We have also entered into marketing partnerships with GEICO and other major insurers, a real testament to the quality of the products we have on offer. We sold over 6,000 policies direct to consumers by the end of the year. The trend remains positive and we will continue to invest further in this fledgling business in 2012.
· Hiscox Guernsey. This business underwrites kidnap and ransom, piracy, fine art and terrorism and continues to be a star performer. Its revenues declined marginally to £79.8 million (2010: £80.6 million) despite a very disciplined underwriting approach towards piracy. The team made a profit despite suffering a large fine art loss when a painting was being transported from the auction house to a client. This team is concentrating on expanding its distribution and expects to strengthen this in several territories in 2012.
Claims
Insurance is basically a promise to pay. Claims are where that promise is tested. In 2011 our UK claims team dealt professionally with the welter of claims resulting from the severe winter freezes, while our Bermuda and London Market claims teams have been at the forefront of adjusting and paying claims arising from the string of natural catastrophes. It is pleasing to see that during all of this they kept their promise with prompt and fair payment of valid claims with a smile.
In 2011 we released £199 million (2010: £133 million) from prior years' reserves. We have benefited from some legal victories, most prominently in our long running litigation over subrogation from the World Trade Centre, and from some large technology and professional liability cases. At the end of 2011 our actuarial analysis shows that we continue to hold the same size margin above best estimate as at the end of 2010.
In the UK we took the big step of insourcing all of the claims from our direct to consumer business, recruiting a small number of staff from our outsource partner and expanding the services which we offer to claimants. Our claims service remains one of the best in the industry and in 2011 we were awarded Post Magazine's Commercial Lines and Personal Lines claims team of the year. We continue to invest in claims and a priority in 2012 will be Europe. The challenge is to use our skills on a pan European basis as the individual operations remain quite small.
Investments
2011 was a challenging year for our investments. This is not a surprise given the continuing volatility and uncertainty in world financial markets. We achieved a total return of £25.9 million before derivatives with a yield of 0.9% (2010: £98.8 million, 3.6%).
We started the year concerned about a possible increase in interest rates but happy to take some credit risk and we positioned the bond portfolios accordingly. The stance on duration in particular proved to be too cautious in light of the flight to quality that took place in Government bond markets in the second half. Additionally, in some cases, our non Government bonds incurred mark to market losses. However, we have the resilience to hold these through periods of market turbulence as we will eventually realise value for them as they move to maturity.
We took advantage of some of the market weakness in the summer to increase our equity weighting slightly. Again, we believe we have a strong enough balance sheet to withstand the volatility that inevitably comes with owning shares and are prepared to do so as long as we can see value in the longer term.
Looking forward we expect investment returns to remain depressed. We are not tempted by the range of products which may offer higher apparent returns but would rather accept what the market has to offer from conventional sources.
Operations and IT
Great underwriting only delivers value to customers if supported by excellent operations. During the year we continued to improve our operational capabilities. In Hiscox London Market we re-engineered our processes so that all risk details are entered into our systems within 48 hours of binding, providing us with real underwriting insight and control benefits. Across our European and UK businesses we improved the quality of our data leading to more timely and accurate customer documentation. In Hiscox UK we introduced sophisticated capacity planning tools to ensure that we had the resources in place to meet spikes in demand. Our quality, as perceived by our customers, is measured using Net Promoter scores and we are now receiving industry-leading scores. In the US our new service centre, which supports the direct business, is also getting very positive customer reviews.
All this operational improvement has been mirrored in improvements in our IT performance. The IT team re-organized themselves during the year to match our business unit structure, allowing for more interaction between teams and greater accountability to the business for delivering specific projects. As a result, we have seen a higher number of projects being completed more efficiently and to a higher standard.
Our Leadership
Robert's announcement that he intends to retire as Chairman in 12 months time marks a watershed for the Group. Robert joined Hiscox in 1965 and took over its leadership in 1970 when we had two small boxes at Lloyd's and controlled premium income of just over £2 million. We now have controlled premiums of £1,664 million and operate from 27 locations in 11 countries. During this time Robert has steered Hiscox through the many challenges such as 9/11 which have occasionally shaken the industry to its foundations. He has also served the Lloyd's marketplace with distinction in a number of roles during its toughest times. He was a member of the Rowland Taskforce in 1991 and was Deputy Chairman of Lloyd's during its turbulent years of Reconstruction and Renewal from 1993-1995. He has done all of this with drive, energy, perspicacity, determination, iconoclasm, wit and aplomb. We will not be losing Robert's guidance as in 2013 he will remain with the business as Honorary President.
A huge part of Robert's success has been formed around his ability to recruit great people and he has given them the freedom to build their businesses. One of the most important of these hires was Nicholas Thomson who will be standing down as a Non Executive of our UK based subsidiary boards shortly. Nick joined Robert in 1973, becoming Underwriter of Syndicate 33 from 1976 until 1993 and Director of Underwriting from 1993 until 2001. Nick served as a Hiscox plc Board Director from 1993 until 2001. He has also always served on our UK based subsidiary boards, moving to a Non Executive position in 2001. Nick's contribution to our underwriting culture has been immense and we will miss the grenades of underwriting and business insight that he rolled down the board room table with unfailing regularity.
Strong experienced Non Executives have also been of huge value to the Group. Foremost amongst these has been Anthony Howland-Jackson who will also be standing down shortly. After a distinguished career in broking, Anthony joined the Board of Hiscox plc and our UK based subsidiaries in 1997. He served as Senior Independent Director on the Board of Hiscox plc standing down from this Board when we re-domiciled to Bermuda in 2006. Since then he has continued to serve as a Non Executive Director of our UK based businesses. Anthony's well timed questions caused us to re-assess many of our more fanciful ideas and his words of advice were always listened to.
The Board has initiated a selection process to find a successor to Robert. This process is being led by the Chairman of the Remuneration and Nomination Committee, Andrea Rosen, supported by our Senior Independent Director, Richard Gillingwater, and with input from all Hiscox Ltd Non Executive Directors who form the Committee. The Remuneration and Nomination Committee have appointed a leading search firm as advisors and we will make an announcement on succession in due course.
People
We are always working to attract the most talented people to work here, to retain them and to help them to develop. Robert has led by example in this and we seek to live up to his standards. In 2011 both Hiscox London Market and Hiscox UK achieved Chartered Insurer status. This reflects the investment we have put into ensuring our staff achieve industry qualifications which we then back up with internal training and development programs.
We really believe the quality of our staff is a competitive advantage in the industry, and the resilience of our result this year reflects their individual contributions on a risk-by-risk and day-by-day basis. I thank them all.
Outlook
We have seen substantial rises in rates for catastrophe reinsurance in loss affected territories such as Japan, New Zealand and Australia, but areas which were already well rated, such as the United States, have seen more modest increases. Unfortunately, catastrophe reinsurance in areas which continue to need price rises such as Europe have remained flat. In non catastrophe areas the trends are more mixed. European insurance pricing remains reasonable in our lines, and in the UK there is some downward pressure in commercial insurance, whilst personal lines are flat albeit at healthy levels. In the US we are seeing modest upward pressure.
In this environment we believe that we can thrive. The UK will continue with its consumer and brand led expansion; Europe will focus on driving growth in current product areas and current territories, developing greater scale and with that improved profitability; the US will continue to drive for scale in current areas and build on the exciting possibilities of its direct business; The London Market, Bermuda and Guernsey insurance businesses will take advantage of areas with rate increases, expanding judiciously in property related lines but continuing to shrink in casualty; overall Reinsurance is even better rated than in previous years and unless the world turns upside down, should return to its usual profitability. I feel excited as I see these plans coming together and am confident the profits they generate will benefit shareholders and staff.
Bronek Masojada
27 February 2012
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2011
|
|
|
Note |
2011 Total £000 |
|
2010 Total £000 |
Income |
|
|
|
|
|
|
Gross premiums written |
|
4 |
1,449,219 |
|
1,432,674 |
|
Outward reinsurance premiums |
|
|
(275,208) |
|
(301,047) |
|
Net premiums written |
|
4 |
1,174,011 |
|
1,131,627 |
|
|
|
|
|
|
|
|
Gross premiums earned |
|
|
1,428,954 |
|
1,435,118 |
|
Premiums ceded to reinsurers |
|
|
(283,947) |
|
(303,960) |
|
Net premiums earned |
|
4 |
1,145,007 |
|
1,131,158 |
|
|
|
|
|
|
|
|
Investment result |
|
7 |
24,495 |
|
100,249 |
|
Other revenues |
|
9 |
17,322 |
|
22,079 |
|
Revenue |
|
|
1,186,824 |
|
1,253,486 |
|
Expenses |
|
|
|
|
|
|
Claims and claim adjustment expenses, net of reinsurance |
|
17 |
(697,898) |
|
(570,997) |
|
Expenses for the acquisition of insurance contracts |
|
|
(269,792) |
|
(269,891) |
Operational expenses |
|
9 |
(203,204) |
|
(206,403) |
|
Foreign exchange gains |
|
|
7,816 |
|
15,484 |
|
Total expenses |
|
|
(1,163,078) |
|
(1,031,807) |
|
|
|
|
|
|
|
|
Results of operating activities |
|
|
23,746 |
|
221,679 |
|
Finance costs |
|
|
(6,698) |
|
(10,090) |
|
Share of profit/(loss) of associates after tax |
|
|
223 |
|
(223) |
|
Profit before tax |
|
|
17,271 |
|
211,366 |
|
Tax expense |
|
19 |
4,001 |
|
(32,566) |
|
Profit for the year (all attributable to owners of the Company) |
|
|
21,272 |
|
178,800 |
|
Earnings per share on profit attributable to owners of the Company |
|
|
|
|
|
|
Basic |
|
20 |
5.5p |
|
47.2p |
|
Diluted |
|
20 |
5.3p |
|
45.4p |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2011, AFTER TAX
|
|
|
|
2011 Total £000 |
|
2010 Total £000 |
|
|
|
|
|
|
|
|
Profit for the year |
|
|
21,272 |
|
178,800 |
|
Other comprehensive income |
|
|
|
|
|
|
Currency translation gains (net of tax of £nil (2010: £nil)) |
|
|
11,060 |
|
11,729 |
|
Total other comprehensive income |
|
|
11,060 |
|
11,729 |
|
Total comprehensive income recognised for the year (all attributable to owners of Company) |
|
|
32,332 |
|
190,529 |
The related notes 1 to 22 are an integral part of this document.
