John Virtue (pictured above) went to the top of Somerset House overlooking the Thames every morning while working on his exhibition at the National Gallery. He sketched the landscape into small sketchbooks. Later he would translate those quick drawings into huge wonderful panoramas of London.
I cannot imagine a greater test than being given studio space in such an awe inspiring building and having to make new art for public display amongst the work of world masters in London’s greatest Gallery.
Cover and page 5 Detail of Landscape No. 705, 2003-4 acrylic, black ink and shellac on canvas 244 x 244cm
Facing image Detail of Landscape No. 706, 2003-4 acrylic, black ink and shellac on canvas 244 x 244cm Hiscox plc, London
Pages 12-13 Detail of Landscape No. 759, 2003-4 acrylic, black ink and shellac on canvas 305 x 244cm
Page 8 Detail of Landscape No. 658, 2003 acrylic, black ink and shellac on canvas 183 x 183cm Hiscox plc, London
Corporate Governance 18 Directors’ Remuneration Report 21 Directors’ Report 24 Statement of Directors’ Responsibilities 25 Independent Auditors’ Report 26 Consolidated Profit and Loss Account, Technical Account – General Business 27 Consolidated Profit and Loss Account, Non-Technical Account 28 Consolidated Balance Sheet 30 Company Balance Sheet 31 Consolidated Cash Flow Statement 32 Notes to the Accounts 56 Notes to the Consolidated Cash Flow Statement 58 Five Year Summary 59 Notice of Annual General Meeting 61 Key Shareholder Information
We believe there are parallels between John Virtue’s paintings and business behaviour and philosophy at Hiscox. An innovative approach within traditional discipline.
John looks at the landscape more deeply than most. He relentlessly gathers information in his sketchbooks and interprets it in a distinctive view of the world. He has the same information in front of him as others but re-evaluates it to create a new vision.
John’s studies of London (the location of our head office) contain the visceral movement, vitality and excitement of the great City. But there is far more than random sweeps of the brush and spontaneous marks. Underneath is a solid framework of the City landscape giving a hidden structure. He is a painter of instinct and intellect – but also a draftsman with every stroke considered.
– International Retail increased operating profit to £4.0 million (2003: £0.6 million) with a combined ratio of 97.9 per cent (2003: 98.2 per cent).
Art and Private Clients • High value household • Fine art and valuables • Classic cars • Executive household
Professions and Specialty Commercial • Professional indemnity • Commercial/employer covers • Industry-specific policies
Specialty • Kidnap and ransom • Contingency • MGAs • Bloodstock • Personal accident
London Market • Marine • Offshore energy • Terrorism • Professional indemnity • Political risks • Financial institutions
Results The results for the year ending 31 December 2004 are a pre-tax profit of £77.0 million (2003: £83.4 million) and an operating profit of £86.3 million (2003: £77.1 million). The net assets per share have increased to 132.8p per share (2003: 119.1p per share) and the earnings per share on profit after tax were 18.7p per share (2003: 20.9p).
The gross premium income underwritten by the Group was £1,051.1 million (2003: £1,083.2 million), and the gross premium income applicable to Hiscox plc was £778.9 million (2003: £797.4 million).
Our retail businesses are concentrating on growth in our existing offices outside London (five in the UK and six overseas). They are now well established and we expect them to be an important part of our future. The only regional expansion during the year was the transfer of a member of staff to Madrid to develop our Spanish business, and we are working towards opening an office in the USA. 40 per cent of our business comes from the USA, and a considerable proportion of it is retail business written by Managing General Agents. Our underwriters travel extensively to the USA and it seems sensible to have staff established there to service existing clients and find new ones.
This Chairman and our Chief Executive and Chief Underwriter are acutely aware of all the tricks and traps in the cycle. We have a team at the top who have been up and down and up the cycle a few times, and we know that remaining up when others are down is deeply satisfying and good for the shareholders. Discipline is the key. The difference with this cycle and others is that reinsurance, which normally leads and encourages the downward spiral of rates, is remaining firm and hard to buy. This should keep direct underwriters realistic as they will not be able to pass the results of bad underwriting on to their reinsurers.
“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.”
“We continue to adhere to the old truth that turnover is vanity, profit sanity.”
Our business is heavily scrutinised by the FSA, with an added layer of Lloyd’s regulation on top and another of corporate governance rules from various bodies. The Lloyd’s rules are packed with prescriptive little directives. On the other hand, the FSA’s rulebook is very principles-based which leaves us crying out occasionally for a prescriptive rule, rather than trying to guess what will satisfy them. The occasional road-sign is very useful. As an example, despite all the instructions on how to run our business from all those entities, it has taken Mr Spitzer from New York to put the spotlight on the inappropriate manner in which the whole insurance industry handles remuneration, with brokers negotiating their remuneration from underwriters instead of their clients, with the obvious pressures and conflicts. A golden opportunity has arisen to change the structure of our industry for the benefit of all, but the FSA stands back.
We will continue to work with our insurance brokers to bring transparency and commercial common sense to how we do business together, but we are dealing with a very disparate group of businesses and it would be of enormous benefit if the FSA joined in to bring some common standards. When you think of all the time and money spent on regulation and corporate governance, it is amazing that reform has to come from New York, and that all the brains in the FSA and the ABI do not immediately take up the challenge. But it is much easier for them to fuss about increasing the size of our Report and Accounts with pages of information that bear little relation to our capability to make sensible business decisions.
We are developing a strong brand to increase demand for our products both through brokers and through our growing direct business.
Market conditions are changing. The ability to make profit easily in all classes will disappear over the next 24 months. Risk selection and underwriting focus will be the key to continued success. Our ability to move our focus from big ticket international business, to smaller retail business, distributed through our 11 offices gives us an edge. Our talented and experienced team have seen cycles before, so we are confident we can adapt to this market. Our underlying profitability will allow us to build our balance sheet, reduce gearing, acquire the balance of Syndicate 33 on a gradual basis and fund incremental expansion without recourse to shareholders.
We are succeeding in this goal. Retail business now represents over 40 per cent of the Group’s controlled premium income, an increase from 25 per cent in 1994, and is now larger than the entire Group was in 1994. To extend this strategy during the year, we opened our business centre in Colchester and allocated additional resources to our UK Regional offices. We expect to continue this retail focus in 2005. In line with our desire to grow as a specialty insurer and to find new opportunities, we are planning to open an office in the USA in the near future. Hiscox already receives 40 per cent of its business from this market. By having a local presence we should be able to identify new demands and brokers, and to complement our business through the traditional London brokers.
Trading conditions Market conditions remained favourable in 2004. Prices were reasonable in all areas of our business with softening most prevalent in those areas where rates had risen to exceptionally high levels. 2005 has started well. Rates on renewal business remain acceptable but there is more pressure with new business where, in some areas, we are seeing competitors offer rates close to breakeven levels.
