Interim Results
Hiscox PLC
11 September 2006
Hiscox plc
Interim Results for the six months ended 30 June 2006
'Strong growth for the group and a good start for our two new ventures in
Bermuda and the USA.'
HY 2006 HY 2005
Gross premiums written £625.1 million £437.2 million
Profit before tax £61.3 million £88.1 million
Earnings per share 12.1p 20.2p
Dividend per share 3.0p 2.25p
Net asset value per share 149.8p 143.3p
Combined ratio 93.2% 83.5%
Highlights
• Gross premiums written increased 43% to £625.1 million
• Profit before tax of £61.3 million
• Profit before tax excluding currency exchange movements £64.7 million (2005: £51.2m)
• Group combined ratio adjusted for currency exchange on unearned premiums
and deferred acquisition costs 89.5% (2005: 89.6%)
• Strong start for Hiscox Bermuda and Hiscox USA
• Global Markets achieving high rates for catastrophe exposed risks
• Increase in demand for UK household and commercial insurance following
additional advertising spend
• Planned re-domicile to Bermuda anticipated to yield long-term benefits.
Robert Hiscox, Chairman Hiscox plc, commented:
'It was a good first half with strong growth fuelled by high rates for all
business exposed to catastrophes, helped by steady growth from our retail
non-catastrophe business. The successful start of our new ventures in Bermuda
and the USA have strengthened our strategy of international spread, and balance
between high-risk and low-risk specialist insurance.'
This summary should be read in conjunction with the detailed announcement which
follows.
For further information:
Hiscox plc
Robert Hiscox Chairman 020 7448 6011
Bronek Masojada Chief Executive 020 7448 6012
Stuart Bridges Finance Director 020 7448 6013
Maitland
Philip Gawith 020 7379 5151
Suzanne Bartch 020 7379 5151
Notes to editors
About Hiscox plc
Hiscox plc is a specialist insurance group listed on the London Stock Exchange.
There are three main underwriting parts of the Group - Hiscox Global Markets,
Hiscox UK and Europe, and Hiscox International. Hiscox Global Markets
underwrites mainly 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 offshore
operations in Bermuda and Guernsey and Hiscox USA.
For further information, visit www.hiscox.com
Chairman's Statement
The first half of 2006 has seen considerable growth in premium income together
with strong starts by our two new ventures, Hiscox Bermuda and Hiscox USA, in
Armonk, NY. Our well-received TV advertising campaign in the UK has strengthened
demand for our specialist products through all channels. We now have an
excellent well-balanced and international spread of distribution channels to
continue to grow the business profitably in its specialist areas.
Results
The results for the half-year to 30th June 2006 were a profit before tax of
£61.3 million (2005: £88.1m). Gross written premium income increased 43% to
£625.1 million (2005: £437.2m) and net earned income increased 16% to £401.7
million (2005: £345.7m). The group combined ratio was 93.2% (2005: 83.5%).
Earnings per share were 12.1p (2005: 20.2p) and net assets per share rose to
149.8p (2005: 143.3p).
Dividend
The Board stated at the 2005 year-end that it would recommend a total dividend
of 9.0p for 2006 subject to profitability. We will pay an interim dividend of 3.0p
(net) per ordinary share (2005: 2.25p) on 23rd October 2006 to shareholders on
the register at the close of business on 29th September 2006.
Overall comment
The profit of the group is up year on year without currency exchange movements.
The currency impact this half year was a small loss of £3.4 million compared
with a substantial gain of £36.9 million during the same period in 2005. This
underlying improvement was achieved despite considerable investment in start-up
costs and advertising spend, but these will yield strong returns in the future.
The increase in written premium income is highly satisfactory. The increase in
earned premium is less than the written premium due to the usual accounting
delay in a growing account and also to the underwriters of catastrophe business
delaying commitment as rates were rising. This should improve earnings in the
second half of the year.
I am writing this as always in the middle of the wind season so do not want to
say anything that will look ridiculous in a few weeks time, but even if Mother
Nature does choose to subject us to the same onslaught as in 2005, the
catastrophe account should do better than last year as we have received much
more money for the same risk. The rates for business in obvious catastrophe
zones have strengthened throughout the period, but this has been offset by
increasing competition for non-catastrophe exposed business. Overall, however,
conditions are good.
Our strategy remains to underwrite the more volatile big risk and catastrophe
business through Lloyd's in London and through Hiscox Bermuda, and to balance it
with less volatile retail business through our regional offices in the UK and
Europe, through Guernsey and the USA, and through our direct operations.
International
Our International business covers our new operations in Bermuda and the USA, as
well as our established operation in Guernsey.
Hiscox Bermuda was boosted by having Robert Childs, our Chief Underwriting
Officer, as its leader. (I was always told that rule number one for opening an
overseas office was don't, and if you chose to break rule one, rule number two
was to send one of your most senior people as it is the most difficult thing you
will ever do. We have obeyed rule two to great benefit). Hiscox Bermuda is on
target to write its annual budget of $325 million.
