Interim Results

Hiscox Ltd 20 August 2007 Hiscox Ltd Interim Results for the six months ended 30 June 2007 'A record half-year result' HY 2007 HY 2006 Gross premiums written £733.0 million £625.1 million Profit before tax £105.6 million £61.3 million Earnings per share 20.3p 12.1p Dividend per share 4.0p 3.0p Net asset value per share 185.4p 149.8p Combined ratio 84.8% 94.6% Financial Highlights •Profit before tax increased 72.1% to £105.6 million (2006: £61.3 million) •Gross premiums written increased 17.3% to £733.0 million (2006: £625.1 million) despite weak dollar •Net earned premium increased 17.5% to £471.9 million (2006: £401.7 million) •Group combined ratio 84.8% (2006: 94.6%) •Earnings per share increased to 20.3p (2006: 12.1p) •Net asset value per share increased to 185.4p (2006: 149.8p) •Dividend increased 33% to 4p (2006: 3p) •Investment portfolio secure and liquid Operational Highlights • Increased profit driven by Hiscox Global Markets. • Firm rates for catastrophe exposed insurance and reinsurance. Rates increasing in the UK property market but marked competition in commodity lines elsewhere. Specialty lines broadly stable. • Regional businesses in UK, Europe and the USA continue to grow through diverse channels. Acquisition of American Live Stock Insurance Co will access new markets in the USA. • Losses arising from floods in the UK within expectations for a UK catastrophe both in the regional and the reinsurance accounts. Robert Hiscox, Chairman, Hiscox Ltd, commented: 'A record half-year result despite a turbulent period of catastrophes in the UK and Europe. The acquisition of a US insurance company has added a further building block to our regional specialist business. We continue to build a strong insurance group balanced between reinsurance and insurance and global and regional business, well spread geographically and backed by powerful marketing to emphasise that we are different.' For further information: Hiscox Ltd Robin Mehta, Company Secretary +1 441 278 8300 Kylie O'Connor, Head of Communications, London +44 (0) 20 7448 6458 Maitland Suzanne Bartch +44 (0) 20 7379 5151 Richard Farnsworth +44 (0) 20 7379 5151 Notes to editors About Hiscox Hiscox, headquartered in Bermuda, is a specialist insurance group listed on the London Stock Exchange. There are three main underwriting parts of the Group - Hiscox Global Markets, Hiscox UK and Europe, and Hiscox International. Hiscox Global Markets underwrites mainly internationally traded business in the London Market - generally large or complex business which needs to be shared with other insurers or needs the international licences of Lloyd's. Hiscox UK and Hiscox Europe offer a range of specialist insurance for professionals and business customers, as well as high net worth individuals. Hiscox International includes operations in Bermuda, Guernsey and the USA. For further information, visit www.hiscox.com Chairman's statement This is a record result for the first half-year driven by our Global Markets division in London, complemented by a solid performance by the regional accounts worldwide despite Windstorm Kyrill and the UK June floods. Our strategy continues to be to build a balanced insurance and reinsurance business, growing when the rates are high and consolidating when they reduce, writing global reinsurance and large insurance risks through London and Bermuda with satellite marketing offices, and writing books of regional business throughout the UK, Europe and the USA. Results The results for the half-year to 30th June 2007 were an increase of 72.1% in profit before tax to £105.6 million (2006: £61.3 million). Gross premiums written increased 17.3% to £733.0 million (2006: £625.1 million) and net earned premium increased 17.5% to £471.9 million (2006: £401.7 million) despite a weak dollar. The Group combined ratio reduced to 84.8% (2006: 94.6%). Earnings per share increased 67.8% to 20.3p (2006: 12.1p) and net assets per share rose 23.8% to 185.4p (2006: 149.8p). A strong set of figures. The second half of the year is exposed to hurricanes in the USA, but a good first half lays a strong foundation for the year. Dividend The Board stated at the 2006 year-end that it would target a total dividend of 12p per share for 2007 subject to adequate profitability and shareholder approval. We will pay an interim dividend of 4p (net) per ordinary share (2006: 3p) on 1st October 2007 to shareholders on the register at the close of business on 31st August 2007. Overall comment The news has been dominated recently by the floods in the UK and the effect on investments of the subprime mortgage problems in the USA. Our investment managers have kept our funds short and predominantly in Government or well rated securities, with almost no exposure to subprime mortgage backed products. The floods have caused considerable distress to many people and communities. The forecast overall loss to the Group from the June floods is £30.0 million, of which £5.0 million comes from the UK household account, the balance coming from the reinsurance accounts in Global Markets and Bermuda. These losses are within our expectations for such events, especially in the UK household account which is well covered by reinsurance. The recent floods also follow Windstorm Kyrill which ravaged the UK and mainland Europe in January, the forecast loss from which remains at £25 million as previously forecast. Therefore the UK and Europe regional accounts have done well to make small profits in the half year. Our drive is to build the territorial spread of the regional accounts to give them a geographical balance, and also to build these accounts in the two largely uncorrelated areas of property (the household accounts) and liability (the professional indemnity accounts). The acquisition of American Live Stock Insurance Co in the USA, which we completed in August, is an important step in building our USA regional account. It has a specialist book of livestock business which we will nurture, and through the company we will have licences to underwrite our specialist lines on an 'admitted' basis in the USA in addition to the 'surplus lines' basis which we underwrite through our Lloyd's licence. Global Markets made a strong profit helped by good results from its specialty