We are embarking on higher profile marketing activities in 2005 to stimulate new business for both our broker and direct channels.
Specialty This team focuses on contingency, kidnap and ransom, personal accident, bloodstock and American managing general agents servicing homeowners and small commercial businesses. Rates have remained stable. Our kidnap and ransom team continues to lead the world, benefiting from their long-term partnership with the Control Risks Group. Our homeowners and small commercial book was impacted by the windstorms in Florida. We expect to obtain rating increases on these risks as they come up for renewal in the early part of 2005.
Professions and Specialty Commercial This division continues to focus on professional firms and emerging advisory and serviceled businesses in the UK. We provide coverage for errors and omissions and are expanding our portfolio to cover associated commercial risks relating to both property and liability exposures. Our primary target is the small and smallest firms in this target market. We have market-leading expertise in providing these insurances, both in terms of underwriting knowledge and in processing skills and efficiency.
Whilst we have the expertise to underwrite larger traditional risks, there has been significant pricing pressure in this area and we have deliberately avoided this market segment over the last 12 months. Instead,
“2004 was another good year for Hiscox. Our Lloyd’s business produced another strong result, despite the severity of natural catastrophes. Our UK business has also performed well, with an improved underlying combined ratio, and our International business, particularly mainland Europe, has made good progress.”
Aerospace, Technology, Media and Telecommunications The trading environment in these segments remains reasonable. During 2004 we successfully expanded our technology, media and telecommunication client base outside London to the UK Regions, the USA and France. This growth has been achieved by a combination of local deployment of underwriters, more global travel by the team and the introduction of a new e-commerce system which is encouraging greater business flow from the USA. Despite competition in the UK from the international players, our worldwide reputation in these sectors continues to grow. This is based upon our focus on risk management and a pro-active claims team which draws upon a huge wealth of experience in this sector when assisting our clients with their claims.
The professional indemnity team delivered controlled growth in 2004, taking advantage of our position in this market. Our intention in 2005 is to focus on smaller less competitive risks where we see continued opportunity.
Group financial performance In 2004 the Group achieved an operating profit of £86.3 million (2003: £77.1 million). This is a good performance especially as it has been achieved in one of the worst years ever for insured natural catastrophes. The net cost of the four hurricanes to Hiscox plc was £70 million.
Gross written premium grew to £175.7 million (2003: £174.6 million), despite the loss of a £20 million book of commodity business. The combined ratio was an excellent 89.8 per cent (2003: 90.3 per cent) better than our target of 95-98 per cent. We see continued potential to expand this business. We have opened a business centre in Colchester and expect to open a branch office there during the course of 2005.
Investment Management Hiscox plc’s invested assets grew by £236 million to £1,062 million during the year and produced a return of £32 million (2003: £39 million). The increase in cashflows from the strong underwriting market meant that there was more money invested but 2004 presented a difficult investment market. This was particularly so in US fixed interest where a substantial proportion of our assets are invested. Interest rates in the US continued at their low level and rather than take on more risk in search of higher yield, we adopted a conservative strategy, investing with a short duration. As a result our investment returns were below our assumed long-term
2004 results will be restated for IFRS in the summer of 2005 and results for the first half of 2005 will be under IFRS.
Insurance can sometimes be a cruel business, with actual results not always reflecting the hard work or the skill of the people in the business. Despite the inevitable disappointments arising from the hurricanes and other large losses, our staff remain positive and driven. We will never be complacent about what we have achieved and the challenge for all of us is to keep developing the business and finding new pockets of opportunity despite a softening market. We also realise that there will be moments when winning will be saying no to a piece of business. Turning business away is always difficult, but it is a challenge to which we will rise.
The insurance world is returning to normal. Price increases driven by fear are a thing of the past. Prices remain at attractive levels in aggregate, but clearly as the cycle develops certain areas will be less attractive than others. Hiscox is well placed to continue to deliver in this environment through the quality of our products and people and our consistent strategic focus. The Hiscox management team has been stable and has worked together through more than one cycle. We have not forgotten the lessons of the past, but are not bound by them. We will continue to strive to deliver a continuous growth in the value of the business over the time that lies ahead.
“Cash is a commodity; it is the good people that distinguishes Hiscox from others.”
Chief Executive (Aged 43) Bronek Masojada joined the Group in 1993. From 1989 to 1993 he was employed by McKinsey and Co. He was Chairman of the Lloyd’s Underwriting Agents Association from 1998 to 2001. He is currently Deputy Chairman of Lloyd’s and President of The Insurance Institute of London.
Group Finance Director (Aged 44) Stuart Bridges is a qualified chartered accountant, who joined the Group at the start of 1999. He has held posts in various financial service companies including Henderson Investors plc.
*Derek ND Netherton was unavailable at the time of the photo shoot.
Chairman of Nominations Committee (Aged 53) Carol Franklin Engler is the Ombudsman for the Swiss telecommunication industry and an executive director of the Swiss National Museum. She was the Chief Executive Officer of the World Wide Fund for Nature in Switzerland until the end of 2001. From 1979 to 1999 she was employed by Swiss Re in a variety of roles including Head of the Aviation Department and Head of Human Resources. She is currently a non-executive director of Citron plc and Prime Forestry Switzerland AG. She joined the Group on 12 August 1999.
There have been four main Hiscox plc Board meetings during the year. There has been a 100% attendance by all directors at these meetings. 3 = member of committee.
The Combined Code Hiscox is committed to high standards of corporate governance, and for the year ended 31 December 2004, and the period up to the date of approving the accounts, the Group has applied the principles and complied with the provisions of the revised Combined Code published in July 2003.
The Board’s committees The Board has appointed and authorised a number of committees to manage aspects of the Group’s affairs. Each committee operates within established written terms of reference and each chairman reports directly to the Board.
The Nominations Committee The Nominations Committee comprises the Chairman and all the non-executive directors. It meets as and when required to deal with appointments to the Board. The Committee met once during the year.
Chairman, a formal annual appraisal and a formal annual development review; – For the non-executive directors a formal one-on-one meeting with the Chairman; – An evaluation questionnaire completed by all Board members; – Meetings of the non-executive directors without the presence of any executives; – Meetings of the non-executive directors with the Chairman present; – A full review of the workings and interactions of this group of individuals by external consultants People in Business (PiB) which included interviews with the ten individuals and a significant number of other senior individuals in the Group. This resulted in a number of feedback sessions from PiB including one with the non-executive directors; – In addition to this there has been significant and frank debate in Board meetings about the operation of the Board. The evaluation process concluded that the Board and its main committees had functioned well during the year and that the individuals had also performed well, with each making a significant contribution to the Company. The mix of skills on the Board was felt to be appropriate and worked well. The issues identified during the evaluation, such as whether additional time needs to be devoted to the Company in 2005, have been thoroughly discussed and action plans have been put in place.
