Interim Results

Hiscox PLC 25 September 2001 HISCOX PLC Interim Results for the period to 30 June 2001 Highlights of first six months: * Group gross written premium income up 45% * Group operating profit £4.8 million (2000: £0.9 million) * The Hiscox Insurance Company gross premium income up 34% with combined loss ratio of 99.1% * Syndicate 33 premium income up 14%. Plc share of premium income up 49%. Syndicate continuing to achieve rate rises * Further strong overseas premium income growth of 48% World Trade Centre: * Based on current knowledge, the net cost after reinsurance to Hiscox plc is £20 million pre-tax or 10p per share after tax. Insurance Lloyd's Business International Total Company / Group Operations 6 months ended 30 2001 2000 2001 2000 2001 2000 2001 2000 June £m £m £m £m £m £m £m £m Gross Written 73.8 55.2 218.5 146.7 20.8 14.0 313.1 215.9 Premium Operating Profit 3.2 2.5 (0.1) (2.0) 1.7 0.4 4.8 0.9 Pre-Tax Profit 0.0 2.8 (0.3) (3.3) 1.7 0.6 1.4 0.1 Earnings per share 0.7p 0.1p - Basic Dividends per share - 1.2p (net) Net Assets before 145.3 135.4 equalisation provision (£m) Net Assets per 98.0p 93.7p share before equalisation provision Chairman's Statement The interim results show two things. First, that our strategy of building a retail business outside Lloyd's continues to succeed, and second, that our underwriters are taking advantage of the greatly improved market conditions to grow profitable accounts. The tragic events centred on the World Trade Centre will cause a setback to the current year's profits. However the resulting conditions will inevitably lead to accelerated growth and profit opportunities. Group Performance Group premium income for the period increased by 45% to £313 million generating an operating profit of £4.8 million (2000: £0.9 million) and a pre-tax profit of £1.4 million (2000: £0.1 million). Dividend The board decided that due to the uncertainty of the exact size of the WTC loss and the probable capital needs to take advantage of future opportunities, it would be prudent to defer consideration of dividends for 2001 until the full year results are available. Investments The investment return for the period of £6.2 million (2000: £5.4 million) was below the assumed long-term rate which caused the pre-tax profit to be lower than the operating profit. The average asset split was fixed interest 55%, equities including property 21% and cash 24%. All asset classes performed ahead of benchmarks. The Hiscox Insurance Company Premium income Gross written premium income was up 34% for the period. This income growth was achieved before the demise of the Independent Insurance Company, from which we gained underwriting teams for the core areas of the Hiscox Insurance Company in May. The combined ratio was 99.1% (2000: 98.8%) despite some heavy losses in the period compared with a very benign experience last year. Rates are being raised, new business won and underwriting disciplines maintained. Our target combined ratio remains 95% to 98% for the Company. We are well aware of the perils of fast growth, but the combination of increases in premiums on existing business and the ability to win new business through the demand for our specialist policies make these ideal conditions for us. We will grab the opportunities while they last, but be prepared to throttle back when the market softens. Business strategy The company focuses on two main areas: * Personal: the insurance of household and associated risks of high net worth individuals * Commercial: insurance of service-based professional firms and media and technology companies. These two areas are interlinked in many ways which enhances growth prospects that are already robust. Our household underwriters are covering many proprietors and leaders of businesses we want to insure, and many of the businesses we are insuring are staffed by individuals whose personal assets we want to insure. Personal insurance The management of private assets is a thriving sector, and the need for specialist insurance cover for larger household risks is becoming better known. Estimates of the size of the market are extremely imprecise. We believe that we have under 5% of it in the UK, and under 1% in mainland Europe, so the growth possibilities are excellent. Commercial insurance The established and emerging professions firms and service-based companies that we want to insure are a growing and successful part of the economy of the UK, and increasingly so in mainland Europe too. We