businesses. Global Markets balances its reinsurance and major risk accounts with books of specialty business such as personal accident, household, kidnap & ransom, bloodstock, contingency, marine and professional indemnity. Hiscox Global Markets This division uses the global licences, distribution network and credit rating available through Lloyd's to serve clients throughout the world. The division made a profit before tax of £87.5 million (2006: £22.1 million) on an increased written premium income of £423.7 million (2006: £401.4 million) with a combined ratio of 75.9% (2006: 95.5%). As mentioned above, the reinsurance account has suffered losses from Kyrill and the June floods but the overall account has shown a good profit. The Global Markets reinsurance team did well to increase their written premium income and to feed the Hiscox 'sidecar' Panther Re with well-priced business. We believe sidecars are an excellent way to harness capital for a period when rates are high without diluting our equity. The threat that we would lose business in Florida evaporated in the event as reinsureds bought more cover and we were able to write the income we wanted at the price we wanted. Rates for catastrophe exposed business were strong for the July 1st renewals, but other commodity business is very competitive. Our specialist lines are generally more stable. As highlighted in our June trading statement, we have reduced Syndicate 33's Lloyd's capacity by 20% for 2008 to £700 million (2007: £875 million) in order to maximise the use of capital and to ensure underwriting discipline. I am aware that, as always, every senior executive of every insurer and reinsurer is preaching discipline and yet many rates are still magically reducing. Unlike the regional business, where performance of insurers does vary and brand is important, in the big-ticket internationally traded business, as long as the security is adequate, price tends to be the sole determinant, so the way to grow is to win the bidding (downwards). Next year we will not grow in this area unless Mother Nature frightens more discipline into the market. We have expanded our reach for Global Markets from the traditional London base to offices in Paris, New York and San Francisco, and will continue to try to find business that does not currently come to London. Hiscox International This division covers Bermuda, the USA and Guernsey. It generated written premium of £154.0 million (2006: £94.9 million), and a profit of £12.1 million (2006: £7.8 million). Hiscox Bermuda continues to build a worldwide book of catastrophe business and to reinsure selected parts of the rest of the Group. Its external written premium income increased to £121.2 million (2006: £65.2 million) with a combined ratio of 99.1% (2006: 93.7%) caused by the losses from Windstorm Kyrill and the UK's June floods set against modest first half-year earned income. Again, if competition continues, Bermuda may, like Global Markets, reduce its income next year. Hiscox USA, which opened for business last year in March, continued to grow strongly in the specialist professional indemnity area. Plans are being laid to widen the areas of business being written, particularly terrorism insurance. The acquisition of American Live Stock Insurance Co is an essential part of our plan to expand our business in the USA by being able to offer admitted as well as surplus lines policies throughout the USA. Guernsey produced its usual excellent profit. Hiscox UK and Europe This segment covers our regional business throughout the UK and mainland Europe, and also includes our international art account. Overall written premium income was up 20.5% to £155.3 million (2006: £128.9 million) and the profit before tax was £6.6 million (2006: £17.8 million). UK premium income was up 12.5% to £114.3 million (2006: £101.6 million). Our core areas increased well covering the loss of some less significant business. Windstorm Kyrill and the June floods have increased the combined ratio to 104.4% (2006: 87.7%) but a profit of £6.0 million was still made (2006: £16.5 million). The UK broker and direct household accounts have been fully tested so far this year, first by increased competition and then by natural catastrophes. We believe that a strong brand will help us sell our policies at a proper price, and that the quality of the Hiscox brand is proved when the policy is called upon to respond to a claim. An insurance policy is a promise to pay, and you only find out that you have got what you paid for when you make a claim. We have done everything within our power and that of our appointed loss adjusters to alleviate the terrible distress of our policyholders and I believe that we have enhanced our reputation. Inevitably, big losses to the industry have the long-term benefits of encouraging more people to buy the proper levels of insurance, and insurers to be less reckless in their pricing. There are already well-publicised price rises in the UK property market. We have started a new marketing campaign in August to continue to build the brand and bring in more good business. Last year's campaign helped us attract more business both through brokers and our direct channels and won the Marketing Society's 2007 Award for Excellence for Brand Extension. The regional commercial business in the UK has done well despite increased competition. We specialise in small risks which are less competed for, and we have underwriting and claims experience that clients want more than the cheapest price. Again, the advertising helps strengthen the Hiscox brand message that we are different. Our European offices increased their combined written income to £41.0 million (2006: £27.3 million). The figures are a bit distorted due to accounting timing, but the real comparative growth is 17.1% which is healthy and has been helped by a new focus on specialty commercial business in addition to the household account. They had losses from Windstorm Kyrill which hit Germany, the Netherlands and Belgium the hardest, so did well to manage a small profit of £0.6 million (2006: £1.3 million). Investments Assets under management rose to £1,823 million at 30th June 2007 (2006: £1,678 million) and the yield for the half-year was 2.6% (2006: 1.6%), giving a total