The executive directors communicate and meet directly with shareholders and analysts throughout the year, and do not limit this to the period following the release of financial results or other significant announcements.
commissions independent research on feedback from shareholders and analysts on a regular basis following the Company’s results announcements. This research together with the analyst’s research notes are copied to the non-executive directors in full. The Chairman attends a number of shareholder meetings 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 non-executive director and/or the other non-executive directors, and they have been given the contact details of the senior non-executive director.
Embedded risk management framework The directors are responsible for operating the system of risk management and internal control and for reviewing its effectiveness. This covers all aspects of risk including insurance risk, market risk, credit risk, operational risk and liquidity risk. This management system includes a variety of processes to identify, assess and manage the different classes of risk in the manner most appropriate to each class. The Board has conducted a review of the effectiveness of internal controls during 2004.
The execution of each delegated responsibility, by individuals and committees, is closely monitored by regular reporting to, and challenge by, the Board and its committees. This monitoring, supported by financial and non-financial management information, covers performance against agreed targets and objectives, as well as the risks to achieving these objectives and the effectiveness of the measures in place to manage these risks. Feedback and discussion within this reporting structure allows the Board to determine, communicate and enforce its appetite for the various risks to which the business is exposed.
Risk areas Insurance risk: The Group’s insurance portfolios are managed in accordance with the Board’s appetite by the Director of Underwriting using a wide range of analytical, monitoring and review tools. Delegation of underwriting authority internally and externally is linked to competence and regularly monitored. Reinsurance purchase is controlled centrally. The insurance and reinsurance portfolios are modelled extensively using a range of realistic disaster scenarios and statistical modelling processes. Market risk: Managing the risk of price fluctuations in the insurance market is the responsibility of the Director of Underwriting, supported by a range of forecasting processes using hard and soft internal and external data.
The Board’s appetite for investment risk is expressed in the investment strategy which is implemented by a number of external investment managers who are monitored and controlled by the in-house investment function. Currency exposure is managed by the Group Finance Director through hedging where appropriate. Credit risk: Management of credit risk is the responsibility of the Group Finance Director. The Board’s appetite for credit risk from clients, distributors and reinsurers is expressed in terms of limits and thresholds which drive the risk acceptance and credit control processes.
Liquidity risk: This is managed by the Group Finance Director through extensive cash flow planning and forecasting. This is closely linked to the management of investment risk to ensure opportunities are maximised within the parameters of the Board’s risk appetite.
None of the Committee has any personal financial interest (other than as shareholders) or conflicts of interests arising from cross-directorships or day-today involvement in running the business. The Committee makes recommendations to the Board. No director plays a part in any discussion about his or her own remuneration.
The Committee will also determine on the Board’s behalf the specific remuneration packages for each of the executive directors, including pension rights and any compensation payments.
Remuneration elsewhere in the Group is considered in determining directors’ remuneration.
Base salary and benefits The Remuneration Committee utilises reports provided by Watson Wyatt as independent consultants, and other publicly available reports, in its consideration of what comparable companies are paying and in setting annual salaries and other benefits. Using this information as a benchmark, and taking into account current economic and operational conditions, salary levels are determined for each individual which take into account experience, skills, development and performance.
Base salary ranges remain competitive, with salaries assessed in accordance with the size of the role and market data.
Dec 04Jun 04Dec 03Jun 03Dec 02Jun 02Dec 01Jun 01Dec 00Jun 00Dec 99
The Group has also implemented a performance share plan for senior executives to complement the existing long term incentive arrangements. No awards were made during the year under this plan. The exercise of options under this plan depends upon achieving certain performance targets over a three year period. All directors entitled to these awards are subject to these same performance criteria.
In order to ensure that the objective of aligning employee interests with shareholders is met, the Remuneration Committee regularly reviews the terms and conditions of share incentive grants made to employees. The 2003 review resulted in the Remuneration Committee proposing changes to the terms and conditions applying to future grants of options under the Hiscox Approved Share Option Scheme and the Hiscox Unapproved Share Option Scheme (the ‘Option Schemes’) and awards under the Hiscox Performance Share Plan (the ‘Performance Share Plan’), and these amendments were approved and adopted on 22 June 2004. Consequently awards earned under these schemes are currently running with two different sets of terms and conditions.
Exercise of awards issued prior to 22 June 2004 under the Performance Share Plan is subject to the following terms: (a) The participants will receive 100% of the award if the Group’s operating EPS (note 12) over a fixed three year period has increased by 35% (‘the maximum target’); (b) No award will vest unless the increase in the Group’s operating EPS over the period equals or exceeds 15% (‘the base target’) at which point 40% of the award will vest; and; (c) An award will vest on a straight-line basis if the operating EPS growth is between the base target and the maximum target.
Equity (‘ROE’) average is 10% over the three year performance period (the ‘maximum target’); (b) no grants will vest unless the Group’s ROE average over the period equals or exceeds 8% at which point 40% of the grant will vest (the ‘minimum target’); and
(c) a grant will vest on a straight-line basis if the Group’s ROE average is between the base target and the maximum target.
(vii) Approved Options in France may normally only be exercised four years or more after the grant date, except where the Unapproved Scheme allows for earlier exercise.
(b) an amount for each year of service up to retirement age of 60 based on a proportional accrual of years service to retirement age.
Since the termination notice period is only six months, no statement of mitigation policy is deemed necessary. The service contract with RRS Hiscox, dated 20 December 2002, provides for 12 months’ notice period by either side. BE Masojada’s contract is dated 6 March 1998, effective from 1 January 1998; RS Childs’ contract is dated 26 March 1998, effective from 1 January 1998; and SJ Bridges’ contract is dated 20 September 1998, effective from 1 January 1999.
The Remuneration Committee believes that these notice periods provide an appropriate balance having regard to prevailing market conditions and current practice amongst public companies. No external appointment may be accepted by an executive director where it may give rise to a conflict of interest. The consent of the Chairman is required in any event.
Non-executive directors Non-executive directors receive an annual fee in respect of their Board and Board committee duties. The fees are reviewed, but not necessarily increased, annually and are set by the Board to attract individuals with a broad range of relevant skills and experience. The non-executive directors receive no other benefits.
Contracts were sent to the non-executive directors on 14 December 2004 setting out their updated terms of appointment. The allocation of their fees is shown in note 25.
Non-executive directorships During the year RRS Hiscox has been a non-executive director of Grainger Trust plc and is paid £25,000 for his services. BE Masojada is a non-executive director of Ins-sure Holding Limited and its subsidiaries. The fees for his services are remitted to the Group, as disclosed in note 29. Neither SJ Bridges nor RS Childs held non-executive director positions during the year.
Financial results The results for the year are shown in the profit and loss account on pages 26 and 27.