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2011
|
|
Note |
2011 £000 |
2010 £000 |
|
Assets |
|
|
|
|
|
|
|
|
|
Intangible assets |
|
67,552 |
64,108 |
|
Property, plant and equipment |
|
18,155 |
19,742 |
|
Investments in associates |
|
6,380 |
6,886 |
|
Deferred tax |
|
25,748 |
14,077 |
|
Deferred acquisition costs |
|
150,050 |
142,736 |
|
Financial assets carried at fair value |
12 |
2,368,636 |
2,459,107 |
|
Reinsurance assets |
11 |
492,515 |
462,765 |
|
Loans and receivables including insurance receivables |
13 |
507,722 |
485,414 |
|
Current tax asset |
|
69,436 |
- |
|
Cash and cash equivalents |
16 |
516,547 |
336,017 |
|
Total assets |
|
4,222,741 |
3,990,852 |
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
Share capital |
|
20,563 |
20,297 |
|
Share premium |
|
32,086 |
15,800 |
|
Contributed surplus |
|
245,005 |
245,005 |
|
Currency translation reserve |
|
60,517 |
49,457 |
|
Retained earnings |
|
897,728 |
935,555 |
|
Total equity (all attributable to owners of the Company) |
|
1,255,899 |
1,266,114 |
|
|
|
|
|
|
Employee retirement benefit obligations |
|
- |
- |
|
Deferred tax |
|
152,447 |
45,421 |
|
Insurance liabilities |
17 |
2,500,260 |
2,279,867 |
|
Financial liabilities |
12 |
- |
20,457 |
|
Current tax |
|
- |
29,995 |
|
Trade and other payables |
18 |
314,135 |
348,998 |
|
Total liabilities |
|
2,966,842 |
2,724,738 |
|
Total equity and liabilities |
|
4,222,741 |
3,990,852 |
The related notes 1 to 22 are an integral part of this document.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
|
|
Note |
Share Capital £000 |
Share Premium £000 |
Contributed Surplus £000 |
Currency Translation Reserve £000 |
Retained Earnings £000 |
Total £000 |
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2010
|
|
|
20,158 |
11,831 |
303,465 |
37,728 |
748,104 |
1,121,286 |
|
Total recognised comprehensive income for the year (all attributable to owners of the Company)
|
|
|
- |
- |
- |
11,729 |
178,800 |
190,529 |
|
Employee share options: |
|
|
|
|
|
|
|
|
|
Equity settled share based payments |
|
|
- |
- |
- |
- |
9,000 |
9,000 |
|
Proceeds from shares issued |
|
|
139 |
3,969 |
- |
- |
- |
4,108 |
|
Deferred tax |
|
|
- |
- |
- |
- |
(349) |
(349) |
|
Dividends paid to owners of the Company |
|
21 |
- |
- |
(58,460) |
- |
- |
(58,460) |
|
Balance at 31 December 2010 |
|
|
20,297 |
15,800 |
245,005 |
49,457 |
935,555 |
1,266,114 |
|
Total recognised comprehensive income for the year (all attributable to owners of the Company)
|
|
|
- |
- |
- |
11,060 |
21,272 |
32,332 |
|
Employee share options: |
|
|
|
|
|
|
|
|
|
Equity settled share based payments |
|
|
- |
- |
- |
- |
8,677 |
8,677 |
|
Proceeds from shares issued |
|
|
91 |
3,124 |
- |
- |
- |
3,215 |
|
Deferred tax |
|
|
- |
- |
- |
- |
(3,927) |
(3,927) |
|
Scrip dividends |
|
|
175 |
13,162 |
- |
- |
- |
13,337 |
|
Dividends paid to owners of the Company |
|
21 |
- |
- |
- |
- |
(63,849) |
(63,849) |
|
Balance at 31 December 2011 |
|
|
20,563 |
32,086 |
245,005 |
60,517 |
897,728 |
1,255,899 |
The related notes 1 to 22 are an integral part of this document.
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2011
|
|
|
2011 £000 |
2010 £000 |
|
Profit before tax |
|
17,271 |
211,366 |
|
Adjustments for: |
|
|
|
|
Interest and equity dividend income |
|
(50,333) |
(61,606) |
|
Interest expense |
|
6,698 |
10,090 |
|
Net fair value gains on financial assets |
|
30,878 |
(25,672) |
|
Depreciation and amortisation |
|
8,098 |
7,065 |
|
Charges in respect of share based payments |
|
8,677 |
8,047 |
|
Other non-cash movements |
|
(1,070) |
1,323 |
|
Effect of exchange rate fluctuations on cash presented separately |
|
(1,451) |
(508) |
|
|
|
|
|
|
Changes in operational assets and liabilities: |
|
|
|
|
Insurance and reinsurance contracts |
|
138,667 |
141,646 |
|
Financial assets carried at fair value |
|
78,501 |
(2,527) |
|
Financial liabilities carried at fair value |
|
(457) |
82 |
|
Other assets and liabilities |
|
(18,888) |
(23,704) |
|
Cash flows from operations |
|
216,591 |
265,602 |
|
Interest received |
|
50,244 |
60,332 |
|
Equity dividends received |
|
1,531 |
1,274 |
|
Interest paid |
|
(6,163) |
(4,628) |
|
Current tax paid |
|
(4,003) |
(51,580) |
|
Net cash flows from operating activities |
|
258,200 |
271,000 |
|
Cash flows from the acquisition of subsidiaries |
|
- |
(3,662) |
|
Cash flows from the sale and purchase of associates |
|
729 |
468 |
|
Cash flows from the purchase of property, plant and equipment |
|
(2,561) |
(3,462) |
|
Cash flows from the purchase of intangible assets |
|
(9,992) |
(15,591) |
|
Net cash flows from investing activities |
|
(11,824) |
(22,247) |
|
Proceeds from the issue of ordinary shares |
|
3,215 |
4,108 |
|
Dividends paid to owners of the Company |
|
(50,512) |
(58,460) |
|
Net (repayments)/receipts of borrowings |
|
(20,000) |
(118,539) |
|
Net cash flows from financing activities |
|
(67,297) |
(172,891) |
|
Net increase in cash and cash equivalents |
|
179,079 |
75,862 |
|
Cash and cash equivalents at 1 January |
|
336,017 |
259,647 |
|
Net increase in cash and cash equivalents |
|
179,079 |
75,862 |
|
Effect of exchange rate fluctuations on cash and cash equivalents |
|
1,451 |
508 |
|
Cash and cash equivalents at 31 December |
|
516,547 |
336,017 |
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, maturity 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 £77,203,000 (2010: £63,447,000) not available for immediate use by the Group outside of the Lloyd's Syndicate within which they are held.
The related notes 1 to 22 are an integral part of this document.
1. General information
The financial information set out in this statement is extracted from the Group's consolidated financial statements for the year ended 31 December 2011. The auditors have reported on those 2011 financial statements which include comparative amounts for 2010. Their report was unqualified.
The Hiscox Group, which is headquartered in Hamilton, Bermuda, comprises Hiscox Ltd (the parent Company, referred to herein as the 'Company') and its subsidiaries (collectively, the 'Hiscox Group' or the 'Group'). For the period under review the Group provided insurance and reinsurance services to its clients worldwide. It has operations in Bermuda, the UK, Europe, and USA and employs over 1250 people.
The Company is registered and domiciled in Bermuda and on 12 December 2006 its ordinary shares were listed on the London Stock Exchange. As such it is required to prepare its annual audited financial information in accordance with Section 4.1 of the Disclosure and Transparency Rules and the Listing Rules, both issued by the Financial Services Authority (FSA), in addition to the Bermuda Companies Act 1981. The first two pronouncements issued by the FSA require the Group to prepare financial statements which comprise the consolidated income statement, the consolidated statement of comprehensive income, the
consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes 1 to 22 in accordance with International Financial Reporting Standards ('IFRS') adopted by the European Union.
The consolidated financial statements for the year ended 31 December 2011 include all of the Group's subsidiary companies and the Group's interest in associates. All amounts relate to continuing operations. The financial statements were approved for issue by the Board of Directors on 27 February 2012.
2. Significant accounting policies
The accounting policies adopted are consistent with those of the previous financial year except as follows:
The Group has adopted, for the first time, the following new and amended Standards and Interpretations issued by the IASB and endorsed by the EU as of 1 January 2011.
The amendment to IFRIC 14, The Limit on a Defined Benefit Asset, Minimum Funding Requirements is effective for annual periods beginning on or after 1 January 2011. The amendment provides guidance on assessing the recoverable amount of a net pension asset in a defined benefit scheme and permits an entity to treat the prepayment of a minimum funding requirement as an asset.
IAS 24 Related Party Disclosure (Amendment) is effective for annual periods beginning on or after 1 January 2011. The amendment clarifies the definition of a related party in order to simplify the identification of such relationships and to eliminate inconsistencies in application.
Early adoption of SI 2008/489, disclosure requirements for auditors remuneration, has occurred. The amendments are intended to align the classification of non-audit services for the purposes of disclosure in the accounts with the classification of non-audit services under the Auditing Practice Board's Ethical Standards.
Adoption of the above had no material effect on the financial performance or position of the Group.
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2011, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements, except for IFRS 9 and IAS 19.
Defined Benefit Plans - Amendments to IAS 19 is due to be in effect from 1 January 2013. The amendments require immediate recognition of actuarial gains and losses in other comprehensive income and to eliminate the corridor method that the Group currently operates. The principal amendment is the requirement to calculate net interest income or expense using the discount rate used to measure the defined benefit asset or liability.
IFRS 9 Financial Instruments is due to be effective from 1 January 2015. The standard contains two primary measurement categories for financial assets of amortised cost and fair value. Financial assets are classified in to one of these two categories on initial recognition. A financial asset is measured at amortised cost if the following conditions are met : it is held where the objective is to hold the asset in order to collect contractual cash flows; and, its contractual terms give rise on specified dates to cash flows that are solely payment of principal and interest on the principal outstanding. All other financial assets are to be classified at fair value.