investment return of £47.9 million (2006: £27.1 million). Concerns over inflation led to a difficult period for bond markets but we mitigated the impact by maintaining a short duration and high credit quality. We have had almost no exposure to the multitude of higher-yielding products and structured products that have been hit by the subprime mortgage market problems in the USA. Our holdings in equities and other risk assets added value and were increased to 10% of assets by the end of June 2007. The recent turmoil within the subprime market in the USA is leading to more realistic pricing for risk in many parts of the financial markets and we are beginning to see some interesting opportunities which will enable us to increase risk and potential reward modestly in the portfolio. Conclusion As usual I am writing this in the middle of the USA wind season which peaks in September but, unusually, we have already been tested in the first half-year in the UK and Europe by some considerable natural catastrophes. There have been further floods in the UK in July for which we forecast an overall loss to the Group of £20 million. We have seen all these losses as a chance to prove ourselves with extraordinary service and thereby enhance the perception of the Hiscox brand. Rates are now generally being increased for household business - necessarily given the extraordinary weather we are experiencing - so our property account should flourish. Both in our property and commercial accounts, we will continue to develop books of quality business, attracted by our specialist knowledge, creativity and integrity in both underwriting and in the settlement of claims. Our Global Markets and Bermuda businesses have developed well-priced accounts but we must wait and see what Mother Nature does in the next two or three months. We factor a significant hurricane in the USA into our underwriting and forecasts, and so we are prepared. We will always remain ready to take rapid advantage of favourable conditions in whichever market we are in, but we will also have the discipline to maintain a sensible pricing structure when competition becomes foolish, even if it means losing business. We want to establish a brand that establishes us as different and well known for offering good cover at a sensible price, with rapid and fair settlement of claims, and long-term growth in value to its shareholders. Robert Hiscox Chairman 20 August 2007 Condensed consolidated interim income statement for the six month period ended 30 June 2007 6 months to Year to 6 months to 30 June 2006 31 Dec 2006 30 June 2007 (unaudited) (audited) Notes (unaudited) restated* restated* £000 £000 £000 -------------------------------------------------------------------------------- Income Gross premiums written 733,029 625,152 1,126,164 Net premiums written 547,142 504,703 975,397 Net premiums earned 471,852 401,662 888,828 -------------------------------------------------------------------------------- Investment result 7 46,761 44,375 105,550 Other revenues 8 8,514 5,149 15,692 -------------------------------------------------------------------------------- Net revenue 527,127 451,186 1,010,070 -------------------------------------------------------------------------------- Expenses Claims and claim adjustment expenses, net of reinsurance 10 (216,612) (198,050) (382,341) Expenses for the acquisition of insurance contracts (126,271) (113,393) (235,797) Administration expenses (40,574) (26,970) (76,533) Other expenses 8 (33,983) (46,605) (104,943) -------------------------------------------------------------------------------- Total expenses (417,440) (385,018) (799,614) -------------------------------------------------------------------------------- Results of operating activities 109,687 66,168 210,456 Finance costs 9 (4,201) (4,824) (9,404) Share of profit of associate after tax 76 5 10 -------------------------------------------------------------------------------- Profit before tax 105,562 61,349 201,062 Tax expense (25,550) (14,029) (37,216) -------------------------------------------------------------------------------- Profit for the period (all attributable to equity shareholders of the Company) 80,012 47,320 163,846 -------------------------------------------------------------------------------- Earnings per share on profit attributable to shareholders of the Company Basic 11 20.3p 12.1p 41.7p Diluted 11 19.6p 11.9p 40.5p *restated for the reclassification of certain minor overseas underwriting agency commissions and expenses between income statement categories (note 2). The notes to the condensed consolidated interim financial statements are an integral part of this document. Condensed consolidated interim balance sheet at 30 June 2007 30 June 2007 30 June 2006 31 Dec 2006 Notes (unaudited) (unaudited) (audited) £000 £000 £000 -------------------------------------------------------------------------------- Assets Intangible assets 33,122 33,016 33,212 Property, plant and equipment 13,962 12,891 13,821 Investment in associate 104 23 28 Deferred acquisition costs 146,529 128,898 117,115 Financial assets carried at fair value 13 1,501,900 1,210,543 1,241,910 Loans and receivables including insurance receivables 481,534 464,522 446,272 Deferred tax - 13,129 - Reinsurance assets 371,602 435,094 302,772 Cash and cash equivalents 13,16 321,309 467,904 502,871 -------------------------------------------------------------------------------- Total assets 2,870,062 2,766,020 2,658,001 -------------------------------------------------------------------------------- Equity and liabilities Shareholders' equity Share capital 19,829 19,649 19,694 Share premium 3,227 403,259 - Contributed surplus 414,698 - 442,425 Other reserves (45,611) 16,705 (40,396) Retained earnings 342,807 148,750 260,362 -------------------------------------------------------------------------------- Total equity 734,950 588,363 682,085 -------------------------------------------------------------------------------- Employee retirement benefit obligations 3,452 17,308 3,801 Deferred tax 12,102 - 8,467 Insurance liabilities 1,803,903 1,769,644 1,594,101 Financial liabilities carried at fair value 13 91,000 115,064 93,929 Current tax 23,863 44,264 20,793 Trade and other payables 200,792 