Interim Results

HISCOX PLC 30 September 1999 INTERIM RESULTS STATEMENT FOR SIX MONTHS TO 30 JUNE 1999 Summary - Operating profit up 35% to £5.1m - Gross written premium up 59% to £177.5m - Hiscox Insurance Company combined ratio improved by 5% - Successful new venture in Guernsey using e-commerce - £75m letter of credit facility completed Robert Hiscox, Chairman of Hiscox plc, commented: 'The result shows a continuing strong improvement in the operating profits of the Regional Business, offset by a short term decline in the investment portfolio. The Lloyd's business is steady and there are positive signs of rate increases in certain areas. Neither of our two areas of business are depending on general market rate increases but will both continue to seek selected insureds and to underwrite their risks with innovation and intelligence at the right price. We continue to innovate. Our new operation in Guernsey, using predominantly e-commerce, has got off to a very strong start. Morale is high, and we have funding in place for expansion without diluting shareholders. As rates rise, profits will flow straight to the bottom line, and we are therefore confident that the next few years will bring a strong increase in value to shareholders.' For further information please contact: Robert Hiscox/Bronek Masojada, Hiscox plc Tel 0171 448 6000 Andrew Boys/Alan McCormick, Fishburn Hedges Tel 0171 839 4321 RESULTS Our interim group operating profit before tax of £5.1 million is an increase of 35% on last year (£3.8 million restated on an annual basis). A summary of the unaudited figures for the half year ended 30 June 1999 follows: 6 months ended 30 June 1999 1998 £m £m Gross Written Premium Income 177.5 111.7 Operating profit: London Market Business 4.3 4.9 Hiscox Insurance Company 1.0 (0.8) U.K. & Overseas Agencies (0.2) (0.3) ----- ----- 5.1 3.8 Earnings Per Share, based on: Operating profit after tax 2.5p 1.9p Profit on ordinary activities after tax 0.8p 3.1p Interim Dividend 1.2p 1.2p Net Assets per Share 94.2p 93.3p The result shows a continuing strong improvement in the operating profits of the Regional Business, offset by a short term decline in the investment portfolio. The Lloyd's business is steady and there are positive signs of rate increases in certain areas. We have secured funding to continue the expansion of the business for the next few years without recourse to shareholders. The pre-tax profit is £1.4 million (1998 - £5.5 million). The reduction is principally due to realised and unrealised capital losses totaling £3.4 million in the period (1998 - £3.7 million gains) - a swing of £7.1 million. These results are on a one year basis and the previous year's result has been restated. The participations on third party syndicates acquired with Hiscox Select remain on a three year basis. The Board has proposed an interim dividend of 1.2p per share (1998: 1.2p), payable on 30 November 1999, to shareholders on the register on 5 November 1999. LONDON MARKET BUSINESS Hiscox plc has 51% of the capacity of Syndicate 33 in 1999, compared with 25% in 1998, which has fuelled the increase in premium to the company. Syndicate 33's income has not increased in 1999 as market conditions have been so flat. The solvency ratio of the Syndicate for 2000 has been reduced by Lloyd's from 50% to the new minimum of 45%, reflecting the balanced nature of the account. This will improve the return on capital supporting the Syndicate. The Syndicates have given the following estimates of the results of the 1997 and 1998 accounts: Syndicate Estimated profit Year of Account Hiscox plc % of Capacity for Capacity Share a Natural Name 1997 ACCOUNT Non-marine 33 0% to 5.0% £201m 18.54% Marine 52 0% to 5.0% £54m 21.95% Marine 625 0% to 5.0% £115m 18.92% 1998 ACCOUNT Composite 33 -2.5% to 2.5% £360m 25.44% Now that we are accounting on an annual basis, the correlation between these estimates and the group result is different. The group half year result covers the first six months of the 1999 account for Syndicate 33, and any movement in the forecast results for the Syndicates during the period on previous years. The 1997 and 1998 estimated results of the Syndicates reflect the extremely tough and competitive conditions in