Interim Results
Hiscox PLC
14 September 2004
Interim Results for the six months ended 30 June 2004
'A strong half-year'
HY 2004 HY 2003
Gross written premiums £533.5 million £590.6 million
Operating profit £61.7 million £26.4 million
Profit before tax £50.8 million £31.5 million
Earnings per share 12.2p 7.6p
Dividend per share 1.5p 1.3p
Net asset value per share
(before equalisation provision) 129.9p 108.7p
Combined ratio 84.4% 95.9%
Highlights
• Record profits: operating profit up 134% to £61.7 million and pre-tax
profit up 61% to £50.8 million.
• Earnings per share up 61% to 12.2p.
• Net assets per share up 20% to 129.9p.
• Interim dividend increased 15% to 1.5p (net) per share.
• Group combined ratio of 84.4%.
• Annualised return on equity of 21.6%.
• Market conditions remain healthy. Rates profitable in all classes we
underwrite.
• Strong performance from Syndicate 33 with a doubling of pre-tax profit.
• Capacity ownership increased to 70% for 2005.
• Focus on continued growth of retail business.
Robert Hiscox, Chairman Hiscox plc, commented:
'It has been an extremely good first half for Hiscox. These results show a
healthy thriving business, with our London Market underwriting balanced by a
highly focussed retail portfolio.
If we have to be anywhere in the cycle, this is one of the best spots. We have
good solid earnings coming through from the peak period and we have good years
ahead as some rates settle down, but others stay firm or even increase. We will
maintain profitable growth through disciplined underwriting, the expansion of
our retail business and red hot customer service.'
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
Fiona Fong Director of Communications 020 7448 6447
The Maitland Consultancy
Philip Gawith 020 7379 5151
Suzanne Bartch 020 7379 5151
Notes to editors
Hiscox plc is a specialist insurance group listed on the London Stock Exchange
where it has a market capitalisation of circa £500 million. There are three main
underwriting parts of the Group - Syndicate 33 at Lloyd's, UK Retail and
International Retail business. Syndicate 33 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. The UK Retail business offers a wide range of specialist insurance for
professionals and business customers, as well as high net worth individuals. It
has regional offices in Birmingham, Glasgow, Leeds, Maidenhead and Colchester.
The International Retail business has offices in Paris, Amsterdam, Brussels,
Munich and Guernsey. The European offices write mainly high value household
business and some specialist professional indemnity business. The Guernsey
office underwrites kidnap and ransom business and fine art.
Chairman's Statement
The results for the half-year to 30th June 2004 were a record operating profit
of £61.7 million (2003: £26.4 million) and profit before tax of £50.8 million
(2003: £31.5 million). The group written premium income for the period was
£533.5 million (2003: £590.6 million) and the net earned premium income was
£319.4 million (2003: £266.9 million). Earnings per share (based on the profit
after tax) were 12.2p (2003: 7.6p). Net asset value per share (before
equalisation provision) rose to 129.9p (2003: 108.7p). Group combined ratio was
84.4% (2003: 95.9%).
Dividend
The interim dividend is increased to 1.5p (net) per ordinary share (2003: 1.3p
per share) and will be paid on 25th October 2004 to shareholders on the register
at the close of business on 1st October 2004.
This increase is in line with the Board's progressive dividend policy, and our
ambition of steady dividend growth throughout the insurance cycle. We are in a
capital intensive business and are currently reasonably geared to support our
existing underwriting. We intend to expand our retail network, and one day we
will have to supply the capital for the 30% of Syndicate 33 which we do not own.
We therefore can make very good use of the capital retained in the business to
fuel future profitable growth of the business.
Overall comment
A combined ratio of 84.4% is an excellent underwriting performance. I know
market conditions following the trauma of September 11th 2001 seem benign in
retrospect, but the reason for the high rates was the vacuum caused by the lack
of capacity. Others hunkered down leaving fortune to the brave.
Obviously some exceptionally high rates in the London Market had to come down to
more reasonable levels, and this they are doing in those areas which can afford
reductions. There is new capacity chasing high profile large property risks
where the rates are deemed to be too high, so we are in effect back to normal
market conditions. But if we have to be anywhere in the cycle, this is one of
the best spots. We have solid earnings coming through from the peak period in
the London Market of which we took full advantage, and we have good years ahead
as some rates settle down, but others stay firm or even increase. Outside the
London Market we have a thriving regional business where rates have been
relatively steady and are at a good profitable level.