Dividends An interim dividend of 1.5p (net) per share (2003: 1.3p (net)) was paid on 25 October 2004 in respect of the year ended 31 December 2004. The directors recommend the payment of a final dividend of 3.5p (net) per share (2003: 2.9p (net)). This will be paid on 27 June 2005 to shareholders on the register at the close of business on 15 April 2005.
Directors The names and details of the directors of the Company throughout the year and at the date of this report (including those offering themselves for re-election) are set out on page 15. Details of their interests in the shares of the Company are set out in note 25 to the accounts. In accordance with the Articles of Association and Combined Code, SJ Bridges, RS Childs, C Franklin Engler and SH Hall (aged 71) will retire at the Annual General Meeting and, being eligible, will offer themselves for re-election as directors.
The Board believes that SH Hall’s character and objectivity makes him an independent director.
Going concern After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the accounts.
Applications for employment by disabled persons are always fully considered, bearing in mind the aptitude of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical with that of other employees. Our employment policies and practices are free from discrimination on any grounds relating to selection, training and development, career progression and any other employment matters.
We are committed to training and developing all of our employees to maximise their potential. A comprehensive development programme ensures our employees are highly knowledgeable and skilled. This is supported by a Performance Management approach that ensures training and development needs are reviewed regularly, as is performance, against clearly set objectives. We actively look to leverage the talent of every employee within the Company.
Employees are kept informed of the business and its activities through formal briefings, team meetings, use of the intranet, video conferencing and informal routes. These also provide a means for the Company to listen to employees and involve them in taking the business forward.
Employees are encouraged to identify with the Company through performance-related pay and bonus schemes, savingsrelated share option schemes and executive share option schemes.
Health Officers. Environmental policy: The way our insureds conduct their business is of paramount importance to us, due to our core philosophy that for high-quality underwriting we need high-quality insureds. In considering underwriting, the insureds’ attitudes to all aspects of their business, including their care of the environment, are considered.
Hiscox also aims to minimise the impact on the environment from its business activities. In accordance with the Group’s Environmental Policy, consumables are recycled or reused wherever possible and the Group strives continuously to reduce the amount of raw materials used in its business processes and by its staff – particularly through the extensive use of computerisation and communications technology.
The Clean City Awards are given as part of an annual scheme run by the Corporation of London to recognise the efforts of companies in the City in reducing, recycling and reusing waste, in order to support the sustainable use of raw materials. Each company’s building is judged by a panel of officers from the Corporation, public sector and private industry on the efforts it is making, its approach to recycling and its innovation in dealing with waste.
A designated Hiscox representative attends meetings organised by the Corporation of London to keep abreast of best practices with regard to the environment and to exchange ideas with other like-minded companies.
Hiscox is included in the 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. Community involvement: The involvement of Hiscox in the local community has continued this year, thanks to the strong support of our employees.
Political and charitable contributions The Group made no political contributions during the year (2003: £nil). Charitable donations was donated to the Hiscox
Foundation, a UK registered charity. The policy of the Hiscox Foundation is to assist and improve education, the arts and independent living for disabled and disadvantaged members of society.
Payment is then made on these terms, subject to the terms and conditions being met by the supplier. The Group had 15.4 (2003: 13.6) days’ purchases outstanding at 31 December 2004 based on the average daily amount invoiced by suppliers during the year ended 31 December 2004.
The Company is a holding company and accordingly has no days’ purchases outstanding at 31 December 2004. Therefore, the Group creditors’ days are considered to be more representative.
The Group set up a dedicated working party in 2003, which includes representation from its external auditors, to implement the new standards and embed them
Major interests in shares The Company has been notified of the following shareholdings of 3% or more in the ordinary shares of the Company as at 7 March 2005: % of total Number of shares Hiscox plc shares
Amvescap plc 46,792,513 15.9 Fidelity International Limited 28,140,477 9.6 Barclays PLC 14,495,669 4.9 AN Foster 13,835,824 4.7 Landsdowne Partners Limited Partnership 11,465,673 3.9 RRS Hiscox 9,469,774 3.2 IN Thomson 9,315,786 3.2 Legal & General Group plc 8,782,942 3.0 11,204,825 of AN Foster’s shareholding is non-beneficial, of which 5,329,391 is held by a trust and is also included in RRS Hiscox’s shareholding. 557,715 of RRS Hiscox’s shareholding is non-beneficial. Hiscox Trustees Ltd is the trustee of the Hiscox plc Group employee share ownership plan trust (ESOP) and is interested in 325,434 ordinary shares in the Company. IN Thomson, AN Foster and RRS Hiscox, as employees of the Group, are potential beneficiaries of the ESOP and are also deemed to have an additional interest in these shares.
Resolution 9, which will be proposed as an ordinary resolution, seeks to renew the directors’ authority to allot relevant securities pursuant to Section 80 of the Companies Act 1985. The authority contained in the resolution will be limited to the allotment of relevant securities to an aggregate nominal value of £4,897,001.43 representing 33.3% of the issued ordinary share capital as at 14 March 2005. This authority will terminate no later than the earlier of the conclusion of the next Annual General Meeting or a date falling fifteen months after the date of the passing of the resolution. The directors presently have no intention of exercising this authority.
Resolution 13, which will be proposed as a special resolution, seeks to obtain authority for the Company to repurchase its own shares from the market. In certain circumstances, it may be advantageous for the Company to purchase its own shares pursuant to Section 166 of the Companies Act 1985. The directors intend to exercise this authority only where they believe that a purchase would be the best use of the Company’s resources, result in an increased earnings per share and is in the best interests of the Company’s shareholders as a whole.
The authority contained in the resolution will be limited to a purchase of own shares up to a maximum number of 14,500,000 shares, representing 4.9% of the issued capital of the Company as at 14 March 2005, and the cost of the shares will be limited to a minimum share price of £0.50 per share and a maximum price per share that is not more than 5% above the average of the closing middle market quotations for an ordinary share as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the date on which the ordinary share is purchased. This authority will terminate on the earlier of the conclusion of the next Annual General Meeting or a date falling fifteen months after the date of the passing of the resolution.
The total number of options to subscribe for ordinary shares that are outstanding as at 14 March 2005 was 16,590,483 which represented 5.6% of the issued share capital as at that date (which represents 5.9% of the Company’s issued share capital if the authority to purchase shares under the resolution is used in full). There are no warrants.
In preparing those financial statements, the directors are required to: (a) select suitable accounting policies and apply them consistently; (b) make judgements and estimates that are reasonable and prudent; (c) state whether applicable accounting standards have been followed; and (d) prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.