choose the areas of business we want to insure and offer expertise and pertinent cover. Again, any estimate of the total premium income from all these risks is totally imprecise, but we believe that our market share is definitely under 5%, so the growth potential in the areas on which we focus is considerable. Distribution strategy Distribution is almost entirely through brokers, with a small but growing direct online (www.hiscox.com) portfolio for household insurance for mid net worth insureds. We have acquired or opened offices in Birmingham, Leeds, and Glasgow. We are also selling our products through our own offices in France, Germany, Holland, Belgium and Guernsey, and through a joint venture with a large insurer in Austria. World Trade Centre The company could have a small involvement in travel disruption policies and event cancellation, but nothing material is currently foreseeable. Lloyd's business Premium income Syndicate 33 has increased its gross written premium income for the period by 14%. The group's share of the premium income has grown 49% due to acquisition of capacity. In 2001 we have 60% of the Syndicate (2000: 53%) retaining 53% after quota share reinsurance. Our bid in the first auction for 2002 capacity was not successful. We are the only serious bidder in the long term so are not interested in chasing the price up. We will continue to offer a sensible price and if we do not succeed we are content to be paid to underwrite for third party capital. The group's premium income will grow in 2002 as the syndicate is increasing its capacity from £360 million to £447 million for that account. We have the funds in place to sustain our share and to acquire a reasonable amount in the auctions. Forecast results The mid-point forecast results for the Syndicate prior to WTC were: 1999 account 9% loss: 2000 account 0.5% profit. We estimate that a small amount of the WTC loss could fall on 2000 with the majority on the 2001 account. The second quarter of 2001 saw some substantial losses hitting the market and some reinsurance failures. Syndicate 33 has had no material reinsurance failure and has a minimal involvement in Directors & Officers or financial institutions insurances which are producing serious losses from the dot.com crash. World Trade Centre Syndicate 33 has underwritten direct insurance of property, aviation hull war, personal accident and other miscellaneous risks such as event cancellation, involved in the WTC loss. It also has a reinsurance account which will have losses from both property and liability risks. The insurance and reinsurance industry has no ability to calculate the ultimate loss until the extent of damage is known. Understandably we have not yet received advices of loss from crucial insured risks. However, our current estimate, based on the best assumptions we can make, is a loss to the syndicate in the region of £39 million, which would be about £20 million before tax to Hiscox plc after quota share reinsurance. 97.5% of the syndicate's reinsurance programme is placed with reinsurers with an A rating or higher. The loss to the syndicate will be set against profit from the balance of the account. Syndicate 33 has sufficient liquid assets, backed by bank facilities, to pay these losses. Market conditions Rates prior to the WTC loss were rising rapidly in the London Market. Syndicate 33 has achieved overall rate increases of 17% this year up to August 2001 and market conditions were as good as I had ever seen as there was no great shortage of capacity but just better disciplined underwriting. Now there will be a shortage of capacity in the reinsurance market and consequent pressure on direct insurers which can only drive prices up further. Any last vestige of weakness in the insurance market will have been swept away. Insurers and reinsurers have a duty to replenish their reserves in order to continue to service the needs of personal and commercial insureds and that requires charging the proper premium for the risk. We intend to do just that. After a difficult patch, Syndicate 33 is back on track amongst the leaders in Lloyd's. The WTC loss is a setback, but with the upward cycle now accelerating fast, strong sustainable profits are clearly achievable in the next few years. International operations Gross written premium income was up 48% as the overseas offices continued the penetration of their markets. They seek and underwrite business for both the Hiscox Insurance Company and for Syndicate 33. The Hiscox