231,377 254,825 -------------------------------------------------------------------------------- Total liabilities 2,135,112 2,177,657 1,975,916 -------------------------------------------------------------------------------- Total equity and liabilities 2,870,062 2,766,020 2,658,001 -------------------------------------------------------------------------------- The notes to the condensed consolidated interim financial statements are an integral part of this document. Condensed consolidated interim statement of changes in equity for the six month period ended 30 June 2007 Currency Share Share Contributed translation Retained 2007 2006 Capital Premium surplus reserve Earnings Total Total (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £000 £000 £000 £000 £000 £000 £000 -------------------------------------------------------------------------------------------------------------------- Balance at 1 January 19,694 - 442,425 (40,396) 260,362 682,085 578,013 Currency translation differences - - - (7,072) - (7,072) (22,084) Net investment hedge - - - 1,857 - 1,857 - -------------------------------------------------------------------------------------------------------------------- Net income / (expense) recognised directly in equity - - - (5,215) - (5,215) (22,084) Profit for the period - - - - 80,012 80,012 47,320 -------------------------------------------------------------------------------------------------------------------- Total recognised income / (expense) for the period - - - (5,215) 80,012 74,797 25,236 Employee share options : Equity settled share-based payments - - - - 2,787 2,787 1,780 Deferred tax on shared based payments - - - - (354) (354) - Proceeds from shares issued 135 3,227 - - - 3,362 1,973 Change in own shares - - - - - - - Dividends to equity shareholders (note 12) - - (27,727) - - (27,727) (18,639) -------------------------------------------------------------------------------------------------------------------- Balance at 30 June 19,829 3,227 414,698 (45,611) 342,807 734,950 588,363 -------------------------------------------------------------------------------------------------------------------- The notes to the condensed consolidation interim financial statements are a integral part of this document. Condensed consolidated interim cash flow statement for the six month period ended 30 June 2007 6 months to 6 months to Year to 30 June 2007 30 June 2006 31 Dec 2006 Notes (unaudited) (unaudited) (audited) £000 £000 £000 -------------------------------------------------------------------------------- Profit before tax 105,562 61,349 201,062 Interest and equity dividend income (40,928) (33,339) (70,243) Net (gains)/losses on financial instruments (4,166) 4,967 (9,422) Retirement benefit contributions paid in excess of charges (349) 631 (12,876) Depreciation 2,067 1,800 3,898 Charges in respect of share based payments 2,787 1,780 5,238 Other charges 4,658 (24,618) 10,955 Changes in operational assets and liabilities: Insurance and reinsurance contracts 25,989 69,019 45,426 Financial assets 16 (256,902) 19,844 1,311 Other assets and liabilities (3,397) (20,819) (17,953) -------------------------------------------------------------------------------- Cash flows from operations (164,679) 80,614 157,396 Interest received 40,007 32,892 68,644 Equity dividends received 921 447 1,599 Interest paid (4,516) (2,409) (9,416) Current tax paid (19,199) (14,668) (36,363) -------------------------------------------------------------------------------- Net cash flows from operating activities (147,466) 96,876 181,860 Cash flows from the sale/(purchase) of property, plant and equipment (2,419) (2,534) (5,452) Cash flows from the purchase of intangible assets - - (300) -------------------------------------------------------------------------------- Net cash flows from investing activities (2,419) (2,534) (5,752) Proceeds from the issue of ordinary shares 3,362 1,973 3,217 Net cash flow from transactions in own shares - - 50 Dividends paid to Company's shareholders 12 (27,727) (18,639) (30,428) Repayments of borrowings and financial liabilities (59) (319) (14,334) -------------------------------------------------------------------------------- Net cash flows from financing activities (24,424) (16,985) (41,495) -------------------------------------------------------------------------------- Net movement in cash and cash equivalents (174,309) 77,357 134,613 -------------------------------------------------------------------------------- Cash and cash equivalents at 1 January 502,871 413,759 413,759 Net increase in cash and cash equivalents (174,309) 77,357 134,613 Effect of exchange rate fluctuations on cash and cash equivalents (7,253) (23,212) (45,501) -------------------------------------------------------------------------------- Cash and cash equivalents at end of period 16 321,309 467,904 502,871 -------------------------------------------------------------------------------- The notes to the condensed consolidated interim financial statements are an integral part of this document. Notes to the condensed consolidated interim financial statements 1 Reporting entity Hiscox Ltd (the 'Company') is a public limited company registered and domiciled in Bermuda. The condensed consolidated interim financial statements for the company as at, and for the six months ended, 30 June 2007 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interest in associates. 