2.1 Statement of compliance
The consolidated financial statements have been prepared in accordance with IFRS as adopted by the European Union and in accordance with the provisions of the Bermuda Companies Act 1981.
Since 2002, the standards adopted by the International Accounting Standards Board have been referred to as IFRS. The standards from prior years continue to bear the title 'International Accounting Standards' (IAS). Insofar as a particular standard is not explicitly referred to, the two terms are used in these financial statements synonymously. Compliance with IFRS includes the adoption of interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).
In March 2004, the IASB issued IFRS 4 Insurance Contracts which specifies the financial reporting for insurance contracts by an insurer. The standard is only the first phase in the IASB's insurance contract project and as such is only a stepping stone to Phase II, introducing limited improvements to accounting for insurance contracts. Accordingly, to the extent that IFRS 4 does not specify the recognition or measurement of insurance contracts, transactions reported in these consolidated financial statements have been prepared in accordance with another comprehensive body of accounting principles for insurance contracts, namely accounting principles generally accepted in the UK.
In July 2010 the IASB published an exposure draft for Phase II of the insurance contracts project.
The exposure draft proposes a number of significant changes to the measurement of insurance contracts and as such adoption of a final standard in a form similar to the exposure draft will likely have a significant impact on the results of the Group.
In February 2012, the IASB extended its timeline for either re-exposing or issuing a staff draft for Phase II of the insurance contracts project to the second half of 2012. The ultimate timeline for a final standard will depend on whether the IASB issues a new exposure draft before issuing a standard. While the IASB has not indicated an effective date for a final standard, transitional provisions propose that it should be applied retrospectively with opening differences accounted for in equity.
The Group are generally supportive of the proposed measurement principles for short duration contracts however we have submitted a comment letter to the IASB outlining our concerns and issues with some of the definitions and detail included within the exposure draft. We continue to monitor the progress of the project.
2.2 Basis of preparation
The financial statements are presented in Pounds Sterling and are rounded to the nearest thousand unless otherwise stated.
They are compiled on a going concern basis and prepared on the historical cost basis except that pension scheme assets included in the measurement of the employee retirement benefit obligation, and financial instruments including derivative instruments, are measured at fair value. Employee retirement benefit obligations are determined using actuarial analysis.
The balance sheet of the Group is presented in order of increasing liquidity. The accounting policies have been applied consistently by all Group entities and to all periods presented, solely for the purpose of producing the consolidated Group financial statements.
The Group elected to apply the transitional arrangements contained in IFRS 4 that permitted the disclosure of only five years of data in claims development tables, in the year ended 31 December 2005 which was the year of adoption. The number of years of data presented was increased from nine in the prior year, to the maximum of ten in the current year.
The Group has financial assets and cash of over £2.87 billion. The portfolio is predominantly invested in liquid short dated bonds and cash to ensure significant liquidity to the Group and to reduce risk from the financial markets. In addition the Group has significant borrowing facilities in place.
The Group writes a balanced book of insurance and reinsurance business spread by product and geography. As such, the Directors believe that the Group is well placed to manage its business risk and continue to trade successfully.
The Directors therefore have an expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
2.3 Reporting of additional performance measures
The Directors consider that the claims ratio, expense ratio and combined ratio measures reported in respect of operating segments and the Group overall at note 4 provide useful information regarding the underlying performance of the Group's businesses. These measures are widely recognised by the insurance industry and are consistent with internal performance measures reviewed by senior management including the chief operating decision maker. However, these three measures are not defined within the IFRS framework and body of standards and interpretations and therefore may not be directly comparable with similarly titled additional performance measures reported by other companies. Net asset value per share and return on equity measures, disclosed at notes 5 and 6, are likewise considered to be additional performance measures.
3. Financial risk
Credit risk
The Group mitigates counterparty credit risk by concentrating debt and fixed income investments in high quality instruments, including a particular emphasis on government gilts issued mainly by European Union and North American countries.
An analysis of the Group's major exposures to counterparty credit risk excluding loans and receivables, based on Standard & Poor's or equivalent rating, is presented below:
|
As at 31 December 2011 |
AAA £000 |
AA £000 |
A £000 |
Other / not rated £000 |
Total £000 |
|
|
|
|
|
|
|
|
Debt and fixed income securities |
767,709 |
808,076 |
400,257 |
194,546 |
2,170,588 |
|
Deposits with credit institutions |
2,500 |
- |
10,088 |
260 |
12,848 |
|
Catastrophe bonds |
- |
- |
- |
11,639 |
11,639 |
|
Reinsurance assets |
27,682 |
181,862 |
262,709 |
20,262 |
492,515 |
|
Cash and cash equivalents |
157,395 |
41,094 |
316,843 |
1,215 |
516,547 |
|
Total |
955,286 |
1,031,032 |
989,897 |
227,922 |
3,204,137 |
|
Amounts attributable to largest single counterparty |
211,465 |
267,442 |
54,235 |
13,216 |
|
|
As at 31 December 2010 |
AAA £000 |
AA £000 |
A £000 |
Other / not rated £000 |
Total £000 |
|
|
|
|
|
|
|
|
Debt and fixed income securities |
1,530,973 |
202,410 |
308,966 |
242,164 |
2,284,513 |
|
Deposits with credit institutions |
3,819 |
207 |
- |
254 |
4,280 |
|
Catastrophe bonds |
- |
- |
- |
15,452 |
15,452 |
|
Reinsurance assets |
22,931 |
169,083 |
253,810 |
16,941 |
462,765 |
|
Cash and cash equivalents |
35,874 |
137,223 |
160,382 |
2,538 |
336,017 |
|
Total |
1,593,597 |
508,923 |
723,158 |
277,349 |
3,103,027 |
|
Amounts attributable to largest single counterparty |
252,213 |
76,466 |
43,420 |
16,583 |
|
The largest counterparty exposure within AAA rating at 31 December 2011 is with the UK Treasury and for AA rating is with the US Treasury. At 31 December 2010, the largest counterparty exposure within AAA rating was the US Treasury. Catastrophe bonds included within other/non rated are rated BB and B.
At 31 December 2011, the Group held no material debt and fixed income securities that were past due or impaired beyond their reported fair values, either for the current period under review or on a cumulative basis (2010 : £nil). For the current period and prior period, the Group did not experience any material defaults on debt securities.
An analysis of the Group's debt and fixed income securities at 31 December by class is detailed below:
|
|
|
|
|
2011 % |
2010 % |
|
|
|
|
|
|
|
|
Government issued bonds and instruments |
|
|
|
23 |
22 |
|
Agency and Government supported debt |
|
|
|
25 |
31 |
|
Asset backed securities |
|
|
|
11 |
8 |
|
Mortgage backed instruments - Agency |
|
|
|
6 |
4 |
|
Mortgage backed instruments - Non-Agency |
|
|
|
5 |
6 |
|
Corporate bonds |
|
|
|
27 |
27 |
|
Lloyd's and money market deposits |
|
|
|
3 |
2 |
Within the fixed income portfolios, which include debt securities, deposits with credit institutions and cash equivalent assets, there are exposures to a range of government borrowers, on either a direct or guaranteed basis, and banking institutions. The Group, together with its investment managers, closely manages its geographical exposures across government issued and supported debt.
The positions at 31 December 2011 in respect of government issued and supported debt are shown in the table below. The Group has no direct government exposure to Portugal, Italy, Ireland, Greece or Spain.
|
|
|
|
Government issued £000 |
Government Supported £000 |
Total £000 |
|
|
|
|
|
|
|
|
United States of America |
|
|
302,605 |
269,048 |
571,653 |
|
United Kingdom |
|
|
208,235 |
81,699 |
289,934 |
|
Australia |
|
|
- |
13,975 |
13,975 |
|
Belgium |
|
|
- |
1,537 |
1,537 |
|
Canada |
|
|
- |
58,380 |
58,380 |
|
Denmark |
|
|
- |
5,158 |
5,158 |
|
Finland |
|
|
6,380 |
3,985 |
10,365 |
|
France |
|
|
4,015 |
16,533 |
20,548 |
|
Germany |
|
|
92,414 |
36,205 |
128,619 |
|
Netherlands |
|
|
- |
24,539 |
24,539 |
|
Norway |
|
|
- |
6,035 |
6,035 |
|
New Zealand |
|
|
- |
584 |
584 |
|
Supranationals |
|
|
- |
30,135 |
30,135 |
|
South Korea |
|
|
2,833 |
- |
2,833 |
|
Sweden |
|
|
2,307 |
3,494 |
5,801 |
|
Other |
|
|
338 |
141 |
479 |
|
Total |
|
|
619,127 |
551,448 |
1,170,575 |
Included above are £1,049 million in relation to holdings in debt securities and £122 million held as cash equivalents, having a maturity of less than three months at the time of purchase. Of the amount held as cash equivalents, £88 million is held in UK Treasury bills and £26 million held in a UK Government bond.