Hiscox USA, led by Ed Donnelly, opened for business in March 2006 and has got
off to a storming start. Ed has recruited an impressive team and has already
increased his annual forecast for this year from $15 million to $25 million. I
know it does not sound a lot compared with $325 million for Bermuda, but retail
business has to be won by relatively small premium by small premium. Its
advantage is less volatility in risk and retention. We definitely believe that
this is an acorn which will grow into a substantial oak tree.
Hiscox Guernsey produced another excellent profit which helped to give the
international division an overall combined ratio of 83.9% despite start-up
costs.
Global Markets
This division underwrites London Market risks and the bigger retail risks and
those international retail risks for which we need to use the Lloyd's licences.
Its catastrophe book is written in addition to the Hiscox Bermuda book, which
widens the spread of the account and balances the risk across the Group.
This division's results are dominated by its catastrophe book and, as we
announced in our recent trading statement, last year's hurricanes have produced
more claims during the period. Overall our reserves were flat despite
strengthening the hurricane reserves by about £10 million, predominantly for
Hurricane Wilma.
The combined ratio was 93.3% (2005: 80.5%) on an increased written premium
income of £390.8 million (2005: £287.2m). Earned income at £256.1 million
(2005: £217.2m) has increased less than written premium due to the accounting delay
from strong growth and the underwriters waiting to write reinsurance business until
later in the period. This has, together with the currency movement, increased the
combined ratio. The earnings should, of course, show through more strongly in the
second half.
The London Market is still the principal centre for internationally traded
risks, and our underwriters get a very good showing of the business that comes
to London. We also have Global Market offices in the USA and Paris to market our
global underwriting abilities more widely.
Rates are strong for any risks exposed to catastrophes but competition is
growing fiercer for other risks. Fortunately we have specialist books of
business built up over many years which insulate us to an extent, but the cycle
is interestingly split with some rates going down and some up.
As announced recently, we are in discussions with investors on the formation of
an independent reinsurer (a 'sidecar') to reinsure exclusively the Syndicate 33
catastrophe account. This would allow us to expand our capacity for this
business next year whilst controlling our risk.
UK and Europe
This division covers our retail business in UK and Europe together with some of
our international art and specie account. Specie business is the insurance of
valuable commodities such as cash and gold, which we underwrite with the art
account. The UK figures in the period have been affected by some large specie
losses which together with the advertising spend increased the combined ratio to
95.2% (2005: 90.2%). The UK combined written premium income was up 8.8% to
£112.2 million (2005: £103.1m) but in that overall figure, the Direct account
grew 75% and the Specie account reduced by 57%.
Competition has increased and put pressure on the rates. (We are reaching the
stage in the cycle when Chief Executives state in public that their company will
not reduce rates, while demanding in private more income from their troops. The
troops cut the rates). However, our commercial products are sufficiently
specialist to make entry into the market by foolish and uneconomic competitors
difficult. We have also concentrated on smaller risks where there is less
competition. In art and household business, we have an established reputation
and expertise and we do not compete on price alone but with our rapid service
and sympathetic claims payment as well.
The great majority of our business comes through brokers. In addition, we have
developed a growing direct account for both household and commercial policies
with good underlying underwriting margins before start-up and marketing costs.
Once the direct operation had proved itself in its technology and underwriting,
the time came to step up the marketing, culminating in the UK television
advertising earlier this year which is being repeated during September. Demand
surged following the last run of advertisements, and has settled 50% above the
pre-campaign level. Brokers also reported a greater ease of selling our
policies, so, combined with the strengthening of the Hiscox brand, the early
stages of this campaign have proved a great success. Our direct activities
complement our broker account. More and more clients want to buy direct
insurance and our policies must be available to those who want them through
whatever channel they choose. Some brokers are using our direct technology to
market smaller risks, which we believe is the future.
Our European income was static but remained profitable. The new European
management is strengthening the teams and progress will be made.
Investments
We achieved an annualised return on investments of 3.3% in the period despite
difficult bond and equity markets in May and June. Cash and investments have
grown by 35% to £1,678 million at 30 June 2006 (2005: £1,239m) augmented by our
rights issue, increased borrowings and strong cashflow from trading. We continue
to keep the portfolio balanced taking relatively little risk with short duration
and high credit quality on the bonds and a continued weighting of 7-8% in
equities. Our investment in Bermuda has been retained in cash and short dated
bonds to protect the capital there and the US dollar exposure hedged to limit
any effects on group net assets. The investment policy has served us well in the
period as interest rates in major currencies rose. We will take increased risk
in the portfolio where we believe the reward is justified but are currently
happy to sit and wait for advantageous conditions.
Re-domicile
In 2005 when we established Hiscox Bermuda we stated that as such a substantial
amount of the Group's business could originate from the Bermudan and US markets
it may be in shareholders' interests to move the domicile of Hiscox's parent
company to Bermuda. Since then the Board has been examining this proposal and
following the completion of detailed work, the Board has concluded that there
are significant advantages in moving the Group's domicile to Bermuda.
Accordingly the Board has approved a corporate re-organisation which will
introduce a new Bermuda domiciled holding company, Hiscox Ltd ('New Hiscox
Bermuda') for the Group. In effect a shareholder will receive new shares in New Hiscox
Bermuda in place of the equilavent number of their existing shares in Hiscox plc.