Insurance Company (Guernsey) continues to grow successfully and attracts business from markets worldwide, mainly for Syndicate 33. The offices in mainland Europe are making great strides. The French office which suffered from the storms and adverse market conditions in 2000 has produced much improved figures this year, and the other offices continue to grow their accounts successfully. All have enormous markets of high net worth household business which have been virtually untapped. Each country has different distribution chains, and each office will expand its product range according to local demand and market conditions. In Germany, we have started writing professional indemnity risks, and in Holland we also write commercial risks in the media and leisure industry. The future This is our 100th year. It is sad that it will be remembered for such a tragic event. However, the benefits of such longevity are the long experience of large shock losses, of keeping the nerve to take advantage of the inevitable tightening in market conditions that follow, and also of the constant need for discipline in underwriting and prudence in reserving. The coming years look as exciting as any period in my time in the business, and we all remain absolutely determined to reward our shareholders with some decent returns. Robert Hiscox 25 September 2001 Consolidated Profit and Loss Account for the six month period ended 30 June 2001 6 months to 6 months to Year to 30 June 2001 30 June 2000 31 Dec 2000 (unaudited) (unaudited) (audited) Note £000 £000 £000 Gross premiums written 313,132 215,938 384,736 Net premiums earned 152,370 97,021 241,450 Trading profit, before change in 10,732 4,663 11,028 equalisation provision Trading profit, after change in 9,400 3,561 8,719 equalisation provision Investment income 6 7,979 5,265 14,688 Realised gains/(losses) on 6 369 (899) 238 investments Unrealised gains/(losses) on 6 (1,787) 1,200 3,005 investments Investment expenses and charges 6 (332) (139) (666) ----------- ----------- ------------ 6,229 5,427 17,265 Allocated investment return 6 (8,240) (6,120) (16,222) transferred to the technical account ---------- ---------- ----------- Short term fluctuations in 6 (2,011) (693) 1,043 investment return Other income 2,165 3,760 8,340 Other expenses (8,108) (6,482) (14,615) ------------ ---------- ------------ Profit on ordinary activities before 1,446 146 3,487 tax ----------- ---------- ---------- Comprising: Operating profit based on longer 4,789 910 2,950 term investment return - continuing activities Short term fluctuations in 6 (2,011) (693) 1,043 investment return Exceptional item: sale of long term - 1,031 846 business Exceptional item: sale of - - 957 non-managed Lloyd's capacity Movement in equalisation provision (1,332) (1,102) (2,309) ----------- --------- --------- 1,446 146 3,487 Tax on profit on ordinary activities (433) (41) 1,943 ---------- ---------- --------- Profit on ordinary activities after 1,013 105 5,430 tax Dividends -interim paid and payable - (1,734) (1,708) - final payable - - (3,404) --------- --------- ---------- - (1,734) (5,112) --------- ---------- --------- Retained profit/(loss) for the 1,013 (1,629) 318 period --------- --------- --------- 6 months to 6 months to Year to 30 June 30 June 31 Dec 2001 2000 2000 (unaudited) (unaudited) (audited) Note Earnings per share: - Basic, based on operating profit after 2 2.3p 0.5p 3.5p tax (on longer term investment return) - Basic, based on profit on ordinary 2 0.7p 0.1p 3.8p activities after tax - Diluted, based on profit on ordinary 2 0.7p 0.1p 3.8p activities after tax Consolidated Statement of Total Recognised Gains and Losses for the six month period ended 30 June 2001 6 months to 6 months to Year to 30 June 2000 30 June 2000 31 Dec 2000 (unaudited) (unaudited) (audited) £000 £000 £000 Profit on ordinary activities after tax 1,013 105 5,430 Exchange differences taken to reserves 86 24 50 ------ -------- -------- Total recognised gains and losses 1,099 129 5,480 ---------- ------- -------- Consolidated Balance Sheet at 30 June 2001 30 June 30 June 31 Dec 2001 2000 2000 (unaudited) (unaudited) (audited) £000 £000 £000 Assets Goodwill 7,809 6,829 6,634 Other intangible assets 17,286 14,423 17,773 Land and buildings 434 407 437 Other financial investments 241,270 200,187 263,655 Reinsurers' share of technical provisions 293,269 228,098 175,943 Debtors 375,757 239,619 248,899 Other assets 6,768 6,621 6,132 Cash at bank and in hand 38,703 23,507 38,466 