The vast majority of our corporate life is conducted in highly competitive
markets where business, marketing and underwriting skills are needed to make
money. We have those skills, and will enjoy using them to continue to make good
returns for our shareholders.
London Market
Syndicate 33 has improved its combined ratio to 83.9% (2003: 99.3%). Market
conditions remain healthy and rates are at a profitable level in all the classes
we underwrite. In aggregate, our rating index for the 12 months to the end of
June is broadly unchanged since June 2003. Reinsurance rates remain attractive
and rate increases in the marine and global professional indemnity lines
continue. Pressure continues in the commercial property and onshore energy
accounts.
Premium income was down at the gross level but up at the net earned level.
Tremendous advantage was taken of the vacuum caused by shortage of capacity in
the last two years and opportunistic business was written which is now being
reduced as planned. But the main reason for the reduction in income is the
weakness of the dollar as 70% of the Syndicate's premium income is in US
dollars.
We are actively seeking new distribution methods and continuing to expand our
extranet network to ensure future profitable growth.
I always have to write this report in the middle of the hurricane season. This
year we have had Hurricane Charley, followed shortly thereafter by Frances, and
Ivan is now raging. The current forecast losses from Hurricane Charley are
within our budget. There is no clear picture on the losses from Hurricane
Frances, but market comment puts them at around the same amount which is
manageable. Hurricane Ivan is well south, but some losses are inevitable. It is
fortunate that this violent season is taking place when our margins are high and
the losses can be absorbed.
In the first auction of capacity we have acquired 5% of Syndicate 33 at 6.2p
bringing our total ownership for 2005 to 70%.
The Lloyd's franchise is in good hands with firm governance, and for once, what
foolish competition there is, is coming from outside the market. As usual, every
insurance company chief executive will state that his underwriters are
exercising discipline and it is others who are being foolish, but certain
organisations are cutting rates stupidly and needlessly for market share. Their
pain will come later.
UK Retail
Again excellent underwriting figures with a combined ratio of 87.0% (2003:
90.6%). Our target ratio is 95-98% which produces a satisfactory return on
capital, so we have considerable margin to increase our marketing and
distribution efforts as we clearly need more of the same. Premium income only
grew a small amount as we parted with a large account of commodity household
business which did not fit our focus on higher values. Continued business showed
satisfactory growth.
We continue to focus from London and our regional offices on our two
specialities of higher value household business and business risks for chosen
professions. We use technology to enable us to underwrite the smaller risks in
each class: there is less competition in these areas as the barriers to entry
are high. Our professions business continued to deliver strong profitable growth
based on its expertise in professional indemnity for new, advisory-led
professions. We continued to work with brokers to improve our product and
delivery of high value household insurance. Our direct book of household
business is growing profitably, and we are about to expand our marketing spend
as we are confident that we have the underwriting and technology on a sound
footing.
International Retail
The underlying figures show continued progress. In Europe, the income is up 27%
at the half year and an operating profit of £1.1 million was made, on a combined
ratio of 100.7%. This was reduced to £0.3 million by the exchange loss.
Guernsey's underlying income was up 5% and it contributed £0.8 million to the
operating profit. At a time when we are making solid profits elsewhere, we will
continue to build our overseas businesses as they will be a valuable balance in
the future.
Investments
Hiscox plc's invested assets grew to £967 million from £853 million during the
first half of the year and produced a total return of £8.6 million. After a good
investment environment in 2003, the first half of this year has been difficult
for both fixed interest and equities, due mainly to interest rate rises and the
level they will reach in the US. We have been cautious in these markets as
making an absolute return is essential to enable us to continue to take full
advantage of the strong underwriting environment. Though our return was lower
than our long term rate of 4% for fixed interest and 6% for equities, we have
good cash flow and more money invested which will improve future returns,
especially if interest rates increase.
Through our Hiscox Investment Management subsidiary, we are now supervising the
investment of £1.4 billion vs. £1.0 billion a year ago. This comprises
investments for the Group and Syndicate 33, and also the management of the five
Hiscox Financial Funds specialising in insurance and financial stocks.