New Hiscox Bermuda will be listed on the Official List of the London Stock Exchange
in place of Hiscox plc and is expected to replace Hiscox plc as a member of the
FTSE 250 Index.
It is not expected that Hiscox's existing dividend policy would be affected and
shareholders would have the right to elect to receive UK sourced dividends. The
corporate re-organisation should also be neutral in tax terms for UK resident
shareholders.
The re-domicile is subject to a number of regulatory approvals. A circular
setting out how the corporate re-organisation will be effected will be sent to
shareholders in due course.
Conclusion
Hiscox Bermuda and Hiscox USA have added two more solid building blocks to the
foundations of the Group. Our existing foundation blocks of Global Markets, UK
(including direct), Europe and Guernsey are all in robust shape. A move of our
domicile to Bermuda should increase the earnings and add to our international
status. Creative underwriting, combined with efficient service and rapid and
fair claims settlement, are together building a distinctive brand which will be
supported by strong marketing in the second half of the year. I wrote in last
year's full year results that I was confident that we were entering a new era of
profitable growth, and my confidence remains undiminished.
Robert Hiscox
Chairman
11 September 2006
Condensed consolidated interim income statement
for the six month period ended 30 June 2006
6 months to 6 months to Year to
30 June 2006 30 June 2005 31 Dec 2005
Notes (unaudited) (unaudited) (audited)
£000 £000 £000
------------------------------------------------------------------------------
Income
Gross premiums written 625,152 437,160 861,174
Net premiums written 504,703 345,047 681,236
Net premiums earned 401,662 345,668 693,299
-------------------------------------------------------------------------------
Investment return 7 44,375 20,368 43,883
Other revenues 8 6,876 52,095 81,297
-------------------------------------------------------------------------------
Net revenue 452,913 418,131 818,479
--------------------------------------------------------------------------------
Expenses
Claims and claim adjustment
expenses, net of reinsurance 10 (198,050) (186,207) (457,025)
Expenses for the acquisition
of insurance contracts (107,989) (99,378) (199,979)
Administration expenses (26,970) (17,779) (41,197)
Other costs and expenses 8 (53,736) (25,789) (46,973)
--------------------------------------------------------------------------------
Total expenses (386,745) (329,153) (745,174)
--------------------------------------------------------------------------------
Results of operating
activities 66,168 88,978 73,305
Finance costs 9 (4,824) (1,009) (3,334)
Share of profit /(loss) of
associates after tax 5 151 250
--------------------------------------------------------------------------------
Profit before tax 61,349 88,120 70,221
Tax expense (14,029) (27,040) (21,591)
--------------------------------------------------------------------------------
Profit for the period (all
attributable to equity
shareholders of the Company) 47,320 61,080 48,630
--------------------------------------------------------------------------------
Earnings per share on
attributable shareholders
of the Company
Basic 11 12.1p 20.2p 15.6p
Diluted 11 11.9p 20.0p 15.1p
The notes of the condensed consolidated interim financial statements are an
integral part of this document.
Condensed consolidated interim balance sheet
at 30 June 2006
Notes 30 June 2006 30 June 2005 31 Dec 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
------------------------------------------------------------------------------
Assets
Intangible assets 33,016 32,370 33,099
Property, plant and
equipment 12,891 10,837 12,128
Investments in associates 23 1,013 18
Deferred acquisition
costs 128,898 114,875 106,747
Financial assets 13 1,210,543 1,037,993 1,237,778
Loans and receivables
including insurance
receivables 464,522 330,996 436,981
Deferred tax 13,129 - -
Reinsurance contract
receivables 435,094 290,342 506,376
Cash and cash equivalents 13 467,904 200,919 413,759
------------------------------------------------------------------------------
Total assets 2,766,020 2,019,345 2,746,886
------------------------------------------------------------------------------
Equity and liabilities
Shareholders' equity
Share capital 19,649 14,717 19,570
Share premium 403,259 234,899 401,365
Other reserves 16,705 37,823 38,789
Retained earnings 148,750 134,246 118,289
------------------------------------------------------------------------------
Total equity 588,363 421,685 578,013
------------------------------------------------------------------------------
Employee retirement
benefit obligations 17,308 25,964 16,677
Deferred tax - 33,322 15,193
Insurance contracts 1,769,644 1,373,869 1,723,000
Financial
liabilities 115,064 2,167 126,246
Current tax 44,264 12,750 16,581
Trade and other payables 231,377 149,588 271,176
------------------------------------------------------------------------------
Total liabilities 2,177,657 1,597,660 2,168,873
------------------------------------------------------------------------------
Total equity and liabilities 2,766,020 2,019,345 2,746,886
------------------------------------------------------------------------------
The notes to the condensed consolidated interim financial statements are an
integral part of this document.