Prepayments and accrued income 81,437 69,917 59,385 ------------ --------- --------- Total assets 1,062,733 789,608 817,324 ------------ ---------- --------- Liabilities Capital and reserves Called up share capital 7,410 7,225 7,400 Share premium account 72,603 69,062 72,474 Merger reserve 4,723 4,723 4,723 Capital redemption reserve 33,244 33,244 33,244 Profit and loss account 16,820 13,748 15,721 --------- ---------- ---------- Shareholders' funds attributable to 134,800 128,002 133,562 equity interests ---------- ----------- ----------- Technical provisions 789,132 544,136 470,948 Equalisation provision 10,473 7,440 8,647 Creditors 122,448 105,292 194,207 Provisions for other risks and charges 53 25 655 Accruals and deferred income 5,827 4,713 9,305 --------- --------- --------- Total liabilities 1,062,733 789,608 817,324 ------------- ---------- ----------- Net asset value(before equalisation 98.0 93.7 96.1 provision) p per share --------- ----------- ---------- Consolidated Cash Flow Statement for the six month period ended 30 June 2001 6 months to 6 months to Year to 30 June 2001 30 June 31 Dec 2000 2000 (unaudited) (unaudited) (audited) £000 £000 £000 Net cash inflow/(outflow) from general (685) 8,235 40,019 business Net shareholders' cash inflow from long - 2,328 - term business Net shareholders' cash inflow/(outflow) (12,489) - 1,284 from Lloyd's business ------------- ----------- ---------- Net cash inflow/(outflow) from operating (13,174) 10,563 41,303 activities Interest paid (609) (525) (982) Taxation paid (1,014) (2,646) (6,654) Capital expenditure (1,370) (1,548) (4,394) Acquisitions 1,312 - 846 Equity dividends paid - - (4,982) Financing (463) 2,090 3,345 ---------- -------- -------- (15,318) 7,934 28,482 ----------- ---------- ---------- Cash flows were invested as follows: Increase/(decrease) in cash holding 7,246 (5,049) 895 Net portfolio investment: Shares and units in unit trusts 7,687 14,979 18,019 Debt securities and other fixed income (10,900) 306 (19,132) securities Deposits with credit institutions (19,351) (2,038) 28,891 Other investments - (264) (191) ------------ ---------- ----------- Net investment of cash flows (15,318) 7,934 28,482 ------------ ---------- ---------- Reconciliation of operating profit to net cash inflow from operating activities: £000 £000 £000 Operating profit before taxation and after 4,789 910 2,950 interest, based on longer term investment return Depreciation and amortisation of fixed 1,534 1,214 2,959 assets Increase in general insurance technical 18,743 8,198 23,451 provisions, net of reinsurance Increase/(decrease) in amounts owed to 5,324 7,342 20,794 agents (Increase)/decrease in amounts owed by (20,689) (13,369) (34,634) agents (Increase)/decrease in other debtors (9,644) (4,743) 780 Increase/(decrease) in other creditors (212) 5,187 11,061 Realised and unrealised investment (gains)/ 1,993 (321) (2,690) losses Short term fluctuations in investment (2,011) (693) 1,043 return Loan interest expense 681 422 951 Cash received from long term business - 2,328 - Cash received from/(paid to) Lloyd's (12,489) - 1,284 business (Profits)/losses relating to Lloyd's (1,157) 4,548 12,866 business Other non-cash transactions (36) (460) 488 --------- -------- -------- Net cash inflow/(outflow) from operating (13,174) 10,563 41,303 activities ------------ ---------- ----------- Segmental Information 6 months to 30 June 2001 (unaudited) Gross Gross Gross Reinsurance Underwriting Premiums Claims Operating Balance Result earned Incurred Expenses £000 £000 £000 £000 £000 Underwriting result Fire and other 79,825 (48,414) (24,836) (5,525) 1,050 damage to property Third party 42,400 (23,926) (13,032) (1,433) 4,009 liability Marine, aviation 26,227 (21,029) (6,502) (3,888) (5,192) and transport Reinsurance 27,896 (13,502) (7,029) (2,953) 4,412 acceptances Other 40,514 (22,171) (14,786) (4,682) (1,125) ---------- ----------- --------- ----------- ------------ 216,862 (129,042) (66,185) (18,481) 3,154 ----------- ------------ ----------- ----------- ----------- 6 months to 30 June 2000 (unaudited) Gross Gross Gross Reinsurance Underwriting Premiums Claims Operating Balance Result Earned Incurred expenses £000 £000 £000 £000 £000 Underwriting result Fire and other 59,601 (33,634) (22,555) (3,542) (130) damage to property Third party 26,156 (10,830) (9,111) (3,266) 2,949 liability Marine, aviation 17,090 (13,004) (5,332) (294) (1,540) and transport Reinsurance 22,376 (15,930) (7,199) (1,654) (2,407) acceptances Other 