The future
Profits up 134% and cash in our insurance businesses growing by 31% shows a
healthy, thriving business. We are acutely aware that we are back in the real
world of competition after an extraordinary period and that the future will be
back to business as we usually know it. We have solid margins, and we will
compete sensibly with flexible underwriting, better marketing and red hot
service, making sure we maintain profitable growth.
The growth in profits enables us to increase the dividend and add the balance to
our net assets. Growth in net assets will inevitably force the share price up
however lowly we are rated: we will get that rating up by showing that we can
sustain profitability, and this we are determined to do. Our strategy of a
geographically spread book of highly focussed retail business balancing
international volatile business is aimed to do just that.
Robert Hiscox
Chairman
14 September 2004
Consolidated Profit and Loss Account
for the six month period ended 30 June 2004
6 months to
6 months to 30 June Year to
30 June 2003 31 December
2004 Restated* 2003
(unaudited) (unaudited) (audited)
Note £000 £000 £000
Gross premiums written 533,486 590,632 797,380
Net premiums written 449,593 440,294 660,966
Net premiums earned 319,377 266,912 547,451
Trading profit, before
movement in equalisation
provision 75,432 36,845 102,409
Trading profit, after movement
in equalisation provision 74,870 35,205 99,903
Investment return 6 11,077 16,439 32,154
Unrealised gains/(losses) on
investments 6 (1,837) 4,557 8,026
Investment expenses and charges 6 (649) (718) (805)
--------- --------- ---------
Actual investment return 8,591 20,278 39,375
Allocated investment return
transferred to the technical
account 6 (18,858) (13,553) (30,583)
--------- --------- ---------
Short term fluctuations in
investment return 6 (10,267) 6,725 8,792
Other income 7,793 8,019 12,582
Other expenses (21,570) (18,466) (37,869)
--------- --------- ---------
Profit on ordinary activities
before tax 50,826 31,483 83,408
--------- --------- ---------
Comprising:
Operating profit based on
longer term investment return -
continuing activities 61,655 26,398 77,122
Short term fluctuations in
investment return 6 (10,267) 6,725 8,792
Movement in equalisation
provision (562) (1,640) (2,506)
--------- --------- ---------
50,826 31,483 83,408
Tax on profit on ordinary
activities (15,248) (9,449) (22,917)
--------- --------- ---------
Profit on ordinary activities
after tax 35,578 22,034 60,491
Dividends
-interim paid and payable 3 (4,410) (3,824) (3,830)
-final payable - - (8,414)
--------- --------- ---------
(4,410) (3,824) (12,244)
--------- --------- ---------
Retained profit for the period 31,168 18,210 48,247
--------- --------- ---------
* Restated for the adoption of UITFs 37 and 38. See note 4.
6 months to 6 months to Year to
30 June 30 June 31 December
2004 2003 2003
(unaudited) (unaudited) (audited)
Note £000 £000 £000
Earnings per share:
- Adjusted basic, based on
operating profit after tax (on
longer term investment return) 2 14.8p 6.4p 19.3p
- Basic, based on profit on
ordinary activities after tax 2 12.2p 7.6p 20.9p
- Diluted, based on profit on
ordinary activities after tax 2 12.1p 7.5p 20.6p
Consolidated Statement of Total Recognised Gains and Losses
for the six month period ended 30 June 2004
6 months to
6 months to 30 June Year to
30 June 2003 31 December
2004 Restated* 2003
(unaudited) (unaudited) (audited)
£000 £000 £000
Profit on ordinary activities after tax 35,578 22,034 60,491
Exchange differences taken to reserves (459) 157 (155)
--------- --------- ---------
Total recognised gains and losses 35,119 22,191 60,336
--------- --------- ---------
*Restated for the adoption of UITFs 37 and 38. See note 4.