Condensed consolidated interim statement of changes in equity
for the six month period ended 30 June 2006
Currency Capital
Share Share Merger translation redemption Retained 2006 2005
Capital Premium Reserve reserve reserve earnings Total Total
(unaudited)(unaudited)(unaudited) (unaudited) (unaudited)(unaudited)(unaudited)(unaudited)
£000 £000 £000 £000 £000 £000 £000 £000
------------------------------------------------------------------------------------------------
Balance at 1
January 19,570 401,365 4,723 822 33,244 118,289 578,013 368,826
Currency
translation
differences - - - (22,084) - - (22,084) 324
-------------------------------------------------------------------------------------------------
Net income
recognised
directly in
equity - - - (22,084) - - (22,084) 324
Profit for
the period - - - - - 47,320 47,320 61,080
------------------------------------------------------------------------------------------------
Total recognised
income for
the period - - - (22,084) - 47,320 25,236 61,404
Employee share
options :
Equity settled
share-based - - - - - 1,780 1,780 825
payments
Proceeds from 79 1,894 - - - - 1,973 664
shares issued
Change in own - - - - - - - 252
shares
Dividends to
equity shareholders
(note 12) - - - - - (18,639) (18,639) (10,286)
-------------------------------------------------------------------------------------------------
Balance at
30 June 19,649 403,259 4,723 (21,262) 33,244 148,750 588,363 421,685
------------------------------------------------------------------------------------------------
The notes to the condensed consolidated interim financial statements are an
integral part of this document.
Condensed consolidated interim cash flow statement
for the six month period ended 30 June 2006
Notes 6 months to 6 months to Year to
30 June 2006 30 June 2005 31 Dec 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
-------------------------------------------------------------------------------
Profit before tax 61,349 88,120 70,221
Interest and equity
dividends received (33,339) (22,236) (48,072)
Net (gains)/losses
on financial assets 4,967 (836) 4,289
Retirement benefit
charges in excess
of contributions paid 631 (8,754) (18,041)
Depreciation 1,800 1,534 3,281
Charges in respect
of share based payments 1,780 826 2,059
Other non-cash charges (24,618) (481) 690
Changes in operational assets
and liabilities:
Insurance and
reinsurance
contracts 69,019 71,650 212,462
Financial assets 16 19,844 (54,259) (256,280)
Other assets and liabilities (20,819) (493) 13,048
------------------------------------------------------------------------------
Cash generated from
operations 80,614 75,071 (16,343)
Interest received 32,892 20,907 46,844
Equity dividends
received 447 1,329 1,228
Interest paid (2,409) (774) (2,573)
Current tax paid (14,668) (3,339) (10,239)
-------------------------------------------------------------------------------
Net cash flows from operating
activities 96,876 93,194 18,917
Cash flows from the acquisition
and sale of subsidiaries and
associates - - 3,750
Cash flows from the sale/(purchase)
of property, plant and equipment (2,534) (1,530) (4,474)
Cash flows from the purchase of
intangible assets - (2,401) (3,277)
Loans repaid by related parties - - 1,580
------------------------------------------------------------------------------
Net cash used in investing activities (2,534) (3,931) (2,421)
Proceeds from the issue of ordinary
shares 1,973 664 171,983
Proceeds from the sale of treasury
shares - 252 192
Dividends paid to company's
shareholders 12 (18,639) (10,286) (16,917)
Proceeds from borrowings - - 121,133
Repayments of borrowings (319) (233) (102)
--------------------------------------------------------------------------------
Net cash flows from financing
activities (16,985) (9,603) 276,289
------------------------------------------------------------------------------
Net increase in cash and cash
equivalents 77,357 79,660 292,785
------------------------------------------------------------------------------
Cash and cash equivalents at 1
January 413,759 119,563 119,563
Net increase in cash and cash
equivalents 77,357 79,660 292,785
Effect of exchange rate fluctuations
on cash and cash equivalents (23,212) 1,696 1,411
------------------------------------------------------------------------------
Cash and cash equivalents
at end of period 467,904 200,919 413,759
-------------------------------------------------------------------------------
The notes to the condensed consolidated interim financial statements are an
integral part of this document.
Notes to the condensed consolidated interim financial statements
1 Reporting entity
Hiscox plc (the 'Company') is a public limited company incorporated and
domiciled in Great Britain. The condensed consolidated interim financial
statements for the company as at, and for the six months ended, 30 June 2006
comprise the Company and its subsidiaries (together referred to as the 'Group')
and the Group's interest in associates.
2 Basis of preparation
These condensed consolidated interim financial statements have been prepared in
accordance with the Listing Rules issued by the Financial Services Authority.
The information presented herein does not include all of the disclosures
typically required for full consolidated financial statements. Consequently
these financial statements should be read in conjunction with the full
consolidated financial statements of the Group as at, and for the year ended, 31
December 2005 which are available from the Company's registered office at 1
Great St Helen's, London,EC3A 6HX or at www.hiscox.com. Except where otherwise
indicated, all amounts are presented in pounds Sterling, rounded to the nearest
thousand.
The condensed consolidated interim financial statements for the 30 June 2006 and
30 June 2005 periods are unaudited but have been subject to a review by the
independent auditors. The unaudited condensed consolidated interim financial
statements, and the comparative information as at, and for the year ended, 31
December 2005, presented herein do not constitute statutory accounts of the
Group within the meaning of Section 240 of the Companies Act 1985.