Additionally, the geographical location and credit quality of individual bank borrowers are closely monitored. An analysis of the Group's exposure to bank counterparties by country and credit rating held at 31 December 2011 is detailed below. Bank debt held by the Group is mostly senior unsecured and covered bonds. The subordinated bonds are all classed as lower tier 2 capital.
|
Bank debt |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
Senior |
|
|
|
|
Subordinated |
|
|
||
|
|
|
AAA |
AA |
A |
BBB |
BB |
Sub-total |
A |
BBB |
Sub-total |
Total |
||
|
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
||
|
United States of America |
|
- |
- |
73,615 |
2,723 |
- |
76,338 |
- |
1,372 |
1,372 |
77,710 |
||
|
United Kingdom |
|
319 |
8,505 |
23,912 |
- |
- |
32,736 |
3,327 |
1,148 |
4,475 |
37,211 |
||
|
Australia |
|
- |
7,314 |
295 |
- |
- |
7,609 |
- |
- |
- |
7,609 |
||
|
Belgium |
|
- |
- |
3,429 |
- |
- |
3,429 |
- |
- |
- |
3,429 |
||
|
Canada |
|
1,241 |
12,240 |
7,840 |
604 |
- |
21,925 |
2,884 |
- |
2,884 |
24,809 |
||
|
Denmark |
|
- |
- |
1,544 |
- |
- |
1,544 |
- |
- |
- |
1,544 |
||
|
Finland |
|
- |
1,518 |
- |
- |
- |
1,518 |
- |
- |
- |
1,518 |
||
|
France |
|
3,889 |
4,750 |
7,573 |
- |
- |
16,212 |
712 |
- |
712 |
16,924 |
||
|
Germany |
|
- |
- |
3,720 |
- |
- |
3,720 |
- |
- |
- |
3,720 |
||
|
Italy |
|
- |
- |
- |
4,294 |
- |
4,294 |
- |
319 |
319 |
4,613 |
||
|
Netherlands |
|
2,329 |
7,348 |
6,415 |
- |
- |
16,092 |
691 |
- |
691 |
16,783 |
||
|
Norway |
|
130 |
- |
378 |
- |
1,431 |
1,939 |
- |
- |
- |
1,939 |
||
|
New Zealand |
|
- |
2,768 |
- |
- |
- |
2,768 |
- |
- |
- |
2,768 |
||
|
Spain |
|
928 |
- |
1,920 |
- |
- |
2,848 |
- |
- |
- |
2,848 |
||
|
Sweden |
|
- |
6,359 |
4,733 |
- |
- |
11,092 |
- |
- |
- |
11,092 |
||
|
Switzerland |
|
- |
- |
11,597 |
- |
- |
11,597 |
- |
- |
- |
11,597 |
||
|
Other |
|
- |
- |
594 |
429 |
- |
1,023 |
- |
- |
- |
1,023 |
||
|
Total |
|
8,836 |
50,802 |
147,565 |
8,050 |
1,431 |
216,684 |
7,614 |
2,839 |
10,453 |
227,137 |
||
Included in the bank debt table above, are £222 million in relation to holdings in debt securities and £5 million held as cash equivalents.
Liquidity risk
A significant proportion of the Group's investments are in highly liquid assets which could be converted to cash in a prompt fashion and at minimal expense. The deposits with credit institutions largely comprise short dated certificates for which an active market exists and which the Group can easily access. The Group's exposure to equities is concentrated on shares and funds that are frequently traded on internationally recognised stock exchanges.
The main focus of the investment portfolio is on high quality short duration debt and fixed income securities, and cash. There are no significant holdings of investments with specific repricing dates. Notwithstanding the regular interest receipts and also the Group's ability to liquidate these securities and the majority of its other financial instrument assets, for cash in a prompt and reasonable manner, the contractual maturity profile of the fair value of these securities at 31 December was as follows :
|
|
|
Debt and fixed income securities £000 |
Deposits with credit institutions £000 |
Catastrophe bonds £000 |
Cash and cash equivalents £000 |
2011 Total £000 |
2010 Total £000 |
|
|
|
|
|
|
|
|
|
|
Less than one year |
|
560,520 |
2,760 |
2,373 |
516,547 |
1,082,200 |
825,186 |
|
Between one and two years |
|
473,904 |
10,088 |
3,686 |
- |
487,678 |
816,842 |
|
Between two and five years |
|
816,665 |
- |
5,580 |
- |
822,245 |
654,638 |
|
Over five years |
|
265,897 |
- |
- |
- |
265,897 |
290,083 |
|
Other non-dated instruments |
|
53,602 |
- |
- |
- |
53,602 |
53,513 |
|
Total |
|
2,170,588 |
12,848 |
11,639 |
516,547 |
2,711,622 |
2,640,262 |
The Group's equities and shares in unit trusts and other non-dated instruments have no contractual maturity terms but could also be liquidated in an orderly manner for cash in a prompt and reasonable time frame within one year of the balance sheet date.
4. 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.
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 UK and Europe. It also includes the fire and aviation businesses from Syndicate 3624, and the larger TMT business written by Hiscox Insurance Company Limited. In addition, it excludes 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 in continental Europe. In addition, it includes the European errors and omissions business from Syndicate 3624. It excludes the results of the larger retail TMT business written by Hiscox Insurance Company Limited. It also includes an element of kidnap and ransom and terrorism written in Syndicate 33.
International comprises the results of Hiscox Insurance Company (Guernsey) Limited, Hiscox Insurance Company (Bermuda) Limited, Hiscox Inc. and Hiscox Insurance Company Inc., Syndicate 3624 excluding the European errors and omissions, fire and aviation businesses.
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. These relate to certain foreign currency items on economic hedges and intragroup borrowings, further details of which are given at note 22. Corporate Centre forms a reportable segment due to its investment activities which earn significant external coupon revenues.
All amounts reported below represent transactions with external parties only. In the normal course of trade, the Group's entities enter into various reinsurance arrangements with one another. The related results of these transactions are eliminated on consolidation and are not included within the results of the segments. This is consistent with the information used by the chief operating decision maker when evaluating the results of the Group. Performance is measured based on each reportable segment's profit before tax.
a) Profit before tax by segment
|
|
|
|
|
|
Year ended 31 December 2011 |
||||
|
|
London Market £000 |
UK and Europe £000 |
International £000 |
Corporate Centre £000 |
Total £000 |
||||
|
|
|
|
|
|
|
||||
|
Gross premiums written |
585,441 |
498,006 |
365,772 |
- |
1,449,219 |
||||
|
Net premiums written
|
413,390 |
472,608 |
288,013 |
- |
1,174,011 |
||||
|
Net premiums earned
|
418,764 |
448,594 |
277,649 |
- |
1,145,007 |
||||
|
|
|
|
|
|
|
||||
|
Investment result* |
8,782 |
7,248 |
6,313 |
2,152 |
24,495 |
||||
|
Other revenues |
9,858 |
3,938 |
3,311 |
215 |
17,322 |
||||
|
Revenue |
437,404 |
459,780 |
287,273 |
2,367 |
1,186,824 |
||||
|
|
|
|
|
|
|
||||
|
Claims and claim adjustment expenses, net of reinsurance |
(238,026) |
(207,018) |
(252,854) |
- |
(697,898) |
||||
|
Expenses for the acquisition of insurance contracts |
(99,257) |
(106,300) |
(64,235) |
- |
(269,792) |
||||
|
Operational expenses |
(39,685) |
(94,985) |
(56,229) |
(12,305) |
(203,204) |
||||
|
Foreign exchange (losses)/gains |
(1,507) |
(25) |
(3,097) |
12,445 |
7,816 |
||||
|
Total expenses |
(378,475) |
(408,328) |
(376,415) |
140 |
(1,163,078) |
||||
|
|
|
|
|
|
|
||||
|
Results of operating activities |
58,929 |
51,452 |
(89,142) |
2,507 |
23,746 |
||||
|
Finance costs |
(1,308) |
- |
(399) |
(4,991) |
(6,698) |
||||
|
Share of profit of associates after tax |
- |
- |
65 |
158 |
223 |
||||
|
Profit before tax |
57,621 |
51,452 |
(89,476)
|
(2,326) |
17,271 |
||||
|
*Includes interest received of £48,802,000 |
|
|
|
|
|
||||
|
|
|
|
|
|
Year ended 31 December 2010 |
||||
|
|
London Market £000 |
UK and Europe £000 |
International £000 |
Corporate Centre £000 |
Total £000 |
||||
|
Gross premiums written |
572,748 |
454,692 |
405,234 |
- |
1,432,674 |
||||
|
Net premiums written |
389,581 |
428,032 |
314,014 |
- |
1,131,627 |
||||
|
Net premiums earned |
396,096 |
422,180 |
312,882 |
- |
1,131,158 |
||||
|
|
|
|
|
|
|
||||
|
Investment result* |
39,068 |
17,244 |
27,624 |
16,313 |
100,249 |
||||
|
Other revenues |
12,054 |
3,671 |
5,836 |
518 |
22,079 |
||||
|
Revenue |
447,218 |
443,095 |
346,342 |
16,831 |
1,253,486 |
||||
|
|
|
|
|
|
|
||||
|
Claims and claim adjustment expenses, net of reinsurance |
(195,570) |
(213,001) |
(162,426) |
- |
(570,997) |
||||
|
Expenses for the acquisition of insurance contracts |
(92,832) |
(99,069) |
(77,990) |
- |
(269,891) |
||||
|
Operational expenses |
(44,733) |
(89,440) |
(59,419) |
(12,811) |
(206,403) |
||||
|
Foreign exchange gains/(losses) |
11,669 |
(1,972) |
(2,610) |
8,397 |
15,484 |
||||
|
Total expenses |
(321,466) |
(403,482) |
(302,445) |
(4,414) |
(1,031,807) |
||||
|
|
|
|
|
|
|
||||
|
Results of operating activities |
125,752 |
39,613 |
43,897 |
12,417 |
221,679 |
||||
|
Finance costs |
(4,392) |
(9) |
(433) |
(5,256) |
(10,090) |
||||
|
Share of (loss)/profit of associates after tax |
- |
- |
(323) |
100 |
(223) |
||||
|
Profit before tax |
121,360 |
39,604 |
43,141 |
7,261 |
211,366 |
||||
|
*Includes interest received of £60,332,000 |
|
|
|
|
|
||||
b) 100% operating results by segment
The Group's wholly owned subsidiary, Hiscox Syndicates Limited, oversees the operation of Syndicate 33 at Lloyd's. The Group's percentage participation in Syndicate 33 can fluctuate from year to year and consequently presentation of the results at the 100% level removes any distortions arising there from.