Consolidated Balance Sheet
at 30 June 2004
30 June
30 June 2003 31 December
2004 Restated* 2003
(unaudited) (unaudited) (audited)
Note £000 £000 £000
Assets
Intangible assets
Goodwill 6,023 6,457 6,240
Other intangible assets 15,005 15,966 15,513
-------- -------- ---------
21,028 22,423 21,753
-------- -------- ---------
Investments
Land and buildings 3,890 415 410
Other financial investments 878,149 640,005 773,289
-------- -------- ---------
882,039 640,420 773,699
-------- -------- ---------
Reinsurers' share of technical
provisions
Provision for unearned premiums 83,529 155,020 63,004
Claims outstanding 186,667 192,867 189,183
-------- -------- ---------
270,196 347,887 252,187
-------- -------- ---------
Debtors 473,880 570,523 376,059
Other assets 7,544 7,442 7,332
Cash at bank and in hand 55,423 99,025 52,945
Prepayments and accrued income 153,150 154,860 115,002
--------- ---------- ----------
Total assets 1,863,260 1,842,580 1,598,977
--------- ---------- ----------
Liabilities
Capital and reserves
Called up share capital 7 14,581 14,540 14,565
Share premium account 7 232,658 231,903 232,341
Merger reserve 7 4,723 4,723 4,723
Capital redemption reserve 7 33,244 33,244 33,244
Reserve for own shares 7 (478) (686) (686)
Profit and loss account 7 76,507 15,925 45,650
-------- -------- ---------
Shareholders' funds attributable
to equity interests 361,235 299,649 329,837
-------- -------- ---------
Technical provisions
Provision for unearned premiums 574,903 577,050 424,379
Claims outstanding 727,704 615,618 656,820
Equalisation provision 17,000 15,572 16,438
--------- --------- ---------
1,319,607 1,208,240 1,097,637
--------- --------- ---------
Creditors 131,324 291,951 126,134
Provisions for other risks and
charges 25,949 - 15,503
Accruals and deferred income 25,145 42,740 29,866
---------- ---------- ---------
Total liabilities 1,863,260 1,842,580 1,598,977
---------- ---------- ---------
Net asset value (before
equalisation provision) pence
per share 129.9 108.7 119.1
*Restated for the adoption of UITFs 37 and 38. See note 4.
Consolidated Cash Flow Statement
for the six month period ended 30 June 2004
6 months to
6 months to 30 June Year to
30 June 2003 31 December
2004 Restated* 2003
(unaudited) (unaudited) (audited)
£000 £000 £000
Net cash inflow from general business 27,506 6,115 31,300
Net shareholders' cash outflow from
Lloyd's business - (7,712) (7,712)
-------- --------- ---------
Net cash inflow/(outflow) from
operating activities 27,506 (1,597) 23,588
Servicing of finance (891) (1,312) (2,233)
Taxation paid (263) - (59)
Capital expenditure (5,006) (1,609) (3,052)
Acquisitions and disposals (200) - (50)
Equity dividends paid (8,450) (6,963) (10,744)
Financing 1,769 2,043 2,910
-------- --------- ---------
14,465 (9,438) 10,360
-------- --------- ---------
Cash flows were invested as follows:
Increase/(decrease) in cash holding 8,954 (20,343) (25,608)
Net portfolio investment:
Shares and units in unit trusts (30,940) 38,340 44,586
Debt securities and other fixed income
securities 22,164 54,096 59,657
Deposits with credit institutions 14,287 (81,531) (68,275)
Other investments - - -
-------- --------- ---------
Net investment of cash flows 14,465 (9,438) 10,360
-------- --------- ---------
Reconciliation of operating profit to net cash inflow/(outflow) from operating
activities:
6 months to
6 months to 30 June Year to
30 June 2003 31 December
2004 Restated* 2003
(unaudited) (unaudited) (audited)
£000 £000 £000
Operating profit before taxation and after
interest, based on longer term investment
return 61,655 26,398 77,122
Depreciation and amortisation of fixed assets 2,150 1,975 4,125
Increase in general insurance technical
provisions, net of reinsurance 17,135 12,028 43,482
Increase/(decrease) in amounts owed to agents 8,160 15,477 (2,591)
(Increase)/decrease in amounts owed by agents (12,215) (27,546) (11,295)
(Increase)/decrease in other debtors (12,337) (23,012) (24,979)
Increase/(decrease) in other creditors 4,094 16,223 482
Realised and unrealised investment
(gains)/losses 2,452 (5,321) (8,004)
Short term fluctuations in investment return (10,267) 6,725 8,792
Interest expense 999 922 1,946
Cash transferred (to)/from Lloyd's business - (7,712) (7,712)
Profits relating to Lloyd's business (34,944) (17,020) (56,516)
Other non-cash transactions 624 (734) (1,264)
-------- --------- ---------
Net cash inflow from operating activities 27,506 (1,597) 23,588
-------- --------- ---------
*Restated for the adoption of UITFs 37 and 38. See note 4.