The independent auditors have reported on the Group's full consolidated
financial statements as at, and for the year ended, 31 December 2005. The report
of the independent auditors was not qualified and did not contain a statement
under section 237 (2) or (3) of the Companies Act 1985.
These condensed consolidated interim financial statements were approved by the
Board of Directors on 11 September 2006.
3 Accounting policies
The accounting policies applied in these condensed consolidated interim
financial statements are consistent with those applied by the Group in its
consolidated financial statements as at, and for the year ended, 31 December
2005 which were prepared in accordance with International Financial Reporting
Standards as endorsed by the European Union. Certain reclassifications have been
made to the 30 June 2005 prior period amounts and segment disclosures to conform
to the presentation in the Group's 2005 Annual Report and to the current period
presentation. These reclassifications have no impact on previously reported
Results of operating activities or Profit before tax. The accounting policies
applied in these condensed consolidated interim financial statements are also
consistent with those that the Group expects to apply for the year ending 31
December 2006. The Group has not adopted IAS 34 Interim Financial Reporting.
4 Financial risk management
The Group's financial risk management objectives and policies are consistent
with that disclosed in the full consolidated financial statements as at, and for
the year ended, 31 December 2005.
5 Segment information
The Group is managed and reported on a worldwide basis in three primary business
segments as follows:
- Global Markets and Corporate Centre comprises the results of Syndicate 33,
excluding Syndicate 33's specie, fine art and non-US household business. It also
includes the investment return and administrative costs associated with the
parent company and other Group management activities.
- UK and Europe comprises the results of Hiscox Insurance Company Limited, the
results of Syndicate 33's specie, fine art 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.
- International comprises the results of Hiscox Insurance Company (Guernsey)
Limited and Hiscox Insurance Company (Bermuda) Limited which commenced
underwriting on 1 January 2006. This segment also includes the activities of the
US agency, Hiscox Inc which commenced operations in March 2006.
This segmentation reflects the internal operational structure within the Group
and how the business units are strategically managed to offer different products
and services, with different risk profiles, to specific customer groups. All
revenue sources are captured by one of the three business segments shown
above. All results arise from continuing activities.
The segmental results for the 6 months to 30 June 2006, presented in operational
reporting format, were as follows:
6 Months to 30 June 2006 (unaudited)
-------------------------------------------------------------------------------
Global
Markets and
Corporate UK and
Centre Europe International Total
£000 £000 £000 £000
------------------------------------------------------------------------------
Gross premiums written 390,807 139,457 94,888 625,152
Net premiums written 311,311 117,043 76,349 504,703
Net premiums earned 256,133 115,127 30,402 401,662
------------------------------------------------------------------------------
Investment return based on
longer term rates of return 19,192 9,100 6,339 34,631
Net claims incurred (137,389) (50,888) (9,773) (198,050)
Acquisition costs (67,081) (38,486) (11,707) (117,274)
Administrative expenses (12,593) (11,242) (3,135) (26,970)
Other income / (expenses) (20,151) (1,159) 788 (20,522)
-------------------------------------------------------------------------------
Trading result 38,111 22,452 12,914 73,477
Agency and other income 2,030 12,530 471 15,031
Profit commission 1,130 - - 1,130
Short-term investment return
fluctuations 10,564 (1,320) 500 9,744
Other expenses (7,284) (19,889) (6,041) (33,214)
-------------------------------------------------------------------------------
Operating result 44,551 13,773 7,844 66,168
Finance costs (4,824) - - (4,824)
Associate result 5 - - 5
------------------------------------------------------------------------------
Profit before tax 39,732 13,773 7,844 61,349
------------------------------------------------------------------------------
Global
Markets and
Corporate UK and
Centre Europe International Total
------------------------------------------------------------------------------
100% level net combined ratio (%) 93.3 95.2 83.9 93.2
------------------------------------------------------------------------------
6 Months to 30 June 2005 (unaudited)
-------------------------------------------------------------------------------
Global
Markets and
Corporate UK and
Centre Europe International Total
£000 £000 £000 £000
------------------------------------------------------------------------------
Gross premiums written 287,192 129,613 20,355 437,160
Net premiums written 217,257 114,918 12,872 345,047
Net premiums earned 217,200 118,559 9,909 345,668
------------------------------------------------------------------------------
Investment return based on
longer term rates of return 17,245 6,928 93 24,266
Net claims incurred (129,650) (56,365) (192) (186,207)
Acquisition costs (59,601) (40,181) (8,110) (107,892)
