Hiscox London Market profit of £121.9 million (2011: £57.6 million) with contributions across all lines
Hiscox was awarded ‘Best small business insurer’ as voted for by Start your Business magazine. As well as the Customer Care award at The British Insurance Awards 2012, for putting our customers at the heart of our business and moving against the tide by bringing our direct household claims back in-house.
The business As ever, Bronek will comment in detail in his following report on the various business activities. I would like to comment on the current state of the business that I have helped develop over the last 48 years and its future opportunities.
Results The result for the year ending 31 December 2012 was a profit before tax of £217.1 million (2011: £17.3 million) on a gross written premium income of £1,565.8 million (2011: £1,449.2 million). The combined ratio was 85.5% (2011: 99.5%). Earnings per share were 53.1p (2011: 5.5p) and the net assets per share rose to 349.7p (2011: 323.5p). The return on equity was 16.9% (2011: 1.7%).
Next we set up our Guernsey operation which has been a huge success and will remain a hub for some of our accounts.
We have made a very good profit despite the second costliest storm on record and a challenging investment market
Operations and IT The key ingredients for a successful insurer are capital, good people and effective IT. IT is a significant expenditure for the Group and is likely to increase in the short- to mediumterm with the objective of improving distribution and service. In 2012 we developed a Group IT strategy, providing a clear roadmap for activity over the next five years.
Capital management We announced today a special distribution of approximately £150 million, equal to 38p per share, which is on top of the final dividend equivalent of 12p. This takes our total capital back to approximately the level at the start of 2012.
The proposed return of capital will leave the Group with a comfortable surplus above Hiscox’s internal projections of both the BSCR and GSSA for the 2013 business plan.
As a result, profit before tax for the year was slightly down at £49.1 million (2011: £51.5 million).
Hiscox Bermuda received the Greenrock Green Workplace award for the second year in a row. Greenrock Green Workplace Awards (GWAs) is an environmental competition bringing together businesses of all sizes that share the same vision of a greener workplace.
Dealing with business partners We regard insurance brokers as important stakeholders in our business, and we endeavour to have good relationships with them to create a competitive advantage in the marketplace. Clear communication is key and Hiscox regularly updates partner brokers on new developments at Hiscox and in the insurance industry. Hiscox UK has instigated a ‘superb service’ ethos, developing a greater understanding of what works for individual brokers and thereby building strong relationships. Hiscox UK and Hiscox London Market have Chartered Insurer status from The Chartered Insurance Institute, recognising the professionalism and expertise of staff and making it easier to build relationships with like-minded business partners.
Syndicate 3624 Syndicate 3624 is a wholly owned Syndicate which began underwriting for the 2009 year of account with an underwriting capacity of £150 million. The Syndicate has a diversified portfolio of worldwide risks including E&O, property, construction, technology and media, healthcare, aviation and events. The diversification of the Syndicate from both an exposure and geographical perspective means the Syndicate is well balanced to grow in a controlled way. The Syndicate is primarily exposed to short-tail liability risks. Total underwriting capacity of Syndicate 3624 remained flat at £250 million for the 2013 year of account.
Insurance carriers Hiscox Ltd Report and Accounts 2012 31 4% CAD
Hiscox Guernsey has an A.M. Best rating of A (Excellent) and an A+ (Strong) rating from Fitch. At the end of 2012, net assets exceeded $12 million (2011: $11 million).
2% Belgium 3% Other Europe 4% Netherlands 8% Germany 12% France 71% UK
The Committee also has a role to consider succession planning for Executive Directors and senior managers; and has a particular remit to make recommendations on succession planning for the Chairman and the Chief Executive. When considering candidates for Board roles, the Committee will ensure that an appropriate process is followed to ensure that an objective review of the skills, background and time available is undertaken. The Committee will take external advice as appropriate.
In July 2012 the Remuneration and Nomination Committee became aware that Caroline Foulger was potentially available as a Non Executive Director and it was felt that she offered a rare combination of qualities, having been a partner in PricewaterhouseCoopers (PwC) for ten years and head of PwC’s insurance and reinsurance practice in Bermuda. Following an evaluation of the balance of skills, experience, independence and knowledge on the Board it was concluded that her qualities would be complementary. Interviews were conducted by the Chairman, the Chairman of the Remuneration and Nomination Committee, the Chief Executive, the Chief Financial Officer, the Senior Independent Director and the Group Human Resources Director. It was concluded that the Company’s interests would be served on this occasion by moving swiftly, and following nomination by the Committee, the Board approved the appointment with effect from 1 January 2013. Consequently no search firm was retained, nor was the position advertised.