Respective responsibilities of directors and auditors The directors are responsible for preparing the Annual Report and the directors’ remuneration report. As described on page 24 this includes responsibility for preparing the financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the Financial
We review whether the corporate governance statement on pages 16 and 17 reflects the Company’s compliance with the nine provisions of the 2003 FRC Code specified for our review by the Listing Rules, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures.
We read the other information contained in the Annual Report, including the corporate governance statement and the unaudited part of the directors’ remuneration report and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements.
Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.
Change in the gross provision for unearned premiums (19,337) (74,902) Change in the provision for unearned premiums, reinsurers’ share (19,800) (38,613)
Claims incurred, net of reinsurance Claims paid: Gross amount (220,274) (275,227) Reinsurers’ share 39,201 90,327
Change in the provision for claims: Gross amount (183,540) (61,545) Reinsurers’ share 8,761 (41,876)
Net operating expenses 6 (215,328) (186,039) Other technical income/(charges) 4(c) 1,650 (1,265) Movement in equalisation provision 4(c), 7 (1,503) (2,506)
Earnings per share: – Adjusted basic, based on operating profit after tax (on longer term investment return) 12 21.0p 19.3p – Basic, based on profit on ordinary activities after tax 12 18.7p 20.9p – Diluted, based on profit on ordinary activities after tax 12 18.5p 20.6p
Profit on ordinary activities after tax 54,574 60,491 Exchange differences taken to reserves (412) (155)
Reinsurers’ share of technical provisions Provision for unearned premiums 21 42,526 63,004
Prepayments and accrued income Accrued interest 5,428 3,079 Deferred acquisition costs 114,803 101,817 Other prepayments and accrued income 8,201 10,106
Liabilities Capital and reserves Called up share capital 23, 24(a) 14,685 14,565 Share premium account 24(a) 234,267 232,341 Merger reserve 24(a) 4,723 4,723 Capital redemption reserve 24(a) 33,244 33,244 Reserve for own shares 24(a) (473) (686) Profit and loss account 24(a) 85,153 45,650
Creditors Creditors arising out of direct insurance operations 28,399 35,229 Creditors arising out of reinsurance operations 60,339 62,491 Other creditors including taxation and social security 20 43,702 28,414
Fixed assets Tangible assets 18(a) 3,543 584 Investment in subsidiary undertakings 18(b) 115,457 115,457
Cash at bank and in hand 2,222 129 Prepayments and accrued income 982 453
The financial statements have been prepared in accordance with the provisions set out in Section 255 of, and Schedule 9A to, the Companies Act 1985. The Group has adopted all material recommendations of the Statement of Recommended Practice ‘Accounting for Insurance Business’ issued by the Association of British Insurers in November 2003.
2 Basis of consolidation The consolidated financial statements include the assets, liabilities and results of the Company and its subsidiary undertakings up to 31 December each year. Profits or losses of subsidiary undertakings sold or acquired during the period are included in the consolidated results up to the date of disposal or from the date of acquisition, where acquisition accounting was adopted.
Ultimate premium and claims amounts are projected both gross and net of reinsurance using reinsurance recovery rates based on historical experience, adjusted for the current reinsurance programme. Reinsurance recoveries from Qualifying Quota Share arrangements entered into for the 2002 and 2003 years of account have been calculated separately.
The reserves determined for the managed syndicate are converted to annually accounted figures using earnings patterns that are consistent with those for the underlying syndicate business.
3(f) Equalisation provision An equalisation provision has been established and calculated in accordance with the requirements within PRU 7.5 of the Integrated Prudential Sourcebook (Insurers and other amendments) Instrument 2004 to mitigate exceptionally high loss ratios for classes of business displaying a high degree of claims volatility.
3(g) Investments Group: Investments are stated at their current value. Listed investments comprise those quoted on the London and other international Stock Exchanges. These investments are stated at midmarket prices on the balance sheet date, or on the last stock exchange trading day before the balance sheet date. Company: Investments in Group undertakings and associates are stated at cost less provisions for impairment in value.
Realised gains or losses on investments represent the difference between net sales proceeds and their purchase price or their valuation at the commencement of the year.
Unrealised gains and losses on investments represent the difference between the current value of investments at the balance sheet date and their purchase price or their valuation at the commencement of the year. The movement in unrealised investment gains/losses includes an adjustment for previously recognised unrealised gains/ losses on investments disposed of in the accounting period.
On disposal or termination of a business acquired up to 31 December 1997, any related goodwill previously written off directly to reserves is written back through the profit and loss account as part of the profit or loss on disposal. On the disposal or termination of a business since 1 January 1998, the profit or loss on disposal or termination is calculated after charging the unamortised amount of any related goodwill.
3(l) Other intangible assets Other intangible assets are the cost of purchasing the Group’s participation in Lloyd’s insurance syndicates. In accordance with FRS 10, this capacity is capitalised at cost in the balance sheet and amortised over its useful economic life, which the directors consider to not exceed 20 years. Provision is made for any impairment.
3(m) Rates of exchange Assets, liabilities, revenues and costs denominated in foreign currencies are recorded at the rates of exchange ruling at the dates of the transactions. At the balance sheet date, monetary assets and liabilities are translated at the year end rates of exchange. Any exchange profits or losses arising on the translation of foreign currency amounts relating to underwriting are taken directly to the technical account. Other exchange profits or losses are taken directly to the nontechnical account.
3(n) Pension costs Pension contributions in respect of defined benefit schemes are charged to the profit and loss account so as to spread the cost of pensions over employees’ working lives with the Group. Differences between the amounts charged to the profit and loss account and payments made to the pension schemes are treated as assets or liabilities in the balance sheet.
The Group has adopted the transitional disclosure requirements of FRS 17 ‘Retirement Benefits’. This has had no impact on the current year’s results.
3(o) Leases Where the Group enters into a lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a ‘finance lease’. The asset is recorded in the balance sheet as a tangible fixed asset and is depreciated over its estimated useful life or the term of the lease, whichever is shorter. Future instalments under such leases, net of finance charges, are included within creditors. Rentals payable are apportioned between the finance element, which is charged to the profit and loss account, and the capital element, which reduces the outstanding obligation for future instalments.
3(p) Taxation Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively
Deferred tax is not recognised when fixed assets are revalued unless by the balance sheet date there is a binding agreement to sell the revalued assets and the gain or loss expected to arise on sale has been recognised in the financial statements. Neither is deferred tax recognised when fixed assets are sold and it is more likely than not that the taxable gain will be rolled over, being charged to tax only if and when the replacement assets are sold.
3(q) Own shares The Group follows the accounting treatment required by UITF 37 for the purchase and sale of own shares. For own shares held in the Employee Share Ownership Plan Trust (ESOP), the Group has adopted the accounting treatment required by UITF 38. In accordance with UITFs 37 and 38, consideration paid for own shares is deducted in arriving at shareholders’ funds. No gain or loss is recognised in the profit and loss account or statement of total recognised gains and losses on the purchase, sale or cancellation of own shares. Consideration paid or received for the purchase or sale of own shares are shown as separate amounts in the reconciliation of movements in shareholders’ funds.