|
|
|
|
Year ended 31 December 2011
|
||
|
|
London Market £000 |
UK and Europe £000 |
International £000 |
Corporate Centre £000 |
Total £000
|
|
Gross premiums written |
779,261 |
514,075 |
370,168 |
- |
1,663,504 |
|
Net premiums written |
543,696 |
487,609 |
292,640 |
- |
1,323,945 |
|
Net premiums earned |
555,533 |
463,706 |
283,138 |
- |
1,302,377 |
|
|
|
|
|
|
|
|
Investment result |
12,024 |
7,399 |
6,503 |
2,152 |
28,078 |
|
Other revenues |
1,553 |
3,380 |
1,990 |
215 |
7,138 |
|
Claims and claim adjustment expenses, net of reinsurance |
(314,517) |
(214,609) |
(254,627) |
- |
(783,753) |
|
Expenses for the acquisition of insurance contracts |
(130,593) |
(111,624) |
(65,127) |
- |
(307,344) |
|
Operational expenses |
(50,182) |
(95,946) |
(56,245) |
(12,305) |
(214,678) |
|
Foreign exchange gains/ (losses) |
72 |
90 |
(3,103) |
12,445 |
9,504 |
|
Results of operating activities |
73,890 |
52,396 |
(87,471) |
2,507 |
41,322 |
|
|
|
|
Year ended 31 December 2010
|
||
|
|
London Market £000 |
UK and Europe £000 |
International £000 |
Corporate Centre |
Total |
|
Gross premiums written |
782,523 |
472,247 |
416,103 |
- |
1,670,873 |
|
Net premiums written |
524,658 |
443,693 |
321,236 |
- |
1,289,587 |
|
Net premiums earned |
545,945 |
438,773 |
322,341 |
- |
1,307,059 |
|
|
|
|
|
|
|
|
Investment result |
53,870 |
17,848 |
28,572 |
16,313 |
116,603 |
|
Other revenues |
- |
3,029 |
4,393 |
518 |
7,940 |
|
Claims and claim adjustment expenses, net of reinsurance |
(263,610) |
(220,101) |
(171,347) |
- |
(655,058) |
|
Expenses for the acquisition of insurance contracts |
(127,202) |
(105,394) |
(78,611) |
- |
(311,207) |
|
Operational expenses |
(55,873) |
(90,489) |
(60,755) |
(12,811) |
(219,928) |
|
Foreign exchange gains/(losses) |
11,272 |
(1,983) |
(2,892) |
8,397 |
14,794 |
|
Results of operating activities |
164,402 |
41,683 |
41,701 |
12,417 |
260,203 |
Segment results at the 100% level presented above differ from those presented at the Group's share at note 4(a) solely as a result of the Group not owning 100% of the capacity of Syndicate 33 at Lloyd's.
|
100 % Ratio analysis |
|
Year ended 31 December 2011 |
||||
|
|
London Market
|
UK and Europe
|
International
|
Corporate Centre
|
Total
|
|
|
Claims ratio (%) |
56.6 |
46.3 |
89.9 |
- |
60.2 |
|
|
Expense ratio (%) |
32.5 |
44.7 |
42.9 |
- |
39.1 |
|
|
Combined ratio excluding foreign exchange impact (%) |
89.1 |
91.0 |
132.8 |
- |
99.3 |
|
|
Foreign exchange impact (%) |
- |
- |
1.1 |
- |
0.2 |
|
|
Combined ratio (%) |
89.1 |
91.0 |
133.9 |
- |
99.5 |
|
|
Combined ratio excluding non monetary foreign exchange impact (%) |
90.0 |
90.9 |
133.9 |
- |
99.9 |
|
|
|
|
Year ended 31 December 2010 |
|||
|
|
London Market
|
UK and Europe
|
International |
Corporate Centre |
Total |
|
Claims ratio (%) |
48.3 |
50.2 |
53.2 |
- |
50.1 |
|
Expense ratio (%) |
33.5 |
44.6 |
43.2 |
- |
39.7 |
|
Combined ratio excluding foreign exchange impact (%) |
81.8 |
94.8 |
96.4 |
- |
89.8 |
|
Foreign exchange impact (%) |
(2.1) |
0.5 |
0.9 |
- |
(0.5) |
|
Combined ratio (%) |
79.7 |
95.3 |
97.3 |
- |
89.3 |
|
Combined ratio excluding non monetary foreign exchange impact (%) |
79.7 |
95.3 |
97.3 |
- |
89.3 |
The impacts on profit before tax of a 1% change in each component of the segmental combined ratios are:
|
|
Year to 31 December 2011
|
Year ended 31 December 2010
|
||||||
|
|
London Market £000 |
UK and Europe £000 |
International £000 |
Corporate Centre £000 |
London Market £000 |
UK and Europe £000 |
International £000 |
Corporate Centre £000 |
|
At 100% level |
|
|
|
|
|
|
|
|
|
1% change in claims or expense ratio |
5,555 |
4,637 |
2,831 |
- |
5,459 |
4,388 |
3,223 |
- |
|
At Group level |
|
|
|
|
|
|
|
|
|
1% change in claims or expense ratio |
4,188 |
4,486 |
2,776 |
- |
3,961 |
4,222 |
3,129 |
- |
5. Net asset value per share
|
|
|
2011 |
|
|
2010 |
|
|
Net asset value |
NAV per |
|
Net asset value |
NAV per |
|
|
(total equity) |
share |
|
(total equity) |
share |
|
|
£000 |
p |
|
£000 |
p |
|
|
|
|
|
|
|
|
Net asset value |
1,255,899 |
323.5 |
|
1,266,114 |
332.7 |
|
Net tangible asset value |
1,188,347 |
306.1 |
|
1,202,006 |
315.8 |
The net asset value per share is based on 388,233,074 shares (2010: 380,613,336), being the adjusted number of shares in issue at 31 December. Net tangible assets comprise total equity excluding intangible assets.
6. Return on equity
|
|
|
|
|
|
2011 |
2010 |
|
|
|
|
|
|
|
|
£000 |
£000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year (all attributable to owners of the Company) |
|
|
|
|
21,272 |
178,800 |
|
|
|
Opening shareholders' equity |
|
|
|
|
1,266,114 |
1,121,286 |
|
|
|
Adjusted for the time weighted impact of capital distribution and issuance of shares |
|
|
(14,025) |
(34,820) |
|
|
||
|
Adjusted opening shareholders' equity |
|
|
|
|
1,252,089 |
1,086,466 |
|
|
|
Annualised return on equity (%) |
|
|
|
|
1.7 |
16.5 |
|
|
|
|
|
|
|
|
|
|
|
|
7. Investment result
The total result for the Group before taxation comprises :
|
|
|
2011 £000 |
|
2010 £000 |
|
Investment income including interest receivable |
|
50,333 |
|
61,606 |
|
Net realised gains on financial investment at fair value through profit or loss |
|
5,040 |
|
12,971 |
|
Net fair value gains/(losses) on financial investment at fair value through profit or loss |
|
(29,431) |
|
24,272 |
|
Investment result - financial assets |
|
25,942 |
|
98,849 |
|
Fair value gains/(losses) on derivative instruments and borrowings (note 14) |
|
(1,447) |
|
1,400 |
|
Total result |
|
24,495 |
|
100,249 |
Investment expenses are presented within other expenses (note 9).
8. Analysis of return on financial investments
(i) The weighted average return on financial investments for the year by currency, based on monthly asset values, was:
|
|
|
2011 % |
|
2010 % |
|
Sterling |
|
1.0 |
|
3.6 |
|
US Dollar |
|
0.6 |
|
3.8 |
|
Other |
|
1.6 |
|
2.3 |
(ii) Investment return
|
Year ended 31 December 2011
|
||||||||||
|
|
London Market |
UK and Europe |
International |
Corporate Centre |
Total |
|||||
|
|
£000 |
% |
£000 |
% |
£000 |
% |
£000 |
% |
£000 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and fixed income securities |
9,477 |
1.1 |
7,642 |
1.8 |
10,846 |
1.6 |
1,968 |
0.9 |
29,933 |
1.3 |
|
Equities and shares in unit trusts |
- |
- |
(1,168) |
(2.4) |
(4,392) |
(9.3) |
(375) |
(0.9) |
(5,935) |
(3.8) |
|
Deposits with credit institutions/cash and cash equivalents |
225 |
0.4 |
725 |
1.0 |
868 |
0.4 |
126 |
0.2 |
1,944 |
0.4 |
|
|
9,702 |
1.1 |
7,199 |
1.3 |
7,322 |
0.8 |
1,719 |
0.5 |
25,942 |
0.9 |
|
Year ended 31 December 2010
|
||||||||||
|
|
London Market |
UK and Europe |
International |
Corporate Centre |
Total |
|||||
|
|
£000 |
% |
£000 |
% |
£000 |
% |
£000 |
% |
£000 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and fixed income securities |
39,464 |
4.2 |
9,586 |
2.6 |
22,078 |
3.6 |
11,106 |
4.7 |
82,234 |
3.7 |
|
Equities and shares in unit trusts |
- |
- |
6,079 |
11.6 |
4,468 |
9.0 |
5,025 |
13.4 |
15,572 |
11.1 |
|
Deposits with credit institutions/cash and cash equivalents |
138 |
0.3 |
500 |
0.8 |
218 |
0.1 |
187 |
0.4 |
1,043 |
0.3 |
|
|
39,602 |
4.0 |
16,165 |
3.3 |
26,764 |
3.2 |
16,318 |
5.0 |
98,849 |
3.6 |
9. Other revenues and operational expenses
|
|
|
|
2011 £000 |
2010 £000 |
|
Agency related income |
|
|
6,769 |
6,816 |
|
Profit commission |
|
|
7,383 |
10,616 |
|
Other underwriting income - catastrophe bonds |
|
|
1,006 |
1,280 |
|
Other income |
|
|
2,164 |
3,367 |
|
Other revenues |
|
|
17,322 |
22,079 |
|
|
|
|
|
|
|
Wages and salaries |
|
|
69,185 |
80,359 |
|
Social security cost |
|
|
12,930 |
13,689 |
|
Pension cost - defined contribution |
|
|
5,724 |
5,209 |
|
Pension cost - defined benefit |
|
|
1,700 |
1,700 |
|
Share based payments |
|
|
8,677 |
8,047 |
|
Other expenses |
|
|
73,575 |
74,668 |
|
Marketing expenses |
|
|
19,955 |
11,863 |
|
Investment expenses |
|
|
3,360 |
3,803 |
|
Depreciation and amortisation |
|
|
8,098 |
7,065 |
|
|
|
|
|
|
|
Operational expenses |
|
|
203,204 |
206,403 |
10. Net foreign exchange gains/(losses)
The net foreign exchange gains for the year include the following amounts:
|
|
|
2011 £000 |
|
2010 £000 |
|
Exchange gains recognised in the consolidated income statement |
|
7,816 |
|
15,484 |
|
Exchange gains classified as a separate component of equity |
|
11,060 |
|
11,729 |
|
Overall impact of foreign exchange related items on net assets |
|
18,876 |
|
27,213 |
The above excludes profits or losses on foreign exchange derivative contracts which are included within the investment result and are outlined in note 14.