35,169 (14,945) (13,137) (7,416) (329) ------------ ----------- ---------- ---------- ----------- 160,392 (88,343) (57,334) (16,172) (1,457) ----------- ------------ ----------- ----------- ---------- 12 months to 31 December 2000 (audited) Gross Gross Gross Reinsurance Underwriting Premiums Claims Operating Balance Result Earned Incurred expenses Third party 57,824 (35,870) (20,850) (797) 307 liability Marine, aviation 44,930 (28,986) (16,892) (2,412) (3,360) and transport Reinsurance 92,924 (71,453) (12,055) (4,654) 4,762 acceptances Other 53,996 (28,457) (25,882) (3,105) (3,448) ----------- ------------ ----------- ----------- ----------- 360,898 (240,809) (121,446) (5,021) (6,378) ----------- ----------- ----------- ----------- ----------- *Before longer term investment return, other technical income and movement in equalisation provision. 6 months to 30 June 2001 (unaudited) Lloyd's Insurance Inter- Total Business/ Company national Group Operations £000 £000 £000 £000 Profit on ordinary activities before taxation Gross premiums written 218,503 73,801 20,828 313,132 Net premiums earned 84,484 58,020 9,866 152,370 Investment return based on 4,469 3,452 319 8,240 longer term rate of return Net claims incurred (52,672) (31,518) (19) (84,209) Acquisition costs (30,889) (18,848) (8,484) (58,221) Administration expenses (2,977) (7,899) (237) (11,113) Other technical income (747) - 85 (662) ------------ ---------- ----------- ------------ Trading result Aligned result 1,668 3,207 1,530 6,405 Non-aligned result - - - - Agency and other income 1,949 - 4,465 6,414 Profit commission 78 - - 78 Expenses (2,408) - (4,337) (6,745) Loan interest (681) - - (681) Goodwill and capacity (682) - - (682) amortisation ----------- ----------- ----------- ------------ Operating profit/(loss) (76) 3,207 1,658 4,789 Short term fluctuations in (174) (1,853) 16 (2,011) investment return Profit on sale of long term - - - - business Profit on sale of non-managed - - - - Lloyd's capacity Equalisation provision - (1,332) - (1,332) ----------- ----------- ---------- ------------ Pre tax profit/(loss) (250) 22 1,674 1,446 ------------ --------- ---------- ---------- Managed Insurance Total Syndicate Company 100% level combined ratio 104.9% 99.1% 102.2% ======= ======= ======= 6 months to 30 June 2000 (unaudited) Lloyd's Insurance Inter- Total Business/ Company national Group operations £000 £000 £000 £000 Profit on ordinary activities before taxation Gross premiums written 146,652 55,241 14,045 215,938 Net premiums earned 43,041 46,926 7,054 97,021 Investment return based on 2,955 3,071 94 6,120 longer term rate of return Net claims incurred (17,272) (23,862) (46) (41,180) Acquisition costs (26,812) (16,167) (6,123) (49,102) Administration expenses (2,976) (7,430) (134) (10,540) Long term business result - - - - ---------- ----------- ------------ ---------- Trading result: Aligned result (1,064) 2,538 845 2,319 Non-aligned result - - - - Agency and other income 2,194 - 2,879 5,073 Profit commission - - - - Expenses (1,811) - (3,328) (5,139) Loan interest (715) - - (715) Goodwill and capacity (628) - - (628) amortisation ----------- ---------- ----------- ----------- Operating profit/(loss) (2,024) 2,538 396 910 Short term fluctuations in (1,310) 418 199 (693) investment return Profit on sale of long term - 1,031 - 1,031 business Profit on sale of non-managed - - - - Lloyd's capacity Equalisation provision - (1,102) - (1,102) ----------- ------------ ----------- ----------- Pre tax profit/(loss) (3,334) 2,885 595 146 ---------- --------- -------- --------- Managed Insurance Total Syndicate Company 100% level combined ratio 104.1% 98.8% 102.2% ======== ======= ======= 12 months to 31 December 2000 (audited) Insurance Insurance Inter- Total Business/ Company national Group Operations £000 £000 £000 £000 Profit on ordinary activities before taxation Gross premiums written 225,523 127,347 31,866 384,736 Net premiums earned 125,322 100,995 15,133 241,450 Investment return based on 9,128 6,433 661 16,222 longer term rate of return Net claims incurred (74,348) (52,998) (20) (127,366) Acquisition costs (58,776) (33,958) (13,318) (106,052) Administration expenses (3,561) (14,931) (9) (18,501) Long term business result 1,184 - - 1,184 ----------- ----------- ---------- ----------- Trading result: Aligned result (2,005) 5,541 2,447 5,983 Non-aligned result 954 - - 954 Agency and other income 5,049 - 5,192 10,241 Profit commission 387 - - 387 Expenses (5,938) - (6,413) (12,351) Loan