Segmental Information - by business division
6 months to 30 June 2004(unaudited)
London
Market/ UK International
Group Retail Business Total
£000 £000 £000 £000
Profit on ordinary activities
before taxation - by business
division
Gross premiums written 407,934 79,942 45,610 533,486
Net premiums written 347,542 68,996 33,055 449,593
Net premiums earned 225,074 65,086 29,217 319,377
Investment return, based on
longer term rate of return 13,272 4,063 1,523 18,858
Net claims incurred (120,056) (27,429) (10,269) (157,754)
Acquisition costs (54,355) (16,384) (15,839) (86,578)
Administrative expenses (10,960) (13,632) (3,910) (28,502)
Other technical income/(charges) 125 - - 125
-------- -------- --------- --------
Trading result 53,100 11,704 722 65,526
Agency and other income 3,354 309 10,126 13,789
Profit commission 3,909 - 3 3,912
Expenses (9,425) (672) (9,750) (19,847)
Loan interest (999) - - (999)
Goodwill and capacity amortisation (706) - (20) (726)
-------- -------- --------- --------
Operating profit based on longer
term investment return 49,233 11,341 1,081 61,655
Short term fluctuations in
investment return (8,675) (979) (613) (10,267)
Movement in equalisation provision - (332) (230) (562)
-------- -------- --------- --------
Profit on ordinary activities
before taxation 40,558 10,030 238 50,826
-------- -------- --------- --------
London UK International
Market Retail Business Total
100% level combined ratio 83.9% 87.0% 99.4% 84.4%
-------- -------- -------- --------
Segmental Information - by business division (continued)
6 months to 30 June 2003(unaudited)
London
Market/
Group UK International Total
Restated Retail Business Restated
£000 £000 £000 £000
Profit on ordinary activities
before taxation - by business division
Gross premiums written 471,703 77,999 40,930 590,632
Net premiums written 346,496 66,886 26,912 440,294
Net premiums earned 178,679 63,844 24,389 266,912
Investment return, based on
longer term rate of return 9,057 3,298 1,198 13,553
Net claims incurred (118,311) (30,949) (8,279) (157,539)
Acquisition costs (45,149) (17,745) (14,385) (77,279)
Administrative expenses (4,619) (10,196) (268) (15,083)
Other technical income/(charges) 81 - - 81
-------- -------- --------- --------
Trading result 19,738 8,252 2,655 30,645
Agency and other income 3,205 145 8,491 11,841
Profit commission 2,378 - - 2,378
Expenses (7,821) (614) (8,387) (16,822)
Loan interest (922) - - (922)
Goodwill and capacity amortisation (702) - (20) (722)
-------- -------- --------- --------
Operating profit based on longer
term investment return 15,876 7,783 2,739 26,398
Short term fluctuations in
investment return 3,041 3,361 323 6,725
Movement in equalisation provision - (1,186) (454) (1,640)
-------- -------- --------- --------
Profit on ordinary activities
before taxation 18,917 9,958 2,608 31,483
-------- -------- --------- --------
London UK International
Market Retail Business Total
100% level combined ratio 99.3% 90.6% 90.2% 95.9%
-------- -------- --------- --------
Segmental Information - by business division (continued)
Year to 31 December 2003(audited)
London
Market/ UK International
Group Retail Business Total
£000 £000 £000 £000
Profit on ordinary activities before
taxation - by business division
Gross premiums written 541,442 174,551 81,387 797,380
Net premiums written 458,463 145,726 56,777 660,966
Net premiums earned 366,810 132,189 48,452 547,451
Investment return, based on longer
term rate of return 20,671 7,281 2,631 30,583
Net claims incurred (204,547) (65,141) (18,633) (288,321)
Acquisition costs (94,882) (35,230) (28,446) (158,558)
Administrative expenses (17,453) (23,092) (2,545) (43,090)
Other technical income/(charges) (1,265) - - (1,265)
-------- -------- --------- --------
Trading result 69,334 16,007 1,459 86,800
Agency and other income 6,752 379 15,578 22,709
Profit commission 5,215 - 267 5,482
Expenses (16,400) (1,371) (16,702) (34,473)
Loan interest (1,946) - - (1,946)
Goodwill and capacity amortisation (1,410) - (40) (1,450)
-------- -------- --------- --------
Operating profit based on longer
term investment return 61,545 15,015 562 77,122
Short term fluctuations in
investment return 2,913 5,238 641 8,792
Movement in equalisation provision - (1,730) (776) (2,506)
-------- -------- --------- --------
Profit on ordinary activities