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 earned at historical rates of exchange prevailing at the original transaction date whereby resulting claims are retranslated at the end of each period. The impact of this mismatch on the income statement is shown below.
|
|
|
2011 £000 |
|
2010 £000 |
|
Opening balance sheet impact of non retranslation of non monetary items |
|
(1,251) |
|
(3,207) |
|
Gain included within profit representing the non retranslation of non monetary items |
|
3,395 |
|
1,956 |
|
Closing balance sheet impact of non retranslation of non monetary items |
|
2,144 |
|
(1,251) |
11. Reinsurance assets
|
|
|
2011 |
|
2010 |
|
|
|
£000 |
|
£000 |
|
Reinsurers' share of insurance liabilities |
|
493,422 |
|
463,724 |
|
Provision for non-recovery and impairment |
|
(907) |
|
(959) |
|
Reinsurance assets (note 17) |
|
492,515 |
|
462,765 |
Amounts due from reinsurers in respect of outstanding premiums and claims already paid by the Group are included in loans and receivables (note 13). The Group recognised a gain during the year of £52,000 (2010: gain of £4,487,000) in respect of impaired balances.
12. Financial assets and liabilities
Financial assets are measured at their bid price values, with all changes from one accounting period to the next being recorded through the income statement.
|
|
|
2011 |
|
2010 |
|
|
|
£000 |
|
£000 |
|
Debt and fixed income securities |
|
2,170,588 |
|
2,284,513 |
|
Equities and shares in unit trusts |
|
173,432 |
|
154,862 |
|
Deposits with credit institutions |
|
12,848 |
|
4,280 |
|
Total investments |
|
2,356,868 |
|
2,443,655 |
|
Catastrophe bonds |
|
11,639 |
|
15,452 |
|
Derivative financial instruments (note 14) |
|
129 |
|
- |
|
Total financial assets carried at fair value |
|
2,368,636 |
|
2,459,107 |
|
|
|
2011 |
|
2010 |
|
|
|
£000 |
|
£000 |
|
Borrowings from credit institutions carried at amortised cost* |
|
- |
|
20,000 |
|
Derivative financial instruments |
|
- |
|
457 |
|
Total financial liabilities |
|
- |
|
20,457 |
*The fair value of borrowings from credit institutions is not considered to be significantly different from the amortised cost value.
Investments at 31 December are denominated in the following currencies at their fair value:
|
|
2011 % |
2010 % |
|
|
|
|
|
Sterling |
21.7 |
24.5 |
|
US Dollars |
67.5 |
67.1 |
|
Euro and other currencies |
10.8 |
8.4 |
13. Loans and receivables including insurance receivables
|
|
|
2011 |
|
2010 |
|
|
|
£000 |
|
£000 |
|
Gross receivables arising from insurance and reinsurance contracts |
|
429,676 |
|
412,524 |
|
|
(956) |
|
(1,041) |
|
|
Net receivables arising from insurance and reinsurance contracts |
|
428,720 |
|
411,483 |
|
|
|
|
|
|
|
Due from contract holders, brokers, agents and intermediaries |
|
299,879 |
|
298,214 |
|
Due from reinsurance operations |
|
128,841 |
|
113,269 |
|
Prepayments and accrued income |
|
428,720 8,387 |
|
411,483 7,656 |
|
Other loans and receivables: |
|
|
|
|
|
Net profit commission receivable |
|
13,792 |
|
15,276 |
|
Accrued interest |
|
10,149 |
|
11,888 |
|
Share of Syndicate's other debtors balances |
|
19,726 |
|
23,230 |
|
Other debtors including related party amounts |
|
26,948 |
|
15,881 |
|
Total loans and receivables including insurance receivables |
|
507,722 |
|
485,414 |
There is no significant concentration of credit risk with respect to loans and receivables, as the Group has a large number of internationally dispersed debtors. The Group has recognised a gain of £85,000 (2010: loss of £86,000) for the impairment of receivables during the year ended 31 December 2011.
14. Derivative financial instruments
The Group entered into both exchange-traded and over the counter derivative contracts for a number of purposes during 2011. The Group had the right and intention to settle each contract on a net basis. The assets and liabilities of these contracts at 31 December 2011 all mature within one year of the balance sheet date and are detailed below:
31 December 2011
|
|
|
Gross contract notional amount |
|
Fair value of assets |
|
Fair value of liabilities |
|
Net balance sheet position |
|
|
Derivative financial instrument assets included on balance sheet |
|
£000 |
|
£000 |
|
£000 |
|
£000 |
|
|
Foreign exchange forward contracts |
|
22,552 |
|
12,662 |
|
12,533 |
|
129 |
|
|
Total |
|
22,552 |
|
12,662 |
|
12,533 |
|
129 |
|
31 December 2011
|
|
|
Gross contract notional amount |
|
Fair value of assets |
|
Fair value of liabilities |
|
Net balance sheet position |
|
|
Derivative financial instrument liabilities included on balance sheet |
|
£000 |
|
£000 |
|
£000 |
|
£000 |
|
|
Interest rate futures contracts |
|
37,156 |
|
- |
|
- |
|
- |
|
|
Total |
|
37,156 |
|
- |
|
- |
|
- |
|
31 December 2010
|
|
|
Gross contract notional amount |
|
Fair value of assets |
|
Fair value of liabilities |
|
Net balance sheet position |
|
|
Derivative financial instrument liabilities included on balance sheet |
|
£000 |
|
£000 |
|
£000 |
|
£000 |
|
|
Foreign exchange forward contracts |
|
20,223 |
|
10,070 |
|
10,500 |
|
430 |
|
|
Interest rate futures contracts |
|
64,407 |
|
16,557 |
|
16,582 |
|
25 |
|
|
Credit default swaps |
|
25,398 |
|
- |
|
2 |
|
2 |
|
|
Total |
|
110,028 |
|
26,627 |
|
27,084 |
|
457 |
|
Foreign exchange forward contracts
During the current and prior year the Group entered into a series of conventional over the counter forward contracts in order to secure translation gains made on Euro, US Dollar and other non Pound Sterling denominated monetary assets. The contracts require the Group to forward sell a fixed amount of the relevant currency for Pound Sterling at pre-agreed future exchange rates. The Group made a loss on these forward contracts of £84,000 (2010: gain of £1,522,000) as included in note 7. The opposite exchange gain is included within financial investments.
There was no initial purchase cost associated with these instruments.
Interest rate future contracts
During the year the Group continued short selling a number of government bond futures and sovereign futures denominated in a range of currencies to informally hedge substantially all of the interest rate risk on specific long portfolios of the matching currencies denominated corporate bonds. All contracts are exchange traded and the Group made a loss on these futures contracts of £1,796,000 (2010: £117,000) as included in note 7.
Equity index futures
During the year, the Group purchased a number of equity index futures in order to hedge equity market exposure pending the acquisition of shares in unit trusts. All contracts were exchange traded and the Group made a profit of £433,000 (2010: £nil) as included in note 7.
15. 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 provided below.
|
As at 31 December 2011 |
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
Financial assets |
|
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
Debt and fixed income securities |
|
500,672 |
1,669,916 |
- |
2,170,588 |
|
Equities and share in unit trusts |
|
- |
162,806 |
10,626 |
173,432 |
|
Deposits with credit institutions |
|
12,848 |
- |
- |
12,848 |
|
Catastrophe bonds |
|
- |
11,639 |
- |
11,639 |
|
Derivative instrument assets |
|
- |
129 |
- |
129 |
|
Total |
|
513,520 |
1,844,490 |
10,626 |
2,368,636 |
|
As at 31 December 2010 |
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
Financial assets |
|
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
Debt and fixed income securities |
|
516,528 |
1,767,985 |
- |
2,284,513 |
|
Equities and share in unit trusts |
|
70 |
147,866 |
6,926 |
154,862 |
|
Deposits with credit institutions |
|
4,280 |
- |
- |
4,280 |
|
Catastrophe bonds |
|
- |
15,452 |
- |
15,452
|
|
Total |
|
520,878 |
1,931,303 |
6,926 |
2,459,107 |
Financial liabilities
|
Derivative financial instruments |
|
- |
457 |
- |
457 |
The levels of the fair value hierarchy are defined by the standard 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 value 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 manager 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 values of the Group's investments in catastrophe bonds are 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 as reported by independent pricing sources or the fund manager.
Included within Level 1 of the hierarchy are Government bonds, Treasury bills and exchange traded equities which are measured based on quoted prices.
Level 2 of the hierarchy contains U.S Government Agencies, Corporate Securities, Asset Backed Securities, Mortgage Backed Securities and Catastrophe bonds. The fair value of these assets are based on 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 of 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 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 more than one level 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 year, there were no transfers made between Level 1 and Level 2 of the fair value hierarchy.