interest (951) - - (951) Goodwill and capacity (1,313) - - (1,313) amortisation ----------- --------- --------- ---------- Operating profit/(loss) (3,817) 5,541 1,226 2,950 Short term fluctuations in (764) 1,742 65 1,043 investment return Profit on sale of long term - 846 - 846 business Profit on sale of non-managed 957 - - 957 Lloyd's capacity Equalisation provision - (2,309) - (2,309) ----------- ---------- ---------- ---------- Pre tax profit/(loss) (3,624) 5,820 1,291 3,487 ------------ --------- ---------- --------- Managed Insurance Total Syndicate Company 100% level combined ratio 105.9% 97.7% 103.1% NOTES TO THE INTERIM ACCOUNTS 1. Basis of preparation The unaudited interim accounts have been prepared on the basis of the accounting policies consistent with those set out in the Group's 2000 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. The unaudited interim statements, the comparative figures for the year ended 31 December 2000 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 the Report and Accounts for the year ended 31 December 2000, 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 operating profit after taxation of £3,353,000 and on the average number of shares in issue during the current period of 146,052,550. Earnings per share on ordinary activities are based on the profit after taxation of £1,013,000 and on the average number of shares in issue during the current period of 146,052,550. Fully diluted earnings per share on ordinary activities are based on the profit after taxation of £1,013,000 and on the average number of shares in issue during the period of 148,084,399, taking into account the options outstanding under the Employee Option Schemes. 3. Dividends No interim dividend has been declared payable in respect of the six months to 30 June 2001 (30 June 2000 : 1.2p (net) per ordinary share). 4. Post balance sheet events As detailed in the accompanying Chairman's Statement, claims arising from the US terrorist attacks on 11 September 2001 are expected to have a material effect on the Group's result for the year. The unaudited interim accounts have not been affected by the event. 5. 100% Level Technical Account The underwriting activities which are managed by the Group are shown below at the 100% level regardless of ownership of capacity. 6 months to 30 June 2001 (unaudited) Managed Insurance International Total Syndicate Company Operations £000 £000 £000 £000 Gross premiums written 380,046 73,801 20,828 474,675 Net premiums written 211,654 65,597 11,244 288,495 Net premiums earned 153,021 58,020 9,866 220,907 ------------- ------------ -------------- ---------- Net claims incurred 97,062 31,518 19 128,599 ------------ ----------- ----------- ---------- Claims ratio (%) 63.4% 54.3% 58.2% ------------- ---------- ---------- Commission 70,251 21,510 9,641 101,402 Expenses 17,519 7,899 237 25,655 Movement in DAC (26,014) (2,662) (1,157) (29,833) ------------- ----------- ----------- -------- Net expenses 61,756 26,747 8,721 97,224 ----------- ---------- --------- -------- Expense ratio (%) 41.5% 44.8% 44.0% ----------- --------- ------- Net longer term 6,085 3,452 319 9,856 investment return ---------- --------- ---------- ------- Technical profit/(loss) 288 3,207 1,445 4,940 --------- --------- -------- ------- Combined ratio (%) 104.9% 99.1% 102.2% ----------- --------- -------- 6 months to 30 June 2000 (unaudited) Managed Insurance International Total Syndicate Company Operations £000 £000 £000 £000 Gross premiums written 333,285 55,241 14,045 402,571 Net premiums written 167,514 50,926 7,059 225,499 Net premiums earned 108,340 46,926 7,054 162,320 ----------- ----------- ---------- -------- Net claims incurred 48,952 23,862 46 72,860 ----------- ---------- ---------- -------- Claims ratio (%) 45.2% 50.9% 44.9% ----------- --------- -------- Commission 79,260 16,864 6,097 102,221 Expenses 19,446 7,546 134 27,126 Movement in DAC (27,365) (813) 26 (28,152) ------------- ---------- ----------- --------- Net expenses 71,341 23,597 6,257 101,195 ------------ ---------- ---------- -------- Expense ratio (%) 58.9% 47.9% 57.3% ------------- ----------- -------- Net longer term 3,236 3,071 94 6,401 investment return ------------- ----------- ------------ -------- Technical profit/(loss) (8,717) 2,538 845 (5,334) ------------- ----------- ------------ -------- Combined ratio (%) 104.1% 98.8% 102.2% ------------- ----------- -------- 6. Investment Return a) The total actual investment return before taxation comprises: 