4 Segmental information (a) 100% level technical account by business division The underwriting activities which are managed by the Group are shown below at the 100% level regardless of ownership of capacity: London UK International 2004 London UK International 2003 Market Retail Business Total Market Retail Business Total
London Market comprises the results of Syndicate 33 and the Hiscox Captive net of any business written between Group companies.
UK Retail comprises all of the UK retail underwriting results of Hiscox Insurance Company Limited.
Trading profit for Group share of continuing operations (Note 4c) 92,362 86,800 *For the 2004 year of account, the Group owned 65% (2003: 65%) of the Syndicate. For the 2002 year of account, 8% of the capacity (2001 year of account: 7%) was reinsured to three leading European reinsurers via a quota share arrangement.
(c) Profit on ordinary activities before taxation – by business division
Other technical income/(charges) 1,650 – – 1,650 (1,265) – – (1,265)
UK Retail comprises all of the UK retail business of Hiscox Insurance Company Limited, together with the results of the online agency business (Hiscox Connect Limited).
International Business comprises the results of Hiscox Insurance Company (Guernsey) Limited, the results of the Hiscox overseas agencies and the underwriting results of the International retail business written by Hiscox Insurance Company Limited.
4 Segmental information continued (d) (i) Net asset value per share
Net asset value (before equalisation provision) 389,540 293,306 132.8 346,275 290,630 119.1
Net tangible asset value (before equalisation provision) 365,954 293,306 124.8 324,522 290,630 111.7 *The number of shares is the adjusted number of shares in issue as at 31 December of the relevant financial year.
Net loss provision brought forward as at 1 January 313,909 115,174 7,204 436,287 332,126 Net payments during the year in respect of those provisions (69,491) (26,756) (24) (96,271) (101,888) Net loss provision carried forward in respect of claims provided at 1 January (245,569) (74,147) – (319,716) (248,523)
The business written by Harlequin Insurance PCC Ltd was commuted in December 2004, resulting in no remaining loss provisions in relation to those brought forward in International Operations.
Acquisition costs 184,631 184,951 Change in deferred acquisition costs (18,216) (26,966) Reinsurance commission (1,309) (12,298) Administrative expenses 50,222 40,352 7 Equalisation provision Equalisation provisions are established for Hiscox Insurance Company Limited in accordance with the requirements within PRU 7.5 of the Integrated Prudential Sourcebook (Insurers and other amendments) Instrument 2004. 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 £17,941,000 (2003: £16,438,000). The movement in equalisation provision during the year resulted in a decrease in the technical account and the Group profit before taxation of £1,503,000 (2003: £2,506,000).
Notes to the Accounts continued 8 Investment return (a) The total actual investment return before taxation comprises: Investment return on funds at Lloyd’s and other corporate funds: Investment income 6,940 8,591 Unrealised gains/(losses) on investments 2,828 1,778 Realised gains/(losses) on investments (868) 1,026
Investment return on insurance company funds: Investment income 11,582 9,955 Unrealised gains/(losses) on investments 3,140 6,248 Realised gains/(losses) on investments (766) (1,048)
(c) Longer term investment return The longer term rate of investment return is based on a combination of historical experience and current expectations for each category of investments. The longer term investment return is calculated by applying the following yields to the weighted average of each category of assets.
8 Investment return continued (d) Comparison of longer term investment return with actual returns The actual return on investments is compared below with the longer term investment return over the year ended 31 December 2004 and for the five year period from 1 January 2000 to 31 December 2004. Investment yield is calculated using the weighted average value of investments during the year.
Actual investment return: Shares and units in unit trusts 3,674 9.4 – – 4,774 11.0 8,448 10.2 Debt securities and other fixed interest securities 4,333 4.5 8,433 1.8 5,306 4.7 18,072 2.6
Longer term investment return: Shares and units in unit trusts 2,339 6.0 – 6.0 2,604 6.0 4,943 6.0 Debt securities and other fixed interest securities 3,888 4.0 19,013 4.0 4,480 4.0 27,381 4.0
Longer term investment return: Shares and units in unit trusts 2,674 6.0 – 6.0 2,931 6.0 5,605 6.0 Debt securities and other fixed interest securities 3,136 4.0 11,651 4.0 3,778 4.0 18,565 4.0
Tax services in relation to 1999 and prior years – – 15 5%
Other non-audit services* Work performed in relation to: – Other corporate projects – – 11 11%
*Non-audit services with fees greater than £50,000 must be pre-approved by the Audit Committee which is composed solely of independent directors.
Adjusted basic, based on operating profit after tax (on longer term investment return) 61,165 291,755 21.0 55,929 289,790 19.3 Basic, based on profit on ordinary activities after tax 54,574 291,755 18.7 60,491 289,790 20.9 Diluted, based on profit on ordinary activities after tax* 54,574 295,130 18.5 60,491 293,462 20.6 *In accordance with FRS 14 ‘Earnings per share’, potential ordinary shares are only included in the calculation of diluted earnings per share to the extent that they are dilutive, i.e. those that on conversion to ordinary shares would decrease net profit per share from continuing operations.
Earnings per share has also been calculated based on the operating profit after tax as the directors believe this earnings per share figure provides a better indication of operating performance.
Basic, based on profit on ordinary activities after tax 54,574 18.7 60,491 20.9 Short term fluctuations in investment return 5,526 1.9 (6,378) (2.2) Movement in equalisation provision 1,065 0.4 1,816 0.6
Adjustments in respect of previous periods UK corporation tax 1,539 5,217 Foreign tax 76 –
Deferred tax Origination and reversal of timing differences 11,494 18,452 Adjustments in respect of previous periods (1,736) (4,753)
Charge for the year 60 3 63 Disposals – – –
During the year the Group sold a freehold property in Guernsey, at a profit of £93,000.
Shares and units in unit trusts 42,044 40,197 – – 44,750 39,868 86,794 80,065 Debt securities and other fixed interest securities 100,604 100,597 570,106 572,902 125,687 127,876 796,397 801,375
Shares and units in unit trusts 63,794 23,000 – 86,794 Debt securities and other fixed interest securities 221,343 441,264 133,790 796,397 Deposits with credit institutions 109,962 1,589 5,320 116,871
Shares and units in unit trusts 73,451 38,496 – 111,947 Debt securities and other fixed interest securities 192,031 305,991 81,448 579,470 Deposits with credit institutions 78,853 345 2,101 81,299 16 Debtors arising out of direct insurance operations
Assets held under finance leases account for £397,000 of the net book value of the assets above (2003: £266,000). The total depreciation for the period relating to these assets amounted to £86,000 (2003: £122,000).