The following table sets forth a reconciliation of opening and closing balances for financial instruments classified under Level 3 of the fair value hierarchy:
|
|
|
Equities and shares in unit trusts |
Deposits with credit institutions |
Derivative financial instruments |
Total |
|
31 December 2011 |
|
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
Balance at 1 January |
|
6,926 |
- |
- |
6,926 |
|
Total gains or losses through profit or loss* |
|
1,242 |
- |
- |
1,242 |
|
Purchases |
|
3,002 |
- |
- |
3,002 |
|
Issues |
|
|
|
|
|
|
Settlements |
|
(544) |
- |
- |
(544) |
|
Transfers into Level 2 |
|
|
|
|
|
|
Closing balance |
|
10,626 |
- |
- |
10,626 |
|
|
|
Equities and shares in unit trusts |
Deposits with credit institutions |
Derivative financial instruments |
Total |
|
31 December 2010 |
|
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
Balance at 1 January |
|
4,260 |
- |
- |
4,260 |
|
Total gains or losses through profit or loss* |
|
842 |
- |
- |
842 |
|
Purchases |
|
1,824 |
- |
- |
1,824 |
|
Issues |
|
- |
- |
- |
- |
|
Settlements |
|
- |
- |
- |
- |
|
Transfers into Level 2 |
|
- |
- |
- |
- |
|
Closing balance |
|
6,926 |
- |
- |
6,926 |
*Total gains/(losses) are included within the investment result in the income statement
16. Cash and cash equivalents
|
|
|
2011 |
|
2010 |
|
|
|
£000 |
|
£000 |
|
Cash at bank and in hand |
|
258,927 |
|
260,710 |
|
Short-term bank deposits |
|
257,620 |
|
75,307 |
|
|
|
516,547 |
|
336,017 |
The Group holds its cash deposits with a well diversified range of banks and financial institutions.
17. Insurance liabilities and reinsurance assets
|
|
|
2011 |
|
2010 |
|
|
|
£000 |
|
£000 |
|
Gross |
|
|
|
|
|
Claims reported and loss adjustment expenses |
|
938,498 |
|
802,254 |
|
Claims incurred but not reported |
|
964,073 |
|
904,150 |
|
Unearned premiums |
|
597,689 |
|
573,463 |
|
Total insurance liabilities, gross |
|
2,500,260 |
|
2,279,867 |
|
|
|
|
|
|
|
Recoverable from reinsurers |
|
|
|
|
|
Claims reported and loss adjustment expenses |
|
187,973 |
|
131,697 |
|
Claims incurred but not reported |
|
224,855 |
|
242,496 |
|
Unearned premiums |
|
79,687 |
|
88,572 |
|
Total reinsurers' share of insurance liabilities |
|
492,515 |
|
462,765 |
|
|
|
|
|
|
|
Net |
|
|
|
|
|
Claims reported and loss adjustment expenses |
|
750,525 |
|
670,557 |
|
Claims incurred but not reported |
|
739,218 |
|
661,654 |
|
Unearned premiums |
|
518,002 |
|
484,891 |
|
Total insurance liabilities, net |
|
2,007,745 |
|
1,817,102 |
The gross claims reported, the loss adjustment expenses liabilities and the liability for claims incurred but not reported are net of expected recoveries from salvage and subrogation. The amounts for salvage and subrogation at the end of 2011 and 2010 are not material.
Claims development tables
The development of insurance liabilities provides a measure of the Group's ability to estimate the ultimate value of claims. The Group analyses actual claims development compared with previous estimates on an accident year basis. This exercise is performed to include the liabilities of Syndicate 33 at the 100% level regardless of the Group's actual level of ownership, which has increased significantly over the last eight years. Analysis at the 100% level is required in order to avoid distortions arising from reinsurance to close arrangements which subsequently increase the Group's share of ultimate claims for each accident year three years after the end of that accident year.
The top half of each table illustrates how estimates of ultimate claim costs for each accident year have changed at successive year ends. The bottom half reconciles cumulative claim costs to the amounts still recognised as liabilities. A reconciliation of the liability at the 100% level to the Group's share, as included in the balance sheet, is also shown.
Insurance claims and claims expenses reserves - gross at 100% level
|
Accident year |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
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 |
413,184 |
466,817 |
703,352 |
1,181,038 |
607,845 |
814,411 |
1,138,242 |
865,308 |
1,040,776 |
1,342,851 |
8,573,824 |
|
one year later |
437,595 |
479,567 |
780,406 |
1,307,247 |
580,772 |
730,346 |
968,161 |
723,236 |
893,734 |
- |
6,901,064 |
|
two years later |
445,766 |
450,905 |
744,857 |
1,309,989 |
559,679 |
693,912 |
945,948 |
665,513 |
- |
- |
5,816,569 |
|
three years later |
429,751 |
464,336 |
704,672 |
1,291,432 |
528,667 |
706,535 |
906,391 |
- |
- |
- |
5,031,784 |
|
four years later |
425,705 |
459,437 |
707,894 |
1,285,490 |
538,593 |
700,267 |
- |
- |
- |
- |
4,117,386 |
|
five years later |
399,825 |
448,549 |
689,366 |
1,286,662 |
528,182 |
- |
- |
- |
- |
- |
3,352,584 |
|
six years later |
395,574 |
443,914 |
693,070 |
1,241,435 |
- |
- |
- |
- |
- |
- |
2,773,993 |
|
seven years later |
397,049 |
433,538 |
674,175 |
- |
- |
- |
- |
- |
- |
- |
1,504,762 |
|
eight years later |
383,247 |
429,429 |
- |
- |
- |
- |
- |
- |
- |
- |
812,676 |
|
nine years later |
384,727 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
384,727 |
|
Current estimate of cumulative claims |
384,727 |
429,429 |
674,175 |
1,241,435 |
528,182 |
700,267 |
906,391 |
665,513 |
893,734 |
1,342,851 |
7,766,704 |
|
Cumulative payments to date |
(337,051) |
(419,839) |
(617,994) |
(1,167,039) |
(455,780) |
(570,177) |
(714,342) |
(473,533) |
(435,502) |
(331,251) |
(5,522,508) |
|
Liability recognised at 100% level |
47,676 |
9,590 |
56,181 |
74,396 |
72,402 |
130,090 |
192,049 |
191,980 |
458,232 |
1,011,600 |
2,244,196 |
|
Liability recognised in respect of prior accident years at 100% level |
|
|
|
|
|
|
|
|
|
|
89,859 |
|
Total gross liability to external parties at 100% level |
|
2,334,055 |
|||||||||
*The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 31 December 2011.
Reconciliation of 100% disclosures above to Group's share - gross
|
Accident year |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
Current estimate of cumulative claims |
384,727 |
429,429 |
674,175 |
1,241,435 |
528,182 |
700,267 |
906,391 |
665,513 |
893,734 |
1,342,851 |
7,766,704 |
|
Less:Attributable to external Names |
(78,366) |
(96,389) |
(158,879) |
(310,875) |
(110,438) |
(137,899) |
(173,449) |
(111,234) |
(138,144) |
(198,129) |
(1,513,802) |
|
Group's share of current ultimate claims estimate |
306,361 |
333,040 |
515,296 |
930,560 |
417,744 |
562,368 |
732,942 |
554,279 |
755,590 |
1,144,722 |
6,252,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative payments to date |
(337,051) |
(419,839) |
(617,994) |
(1,167,039) |
(455,780) |
(570,177) |
(714,342) |
(473,533) |
(435,502) |
(331,251) |
(5,522,508) |
|
Less:Attributable to external Names |
65,747 |
94,246 |
144,651 |
295,205 |
93,607 |
107,948 |
129,641 |
72,899 |
57,269 |
42,423 |
1,103,636 |
|
Group's share of cumulative payments |
(271,304) |
(325,593) |
(473,343) |
(871,834) |
(362,173) |
(462,229) |
(584,701) |
(400,634) |
(378,233) |
(288,828) |
(4,418,872) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for 2002 to 2011 accident years recognised on Group's balance sheet |
35,057 |
7,447 |
41,953 |
58,726 |
55,571 |
100,139 |
148,241 |
153,645 |
377,357 |
855,894 |
1,834,030 |
|
Liability for accident years before 2002 recognised on Group's balance sheet |
|
|
|
|
|
|
|
|
|
|
68,541 |
|
Total Group liability to external parties included in balance sheet - gross** |
|
1,902,571 |
|||||||||
** This represents the claims element of the Group's insurance liabilities.
Insurance claims and claims expenses reserves - net at 100% level
|
Accident year |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
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 |
278,813 |
368,640 |
588,123 |
694,883 |
540,273 |
704,951 |
788,664 |
699,134 |
823,698 |
1,040,657 |
6,527,836 |
|
|
one year later |
304,138 |
389,344 |
642,944 |
798,902 |
531,608 |
641,184 |
704,512 |
587,970 |
724,754 |
- |
5,325,356 |
|
|
two years later |
314,738 |
354,561 |
617,364 |
788,855 |
514,331 |
621,008 |
701,306 |
561,371 |
- |
- |
4,473,534 |
|
|
three years later |
290,692 |
364,975 |
579,523 |
763,321 |
470,863 |
588,955 |
661,089 |
- |
- |
- |
3,719,418 |
|
|
four years later |
284,205 |
355,928 |
580,450 |
752,750 |
488,023 |
585,147 |
- |
- |
- |
- |
3,046,503 |
|
|
five years later |
268,666 |
350,593 |
564,886 |
753,311 |
475,691 |
- |
- |
- |
- |
- |
2,413,147 |
|
|
six years later |
262,542 |
346,939 |
565,374 |
731,725 |
- |
- |
- |
- |
- |
- |
1,906,580 |
|
|
seven years later |
268,143 |
335,507 |
549,172 |
- |
- |
- |
- |
- |
- |
- |
1,152,822 |
|
|
eight years later |
256,535 |
327,249 |
- |
- |
- |
- |
- |
- |
- |
- |
583,784 |
|
|
nine years later |
266,886 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
266,886 |
|
|
Current estimate of cumulative claims |
266,886 |
327,249 |
549,172 |
731,725 |
475,691 |
585,147 |
661,089 |
561,371 |
724,754 |
1,040,657 |
5,923,741 |
|
|
Cumulative payments to date |
(206,430) |
(320,079) |
(486,977) |
(665,968) |
(405,032) |
(467,043) |
(537,004) |
(411,187) |
(378,092) |
(277,611) |
(4,155,423) |
|
|
Liability recognised at 100% level |
60,456 |
7,170 |
62,195 |
65,757 |
70,659 |
118,104 |
124,085 |
150,184 |
346,662 |
763,046 |
1,768,318 |
|
|
Liability recognised in respect of prior accident years at 100% level |
|
|
|
|
|
|
|
|
|
|
41,780 |
|
|
Total net liability to external parties at 100% level |
1,810,098 |
|
||||||||||
*The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 31 December 2011.