2 Basis of preparation These condensed consolidated interim financial statements have been prepared in accordance with the Listing Rules issued by the Financial Services Authority. The information presented herein does not include all of the disclosures typically required for full consolidated financial statements. Consequently these financial statements should be read in conjunction with the full consolidated financial statements of the Group as at, and for the year ended, 31 December 2006 which are available from the Company's registered office or at www.hiscox.com. Except where otherwise indicated, all amounts are presented in Pounds Sterling, rounded to the nearest thousand. The comparative amounts reported herein for the six months ended 30 June 2006 and year ended 31 December 2006 have been extracted from the previously published reports for each relevant period, but have been adjusted for a reclassification of certain minor overseas agency underwriting expenses and commissions from 'other expenses' and 'other revenues' to 'expenses for the acquisition of insurance contracts', and for the Group's revised presentation of segment information (note 5). The effect of the reclassification of the aforementioned expenses and commissions is to increase the previously reported 'expenses for the acquisition of insurance contracts' for the six months to 30 June 2006, and year ended 31 December 2006 by £5,404,000 and £9,948,000 respectively. Simultaneous identical reductions have been made in total to 'other expenses' and 'other revenues'. These presentational adjustments have no impact on the Group's previously reported result from operating activities, profit before tax or shareholders' equity. The directors' believe that the amended classification of these expenses and commissions provides a more appropriate presentation of their operating nature. The condensed consolidated interim financial statements for the 30 June 2007 and 30 June 2006 periods are unaudited but have been subject to a review by the independent auditors. The independent auditors have reported on the Group's full consolidated financial statements as at, and for the year ended, 31 December 2006. The report of the independent auditors was not qualified. These condensed consolidated interim financial statements were approved by the Board of Directors on 20 August 2007. 3 Accounting policies The accounting policies applied in these condensed consolidated interim financial statements are consistent with those applied by the Group in its consolidated financial statements as at, and for the year ended, 31 December 2006 which were prepared in accordance with International Financial Reporting Standards. During the current period the Group designated certain foreign currency borrowings as a hedging instrument in a net investment hedge relationship. Consequently, to the extent that the hedging relationship is effective, all gains or losses on the retranslation of the hedging instrument between the date of designation and the balance sheet date are now recognised directly within the currency translation reserve in equity. The accounting policies applied in these condensed consolidated interim financial statements are also consistent with those that the Group expects to apply for the year ending 31 December 2007. The Group has not adopted IAS 34 Interim Financial Reporting. 4 Financial risk management The Group's financial risk management objectives and policies are consistent with that disclosed in the full consolidated financial statements as at, and for the year ended, 31 December 2006. 5 Segment information The Group's segment reporting follows the organisational structure and management's internal reporting systems, which form the basis for assessing the financial performance of, and allocating resources to, each business segment. The Group has recently made minor changes to the structure of its internal organisation in a manner that now causes the composition of reportable segments to change. The main effect of this change is that the Group's central functions are now separately identified as the 'Corporate Centre' segment, with a greater proportion of central revenues and expenses now being allocated to individual operating segments where appropriate. Previously all central revenues and expenses were included with the Global Markets business within a single reportable segment. The remaining central items now reported in the new discrete Corporate Centre segment relate mainly to treasury and financing activities, and other expenses associated with oversight of the Group which are independent of individual operating units. The Group therefore now reports four primary business segments. The other impact of restructuring the reporting segments is that the Group's specie business, all of which is written in Syndicate 33, is now presented within the Global Markets segment and not within the UK and Europe segment as previously reported. The Global Markets segment also now includes all of the Group's larger technology and media (TMT) risks. In prior years, those risks underwritten by Hiscox Insurance Company Limited were reported in the UK and Europe segment. As a consequence of the change in reportable segments, the corresponding operating results and combined ratios for earlier periods presented have been restated on a comparable basis, capturing the increase in attributed central function items within individual business operating segments. The comparative amounts have also been restated to reflect the reclassification of certain agency expenses and commissions outlined at note 2 above. The Group's four primary business segments are identified as follows: - Global Markets comprises the results of Syndicate 33, excluding Syndicate 33's fine art, UK regional events coverage, non-US household business and underwriting result of Hiscox Inc. It includes the results of the larger retail TMT business written by Hiscox Insurance Company Limited. - UK and Europe comprises the results of Hiscox Insurance Company Limited, the results of Syndicate 33's fine art, UK regional events coverage and non-US household business, together with the income and expenses arising from the Group's retail agency activities in the UK and in continental Europe. It excludes the results of the larger retail TMT business written by Hiscox Insurance Company Limited. - International comprises the results of Hiscox Insurance Company (Guernsey) Limited, Hiscox Inc and Hiscox Insurance Company (Bermuda) Limited. - Corporate Centre comprises the investment return and administrative costs associated with the Company and other Group management activities. The segment results for the 6 months ended 30 June 2007 were as follows: 6 Months ended 30 June 2007(Unaudited) Global UK and Corporate Markets Europe International Centre Total £000 £000 £000 £000 £000 ------------------------------------------------------------------------------------- Gross premiums written 423,685 155,353 153,991 - 733,029 Net premiums written 288,163 134,780 124,199 - 547,142 Net premiums earned 270,367 118,946 82,539 - 471,852 ------------------------------------------------------------------------------------- Investment result 18,128 11,406 9,453 7,774 46,761 Other income 5,752 1,356 368 1,038 8,514 ------------------------------------------------------------------------------------- Net revenue 294,247 131,708 92,360 8,812 527,127 ------------------------------------------------------------------------------------- Claims and claim adjustment expenses, net of reinsurance (100,485) (58,963) (57,164) - (216,612) Expenses for the acquisition of insurance contracts (76,471) (32,324) (17,476) - (126,271) Administration expenses (16,617) (19,709) (4,248) - (40,574) Other expenses (13,165) (14,111) (1,278) (5,429) (33,983) ------------------------------------------------------------------------------------- Total expenses (206,738) (125,107) (80,166) (5,429) (417,440) ------------------------------------------------------------------------------------- Results of operating activities 87,509 6,601 12,194 3,383 109,687 Finance costs (35) - (83) (4,083) (4,201) Share of profit of associate after tax - - - 76 76 ------------------------------------------------------------------------------------- Profit before tax 87,474 6,601 12,111 (624) 105,562 ------------------------------------------------------------------------------------- 100% level net combined ratio (%) 75.9% 103.8% 95.3% - 84.8% ------------------------------------------------------------------------------------- 6 Months ended 30 June 2006(Unaudited) restated Global UK and Corporate Markets Europe International Centre Total £000 £000 £000 £000 £000 ------------------------------------------------------------------------------------- Gross premiums written 401,356 128,908 94,888 - 625,152 Net premiums written 319,846 108,508 76,349 - 504,703 Net premiums earned 265,552 105,708 30,402 - 401,662 ------------------------------------------------------------------------------------- Investment result 9,966 7,312 6,839 20,258 44,375 Other income 1,863 1,517 471 1,298 5,149 ------------------------------------------------------------------------------------- Net revenue 277,381 114,537 37,712 21,556 451,186 ------------------------------------------------------------------------------------- Claims and claim adjustment expenses, net of reinsurance (147,503) (40,774) (9,773) - (198,050) Expenses for the acquisition of insurance contracts (69,650) (32,036) (11,707) - (113,393) Administration expenses (13,752) (10,083) (3,135) - (26,970) Other expenses (24,366) (13,797) (5,253) (3,189) (46,605) ------------------------------------------------------------------------------------- Total expenses (255,271) (96,690) (29,868) (3,189) (385,018) ------------------------------------------------------------------------------------- Results of operating activities 22,110 17,847 7,844 18,367 66,168 Finance costs (18) - - (4,806) (4,824) Share of profit of associate after tax - - - 5 5 ------------------------------------------------------------------------------------- Profit before tax 22,092 17,847 7,844 13,566 61,349 ------------------------------------------------------------------------------------- 100% level net combined ratio (%) 95.5% 90.5% 98.5% - 94.6% ------------------------------------------------------------------------------------- Year ended 31 December 2006 (Audited) restated Global UK and Corporate Markets Europe International Centre Total £000 £000 £000 £000 £000 ------------------------------------------------------------------------------------- Gross premiums written 709,080 265,778 151,306 - 1,126,164 Net premiums written 603,562 234,414 137,421 - 975,397 Net premiums earned 567,490 227,865 93,473 - 888,828 ------------------------------------------------------------------------------------- Investment result 33,123 19,327 16,449 36,651 105,550 Other income 6,878 4,931 421 3,462 15,692 ------------------------------------------------------------------------------------- Net revenue 607,491 252,123 110,343 40,113 1,010,070 ------------------------------------------------------------------------------------- Claims and claim adjustment expenses, net of reinsurance (271,120) (95,317) (15,904) - (382,341) Expenses for the acquisition of insurance contracts (145,458) (62,861) (27,478) - (235,797) Administration expenses (37,001) (31,360) (8,172) - (76,533) Other expenses (62,933) (29,473) (6,878) (5,659) (104,943) ------------------------------------------------------------------------------------- Total expenses (516,512) (219,011) (58,432) (5,659) (799,614) ------------------------------------------------------------------------------------- Results of operating activities 90,979 33,112 51,911 34,454 210,456 Finance costs (312) - (36) (9,056) (9,404) Share of profit of associate after tax - - - 10 10 ------------------------------------------------------------------------------------- Profit before tax 90,667 33,112 51,875 25,408 201,062 ------------------------------------------------------------------------------------- 100% level net combined ratio (%) 90.1% 96.2% 62.7% - 89.1% ------------------------------------------------------------------------------------- 6 Return on equity 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000 -------------------------------------------------------------------------------- Profit for the period 80,012 47,320 163,846 Opening shareholders' equity 682,085 578,013 578,013 Adjusted for the time weighted impact of: - Distribution and other movements in capital 268 (205) (10,149) -------------------------------------------------------------------------------- Adjusted opening shareholders' equity 682,353 577,808 567,864 -------------------------------------------------------------------------------- Annualised return on equity (%) 24.8% 17.0% 28.9% -------------------------------------------------------------------------------- 7 Investment result i) Analysis of investment result 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000 -------------------------------------------------------------------------------- Investment income including interest receivable 42,595 35,128 75,526 Net realised gains/(losses) on investments at fair value through profit or loss 11 (7,185) (5,731) Net fair value gains/(losses) on investments at