Depreciation At 1 January 2004 – – – Charge for the year 60 – 60
Hiscox Dedicated Corporate Member Limited 1,500 1,500 Hiscox Holdings Limited 38,647 38,647 Hiscox Insurance Holdings Limited 29,983 29,983 Hiscox Select Insurance Fund PLC 45,102 45,102 Hiscox Investment Management Limited 225 225
Notes to the Accounts continued 19 Other debtors Group Group Company Company
Due from Group companies – – 138,797 129,405 Taxation recoverable – 2,739 – 138 Deferred tax asset – – – 16 Net profit commission receivable 11,458 7,918 – –
Movement in the provision (19,005) 14,611 (4,394) Commutation of business – (2,283) (2,283)
Net technical provisions 22 Provision for other risks and charges Group Company deferred tax deferred tax
(a) Total shareholders’ funds capital reserve reserve reserve reserve shares account funds funds
25 Directors’ emoluments and share option schemes salary/fees Benefits Bonus Total salary/fees Benefits Bonus Total
(c) Total directors’ remuneration of which £507,000 was recharged to the managed syndicate (2003: £547,000) was: Salaries, benefits and bonuses 2,827 3,051 Fees to non-executive directors 168 168
(d) (i) Directors’ share interests 5p Ordinary Shares 5p Ordinary Shares 5p Ordinary Shares 5p Ordinary Shares
Non-executive directors SH Hall 35,500 – 35,500 – AGC Howland Jackson 49,589 – 49,589 – DND Netherton 15,000 – 30,000 – C Franklin Engler 17,550 – 17,550 –
Hiscox Trustees Limited is the trustee of the Hiscox plc Group Employee Share Ownership Plan Trust (ESOP) and at 31 December 2004 was interested in 325,434 (2003: 313,368) ordinary shares of the Company. The executive directors are potential beneficiaries of the ESOP and are also deemed to have an additional interest in these shares.
Subsequent to the year end,10,000 shares were sold from RRS Hiscox’ non-beneficial holding. No other transactions have taken place subsequent to the year end up to the date of this Report and Accounts.
Notes to the Accounts continued 25 Directors’ emoluments and share option schemes continued (d) continued (ii) Share options continued
The interests of directors and employees under the UK and International Sharesave Schemes of the Group are set out below: Number of Number of Adjusted options at Number of Number of Number of options at exercise Market price Date from 1 January options options options 31 December price* at date of which 2004 granted lapsed exercised 2004 £/Euro exercise exercisable Expiry date
Number of Number of shares at Number of Number of Number of shares at Market price Market price Date from 1 January shares shares shares 31 December at date of at date of Date of which 2004 awarded lapsed issued 2004 grant exercise award exercisable Expiry date
SJ Bridges 27,364 – – (27,364) – 1.07 1.67 15 Jun 00 1 April 04 31 Dec 10
RS Childs 27,364 – – – 27,364 1.07 – 15 Jun 00 1 April 04 31 Dec 10
RRS Hiscox 27,364 – – (27,364) – 1.07 1.70 15 Jun 00 1 April 04 31 Dec 10
BE Masojada 27,364 – – (27,364) – 1.07 1.67 15 Jun 00 1 April 04 31 Dec 10
Other employees 279,104 – – (251,740) 27,364 1.07 1.51-1.70 15 Jun 00 1 April 04 31 Dec 10
Notes to the Accounts continued 26 Pension contributions During the year, the Group contributed to the two sections of the Hiscox defined benefit pension scheme. The Group also contributed to a defined contribution scheme introduced on 1 January 2001 for all staff joining the Group. The total pension charge for Hiscox plc for the year on a SSAP 24 basis amounted to £2,809,000 (2003: £2,183,000).
The split of assets, their expected rate of return and the funding position of the entire defined benefit scheme at 31 December 2004, measured in accordance with the requirements of FRS 17, were as follows: Total market value of assets 65,020 58,202 43,533 46,610 Present value of scheme liabilities (99,229) (91,536) (77,258) (59,800)
Deficit in the scheme – pension liability (23,946) (23,334) (23,607) (9,233)
Current position at 31 December 2004 371,599 Pension (asset)/liability on a SSAP 24 basis (6,868) Pension asset/(liability) on a FRS 17 basis (23,946)
Movement in scheme deficit during the year: Current service cost (2,834) (2,348)
Difference between the expected and actual return on scheme assets: Percentage of scheme assets 2% 6% 20% Experience gains and losses on scheme liabilities: Percentage of the present value of scheme liabilities 1% 3% 6% Total actuarial gain in the statement of total recognised gains and losses: Percentage of the present value of scheme liabilities 0% 6% 26%
(a) The Company entered into a deed of covenant in respect of its corporate member subsidiaries, Hiscox Dedicated Corporate Member Limited, Hiscox Select A to J Limited, to meet the subsidiaries’ obligations to Lloyd’s. The total guarantee given by the Company under this deed of covenant (subject to limited exceptions) amounts to £117,209,120 (2003: £108,167,046). The obligations under these deeds of covenant are secured by a fixed and floating charge over certain of the investments and other assets of the Company in favour of Lloyd’s. Lloyd’s has a right to retain the income on the charged investments in circumstances where it considers there to be a risk that the covenant might need to be called and might not be met in full.
(c) Hiscox Insurance Company Limited has arranged a letter of credit of £325,000 with Natwest Bank plc to support its consortium activities with Lloyd’s.
Notes to the Accounts continued 28 Lease commitments (a) Operating leases The Group has the following commitments under operating leases: Land and Land and buildings Other Total buildings Other Total
Net assets disposed of and the related commutation proceeds were as follows: Reinsurer’s share of technical provisions – claims outstanding 2,283 Debtors arising out of reinsurance operations 5,436 Cash at bank and in hand 1,566 Claims outstanding (9,226) Other creditors (7)
^Hiscox Trustees Limited is the trustee of the Hiscox plc Group Employee Share Ownership Plan (ESOP). The ESOP owned 325,434 shares (2003: 313,368 shares) in Hiscox plc at 31 December 2004. The shares have been purchased by the ESOP for future use in employee share option schemes. None of these shares are currently under option to employees, nor have been conditionally gifted to them. In accordance with UITF Abstract 38, which the Company has adopted early in 2003, the cost of these shares of £409,000 (2003: £300,000) has been taken to a separate reserve for own shares.