all markets, and 1999 has continued to be tough, but the rot has stopped. Syndicate 33 writes a balanced book of a variety of specialist classes, in each of which it is a leader. We focus hard on areas in which we are expert, and do not dabble in others. We are world leaders in political risks and the 1997 and 1998 accounts have borne the brunt of the political turmoil and economic upheaval during 1998. That is now over. We have retained our leading position in the class which has traditionally been a good profit earner for us, and rates and conditions are improving selectively in 1999. Another area on which we focus is reinsurance. We are in the middle of the hurricane season so it would be a hostage to fortune to say anything but that we expect another hurricane any moment. However, unless the catastrophe was absolutely extraordinary, the effect would not be material due to the controlled underwriting of our catastrophe book but, when all margins are slim, it would not help. In our favour, the reinsurance market is contracting rapidly and there is every indication of a serious firming of rates this coming renewal season. We will be able to take advantage of this for the 2000 and subsequent accounts. The pain we forecast before is now becoming evident as insurers and reinsurers announce losses, some serious and some terminal. Despite a continuing surplus of capital, sensible managements throughout the insurance industry have called a halt to its traditional dissipation through avoidable underwriting losses, and the market is turning, negligibly in some areas, but strongly in others. Capacity Auctions We have taken the view that we are happy to be paid to use third party capital to support the Syndicate unless it is available at a reasonable price. We have acquired £2 million of capacity on Syndicate 33 so far in the auctions at a price of 7.5p Hiscox Select We will receive the results of third party syndicate participations from Hiscox Select in our year end result, and have a reserve of £8.29m against any possible losses from these participations, representing a loss of 7% on the aggregate capacity for the two years. REGIONAL BUSINESS The Hiscox Insurance Company and our underwriting agencies have made further strides towards good operating profitability. Hiscox Insurance Company 1997 1998 1998 (6 mths) 1999 (6 mths) Gross Premium Income £m 74.7 90.0 45.6 47.4 Operating profit £m (2.2) (0.7) (0.8) 1.0 Combined Ratio 117.9% 107.9% 108.3% 103.1% As can be seen in the figures above, income has risen steadily since we acquired the Hiscox Insurance Company and the combined ratio has improved against the trend of a ferociously competitive market. At the same time we have added substantially to reserves. The Insurance Company is building a book of more stable business compared with the Lloyd's business, which gives a good balance to the group's underwriting. The company is focussed on four areas of business: High Value Household, Professional Insurances, Commercial Property Owners Insurance and Affinity Groups. The growth this year has come mainly from the Professional Insurances which provide comprehensive packages for the rapidly expanding sectors of IT, Media, Leisure and Financial Services. Innovative cover is included for the new liabilities of the electronic age, such as cyberliability and cyberfraud. Europe We have started a new underwriting agency in Amsterdam and, together with our established agencies in Munich and Paris, strong progress has been made with quality business being underwritten and expense ratios improving as quantity increases. The Hiscox Insurance Company Guernsey This company started on 1st January, and has received excellent support from brokers exceeding our forecasts. £15 million was written in the first eight months most of which is ceded to the Syndicate, but it is a valuable asset for Hiscox plc and will attract considerable business for the whole group from those clients needing an offshore policy, and from brokers who wish to trade electronically. (60% of the business in Guernsey has been transacted through e-commerce). INVESTMENTS The reduction of bond prices in 1999 has caused a considerable swing in our bottom line result, especially as this year unrealised