fair value through profit or loss 5,265 (795) 8,721 -------------------------------------------------------------------------------- Return on investments 47,871 27,148 78,516 Net realised (losses)/gains on derivative instruments (1,110) 18,091 - Net fair value (losses)/gains on derivative instruments - (864) 27,034 -------------------------------------------------------------------------------- Total returns on financial assets 46,761 44,375 105,550 -------------------------------------------------------------------------------- Investment expenses are presented within other operating expenses (note 8). ii) Annualised investment yields 6 months to 6 months to Year to 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited) Return Yield Return Yield Return Yield £000 % £000 % £000 % -------------------------------------------------------------------------------- Debt and fixed income securities at fair value through profit or loss 22,201 4.0 13,852 2.8 42,095 4.0 Equities and shares in unit trusts at fair value 10,516 13.5 2,702 4.4 13,517 10.6 through profit or loss Deposits with credit institutions/cash and cash equivalents 15,154 5.3 10,594 4.0 22,904 4.6 -------------------------------------------------------------------------------- 47,871 5.3 27,148 3.3 78,516 4.6 -------------------------------------------------------------------------------- 8 Other income and expenses 6 months to Year to 31 6 months to 30 June 2006 Dec 2006 30 June 2007 (unaudited) (audited) (unaudited) restated restated £000 £000 £000 -------------------------------------------------------------------------------- Agency related income 853 1,448 4,861 Profit commission 5,225 1,130 5,332 Other income 2,436 2,571 5,499 -------------------------------------------------------------------------------- Other income 8,514 5,149 15,692 -------------------------------------------------------------------------------- Managing agency expenses 5,505 4,235 17,258 Underwriting agency expenses 9,774 12,172 22,033 Connect agency expenses 6,717 6,360 12,547 Exchange losses 7,980 20,522 38,354 Investment expenses 606 640 1,306 Other Group expenses including depreciation and amortisation 3,401 2,676 13,445 -------------------------------------------------------------------------------- Other expenses 33,983 46,605 104,943 -------------------------------------------------------------------------------- 9 Finance costs 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000 -------------------------------------------------------------------------------- Interest and expenses associated with bank borrowings and letters of credit 4,166 4,806 9,363 Interest charges arising on finance leases 35 18 41 -------------------------------------------------------------------------------- 4,201 4,824 9,404 -------------------------------------------------------------------------------- 10 Claims and claim adjustment expenses 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000 -------------------------------------------------------------------------------- Gross insurance claims and claim adjustment expenses (267,175) (221,005) (395,497) Insurance claims recovered from reinsurers 50,563 22,955 13,156 -------------------------------------------------------------------------------- Net insurance claims and claim adjustment expenses (216,612) (198,050) (382,341) -------------------------------------------------------------------------------- 11 Earnings per share Basic Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by the Group and held as own shares. 6 months to 6 months to Year to 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited) -------------------------------------------------------------------------------- Profit attributable to the Company's equity holders (£000) 80,012 47,320 163,846 Weighted average number of ordinary shares (thousands) 394,915 392,125 392,558 -------------------------------------------------------------------------------- Basic earnings per share (pence per share) 20.3p 12.1p 41.7p -------------------------------------------------------------------------------- Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares, share options. For the share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. Year to 6 months to 6 months to 31 Dec 30 June 2007 30 June 2006 2006 (unaudited) (unaudited) (audited) -------------------------------------------------------------------------------- Profit attributable to the Company's equity holders (£000) 80,012 47,320 163,846 -------------------------------------------------------------------------------- Weighted average number of ordinary shares in issue (thousands) 394,915 392,125 392,558 Adjustment for share options (thousands) 13,868 6,772 12,449 -------------------------------------------------------------------------------- Weighted average number of ordinary shares for diluted earnings per share (thousands) 408,783 398,897 405,007 -------------------------------------------------------------------------------- Diluted earnings per share (pence per share) 19.6p 11.9p 40.5p -------------------------------------------------------------------------------- Diluted earnings per share has been calculated after taking account of outstanding options under both employee share schemes and also SAYE schemes. 12 Dividends 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000 -------------------------------------------------------------------------------- Final dividend for the year ended: - 31 December 2006 of 7.0p (net) per share 27,727 - - - 31 December 2005 of 4.75p (net) per share - 18,639 18,639 Interim dividend for the year ended: - 31 December 2006 of 3.0p (net) per share - - 11,789 -------------------------------------------------------------------------------- 27,727 18,639 30,428 -------------------------------------------------------------------------------- An interim dividend of 4.00p (net) per ordinary share has been declared payable on 1st October 2007 to shareholders registered on 31st August 2007 in respect of the six months to 30 June 2007 (30 June 2006: 3.0p (net) per ordinary share). The dividend was approved by the Board on 16 August 2007 and accordingly has not been included as a distribution or liability in this interim consolidated financial