The division saw a change of leadership during the year. Richard Watson got the year off to a great start before moving to the USA to head up our business there. Russell Merrett, who led our reinsurance business for the last four years, was promoted to lead the division. He has settled into the role well. We took advantage of this management change to focus the division on serving those brokers – large and small – who bring business to London, instead of being distracted by opportunities in other regions. London has recently experienced a renaissance as an insurance market and we see plenty of opportunities to grow our business with London brokers in the years ahead.
Hiscox Europe: 2009 was a disappointing year for Europe, in spite of premium growth of 6.8% to €131.6 million (2008: €123.2 million). Its underwriting performance in 2009 was significantly worse than 2008, due to a series of unconnected large losses. In 2009, after a few poor years, our German operation succeeded in making a profit through a rigorous re-underwriting of its high net worth book and new focus on expanding in commercial lines.
We have also worked hard to develop new products for both the surplus lines and the admitted market. In the surplus lines market there is great flexibility in pricing and wording. In the admitted market, advance approval of rates, forms and underwriting guidelines is required in each US state before launching a new product. Gaining approval has taken far longer than we had anticipated, but we are making steady progress.
Post-tax return on equity increased to 30.1% (2008: 9.2%). Robust underwriting profits combined with a strong investment result assisted in growing the net asset value per share by 15.9% to 299.2p (2008: 258.1p). Gross premiums written increased by 25.1% reflecting an increase in rates for reinsurance and aided by the strong US Dollar. Profit before tax increased to £320.6 million (2008: £105.2 million) resulting in an increase in earnings per share to 75.2p (2008: 18.8p). Total dividend per share for the year increased by 17.6% to 15p (2008: 12.75p).
Profit before tax increased significantly to £124.2 million (2008: £4.3 million).
Training and development Hiscox is committed to training and developing its employees to help them maximise their potential. Each permanent member of staff is provided with a tailored personal development programme. Training and development needs are reviewed twice a year, along with performance, against clearly set objectives.
The Committee focuses on: the overall remuneration strategy, policy and cost for the Group; the determination of levels and make-up of remuneration for the four Executive Directors; and the award of sizable bonuses to individuals.
Major interests in shares The Company has been notified of the following shareholdings of 5% or more in the ordinary shares of the Company as at 1 March 2010: Number of shares % of total
In addition to our audit of the consolidated financial statements, the Directors have engaged us to review their Corporate governance statement as if the Company were required to comply with the Listing Rules of the Financial Services Authority in relation to those matters. We review whether the Corporate governance statement reflects the Company’s compliance with the nine provisions of the 2006 Combined Code specified for our review by those rules, and we report if it does not. We are not required by the terms of our engagement to consider whether the Board’s statements on internal control cover all risks and controls, or to form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures.
Total recognised comprehensive income/(expense) for the year (all attributable to owners of the Company) – – – 150,582 70,808 221,390 Employee share options: Equity settled share based payments 25 – – – – 5,269 5,269 Excess tax benefit on share based payments – – – – 883 883 Proceeds from shares issued 25 169 4,463 – – – 4,632
Consolidated statement of cash flows For the year ended 31December 2009
The amended standard permitted an entity to reclassify certain financial assets out of ‘Held-for-Trading’ if they were no longer held for the purpose of being sold, or repurchased, in the near term. The standard also allowed for those financial assets which are not eligible for classification as loans and receivables to be transferred from ‘Held-for-Trading’ to ‘Available-forSale ’ or ‘Held-to-Maturity’ only in exceptional circumstances. IFRS 7 was amended to require disclosure of information for any reclassifications of assets described above to include amounts and any gains or losses.
(b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the retranslation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as IAS 39 effective net investment hedges or when the underlying balance is deemed to form part of the Group’s net investment in a subsidiary operation and is unlikely to be settled in the forseeable future.
The Group also mitigates credit counterparty risk by concentrating debt and fixed income investments in high quality instruments, including a particular emphasis on Government bonds issued mainly by European Union and North American countries.
3 Management of risk continued 3.2 Financial risk continued (d) Liquidity risk continued
Between one and two years 710,347 3,517 5,836 – – 719,700 593,371 Between two and five years 668,602 – 3,596 – – 672,198 669,819 Over five years 359,094 – – – – 359,094 407,273
Debt and fixed income securities 80,616 8.0 19,212 5.9 48,887 9.2 4,239 3.8 152,954 7.7 Equities and shares in unit trusts – – 14,769 28.5 7,668 17.5 3,923 12.3 26,360 20.7 Deposits with credit institutions/
Interest and expenses associated with bank borrowings 2,493 3,201 Interest and charges associated with Letters of Credit 36 2,780 1,922 Interest charges arising on finance leases 37 20 35 12 Auditors’ remuneration Fees payable to the Group’s main external auditors, KPMG, its member firms and its associates (exclusive of VAT ) include the following amounts recorded in the consolidated income statement: Fees payable to the Company’s auditors for the audit of the Group’s consolidated financial statements 188 262
Consolidated Consolidated other Total income comprehensive impact on statement income equity
Goodwill is allocated to the Group’s cash generating units (CGUs) identified according to country of operation and business segment. Goodwill is considered to have an indefinite life and as such is tested for impairment annually on a value in use basis similar to that described below for the Group's intangible asset relating to Syndicate capacity. Accumulated amortisation and impairment of goodwill relates to the amortisation charged prior to the Group’s adoption of IFRS.
Financial assets Debt and fixed income securities 605,222 1,323,377 – 1,928,599 Equities and shares in unit trusts 2,043 122,282 539 124,864 Deposits with credit institutions 22,392 – 5,877 28,269 Catastrophe bonds – – – – Derivative financial instruments – – 40 40
Included within Group retained earnings is an amount of £27,068,000 (2008: £23,932,000), which is not distributable and is held to meet solvency capital requirements to maintain an equalisation provision. The amounts in the equalisation provision are realised when particular entities in the Group have suffered insurance losses in excess of levels set out in the relevant solvency capital regulations. In addition, the Group maintains certain levels of capital to meet minimum solvency requirements for regulatory and rating purposes.
Obligations under finance leases 37 393 439 Share of Syndicate’s other creditors’ balances 316 2,714 Social security and other taxes payable 15,424 10,919 Other creditors 20,448 9,493
As the fair value of scheme obligations exceeds the present value of the scheme assets, the scheme reports a deficit. The Group recognises actuarial gains and losses using the corridor method as defined in the Group’s accounting policy. As a result of a court ruling during the year, past service costs of £11.8 million have been recognised in respect of the equalisation of the scheme obligation for the period between May 1992 and May 1997. The requirement on the scheme to equalise is based on the Barber case in the early 1990s which established that it was unlawful under EU law for retirement ages for men and women to differ. The past service cost has been recognised immediately and has been included within other creditors as payment in full has been agreed by the Group.
36 Contingencies and guarantees The Group’s subsidiaries are like most other insurers, continuously involved in legal proceedings, claims and litigation in the normal course of business.
37 Capital and lease commitments Capital commitments The Group’s capital expenditure contracted for at the balance sheet date but not yet incurred for property, plant and equipment was