The Company commissions independent research on feedback from shareholders and analysts on a regular basis following the Company’s results announcements. This research, together with the analysts’ research notes, is copied to the Non Executive Directors in full. The Chairman attends a number of meetings with shareholders as well as speaking at the analysts’ presentations. In addition, any specific items covered in letters received from major shareholders are reported to the Board. Major shareholders are invited to request meetings with the Senior Independent Director and/or the other Non Executive Directors. An alert service is available on www.hiscox.com to notify any stakeholder of new stock exchange announcements.
In addition to the role changes described above, the Committee was also aware that the size and complexity of the Hiscox Group
Directors’ report The Directors have pleasure in submitting their Annual Report and consolidated financial statements for the year ended 31 December 2012.
We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements and the part of the Directors’ remuneration report to be audited are free from material misstatement.
Consolidated statement of comprehensive income For the year ended 31 December 2012, after tax
Cash flows from the sale and purchase of associates 16 (3,104) 729 Cash flows from the purchase of property, plant and equipment (3,103) (2,561) Cash flows from the purchase of intangible assets (7,505) (9,992)
IFRS 9 (2010): Financial Instruments: Classification and Measurement is due to be effective from 1 January 2015. Under the standard, a financial asset is measured at amortised cost if it is held within a business model whose objective is to hold assets to collect contractual cash flows and its cash flows are solely payments of principal and interest. All other financial assets are measured at fair value, with changes in fair value recognised in profit or loss, ‘FVTPL’, except for some equity investments for which changes in fair value are recognised in other comprehensive income.
2.22 Use of critical estimates, judgements and assumptions The preparation of financial statements requires the use of significant estimates, judgements and assumptions. The Directors consider the accounting policies for determining insurance liabilities, the valuation of investments, the valuation of retirement benefit scheme obligations and the determination of deferred tax assets and liabilities as being most critical to an understanding of the Group’s result and position.
2.16 Financial liabilities All borrowings drawn are measured at amortised cost at each balance sheet date using the effective interest method. Any difference between the remeasured amortised cost carrying amount and the ultimate redemption amount is recognised in the income statement over the period of the borrowings.
2.17 Net investment hedge accounting In order to qualify for hedge accounting, the Group is required to document in advance the relationship between the item being hedged and the hedging instrument. The Group is also required to document and demonstrate an assessment of the relationship between the hedged item and the hedging instrument, which shows that the hedge will be highly effective on an on-going basis. This effectiveness testing is reperformed at each period end to ensure that the hedge remains highly effective.
Details of all foreign currency derivative contracts entered into with external parties are given in note 21. All foreign currency derivative transactions with external parties are managed centrally. Included in the tables below are net non-monetary liabilities of £181 million (2011: £169 million) which are denominated in foreign currencies.
Value in use is considered to be the best indication of the recoverable amount for goodwill. Value in use calculations are performed using cash flow projections based on financial forecasts covering a five-year period. A discount factor of 6.7% (2011: 4.8%) has been applied to the projections to determine the net present value. The outcome of the value in use calculation is measured against the carrying value of the asset and, where the carrying value is in excess of the value in use, the asset is written down to this amount.
At 31 December 2012 there were £13,505,000 of assets under development on which no amortisation has been charged (2011: £8,873,000).
Balance at 1 January 10,626 – – – 10,626 Total gains or losses through profit or loss* 2,587 – – – 2,587
The weighted average fair value of each share option granted during the year was 93.4p (2011: 89.9p). The weighted average fair value of each performance share plan award granted during the year was 414.0p (2011: 397.0p).
Recoverable from reinsurers Claims reported and claim adjustment expenses 192,311 187,973 Claims incurred but not reported 261,128 224,855 Unearned premiums 86,950 79,687
The gross amount recognised in the Group balance sheet in respect of the defined benefit scheme is determined as follows: Present value of scheme obligations 173,420 155,685 Fair value of scheme assets (156,513) (140,517)