information in accordance with IAS 10 Events after the Balance Sheet Date. 13 Financial assets and liabilities i) Analysis of financial assets at fair value through income 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000 -------------------------------------------------------------------------------- Debt and fixed income securities 1,194,332 1,010,472 1,043,669 Equities and shares in unit trusts 183,886 131,515 141,841 Deposits with credit institutions 123,682 67,967 54,715 -------------------------------------------------------------------------------- Total investments 1,501,900 1,209,954 1,240,225 Derivative financial assets - 589 1,685 -------------------------------------------------------------------------------- 1,501,900 1,210,543 1,241,910 -------------------------------------------------------------------------------- ii) Analysis of financial liabilities at fair value through income 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000 -------------------------------------------------------------------------------- Short-term borrowing from credit institutions 91,000 112,378 92,852 Derivative financial liabilities - 2,686 1,077 -------------------------------------------------------------------------------- 91,000 115,064 93,929 -------------------------------------------------------------------------------- The face value of the Group's short term borrowings from credit institutions at 30 June 2007 was £91,000,000 (31 December 2006: £92,852,000; 30 June 2006: £112,432,000). The Group's borrowings at 31 December 2006 and 30 June 2007 served as a partial hedge of its net investment in Hiscox Insurance Company (Bermuda) Limited. The Group designated the short term borrowings from credit institutions for net investment hedge accounting, as permitted under IAS 39 Financial Instruments: Recognition and Measurement during the current period. Consequently, a foreign exchange gain of £1,857,000 arising during 2007 has been recognised in the currency translation reserve. iii) Investment and cash allocation 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited) £000 % £000 % £000 % -------------------------------------------------------------------------------- Debt and fixed income securities 1,194,332 65.5 1,010,472 60.3 1,043,669 59.9 Equities and shares in unit trusts 183,886 10.1 131,515 7.8 141,841 8.1 Deposits with credit institutions/cash and cash equivalents 444,991 24.4 535,871 31.9 557,586 32.0 -------------------------------------------------------------------------------- 1,823,209 1,677,858 1,743,096 -------------------------------------------------------------------------------- iv) Investment and cash allocation by currency 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited) % % % -------------------------------------------------------------------------------- Sterling 28.7 34.6 31.4 Dollars 59.6 52.9 55.7 Euro and other currencies 11.7 12.5 12.9 -------------------------------------------------------------------------------- 14 Net asset value per share 30 June 2007 30 June 2006 31 Dec 2006 Net asset NAV Net asset NAV Net asset NAV value per share value per share value per share £000 pence £000 pence £000 pence -------------------------------------------------------------------------------- Net asset value 734,950 185.4 588,363 149.8 682,085 173.2 -------------------------------------------------------------------------------- Net tangible asset value 701,828 177.1 555,347 141.4 648,873 164.8 -------------------------------------------------------------------------------- The net asset value per share is based on 396,387,797 shares (30 June 2006: 392,794,573; 31 December 2006: 393,725,396), being the adjusted number of shares in issue at each reference date. 15 Impact of foreign exchange related items 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000 -------------------------------------------------------------------------------- Income statement Derivative gains/(losses) on foreign exchange hedge contracts included within investment return (1,110) 17,172 27,034 -------------------------------------------------------------------------------- Unearned premium and deferred acquisition costs adjustment 4,356 (15,436) (25,511) Foreign exchange gains/(losses) on borrowings for economic hedging of Hiscox Insurance Company (Bermuda) Limited - 8,498 14,121 Other foreign exchange gains/(losses) (12,336) (13,584) (26,964) -------------------------------------------------------------------------------- Impact of foreign exchange related items on income statement (9,090) (3,350) (11,320) -------------------------------------------------------------------------------- Balance sheet Foreign exchange differences recognised directly in equity (5,215) (22,084) (41,218) -------------------------------------------------------------------------------- Overall impact of foreign exchange related items on net assets (14,305) (25,434) (52,538) -------------------------------------------------------------------------------- Profit before tax Profit before tax 105,562 61,349 201,062 Unearned premium and deferred acquisition costs adjustment (4,356) 15,436 25,511 -------------------------------------------------------------------------------- Adjusted profit before tax 101,206 76,785 226,573 -------------------------------------------------------------------------------- 100% level Combined ratio 84.8% 94.6% 89.1% 100% level Combined ratio (after unearned premium and deferred acquisition costs adjustment) 85.6% 90.8% 86.3% -------------------------------------------------------------------------------- 16 Cash and cash equivalents The purchase, maturity and disposal of financial assets is part of the Group's insurance activities and is therefore classified as an operating cash flow. The purchase, maturity and disposal of derivative contracts is also classified as an operating cash flow. Included within cash and cash equivalents held by the Group are balances totaling £51,409,000 (30 June 2006: £43,718,000; 31 December 2006: £41,304,000) not available for use by the Group which are held within the Lloyd's Syndicate. This information is provided by RNS The company news service from the London Stock Exchange R KDLFFDVBLBBQ

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