Reconciliation of 100% disclosures above to Group's share - net
|
Accident year |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
Current estimate of cumulative claims |
266,886 |
327,249 |
549,172 |
731,725 |
475,691 |
585,147 |
661,089 |
561,371 |
724,754 |
1,040,657 |
5,923,741 |
|
Less:Attributable to external Names |
(52,080) |
(71,829) |
(129,973) |
(175,292) |
(99,258) |
(119,202) |
(123,113) |
(90,647) |
(103,540) |
(137,891) |
(1,102,825) |
|
Group's share of current ultimate claims estimate |
214,806 |
255,420 |
419,199 |
556,433 |
376,433 |
465,945 |
537,976 |
470,724 |
621,214 |
902,766 |
4,820,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative payments to date |
(206,430) |
(320,079) |
(486,977) |
(665,968) |
(405,032) |
(467,043) |
(537,004) |
(411,187) |
(378,092) |
(277,611) |
(4,155,423) |
|
Less:Attributable to external Names |
35,729 |
70,171 |
113,766 |
160,728 |
82,118 |
90,238 |
93,316 |
61,793 |
51,086 |
34,255 |
793,200 |
|
Group's share of cumulative payments |
(170,701) |
(249,908) |
(373,211) |
(505,240) |
(322,914) |
(376,805) |
(443,688) |
(349,394) |
(327,006) |
(243,356) |
(3,362,223) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for 2002 to 2011 accident years recognised on Group's balance sheet |
44,105 |
5,512 |
45,988 |
51,193 |
53,519 |
89,140 |
94,288 |
121,330 |
294,208 |
659,410 |
1,458,693 |
|
Liability for accident years before 2002 recognised on Group's balance sheet |
|
|
|
|
|
|
|
|
|
|
31,050 |
|
Total Group liability to external parties included in the balance sheet - net ** |
1,489,743 |
||||||||||
** This represents the claims element of the Group's insurance liabilities and reinsurance assets.
Movement in insurance claims liabilities and reinsurance claims assets
|
|
|
|
2011 |
|
|
|
2010 |
|
|
Gross |
Reinsurance |
Net |
|
Gross |
Reinsurance |
Net |
|
Year ended 31 December |
£000 |
£000 |
£000 |
|
£000 |
£000 |
£000 |
|
Total at beginning of year |
(1,706,404) |
374,193 |
(1,332,211) |
|
(1,549,323) |
328,890 |
(1,220,433) |
|
Claims and loss adjustment expenses for the year |
(830,368) |
132,470 |
(697,898) |
|
(733,074) |
162,077 |
(570,997) |
|
Cash paid for claims settled in the year |
650,510 |
(95,433) |
555,077 |
|
598,179 |
(120,088) |
478,091 |
|
Exchange differences and other movements |
(16,309) |
1,598 |
(14,711) |
|
(22,186) |
3,314 |
(18,872) |
|
Total at end of year |
(1,902,571) |
412,828 |
(1,489,743) |
|
(1,706,404) |
374,193 |
(1,332,211) |
|
|
|
|
|
|
|
|
|
|
Claims reported and loss adjustment expenses |
(938,498) |
187,973 |
(750,525) |
|
(802,254) |
131,697 |
(670,557) |
|
Claims incurred but not reported |
(964,073) |
224,855 |
(739,218) |
|
(904,150) |
242,496 |
(661,654) |
|
Total at end of year |
(1,902,571) |
412,828 |
(1,489,743) |
|
(1,706,404) |
374,193 |
(1,332,211) |
The insurance claims expense reported in the consolidated income statement is comprised as follows:
|
|
|
|
2011 |
|
|
|
2010 |
|
|
Gross |
Reinsurance |
Net |
|
Gross |
Reinsurance |
Net |
|
Year ended 31 December |
£000 |
£000 |
£000 |
|
£000 |
£000 |
£000 |
|
Current year claims and loss adjustment expenses |
(1,126,667) |
229,314 |
(897,353) |
|
(864,128) |
160,277 |
(703,851) |
|
(Under)/over provision in respect of prior year claims and loss adjustment expenses |
296,299 |
(96,844) |
199,455 |
|
131,054 |
1,800 |
132,854 |
|
Total claims and claims handling expense |
(830,368) |
132,470 |
(697,898) |
|
(733,074) |
162,077 |
(570,997) |
18. Trade and other payables
|
|
|
2011 |
|
2010 |
|
|
|
£000 |
|
£000 |
|
Creditors arising out of direct insurance operations |
|
58,346 |
|
52,368 |
|
Creditors arising out of reinsurance operations |
|
152,866 |
|
181,159 |
|
|
|
211,212 |
|
233,527 |
|
|
|
|
|
|
|
Obligations under finance leases |
|
- |
|
45 |
|
Share of Syndicate's other creditors' balances |
|
4,856 |
|
4,887 |
|
Social security and other taxes payable |
|
10,640 |
|
14,563 |
|
Other creditors |
|
14,939 |
|
13,995 |
|
|
|
30,435 |
|
33,490 |
|
Reinsurers' share of deferred acquisition costs |
|
15,641 |
|
17,048 |
|
Accruals and deferred income |
|
56,847 |
|
64,933 |
|
Total |
|
314,135 |
|
348,998 |
19. 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 consolidated income statement comprise the following:
|
|
2011 |
2010 |
|
|
£000 |
£000 |
|
Current tax (credit)/expense |
(95,429) |
57,166 |
|
Deferred tax expense/(credit) |
91,428 |
(24,600) |
|
|
|
|
|
Total tax (credit)/expense |
(4,001) |
32,566 |
During 2011 the group's Lloyd's corporate member, Hiscox Dedicated Corporate Member Ltd, changed its tax filing position on the timing of the deduction for tax purposes of member-level reinsurance premiums. Consequently, a prior year current tax adjustment has arisen and results in a closing current tax debtor. Equally, deductions for member-level reinsurance premiums which were previously deferred for tax, and formed part of the deferred tax balance have been taken in earlier years, and no longer form part of the deferred tax balance.
The effect of this change in current tax is a credit to the income statement of £81,287,000.
The effect of this change in deferred tax is a charge to the income statement of £73,296,000.
A permanent difference arises as a result of the difference in UK effective tax rate between the earlier and later years.
20. 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 shares in issue during the year, excluding ordinary shares purchased by the Group and held in treasury as own shares.
|
|
|
2011 |
|
2010
|
|
Profit attributable to the Company's equity holders (£000) |
|
21,272 |
|
178,800 |
|
Weighted average number of ordinary shares (thousands) |
|
383,602 |
|
379,064 |
|
Basic earnings per share (pence per share) |
|
5.5p |
|
47.2p |
Diluted
Diluted earnings per share is calculated adjusting for the assumed conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares, share options. 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.
|
|
|
2011
|
|
2010 |
|
Profit attributable to Company's equity holders (£000) |
|
21,272 |
|
178,800 |
|
|
|
|
|
|
|
Weighted average number of ordinary shares in issue (thousands) |
|
383,602 |
|
379,064 |
|
Adjustments for share options (thousands) |
|
15,610 |
|
14,662 |
|
Weighted average number of ordinary shares for diluted earnings per share (thousands) |
|
399,212 |
|
393,726 |
|
Diluted earnings per share (pence per share) |
|
5.3p |
|
45.4p |
Diluted earnings per share has been calculated after taking account of 15,029,986 (2010: 13,996,961) options and awards under employee share option and performance plan schemes and 579,518 (2010: 665,060) options under SAYE schemes.
21. Dividends paid to owners of the Company
|
|
|
2011 |
|
2010 |
|
|
|
£000 |
|
£000 |
|
Interim dividend for the year ended : |
|
|
|
|
|
- 31 December 2011 of 5.1p (net) per share |
|
19,738 |
|
- |
|
- 31 December 2010 of 5.0p (net) per share |
|
- |
|
19,018 |
|
Final dividend for the year ended : |
|
|
|
|
|
- 31 December 2010 of 11.5p (net) per share
Second interim dividend for the year ended: |
|
44,111 |
|
- |
|
- 31 December 2009 of 10.5p (net) per share |
|
- |
|
39,442 |
|
|
|
63,849 |
|
58,460 |
Included in the final dividend for 2010 and the interim dividend for 2011, were scrip dividends to the value of £12,308,238 and £1,029,226 respectively. Subject to shareholder approval at the forthcoming Annual General Meeting on 30 May 2012, a scrip dividend alternative to the cash dividend is to be offered again to the Owners of the Company. These financial statements do not reflect this dividend as a distribution or liability in accordance with IAS 10 Events after the reporting period.
22. Foreign currency items on economic hedges and intragroup borrowings
The Group have loan arrangements, denominated in US Dollars and Euros, in place between certain group companies. In most cases, as one party to each arrangement has a functional currency other than the US Dollar, foreign exchange losses arise which are not eliminated through the income statement on consolidation. Implicit offsetting gains are reflected instead on retranslation of the counterparty company's closing balance sheet through other comprehensive income and into the Group's currency translation reserve within equity.
Impact as at 31 December 2011
|
|
Consolidated income statement 2011 £000 |
Consolidated other comprehensive income 2011 £000 |
Total economic impact 2011 £000 |
|
Unrealised translation (losses)/gains on intragroup borrowings |
(4,540) |
4,540 |
- |
|
|
|
|
|
|
Total (losses)/gains recognised |
(4,540) |
4,540 |
- |
Impact as at 31 December 2010
|
|
Consolidated income statement 2010 £000 |
Consolidated other comprehensive income 2010 £000 |
Total economic impact 2010 £000 |
|
Unrealised translation gains / (losses) on intragroup borrowings |
1,846 |
(1,846) |
- |
|
|
|
|
|
|
Total gains/(losses) recognised |
1,846 |
(1,846) |
- |
The Group did not enter into any economic hedging derivative contracts during the current year.
Note:
The Annual Report and Accounts for 2011 will be available to shareholders no later than 23 March 2012. Copies of the Report may be obtained by writing to the Company Secretary, Hiscox Ltd, Wessex House, 45 Reid Street, Hamilton HM12, Bermuda. A copy of this and other announcements can be found at www.hiscox.com.
This information is provided by RNS
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