before taxation 64,458 18,523 427 83,408
-------- -------- --------- --------
London UK International
Market Retail Business Total
100% level combined ratio 85.8% 90.3% 98.2% 87.2%
-------- -------- -------- --------
Net asset value per share
6 months to 30 June 2004(unaudited)
Net asset Number of NAV
value Shares* Per share
£000 000 p
Net asset value 361,235 291,216 124.0
Net asset value (before equalisation
provision) 378,235 291,216 129.9
Net tangible asset value 340,207 291,216 116.8
Net tangible asset value (before
equalisation provision) 357,207 291,216 122.7
6 months to 30 June 2003(unaudited)
Net asset
value Number of NAV
Restated Shares* Per share
£000 000 p
Net asset value 299,649 290,123 103.3
Net asset value (before equalisation
provision) 315,221 290,123 108.7
Net tangible asset value 277,226 290,123 95.6
Net tangible asset value (before
equalisation provision) 292,798 290,123 100.9
Year to 31 December 2003 (audited)
Net asset Number of NAV
value Shares* Per share
£000 000 p
Net asset value 329,837 290,630 113.5
Net asset value (before equalisation 346,275 290,630 119.1
provision)
Net tangible asset value 308,084 290,630 106.0
Net tangible asset value (before
equalisation provision) 324,522 290,630 111.7
*The number of shares is the number of shares in issue as at 30 June or 31
December of the relevant financial period.
Net assets by business entity
6 months to 30 June 2004(unaudited)
Lloyd's
Business/ Insurance International
Group Company Operations Total
£000 £000 £000 £000
Tangible assets 236,734 98,053 5,420 340,207
Intangible assets 20,374 654 - 21,028
-------- -------- --------- --------
257,108 98,707 5,420 361,235
-------- -------- --------- --------
6 months to 30 June 2003(unaudited)
Lloyd's
Business/ Insurance International
Group Company Operations Total
£000 £000 £000 £000
Tangible assets 188,579 83,480 5,167 277,226
Intangible assets 21,729 694 - 22,423
-------- -------- --------- --------
210,308 84,174 5,167 299,649
-------- -------- --------- --------
Year to 31 December 2003(audited)
Lloyd's
Business/ Insurance International
Group Company Operations Total
£000 £000 £000 £000
Tangible assets 209,852 93,722 4,510 308,084
Intangible assets 21,079 674 - 21,753
------- ------- ------- -------
230,931 94,396 4,510 329,837
------- ------- ------- -------
Notes to the Interim Accounts
1. Basis of preparation
The unaudited interim accounts have been prepared on the basis of accounting
policies consistent with those set out in the Group's 2003 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 Syndicate 33 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 2003 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 2003, 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 £43,159,000 (2003: £18,479,000) and on the average number of shares
in issue during the current period of 291,006,000 (2003: 289,181,000).
Earnings per share on ordinary activities are based on the profit after taxation
of £35,578,000 (2003: £22,034,000) and on the average number of shares in issue
during the current period of 291,006,000 (2003: 289,181,000).
Fully diluted earnings per share on ordinary activities are based on the profit
after taxation of £35,578,000 (2003: £22,034,000) and on the average number of
shares in issue during the period of 294,458,000 (2003: 293,622,000), taking
into account the options outstanding under the Employee Share Option Schemes.
3. Dividends
An interim dividend of 1.5p (net) per Ordinary Share has been declared payable
on 25 October 2004 to shareholders registered on 1 October 2004 in respect of
the six months to 30 June 2004 (30 June 2003 : 1.3p (net) per ordinary share).
4. Prior year restatement
During the second half of 2003, the Company adopted UITF Abstract 37 relating to
purchases and sales of own shares and UITF Abstract 38 relating to own shares
held in an ESOP Trust. The net impact on opening shareholders' funds for the six
month period to 30 June 2003 is a reduction of £1,170,000. This restatement has
been made in respect of 1,094,334 own shares held at 1 January 2003 by a
subsidiary undertaking, Hiscox Holdings Limited, and 255,466 own shares held in
an ESOP Trust. At 30 June 2003, the number of own shares held was 407,500 by
Hiscox Holdings Limited and 255,466 in the ESOP Trust.
