We continue to focus on two classes of business, one commercial and one personal. First, the insurance of professionals, not only of their liability for mistakes made (Professional Indemnity) but also of other liabilities (such as Employment Liability), and property risks associated with their businesses (such as office contents). Second, the personal insurances of High Net Worth individuals and families.
– Lloyd’s Business This business consists of our share of the profits of Syndicate 33, fees and profit commissions from third party capital and the return on the capital which supports the business. The progress in performance year-on-year has been exceptional, with operating profits almost trebling to £61.5 million (2002: £21.3 million). This division achieved a combined ratio of 85.8% (2002: 94.1%). These results represent a significant outperformance of the Lloyd’s market as a whole.
Outlook 2003 was an excellent year for Hiscox. Looking forward, we expect our London Market divisions to continue to generate good profits for the Group. The steady growth of the Retail divisions will enable us to sustain our profitability.
Robert Ralph Scrymgeour Hiscox Chairman (Aged 61) Robert Hiscox joined the Group in 1965. He was Deputy Chairman of Lloyd’s between
The Combined Code Hiscox is committed to high standards of corporate governance, and for the year ended 31 December 2003, and the period up to the date of approving the accounts, the Group has applied the principles and complied with the provisions of “The Combined Code on Corporate Governance” issued in 1998 and “Internal Control: Guidance for Directors on The Combined Code”.
Hiscox’s culture of open communication and delegated responsibility allows this framework of embedded risk management to function well throughout the organisation.
Bonuses The Remuneration Committee believes that a significant portion of the total remuneration should be attained through an incentive bonus which links rewards directly with performance. A bonus pool is created when the business profits of the Group, based on the year’s accounting pre-tax operating result, exceed a return on equity linked to the longer term rate of return. The bonus pool is limited to a percentage of profits above that return. Similarly the bonus pools allocated to each major business division are calculated based on the business profits generated by that division. This pool is utilised to award annual bonuses to all staff including executive directors based upon the performance of their business area and upon their individual performance. In this way, the bonus scheme aligns the interests of employees with shareholders. The actual amount to be paid to executive directors is determined by the Remuneration Committee based on the performance of the Group and an assessment of individual performance. The Remuneration Committee also reviews and confirms the recommendations of management regarding the award of bonuses to senior managers and staff.
The Company therefore was delighted to once again appear in the Sunday Times 100 Best Companies To Work For survey. In 2003, Hiscox was voted tenth best company to work for in the UK and despite the increased competition in the 2004 survey, we were pleased to again feature near the top of the list at number eleven. In both the 2004 and 2003 surveys Hiscox was voted the number one employer in the insurance sector. The results of this survey were derived from both the views of employees and from a review of the policies and processes of the companies surveyed.
FTSE4Good UK Index. The constituents of this index are companies from the FTSE All-Share Index which have passed the FTSE4Good selection criteria as it pertains to environmental sustainability, relationships with stakeholders and upholding and supporting human rights.
Annual General Meeting The notice of the Annual General Meeting is contained on page 59. In addition to the ordinary business, the following items of special business will be considered at the meeting.
Resolution 12, which will be proposed as a special resolution, seeks to renew the authority conferred on the Board to issue equity securities of the Company for cash without application of the pre-emption rights provided by Section 89 of the Companies Act 1985. Other than in connection with a rights or scrip dividend issue, the authority contained in this resolution will be limited to an aggregate nominal value of £728,275.90, representing 5.0% of the issued ordinary share capital as at 22 March 2004. This authority will terminate no later than fifteen months after the date of the Annual General Meeting.
Net investment of cash flows 10,360 123,771 *Restated for the adoption of UITFs 37 and 38. See note 5.
The Bornhuetter-Ferguson method is predominantly employed to produce ultimate loss estimates when there is little development data available e.g. in relation to more recent underwriting years or years of account. The Bornhuetter-Ferguson method is based on the Chain Ladder approach but utilises estimated ultimate loss ratios. In exceptional cases the required provision is calculated with reference to the actual exposures.
balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.
The standards and proposed standards issued as exposure drafts such as ED 5 Insurance Contracts are themselves evolving and undergoing improvements. ED 5 does currently propose fundamental changes to the recognition of profit on insurance contracts. These changes are not expected to require adoption until 2007 at the earliest. The Group’s IFRS working party, which includes representation from its external auditors, is monitoring the ongoing developments in IFRS and determining and implementing appropriate actions.
Equalisation provisions are established in accordance with the requirements of Chapter 6 of the Interim Prudential Sourcebook for Insurers. These provisions, which are in addition to the provisions required to meet the anticipated ultimate cost of settlement of outstanding claims at the balance sheet date, are required by Schedule 9A to the Companies Act 1985 to be included within technical provisions at the balance sheet date notwithstanding that they do not represent liabilities at the balance sheet date. This has had the effect of reducing shareholders’ funds by £16,438,000 (2002: £13,932,000). The movement in equalisation provision during the year resulted in a decrease in the technical account and the Group profit before taxation of £2,506,000 (2002: £2,703,000).
11 Investment return continued c) Comparison of longer term investment return with actual returns
28 Directors’ emoluments continued b) Pension entitlements The pension entitlements of the directors in relation to the Hiscox defined benefit scheme were as follows: Increase in Total accrued Transfer value of the Transfer value of Transfer value of Increase in transfer accrued pension pension at increase in accrued accrued pension at accrued pension at value of accrued during the year 31 Dec 2003 pension 1 Jan 2003 31 Dec 2003 benefit during the year
At 1 January (33,725) Current service cost (2,348) Contributions 9,840 Past service costs – Net finance income/(costs) (1,433) Actuarial gain/(loss) (5,668)
Servicing of finance Interest paid (2,194) (1,644) Interest paid element of finance leases (39) (65)
*These balances include amounts relating to syndicate participations, but exclude participations in associated undertakings of £519,000 (2002: £368,000).