Administrative expenses (7,974) (9,582) (1,075) (18,631)
Other income / (expenses) 38,806 840 404 40,050
------------------------------------------------------------------------------
Trading result 76,026 20,199 1,029 97,254
Agency and other income 8,207 11,090 169 19,466
Profit commission 2,744 - - 2,744
Short-term investment return
fluctuations (7,249) 3,374 (23) (3,898)
Other expenses (13,681) (12,907) - (26,588)
-------------------------------------------------------------------------------
Operating result 66,047 21,756 1,175 88,978
Finance costs (1,009) - - (1,009)
Associates result - - 151 151
------------------------------------------------------------------------------
Profit before tax 65,038 21,756 1,326 88,120
------------------------------------------------------------------------------
Global
Markets and
Corporate UK and
Centre Europe International Total
------------------------------------------------------------------------------
100% level net combined ratio (%) 80.5 90.2 90.6 83.5
------------------------------------------------------------------------------
Year to 31 December 2005 (audited)
-------------------------------------------------------------------------------
Global
Markets and
Corporate UK and
Centre Europe International Total
£000 £000 £000 £000
------------------------------------------------------------------------------
Gross premiums written 555,183 262,271 43,720 861,174
Net premiums written 417,128 235,276 28,832 681,236
Net premiums earned 428,334 241,603 23,362 693,299
-------------------------------------------------------------------------------
Investment return based on
longer term rates of return 36,181 14,300 1,632 52,113
Net claims incurred (347,865) (108,498) (662) (457,025)
Acquisition costs (118,546) (81,827) (18,380) (218,753)
Administrative expenses (14,342) (24,571) (2,284) (41,197)
Other income / (expenses) 55,060 2,362 (162) 57,260
------------------------------------------------------------------------------
Trading result 38,822 43,369 3,506 85,697
Agency and other income 8,376 22,640 2,469 33,485
Profit commission 7,357 - - 7,357
Short-term investment return
fluctuations (15,252) 6,081 (70) (9,241)
Other expenses (15,253) (28,740) - (43,993)
-------------------------------------------------------------------------------
Operating result 24,050 43,350 5,905 73,305
Finance costs (3,334) - - (3,334)
Associates result - - 250 250
------------------------------------------------------------------------------
Profit before tax 20,716 43,350 6,155 70,221
------------------------------------------------------------------------------
Global
Markets and
Corporate UK and
Centre Europe International Total
------------------------------------------------------------------------------
100% level net combined ratio (%) 99.9 86.9 91.3 96.0
------------------------------------------------------------------------------
The longer term rates of return are calculated based on 6% return on equities
and 4% for all other investments including cash. These rates are applied to the
average value of investments held in each class during the current and prior
financial period.
6 Return on equity
6 months to 6 months to Year to 31
30 June 2006 30 June 2005 Dec 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
--------------------------------------------------------------------------
Profit for the period 47,320 61,080 48,630
Opening shareholders'
equity 578,013 368,826 368,826
Adjusted for the time weighted
impact of:
- Rights issue - - 15,510
- Distributions and other
movements in capital (205) (78) (5,285)
-------------------------------------------------------------------------------
Adjusted opening
shareholders' equity 577,808 368,748 379,051
------------------------------------------------------------------------------
Annualised return on
equity (%) 17.0% 35.9% 12.8%
7 Investment result
i) Analysis of investment result
6 months to 6 months to Year to 31
30 June 2006 30 June 2005 Dec 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
-----------------------------------------------------------------------------
Investment income including
interest receivable 35,128 22,657 48,172
Net realised gains/(losses)
on investment at fair value
through income (7,185) (1,629) (8,040)
Net fair value gains/(losses)
on investment at fair value
through income (795) 2,465 10,155
Net realised gains on
derivative instruments 18,091 - -
Net fair value gains/(losses)
on derivative instruments
and financial liabilities (864) (3,125) (6,404)
-------------------------------------------------------------------------------
Total returns on financial
assets 44,375 20,368 43,883
-------------------------------------------------------------------------------
The majority of the Group's foreign exchange cylindrical collar derivatives
closed during June 2006, at nil overall cost. At 31 December 2005 the fair value
of all such contracts that were closed out before 30 June 2006 was a liability
of £3,713,000.
The Group also realised £14,214,000 from the closing out of foreign exchange
forward derivatives during the period to 30 June 2006. These contracts provide a
partial hedge of the Group's net investment in its Bermudan operation but do not
currently qualify for the formal hedge accounting treatment permitted under IAS
39 Financial Instruments: Recognition and Measurement. Further details are
provided at note 15.
Investment expenses are presented within other operating expenses (note 8).