(a) Reconciliation of operating profit to net cash inflow from operating activities £000 £000
(b) Movement in opening and closing portfolio investments net of financing Notes £000 £000
Net cash inflow/(outflow) for the period 32(e) 393 (25,608) Portfolio investments 32(d), 32(e) 51,951 35,968 Decrease/(increase) in loans 32(e) 305 (257)
Premiums received, net of reinsurance 470,267 442,742 Claims paid, net of reinsurance (124,154) (104,587) Net portfolio investments 14,249 12,055 Other net cash flows (175,788) (175,211)
Net cash flow before retention and transfer from/(to) the Group 184,574 174,999 Transfer from/(to) the Group – 7,712
Portfolio investment Purchase of shares and units in unit trusts 65,899 74,316 Purchase of debt securities and other fixed interest securities 277,925 301,303 Sale of shares and units in unit trusts (96,389) (29,730) Sale of debt securities and other fixed interest securities (231,855) (241,646) Increase/(decrease) in deposits with credit institutions 36,371 (68,275)
Changes Changes to At 31 At 1 January in other market value December 2004 Cash flow business and currencies 2004 (e) Movement in cash, portfolio investments and financing* £000 £000 £000 £000 £000
Cash at bank and in hand 52,945 393 7,994 – 61,332 Shares and units in unit trusts 111,947 (30,490) – 5,337 86,794 Debt securities and other fixed interest securities 579,470 46,070 177,572 (6,715) 796,397
*These balances include amounts relating to syndicate participations, but exclude participations in associated undertakings of £1,109,000 (2003: £519,000).
(f) Scope of cash flow The consolidated cash flow statement excludes cash flows relating to underwriting on Lloyd’s syndicates.
Operating profit/(loss) before taxation 86,337 77,122 34,584 (21,220) 2,950 Short term fluctuations in investment return (7,800) 8,792 (11,142) (8,694) 1,043 Exceptional items – – – – 1,803
Profit/(loss) on ordinary activities before tax 77,034 83,408 20,739 (32,496) 3,487
Profit/(loss) on ordinary activities after tax 54,574 60,491 14,399 (23,107) 5,430
Net asset value per share 126.7p 113.5p 97.0p 85.5p 90.2p Financed by
**Profit on ordinary activities after taxation as a percentage of opening shareholders’ funds. ***Closing mid market price.
Notice is hereby given that the Annual General Meeting of Hiscox plc will be held at 1 Great St Helen’s London EC3A 6HX on 21 June 2005 at 11.00 am for the following purposes: Ordinary business (1) To receive the accounts of the Company for the year ended 31 December 2004 together with the directors’ and auditors’ reports thereon.
(3) To re-appoint RS Childs who retires as director in accordance with the Articles of Association and the Combined Code.
(6) To re-appoint KPMG Audit Plc as auditors of the Company to hold office from the conclusion of this meeting until the conclusion of the next general meeting of the Company at which accounts are laid.
(8) To declare a final dividend for the year ended 31 December 2004 of 3.5 pence (net) per ordinary share payable to shareholders on the register at the close of business on 15 April 2005.
Ordinary resolutions (9) That the directors be generally and unconditionally authorised (in substitution for all existing authorities) pursuant to Section 80 of the Companies Act 1985 (“the Act”) to allot relevant securities (within the meaning of that Section) up to a maximum aggregate nominal value of £4,897,001.43, representing 33.3% of the issued ordinary share capital as at 14 March 2005, for a period expiring (unless previously renewed, varied or revoked by the Company in general meeting) on the earlier of the conclusion of the next Annual General Meeting or a date falling fifteen months from the date of the passing of this resolution provided that the authority of the directors shall extend to the making of any offer or agreement before the expiration or revocation of the authority which would or might require relevant securities to be allotted after the expiration or revocation of this authority and the directors may allot relevant securities in pursuance of any such offer or agreement notwithstanding the expiry or revocation of this authority. (10) That the Remuneration Report contained within the Report and Accounts for the year ended 31 December 2004 be approved.
(b) to deal with legal or practical problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory; and
(ii) the allotment of ordinary shares for cash otherwise than pursuant to paragraph (i) up to an aggregate nominal amount of £734,550.22.
(b) By deleting article 60 and replacing it with the following: “60. Voting by Proxy (A) Subject to paragraph
(B) below, an instrument appointing a proxy shall be in writing in any usual form (or in another form approved by the board) executed under the hand of the appointor or his duly constituted attorney or, if the appointor is a company, under its seal or under the hand of its duly authorised officer or attorney or other person authorised to sign.
(B) Subject to the Acts, the board may accept the appointment of a proxy received in an electronic communication on such terms and subject to such conditions as it considers fit. The appointment of a proxy received in an electronic communication is not subject to the requirements of paragraph (A) above. The board may require the production of any evidence it considers necessary to determine the validity of such an appointment.
(F) Deposit of an instrument of proxy does not prevent a member attending and voting in person at the meeting or an adjournment of the meeting or on a poll.
(G)An instrument of proxy is (unless the contrary is stated in it) valid for an adjournment of the meeting as well as for the meeting or meetings to which it relates. An instrument of proxy is valid for 12 months from the date of execution or, in the case of an appointment of proxy delivered in an electronic communication, for the duration specified by the board.
(c) By deleting article 61 and replacing it with the following: “61. Deposit of proxy An instrument of proxy, and (if required by the board) a power of attorney or other authority under which it is executed or a copy of it notarially certified or certified in some other way approved by the board, shall be: (i) in the case of an instrument in writing, deposited at the office, or another place in the United Kingdom specified in the notice convening the meeting or in an instrument of proxy or other accompanying document sent by the Company in relation to the meeting, not less than 48 hours before the time for holding the meeting or adjourned meeting or the taking of a poll at which the person named in the instrument proposes to vote; (ii) in the case of an appointment of a proxy contained in an electronic communication, where an address has been specified for the purpose of receiving electronic communications: (a) in the notice convening the meeting; or (b) in any form of appointment of a proxy sent out by the Company in relation to the meeting; or
Copies of the register of directors’ interests and copies of any directors’ service contracts (including the terms and conditions of appointment of nonexecutive directors) kept by the Company will be available for at least 15 minutes before the commencement of the meeting and will remain available during the continuance of the meeting to any person attending the meeting.
Copies of the amended rules of the Hiscox Unapproved Share Option Scheme, including Schedule 2, will be available for inspection at the offices of the Company at 1 Great St Helen’s, London, EC3A 6HX during usual office hours (Saturdays, Sundays and bank holidays excepted) from the date of dispatch of this notice up to and including the date of the Annual General Meeting, and will be available for at least 15 minutes before the commencement of the meeting and will remain available during the continuance of the meeting to any person attending the meeting.
To be effective, the proxy and, unless previously registered with the Company, the authority or power of attorney under which it is executed or a notarially certified copy thereof must be lodged with the Company’s registrars, Capita Registrars, Proxy Department, PO Box 25, Beckenham, Kent, BR3 4BR, not later than 48 hours before the time for holding the meeting or (as the case may be) the adjourned meeting.
Hiscox Syndicates Limited, Hiscox Insurance Company Limited and Hiscox Investment Management Limited are authorised and regulated by the Financial Services Authority.