Hiscox similarly researches deeply the same facts as are available to all, but we aim to bring original thought to the assessment of risk.
It is pleasing to report another solid profit (in fact a record operating profit) despite an unusually turbulent year of natural catastrophes. It increases the net assets behind the shares and enables us to increase the dividend. We remain on course in our determination to build a highly respected, pre-eminent specialist insurance group, but the upward path of profits and top line growth will not always be smooth given the nature of the insurance business. We can, however, hope to increase the dividend steadily to reward long-term holders of our shares.
In early 2005 we purchased Insurex Expo-Sure, a UK-based underwriting agency which provides insurance for events, conferences and exhibitions. The acquisition builds upon an existing long-term relationship with Insurex, and has much potential for future growth. We plan to use our regional and European offices as a distribution network for smaller risks, and our large business team in London with their extensive experience of insuring international events to underwrite larger risks.
London Market This division underwrites marine hull and liability, offshore energy, terrorism, international professional indemnity and political risks. The teams within this division continue to adapt to market changes in their individual areas. Our terrorism team is a market leader, with the ability to underwrite significant risks from around the world, and an e-commerce platform which allows us to underwrite smaller risks on a distributed basis. In the marine hull and liability area, rates remain reasonable, although we are seeing some evidence of irrational behaviour in some international markets. The marine account benefited from the acquisition of renewal rights for business placed with Marlborough Underwriting Agency. This allowed us to renew £11 million of business on good terms. The offshore energy and energy liability team has performed well in 2004. Despite the impact of Hurricane Ivan which caused one of the biggest losses in the sector on record, they have delivered a small overall profit. This result reflects skill in creating a balanced book and discipline in the face of pricing pressure.
Hiscox Insurance Company which comprises the UK and European retail businesses, achieved gross written premium of £231.4 million (2003: £218.7 million) and an operating profit of £19.6 million (2003: £14.5 million). Its combined ratio was 92.6 per cent (2003: 93.6 per cent).
The combined ratio was 92.9 per cent (2003: 85.8 per cent).
We do not expect our Lloyd’s business to grow in aggregate over the short-term and, as announced, we have planned for a capacity of £775 million in 2005 (2004: £846 million). However, Hiscox plc will benefit from the sustained strong rating environment and from its increased ownership of Syndicate 33. During the auction season we increased our ownership of Syndicate 33’s 2005 capacity to 71 per cent (2004: 65 per cent). In the medium-term, we expect our Lloyd’s business to benefit once we have established the US office, as we plan initially to use Lloyd’s security for this operation.
International Financial Reporting Standards In common with all listed companies within the European Union, the Hiscox plc consolidated accounts will be prepared in accordance with International Financial Reporting Standards (IFRS), with effect from the 2005 financial year.
Outlook In the short-term, we expect our Lloyd’s business to reduce as we retain a focus on disciplined and profitable underwriting. Growth will be achieved through developing our retail businesses where there is strong appetite for our specialist products and through increased ownership of the syndicate’s capacity.
Senior Independent Director Chairman of Audit Committee (Aged 71) Stephen Hall was a partner in Ernst & Young from 1962 to 1993 and acted as Director of Finance at Lloyd’s from 1993 to 1994. He joined the Group on 24 August 1995.
Chairman of Remuneration and Conflicts Committees (Aged 63) Anthony Howland Jackson was previously Chairman of Bain Hogg plc and Deputy Chairman of Aon UK Holdings Limited. He was Chairman of The General Insurance Standards Council until 3 January 2005. He joined the Group on 8 May 1997.
The Board meets at least four times a year and operates within established terms of reference. It is supplied with appropriate and timely information to enable it to review business strategy, trading performance, business risks and opportunities.
The main elements in the evaluation process were: – For executives, excluding the
This report sets out the remuneration policies for the Group’s senior executives, including the executive directors, for the next and future financial years. It should be read in conjunction with the details of directors’ remuneration on pages 47 to 51 which form the audited part of this Remuneration Report. The members of the Remuneration Committee are identified on page 15.
The Remuneration Committee will review the ROE target attaching to grants on an annual basis in light of the prevailing bond yields and make adjustments to the target, provided that in the opinion of the Remuneration Committee the adjusted target shall be no easier to satisfy than the original target when imposed and provided that shareholders will be consulted in advance in respect of any material change.
– Dividends are recognised on the date they are declared i.e. the final dividend for 2003 will not be included in the opening balance sheet position (IAS10 ‘Events after the Balance Sheet date’).
Allocated investment return transferred to the technical account 8(a), 8(d) (39,799) (30,583)
Investment return on syndicate funds: Investment income 15,204 12,656 Realised gains/(losses) on investments (4,974) 974
Longer term investment return credited to operating profit/(loss) and to the general business technical account 132,809 106,651 Actual investment return included in profit/(loss) on ordinary activities in the non-technical account 115,330 92,979
Notes to the Accounts continued 8 Investment return continued (e) Impact of a 1% change in the longer term rates of investment return on operating profit The impact of a 1% change in the longer term rates of investment return for each category of asset by segment on operating profit is: Funds at Lloyd’s and other Share of Insurance 2004
20 Other creditors including taxation and social security Group Group Company Company
The subsidiary board is in relation to Hiscox Syndicates Limited. The emoluments for committees are in relation to the Audit Committee, Remuneration Committee, Nominations Committee, Conflicts Committee and Investment Committee.
The Company has taken advantage of the exemptions conferred in UITF Abstract 17 ‘Employee share schemes’ in relation to the charging of notional costs to the profit and loss account, in relation to the sharesave schemes.
25 Directors’ emoluments and share option schemes continued (d) continued (iii) Performance share plan
(b) The Company has an agreement with J P Morgan (Europe), an agent for a syndicate of banks, for a £137,500,000 irrevocable standby Letter of Credit facility. Commencing 1 January 2005, £137,500,000 was drawn down to support part of the Group’s underwriting activities for the 2005 account. Hiscox plc has given a fixed and floating charge over the Group’s assets as a guarantee to the group of banks led by J P Morgan Chase Bank in connection with their Letter of Credit.
(b) Finance leases The finance lease obligations to which the Group is committed are: In one year or less 142 136 Between two and five years 228 119 29 Related parties The operations listed below are related parties within the definition of FRS 8. Hiscox Syndicates Limited, a wholly owned subsidiary of the Company received management fees and profit commissions for providing a range of management services to Syndicate 33 in which Hiscox Dedicated Corporate Member Limited and the corporate member subsidiaries of Hiscox Select Insurance Fund PLC participated.
30 Commutation of business On 24 December 2004, the Group terminated the operation of its protected cell company, Harlequin Insurance PCC Ltd, through a commutation. The loss before tax of Harlequin Insurance PCC Ltd in these accounts for the period up to commutation was US$761,000.
Financing Proceeds from share issues 2,046 1,862 (Payments)/receipts relating to own shares 254 751 New bank loan – 456 Repayment of bank loan (420) – Capital element of finance leases (101) (159)