5. 100% Level Technical Account - by business division
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 2004(unaudited)
London UK International
Market Retail Business Total
£000 £000 £000 £000
Gross premiums written 626,849 79,942 45,610 752,401
Net premiums written 534,351 68,996 33,055 636,402
Net premiums earned 345,436 65,086 29,217 439,739
-------- -------- --------- --------
Net claims incurred 184,085 27,429 10,269 221,783
-------- -------- --------- --------
Claims ratio (%) 53.3% 42.1% 35.1% 50.4%
-------- -------- --------- --------
Commission 131,205 17,343 17,338 165,886
Operating expenses 32,551 13,632 3,910* 50,093
Movement in deferred
acquisition costs (58,828) (959) (1,499) (61,286)
-------- -------- --------- --------
Net expenses 104,928 30,016 19,749 154,693
-------- -------- --------- --------
Commission ratio (%) 24.5% 25.1% 52.5% 26.1%
Operating expense ratio (%) 6.1% 19.8% 11.8% 7.9%
-------- -------- --------- --------
Expense ratio (%) 30.6% 44.9% 64.3% 34.0%
-------- -------- --------- --------
Net longer term investment return 15,639 4,063 1,523 21,225
-------- -------- --------- --------
Technical profit 72,062 11,704 722 84,488
-------- -------- --------- --------
Combined ratio (%) 83.9% 87.0% 99.4% 84.4%
-------- -------- --------- --------
5. 100% Level Technical Account - by business division (continued)
6 months to 30 June 2003(unaudited)
London UK International
Market Retail Business Total
£000 £000 £000 £000
Gross premiums written 724,340 77,999 40,930 843,269
Net premiums written 532,659 66,886 26,912 626,457
Net premiums earned 280,695 63,844 24,389 368,928
-------- -------- --------- --------
Net claims incurred 191,839 30,949 8,279 231,067
-------- -------- --------- --------
Claims ratio (%) 68.3% 48.5% 33.9% 62.6%
-------- -------- --------- --------
Commission 126,970 17,949 14,873 159,792
Operating expenses 38,161 10,196 268* 48,625
Movement in deferred
acquisition costs (84,218) (204) (488) (84,910)
-------- -------- --------- --------
Net expenses 80,913 27,941 14,653 123,507
-------- -------- --------- --------
Commission ratio (%) 23.8% 26.9% 55.3% 25.5%
Operating expense ratio (%) 7.2% 15.2% 1.0% 7.8%
-------- -------- --------- --------
Expense ratio (%) 31.0% 42.1% 56.3% 33.3%
-------- -------- --------- --------
Net longer term investment return 9,086 3,298 1,198 13,582
-------- -------- --------- --------
Technical profit 17,029 8,252 2,655 27,936
-------- -------- --------- --------
Combined ratio (%) 99.3% 90.6% 90.2% 95.9%
-------- -------- --------- --------
* Includes an intercompany exchange loss of £1.7 million (2003: gain of
£1.0 million)
6. Investment Return
a) The total actual investment return comprises:
6 months to 6 months to Year to
30 June 30 June 31 December
2004 2003 2003
(unaudited) (unaudited) (audited)
£000 £000 £000
Investment return on funds at Lloyd's
and other corporate funds:
Investment income 4,015 4,202 8,591
Unrealised gains/(losses) on
investments (1,189) 1,054 1,778
Realised gains/(losses) on investments (57) 1,028 1,026
--------- --------- ---------
2,769 6,284 11,395
--------- --------- ---------
Investment return on syndicate funds:
Investment income 7,938 5,336 12,656
Realised gains/(losses) on investments (5,295) 1,279 974
--------- --------- ---------
2,643 6,615 13,630
--------- --------- ---------
Investment return on insurance
company funds:
Investment income 5,034 4,858 9,955
Unrealised gains/(losses) on
investments (648) 3,503 6,248
Realised gains/(losses) on investments (558) (264) (1,048)
--------- --------- ---------
3,828 8,097 15,155
--------- --------- ---------
Investment expenses and charges (649) (718) (805)
--------- --------- ---------
Total investment return 8,591 20,278 39,375
--------- --------- ---------
Allocation to the technical account
based on the longer term rate (18,858) (13,553) (30,583)
--------- --------- ---------
Short term fluctuations in investment
return retained in the non-technical
account (10,267) 6,725 8,792
--------- --------- ---------
b) Longer term investment return
The longer term rate of investment return is based on a combination of
historical experience and current expectations for each category of investments.