6 months to 6 months to Year to 30 June 2001 30 June 31 Dec 2000 2000 (unaudited) (unaudited) (audited) £000 £000 £000 Investment return on funds at Lloyd's and other corporate funds: Investment income 1,882 1,572 3,636 Unrealised gains/(losses) on investments (412) 846 1,631 Realised gains/(losses) on investments 73 (1,031) (944) -------- ---------- ---------- 1,543 1,387 4,323 ---------- -------- --------- Investment return on syndicate funds: Investment income 2,728 583 4,660 Realised gains/(losses) on investments 575 (20) 498 ----------- ---------- ---------- 3,303 563 5,158 ---------- --------- --------- Investment return on insurance company funds: Investment income 3,369 3,110 6,392 Unrealised gains/(losses) on investments (1,375) 354 1,374 Realised gains/(losses) on investments (279) 152 684 --------- --------- ---------- 1,715 3,616 8,450 --------- --------- ---------- Investment management expenses (332) (139) (666) ---------- ---------- ---------- Total investment return 6,229 5,427 17,265 --------- -------- ---------- Allocation to the technical account based (8,240) (6,120) (16,222) on the longer term rate ------------ ---------- ----------- Short term fluctuations in investment (2,011) (693) 1,043 return retained in the non-technical account ---------- ---------- ----------- b) Longer term investment return The longer term return is based on a combination of historical experience and current expectations for each category of investments. The longer term return is calculated by applying the following yields to the weighted average of each category of assets. 2001 2000 % % Shares and units in unit trusts 7.0 7.0 Debt securities and other fixed interest securities 6.0 6.0 Deposits with credit institutions 6.0 6.0 c) Comparison of longer term investment return with actual returns The actual return on investments is compared below with the longer term investment return. 6 months ended 30 June 2001 (unaudited) Funds at Lloyd's Share of Insurance Total and other Syndicate Company Corporate Assets £000 % £000 % £000 % £000 Actual investment return: Shares and units 232 1.6 96 5.9 (772) (6.4) (444) in unit trusts Debt securities 682 4.3 1,842 8.2 2,094 5.5 4,618 and other fixed interest securities Deposits with 522 4.2 394 3.9 277 5.1 1,193 credit institutions Other - 0.0 862 12.2 - 0.0 862 ----------- ---------- --------- ----------- 1,436 3,194 1,599 6,229 Longer term investment return: Shares and units 1,040 7.0 114 7.0 850 7.0 2,004 in unit trusts Debt securities 944 6.0 1,345 6.0 2,292 6.0 4,581 and other fixed interest securities Deposits with 739 6.0 606 6.0 310 6.0 1,655 credit institutions Other - 0.0 - 0.0 - 0.0 - --------- --------- --------- ----------- 2,723 2,065 3,452 8,240 --------- --------- --------- ----------- Short term (1,287) 1,129 (1,853) (2,011) fluctuations in investment return --------- -------- ---------- ------------ 6 months ended 30 June 2000 (unaudited) Funds at Lloyd's Share of Insurance Total and other Syndicate Company Corporate assets £000 £000 £000 £000 % % % Actual investment return: Shares and units (58) (0.5) (15) (1.7) 210 2.6 137 in unit trusts Debt securities 1,315 6.1 503 3.7 3,204 7.9 5,022 and other fixed interest securities Deposits with 118 8.5 65 11.8 75 6.0 258 credit institutions Other - 0.0 10 1.5 - 0.0 10 ---------- --------- ---------- ----------- 1,375 563 3,489 5,427 Longer term investment return: Shares and units 759 7.0 61 7.0 574 7.0 1,394 in unit trusts Debt securities 1,300 6.0 813 6.0 2,422 6.0 4,535 and other fixed interest securities Deposits with 83 6.0 33 6.0 75 6.0 191 credit institutions Other - 0.0 - 0.0 - 0.0 - ---------- -------- --------- --------- 2,142 907 3,071 6,120 ---------- -------- --------- ---------- Short term (767) (344) 418 (693) fluctuations in investment return ----------- -------- ------- ---------- REVIEW REPORT BY KPMG AUDIT PLC TO HISCOX PLC Introduction We have been instructed by the Company to review the financial information for the six months ended 30 June 2001 which comprises the consolidated profit and loss account, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of total recognised gains and losses and related notes 1 to 6. 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 Financial Services Authority 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 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 2001. KPMG Audit Plc Chartered Accountants London 25 September 2001

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