losses or gains have to be included in the profit and loss. The portfolio is defensive, but the investment result for the year will obviously not match that of last year. We use outside professional investment managers and are confident that they will achieve above average returns in the long term. FUNDING In August we completed a £75 million syndicated letter of credit facility giving us sufficient capital to grow the business without recourse to shareholders. The facility was oversubscribed with ten banks participating led by Chase Manhattan. We were pleased to receive the support of our relationship banks as well as having the opportunity to work with new partners. BOARD APPOINTMENTS Timothy Humm, the underwriter of Marine Syndicate 625 which merged into Syndicate 33 for the 1998 account, resigned from the Board on 6 July 1999 and has left the company to pursue other challenges. We wish him well and thank him for over 30 years of service at Hiscox. We are fortunate to be joined by Carol Franklin Engler and Derek Netherton who joined the Board on 7 July. Carol Franklin Engler is CEO of the World Wildlife Fund Switzerland. Prior to that she worked for twenty years for the Swiss Re ending up as a member of the Executive Team of the European Division. Carol brings valuable international underwriting experience to the Board. Derek Netherton was a director of J Henry Schroder & Co Ltd from 1981 to 1996 and was joint head of the Investment Banking Division. He is a non- executive director of several companies and is a fellow of the Institute of Actuaries. Derek brings a wide experience of City activity and investment banking to our deliberations. Finally The market is turning. Hiscox Syndicate 33 should benefit rapidly as a writer of reinsurance which is the first sector to raise rates. The Hiscox Insurance Company has improved combined ratios against a background of falling rates, so should benefit considerably from a rising market. Neither entity is depending on general market rate increases but both entities will continue to seek selected insureds and to underwrite their risks with innovation and intelligence at the right price. We continue to innovate. The Hiscox Insurance Company (Guernsey), using predominantly e-commerce, has got off to a very strong start. Morale is high and we have funding in place for expansion without diluting shareholders. As rates rise, profits will fall straight to the bottom line, and we are therefore confident that the next few years will bring a strong increase in value to shareholders. Hiscox plc Consolidated Profit and Loss Account For the 6 month period ended 30 June 1999 6 months 6 months Year 30 June 1999 30 June 1998 1998 (unaudited) (unaudited) (audited) (restated) £000 £000 £000 Gross premiums written 177,529 111,739 241,302 Net premiums earned 82,308 60,239 172,460 Underwriting result before change in (98) (4,740) (7,881) equalisation provision Investment income allocated to the 5,698 8,523 18,877 technical account ------ ----- ------ Trading profit, before change in 5,600 3,783 10,996 equalisation provision Trading profit after change in 4,742 2,920 9,257 equalisation provision Investment income net of charges(note 8) 6,173 7,255 16,376 Realised investment gains/(losses)(note 8) (680) 2,204 1,199 Unrealised investment gains/(losses)(note 8) (2,659) 1,595 3,562 (note 8) ------- ----- ------ 2,834 11,054 21,137 Allocated investment return transferred to (5,698) (8,523) (18,877) the technical account ------- ------- ------ Short term fluctuations in investment (2,864) 2,531 2,260 return (note 6) ------- ------ ----- Other income 2,651 3,668 13,008 Other expenses (3,160) (3,666) (9,274) ----- ----- ------ Profit on ordinary activities before tax 1,369 5,453 15,251 ----- ----- ------ Comprising: Operating profit based on longer term 5,091 3,785 12,195 investment return Short term fluctuations in investment (2,864) 2,531 2,260 return Exceptional item: sale of non-managed - - 2,535 Lloyd's capacity Movement in equalisation reserve (858) (863) (1,739) ------ ------ ------ 1,369 5,453 15,251 Tax on profit on ordinary activities (251) (1,221) (5,526) ------ ------ ------ Profit on ordinary activities after tax 1,118 4,232 9,725 Dividends (1,728) (1,744) (5,023) ----- ----- ------ Retained profit (610) 2,488 4,702 ----- ----- ------ Earnings per share: - Basic, based on operating profit after tax 2.5p 1.9p 5.4p - Basic, based on profit on ordinary 0.8p 3.1p 6.9p activities after tax - Fully diluted, based on profit on 0.7p 3.0p 6.8p ordinary activities after tax There are no other recognised gains or losses in the period. Consolidated Balance Sheet at 30 June 1999 30 June 1999 30 June 1998 31 December (restated) 1998 £000 £000 £000 Assets Goodwill 7,125 7,509 7,317 Other intangible assets 15,163 - 15,057 Land and buildings 1,774 1,390 1,382 Other financial investments 195,560 198,621 228,568 Assets held to cover linked 2,516 2,599 2,516 liabilities Reinsurers' share of technical provisions 114,061 81,865 83,910 provisions Debtors - insurance operations 127,651 71,416 112,032 Cash at bank and in hand 32,966 49,264 43,868 Other assets 61,006 68,969 96,662 ------- ------ ------- Total assets 557,822 481,633 591,312 Liabilities Capital and reserves: Called up share capital 7,190 7,162 7,184 Share premium account 68,160 68,000 68,011 Merger reserve 4,723 4,723 4,723 Capital redemption reserve 33,244 33,244 33,244 4 4 4 Profit and loss account 22,121 20,517 22,731 ------ ------ ------ Shareholders' funds attributable to 135,438 133,646 135,893 equity interests ------- ------- ------- Fund for future appropriations 1,702 1,767 1,692 Technical provisions 299,513 250,951 322,465 Technical provisions for linked 2,516 2,599 2,516 liabilities Creditors - insurance operations 27,526 21,421 51,824 Other creditors 83,953 68,632 74,475 Provisions for liabilities and 7,174 2,617 2,447 charges ------ ------ ------ 422,384 347,987 455,419 ------- ------- ------- Total liabilities 557,822 481,633 591,312 ------- ------- ------- Cash Flow Statement 6 months to 6 months to Year 1998 30 June 1999 30 June 1998 (restated) £000 £000 £000 Net cash flow from operating 9,355 25,430 26,678 activities (note 7a) Interest paid (182) (22) (899) Taxation paid (913) (2,975) (4,433) Capital expenditure (673) 1,424 (13,565) Acquisitions - (4,674) (4,674) Equity dividends paid - - (4,819) Financing (80) (61) 9,214 ------ ------ ------- 7,507 19,122 7,502 ------ ------ ------- Cash flows were invested as follows: Increase in cash holding (10,847) 29,775 15,472 Net portfolio investment: Ordinary shares 10,244 (8,827) (7,100) Debt securities 4,617 42,805 42,805 Deposits with credit institutions 3,423 (44,616) (43,616) Other investments 70 - (45) Loans secured by mortgages - (15) (14) ------ -------- ------- Net investment of cash flows 7,507 19,122 7,502 ------ -------- ------- Segmental Information 6 months to 30 June 1999 (unaudited) Gross Gross Gross Reinsurance Underwriting premiums claims operating balances result before earned incurred expenses £000 change in £000 £000 £000 equalisation £000 Fire and other damage to property 47,828 (28,204) 22,315) 1,228 (1,463) Third party liability 17,062 (11,301) (6,823) (319) (1,381) Marine, aviation and transport 14,802 (16,665) (5,228) 6,367 (724) Reinsurance acceptances 18,318 (10,624) (4,089) (1,821) 1,784 Other 13,107 (13,234) (4,519) 6,332 1,686 ------ ------ ----- ----- ------ 111,117 (80,028) (42,974) 11,787 (98) ------- ------ ------ ------ ------ 6 months to 30 June 1998 (unaudited, restated) Gross Gross Gross Reinsurance Underwriting premiums claims operating balances result before earned incurred expenses £000 change in £000 £000 £000 equalisation £000 Fire and other damage to property 42,818 (24,752) (20,471) 63 (2,342) Third party liability 10,964 (7,002) (5,093) (740) (1,871) Marine, aviation and transport 9,339 (9,791) (3,328) 2,569 (1,211) Reinsurance acceptances 6,866 (3,297) (1,554) (1,425) 590 Other 8,060 (5,326) (1,924) (716) 94 ------ ------ ------ ----- ----- 78,047 (50,168) (32,370) (249) (4,740) ------ ------ ------ ----- ----- Year 1998 (audited) Gross Gross Gross Reinsurance Underwriting premiums claims operating balances result before earned incurred expenses £000 change in £000 £000 £000 equalisation £000 Fire and other damage to property 92,384 (49,591) (42,104) (4,792) (4,103) Third party liability 33,851 (26,953) (12,898) 722 (5,278) Marine, aviation and transport 21,422 (17,544) (7,669) 2,520 (1,271) Reinsurance acceptances45,063 (38,329) (7,731) 1,802 805 Other 27,102 (16,916) (7,739) (481) 1,966 ------ ------ ----- ----- ----- 219,822 (149,333) (78,141) (229) (7,881) Segmental analysis for the 6 month period ended 30 June 1999 6 months to 30 June 1999 (unaudited) London Hiscox UK and Group Market Insurance European total total Company agencies £000 £000 £000 £000 Profit on ordinary activities before taxation Gross written premium 130,131 47,398 - 177,529 Net earned premium 42,728 39,580 - 82,308 Investment return based on 3,160 2,472 66 5,698 longer term rate Net claims incurred (19,926) (20,818) - (40,744) Acquisition costs (19,059) (13,835) - (32,894) Expenses (2,327) (6,734) - (9,061) Long term business result - 293 - 293 ------ ------ ---- ------ Trading profit 4,576 958 66 5,600 ------ ------ ---- ------ Agency income 1,428 - 940 2,368 Profit commission 283 - - 283 Expenses (1,262) - (1,190) (2,452) Loan interest (298) - - (298) Goodwill and capacity amortisation (410) - - (410) ----- ---- ----- ----- Operating profit 4,317 958 (184) 5,091 Short term fluctuations in (1,638) (1,226) - (2,864) investment return Profit on sale of capacity - - - - Equalisation reserve - (858) - (858) ----- ----- ---- ---- Pre tax profit 2,679 (1,126) (184) 1,369 ----- ----- ---- ----- 6 months 30 June 1998 (unaudited) London Hiscox UK and Group Market Insurance European total total Company agencies £000 £000 £000 £000 Profit on ordinary activities before taxation Gross written premium 66,182 45,557 - 111,739 Net earned premium 27,685 32,554 - 60,239 Investment return based on 4,846 3,498 179 8,523 longer term rate Net claims incurred (14,869) (17,959) - (32,828) Acquisition costs (11,831) (11,878) - (23,709) Expenses (1,403) (6,861) - (8,264) Long term business result - (178) - (178) ------ ----- --- ------ Trading profit 4,428 (824) 179 3,783 ------ ----- --- ------ Agency income 912 - 451 1,363 Profit commission 2,305 - - 2,305 Expenses (2,165) - (935) (3,100) Loan interest (344) - - (344) Goodwill and capacity (222) - - (222) amortisation ------ ---- ---- ----- Operating profit 4,914 (824) (305) 3,785 Short term fluctuations in 2,141 390 - 2,531 investment return Profit on sale of capacity - - - - Equalisation reserve - (863) - (863) ----- ----- ---- ----- Pre tax profit 7,055 (1,297) (305) 5,453 ----- ----- ---- ----- Year 1998 (audited) London Hiscox UK and Group Market Insurance European total total Company agencies £000 £000 £000 £000 Profit on ordinary activities before taxation Gross written premium 151,256 90,046 - 241,302 Net earned premium 102,268 70,192 - 172,460 Investment return based on 12,971 5,906 - 18,877 longer term rate Net claims incurred (63,382) (38,868) - (102,250) Acquisition costs (32,799) (24,754) - (57,553) Expenses (7,352) (13,366) - (20,718) Long term business result - 180 - 180 ------ ------ ---- ------- Trading profit 11,706 (710) - 10,966 Agency income 1,766 - 746 2,512 Profit commission 7,961 - - 7,961 Expenses (5,968) - (1,981) (7,949) Loan interest (882) - - (882) Goodwill and capacity (443) - - (443) amortisation ----- ---- ---- ----- Operating profit 14,140 (710) (1,235) 12,195 Short term fluctuations in 544 1,716 - 2,260 investment return Profit on sale of capacity 2,535 - - 2,535 Equalisation reserve - (1,739) - (1,739) ------ ----- ---- ------ Pre tax profit 17,219 (733) (1,235) 15,251 ------ ----- ----- ------ NOTES TO THE INTERIM ACCOUNTS Hiscox plc Interim Statement 1999 1 Basis of Preparation The unaudited interim accounts on pages 4 to 10 have, except as stated below been prepared on the basis of the accounting policies consistent with those set out in the Group's 1998 Report and Accounts. In accordance with the provisions relating to Insurance Companies under Schedule 9a of the Companies Act 1985, the accounts include the transactions, assets and liabilities of the Syndicates on which certain subsidiary companies participate as corporate members of Lloyd's accounted for on an annual basis. As a result of accounting practices at Lloyd's this syndicate data is not available on a one- year basis in relation to the interim results for the non-managed syndicate participations of the Hiscox Select subsidiaries and so the transactions, assets and liabilities of these participations has been excluded. The unaudited interim statements, the comparative figures for the year ended 31 December 1998 and the financial information contained in these interim results, do not constitute statutory accounts of the group within the meaning of Section 240 of the Companies Act 1985. The auditors have reported on those accounts, their report was not qualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. 