The longer term investment return is calculated by applying the following yields
to the weighted average of each category of assets.
6 months to 6 months to Year to
30 June 30 June 31 December
2004 2003 2003
(unaudited) (unaudited) (audited)
% % %
Shares and units in unit trusts 6.0 6.0 6.0
Debt securities and other fixed
interest securities 4.0 4.0 4.0
Deposits with credit institutions 4.0 4.0 4.0
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 2004 (unaudited)
Funds at
Lloyd's
and other
Corporate Share of Insurance
Assets syndicate Company Total
£000 % £000 % £000 % £000 %
Actual investment
return:
Shares and units in
unit trusts 407 2.0 - - 451 2.0 858 2.0
Debt securities and
other fixed interest
securities 1,787 3.5 1,932 0.9 1,993 3.8 5,712 1.8
Deposits with
credit institutions 471 2.4 248 0.9 1,302 3.4 2,021 2.4
------- ---- ------ ----- ------- ----- ------- -----
2,665 3.0 2,180 0.9 3,746 3.3 8,591 2.0
Longer term
investment return:
Shares and units in
unit trusts 1,194 6.0 - 6.0 1,327 6.0 2,521 6.0
Debt securities and
other fixed interest
securities 2,022 4.0 8,793 4.0 2,077 4.0 12,892 4.0
Deposits with
credit institutions 776 4.0 1,118 4.0 1,551 4.0 3,445 4.0
------- ------ ------- -------
3,992 9,911 4,955 18,858
------- ------ ------- -------
Short term
fluctuations in
investment return (1,327) (7,731) (1,209) (10,267)
------- ------ ------- -------
6 months ended 30 June 2003(unaudited)
Funds at
Lloyd's
and other
Corporate Share of Insurance
Assets syndicate Company Total
£000 % £000 % £000 % £000 %
Actual investment
return:
Shares and units in
unit trusts 2,409 12.6 - - 1,980 14.8 4,389 13.6
Debt securities and
other fixed interest
securities 2,719 7.2 5,281 4.9 5,170 9.3 13,170 6.5
Deposits with credit
institutions 916 2.7 1,010 3.1 793 3.2 2,719 3.0
------ ----- ------ ----- ------- ----- ------- -----
6,044 6.8 6,291 4.5 7,943 8.5 20,278 6.2
Longer term
investment return:
Shares and units in
unit trusts 1,150 6.0 - 6.0 669 6.0 1,819 6.0
Debt securities and
other fixed interest
securities 1,513 4.0 4,295 4.0 2,232 4.0 8,040 4.0
Deposits with credit
institutions 1,337 4.0 1,324 4.0 1,033 4.0 3,694 4.0
------ ------ ------- -------
4,000 5,619 3,934 13,553
------ ------ ------- -------
Short term
fluctuations in
investment return 2,044 672 4,009 6,725
------ ------ ------- -------
7. Reconciliation of movement in shareholders' funds
Share Reserve
Share Premium Merger Capital for Own
Capital Reserve Reserve Redemption Shares
£000 £000 £000 £000 £000
At 1 January 2004 14,565 232,341 4,723 33,244 (686)
------- -------- ------- --------- -------
Exercise of share options 16 317 - - -
UITF 37 and 38 reserve
adjustments - - - - 208
Exchange differences
taken to reserves - - - - -
Retained profit for
the year - - - - -
------- -------- ------- --------- -------
At 30 June 2004 14,581 232,658 4,723 33,244 (478)
------- -------- ------- --------- -------
Profit Total
and Share-
Loss holders'
Account Funds
£000 £000
At 1 January 2004 45,650 329,837
-------- -------
Exercise of share options - 333
UITF 37 and 38 reserve
adjustments 148 356
Exchange differences
taken to reserves (459) (459)
Retained profit for
the year 31,168 31,168
-------- --------
At 30 June 2004 76,507 361,235
-------- --------
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 2004 which comprises the consolidated profit and loss
account, the consolidated statement of total recognised gains and losses, the
consolidated balance sheet, the consolidated cash flow statement, the segmental
information and related notes 1 to 7. 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 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 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 material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2004.
KPMG Audit Plc
London
14 September 2004
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