ii) Annualised investment yields
6 months to 6 months to Year to
30 June 2006 30 June 2005 31 Dec 2005
(unaudited) (unaudited) (audited)
Return Yield Return Yield Return Yield
-----------------------------------------------------------------------------
£000 % £000 % £000 %
Debt and fixed income
securities at fair value
through income 13,852 2.8 15,268 3.6 26,733 3.1
Equities and shares in unit
trusts at fair value
through income 2,702 4.4 3,789 9.0 12,278 13.1
Deposits with credit
institutions/cash and cash
equivalents 10,594 4.0 4,436 4.6 11,276 3.7
-----------------------------------------------------------------------------
27,148 3.3 23,493 4.1 50,287 4.0
-----------------------------------------------------------------------------
8 Other income and expenses
6 months to 30 6 months to 30 Year to 31
June 2006 June 2005 Dec 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
--------------------------------------------------------------------------------
Agency related income 3,175 2,527 3,044
Profit
commission 1,130 2,744 9,807
Exchange gains
(note 15) - 40,050 57,420
Other income 2,571 6,774 11,026
------------------------------------------------------------------------------
Other income 6,876 52,095 81,297
------------------------------------------------------------------------------
Managing
agency
expenses 4,235 10,022 9,869
Underwriting
agency
expenses 19,303 10,905 19,886
Connect agency
expenses 6,360 1,682 6,135
Exchange
losses 20,522 - -
Investment
expenses 640 571 1,013
Other group
expenses 2,676 2,609 10,070
-------------------------------------------------------------------------------
Other expenses 53,736 25,789 46,973
-------------------------------------------------------------------------------
9 Finance costs
6 months to 30 6 months to 30 Year to 31
June 2006 June 2005 Dec 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
------------------------------------------------------------------------------
Interest and expenses
associated with bank
borrowings and letters
of credit 4,806 996 3,302
Interest charges
arising on finance
leases 18 13 32
------------------------------------------------------------------------------
4,824 1,009 3,334
-------------------------------------------------------------------------------
The Group drew down £137,500,000 on a syndicated letter of credit facility on 7
November 2005 to support its underwriting operations. On 5 December 2005, the
Group drew down US$208,000,000 of its term and revolving credit facility to
support the investment in the new Bermudan operations.
10 Claims and claim adjustment expenses
6 months to 30 6 months to 30 Year to 31
June 2006 June 2005 Dec 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
------------------------------------------------------------------------------
Gross insurance
claims and claim
adjustment expenses (221,005) (236,078) (810,678)
Insurance claims
recovered from
reinsurers 22,955 49,871 353,653
-------------------------------------------------------------------------------
Net insurance claims
and claim adjustment
expenses (198,050) (186,207) (457,025)
-------------------------------------------------------------------------------
11 Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of ordinary shares
in issue during the period, excluding ordinary shares purchased by the Group and
held as own shares.
6 months to 6 months to Year to 31
30 June 2006 30 June 2005 Dec 2005
(unaudited) (unaudited) (audited)
------------------------------------------------------------------------------
Profit attributable to the Company's
equity holders (£000) 47,320 61,080 48,630
Weighted average number of ordinary
shares (thousands) 392,125 302,754 310,797
Basic earnings per share (pence per
share) 12.1p 20.2p 15.6p
-------------------------------------------------------------------------------
The comparative weighted average number of shares in issue for the 6 months to
30 June 2005 has been adjusted for the effects of the Rights issue in November
2005.
Diluted
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume 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.
6 months to 6 months to Year to
30 June 30 June 31 Dec
2006 2005 2005
(unaudited) (unaudited) (audited)
-----------------------------------------------------------------------------
Profit attributable to the Company's
equity holders (£000) 47,320 61,080 48,630
-----------------------------------------------------------------------------
Weighted average number of ordinary
shares in issue (thousands) 392,125 302,754 310,797
Adjustment for share options (thousands) 6,772 3,263 12,283
-----------------------------------------------------------------------------
Weighted average number of ordinary
shares for diluted earnings per share
(thousands) 398,897 306,017 323,080
-----------------------------------------------------------------------------
Diluted earnings per share (pence per
share) 11.9p 20.0p 15.1p
------------------------------------------------------------------------------
Diluted earnings per share has been calculated after taking account of
outstanding options under both employee share schemes and also SAYE schemes.
12 Dividends
6 months to 30 6 months to 30 Year to
June 2006 June 2005 31 Dec 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
----------------------------------------------------------------------------
Final dividend for the year ended:
- 31 December 2005 of 4.75p
(net) per share 18,639 - -
- 31 December 2004 of 3.5p
(net) per share - 10,286 10,286
Interim dividend for the year
ended:
- 31 December 2005 of 2.25p
(net) per share - - 6,631
-------------------------------------------------------------------------------
18,639 10,286 16,917
-------------------------------------------------------------------------------
An interim dividend of 3.00p (net) per ordinary share has been declared payable
on 23 October 2006 to shareholders registered on 29 September 2006 in respect of
the six months to 30 June 2006 (30 June 2005: 2.25p (net) per ordinary share).
The dividend was approved by the Board on 4 September 2006 and accordingly has
not been included as a distribution or liability in this interim consolidated
financial information in accordance with IAS 10 Events after the Balance Sheet
Date.
13 Financial assets and liabilities
i) Analysis of financial assets at fair value through income
30 June 2006 30 June 2005 31 Dec 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
-------------------------------------------------------------------------------
Debt and fixed
income
securities 1,010,472 865,005 1,028,795
Equities and
shares in unit
trusts 131,515 93,427 119,407
Deposits with
credit
institutions 67,967 79,561 89,576
------------------------------------------------------------------------------
Investments 1,209,954 1,037,993 1,237,778
Derivative
financial
assets 589 - -
------------------------------------------------------------------------------
1,210,543 1,037,993 1,237,778
------------------------------------------------------------------------------
ii) Analysis of financial liabilities at fair value through income
30 June 2006 30 June 2005 31 Dec 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
------------------------------------------------------------------------------
Short-term borrowing from
credit institutions 112,378 390 121,190
Derivative financial
liabilities 2,686 1,777 5,056
-------------------------------------------------------------------------------
115,064 2,167 126,246
------------------------------------------------------------------------------
The face value of the Group's short term borrowings from credit institutions at
30 June 2006 was £112,432,000 (30 June 2005: £390,000; 31 December 2005: £120,930,000).
The Group's borrowings at 31 December 2005 and 30 June 2006 served as a partial
hedge of its net investment in the new Bermudan operation. However, the Group
has not applied the hedge accounting treatment permitted under IAS 39
Financial Instruments: Recognition and Measurement. Consequently, the foreign
exchange gain of £8,498,000 (31 December 2005: loss of £120,000) and fair value
gain of £54,000 (31 December 2005: £nil) arising during 2006 are both recognised
in the interim income statement.