2 Earnings per share Earnings per share on operating profit are based on the profit after taxation of £5,091,000 and on the average number of shares in issue during the current period of 143,707,179. Earnings per share on ordinary activities are based on the profit after taxation of £1,118,000 and on the average number of shares in issue during the current period of 143,707,179. Fully diluted earnings per share on ordinary activities are based on the profit after taxation of £1,118,000 and on the average number of shares in issue during the period of 145,837,127, taking into account the options outstanding under the Employee Option Schemes. 3 Dividends An interim dividend of 1.2p (net) per ordinary share has been declared payable on 30 November 1999 to shareholders registered on 5 November 1999. 4 Restatement The comparative figures for the period ended 30 June 1998 have been restated in certain respects from those contained within the Interim Report issued on 9 September 1998, as detailed below: i) The results have been prepared on an annual basis for participations on managed syndicates. This represents a change in accounting policy for these participations, which were previously accounted for on a three year basis. The Directors have decided that this change will give far greater clarity to the financial statements and enable an assessment of the current trading of the Group. The effect on the previously reported result for 30 June 1998 is to increase profit before taxation by £3.1m. ii) The results include the requirement of the ABI Statement of Recommended Practice ('ABI SORP') on accounting for insurance business to include all investment gains or losses, whether realised or unrealised, within the non-technical account. Previously, unrealised investment gains were transferred directly to reserves. The effect on the previously reported result for 30 June 1998 is to increase profit before taxation by £2.0m. 5 Re-presentation The comparative figures for the period ended 30 June 1998 and the year ended 31 December 1998 have been re-presented in certain respects from those contained within the Interim Report issued on 9 September 1998 and the year end report issued on 28 May 1999, as detailed below: i) The longer term rate of return on all investments (excluding participations on non managed syndicates) has been allocated to the technical account. Previously, the accounts for the year ended 31 December 1998 did not allocate longer term returns on non-technical funds. The directors believe that this provides a greater understanding of the investment return, and facilitates comparability with our competitors. ii) The segmental analysis for the comparative periods has been adjusted to show the longer term rate of investment return on both technical and non-technical funds. Previously, the segmental analysis for the year ended 31 December 1998 and the period ended 30 June 1998 showed the actual return on non-technical funds. This allows the analysis to be reconciled to the operating profit. 6 Longer term investment return The longer term investment return is based on a combination of historical experience and current expectations for each category of investments, except for the return on participations on non managed Lloyd's syndicates which is calculated on an actual basis. The longer term investment return is principally calculated by applying a 7% yield to the weighted average of shares and unit trusts (1998: 8%), and a 6% yield to the weighted average of debt securities and other fixed interest securities (1998: 7.5%). 7 Cash flow a) Reconciliation of operating profit to net cash inflow from operating activities 6 months to 6 months to Year 30 June 1999 30 June 1998 1998 (restated) £000 £000 £000 Operating profit before taxation, after interest, based on longer term 5,091 3,785 12,195 investment return Depreciation of tangible fixed assets 849 624 1,594 Increase/(decrease) in amounts owed to agents 6,598 183 2,107 Increase)/decrease in amounts owed by agents (9,527) (13,580) (11,249) Increase)/decrease in other debtors 5,650 21,419 (5,792) Increase/(decrease) in other creditors 3,436 15,955 29,501 Profits relating to long term business (153) (362) 801 Cash received from long term business - - - Investment gains based on the longer (2,773) (2,622) (3,323) term rate of return Loan interest expense 184 28 844 ----- ------ ------ Net cash inflow from operating 9,355 25,430 26,678 activities ----- ------ ------ b) Scope of cash flow The consolidated cash flow statement excludes cash flows relating to both underwriting on Lloyd's syndicates and on long term business in respect of policyholders. A summary showing the combined cash flow for the 6 months to June 1999 of 100% of Lloyd's syndicates managed by the group is set out below. The opening and closing balances are cash only and exclude all investments. 1999 £000 Balance of cash on January 1999 21,022 Net sale of investments 109,960 Cash flow from underwriting (36,070) Investment return 3,216 Payment of 1996 account profit and (64,634) profit commission Payment of syndicate and Names' (21,028) personal expenses ------- Balance of cash on 30 June 1999 12,466 ------ 8 Investment Income Group investment income analysis 6 months to 6 months to Year 30 June 1999 30 June 1998 1998 (restated) £000 £000 £000 Investment return on funds at Lloyd's and other corporate funds: Income from listed investments 2,497 1,523 4,637 Bank and deposit interest 487 423 845 Unrealised gains/(losses) on (1,688) 1,996 2,751 investments Realised gains/(losses) on investments 21 1,092 378 ----- ----- ----- 1,317 5,034 8,611 ----- ----- ----- Investment return on syndicate funds: Income from listed investments 831 1,396 2,989 Bank and deposit interest (127) 236 442 Gains/(losses) (368) 469 664 ----- ----- ----- 336 2,101 4,095 ----- ----- ----- Investment return on insurance company: Income from bonds and equities 2,531 2,693 5,588 Bank and deposit interest 287 423 1,031 Unrealised gains/(losses) on (971) (401) 811 investments Realised gains/(losses) on investments (333) 643 157 Investment income shown in life (140) 624 1,016 business result ------ ----- ----- 1,374 3,982 8,603 ------ ----- ----- Investment expenses (193) (63) (172) ----- ------ ------ Total investment return: 2,834 11,054 21,137 ----- ------ ------ Allocation to the technical account based (5,698) (8,523) (18,877) on the longer term rate ----- ----- ------ Short-term fluctuations in investment return retained in the non-technical (2,864) 2,531 2,260 account ----- ----- ----- 9 Year 2000 Our group-wide programme addressing the year 2000 technology, systems and associated business issues is now nearing completion. The operation of our business depends not only on our own systems but also on our intermediaries and reinsurers, who as far as we can ascertain are aware of the year 2000 related problems and are taking appropriate action. A contingency plan has also been prepared to address any systems work required at the year end or thereafter. INDEPENDENT REVIEW REPORT BY KPMG AUDIT PLC TO HISCOX PLC Introduction We have been instructed by the company to review the financial information set out on pages 4 to 10 and 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. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The Listing Rules of the London Stock Exchange 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. 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 is substantially less in scope than an audit performed in accordance with Auditing Standards 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, other than the exclusion of syndicate data in respect of the syndicate participations of the Hiscox Select subsidiaries which as described in note 1 is not available, we are not aware of any further material modifications that should be made to the financial information as presented for the six months ended 30 June 1999. KPMG Audit Plc Chartered Accountants Registered Auditor London

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