iii) Investment and cash allocation
30 June 2006 30 June 2005 31 Dec 2005
(unaudited) (unaudited) (audited)
£000 % £000 % £000 %
----------------------------------------------------------------------------------------
Debt and fixed income
securities 1,010,472 60.3 865,005 69.8 1,028,795 62.3
Equities and shares in
unit trusts 131,515 7.8 93,427 7.5 119,407 7.2
Deposits with credit
institutions/cash and
cash equivalents 535,871 31.9 280,480 22.7 503,335 30.5
-----------------------------------------------------------------------------------------
1,677,858 1,238,912 1,651,537
----------------------------------------------------------------------------------
iv) Investment and cash allocation by currency
30 June 2006 30 June 2005 31 Dec 2005
(unaudited) (unaudited) (audited)
% % %
-------------------------------------------------------------------------------
Sterling 34.6 36.4 29.9
US Dollars 52.9 49.5 57.5
Euro and other currencies 12.5 14.1 12.6
14 Net asset value per share
30 June 2006 30 June 2005 31 Dec 2005
(unaudited) (unaudited) (audited)
Net asset NAV Net asset NAV Net asset NAV
value per share value per share value per share
£000 pence £000 pence £000 pence
---------------------------------------------------------------------------------------
Net asset
value 588,363 149.8 421,685 143.3 578,013 147.7
Net tangible
asset value 555,347 141.4 389,315 132.3 544,914 139.3
--------------------------------------------------------------------------------------
The net asset value per share is based on 392,795,000 shares (30 June 2005:
294,193,000; 31 December 2005: 391,216,000), being the adjusted number of shares
in issue at each reference date.
15 Impact of foreign exchange related items
6 months to 30 6 months to 30 Year to
June 2006 June 2005 31 Dec 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
----------------------------------------------------------------------------
Income statement
Derivative gains/(losses)
on foreign exchange hedge
contracts included
within investment
return 17,172 (3,125) (6,404)
--------------------------------------------------------------------------------
Unearned Premium and
deferred acquisition
costs adjustment (15,436) 20,903 22,401
Foreign exchange
gains/(losses)
on borrowings
hedging the Bermudan
assets 8,498 - (120)
Other foreign exchange
gains/(losses) (13,584) 19,147 35,139
--------------------------------------------------------------------------------
Impact of foreign
exchange related items
on income statement (3,350) 36,925 51,016
-------------------------------------------------------------------------------
Balance sheet Foreign
exchange differences
recognised directly in
equity (22,084) 324 1,290
--------------------------------------------------------------------------------
Overall impact of foreign
exchange related items
on net assets (25,434) 37,249 52,306
-------------------------------------------------------------------------------
Profit before tax
Profit before tax 61,349 88,120 70,221
Unearned premium and
deferred acquisition
costs adjustment 15,436 (20,903) (22,401)
--------------------------------------------------------------------------------
Adjusted profit before tax 76,785 67,217 47,820
-------------------------------------------------------------------------------
100% level combined ratio 93.2% 83.5% 96.0%
100% level combined ratio
(after unearned premium and
deferred acquisition
costs adjustment) 89.5% 89.6% 99.6%
16 Cash and cash equivalents
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.
Included within cash and cash equivalents held by the Group are balances
totaling £43,718,000 (30 June 2005: £54,259,000; 31 December 2005: £50,313,000)
not available for use by the Group which are held within the Lloyd's Syndicate.
Independent Review Report by KPMG Audit Plc to Hiscox plc
Introduction
We have been engaged by the Company to review the financial information for the
six months ended 30 June 2006 which comprise the condensed consolidated interim
income statement, condensed consolidated interim balance sheet, condensed
consolidated interim statement of changes in equity, condensed consolidated
interim cash flow statement and related notes 1 to 16. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the Company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company for
our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where they
are to be changed in the next annual accounts in which case any changes, and the
reasons for them, are to be disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/
4: Review of interim financial information issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting polices and presentation have been consistently
applied unless otherwise disclosed. A review excludes audit procedures such as
tests of controls and verification of assets, liabilities and transactions.
It is substantially less in scope than an audit performed in accordance with
International Statements on Auditing (UK and Ireland) and therefore provides a
lower level of assurance than an audit. Accordingly we do not express an audit
opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
KPMG Audit Plc
London
11 September 2006
This information is provided by RNS
The company news service from the London Stock Exchange