The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit actuarial cost method. A formal full actuarial valuation is performed on a triennial basis, most recently at 31 December 2014, and updated at each intervening balance sheet date by the actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of AA rated corporate bonds that have terms to maturity that approximate to the terms of the related pension liability.
Managed fund pooled investment vehicles UK equity funds 76,233 70,871 Emerging market equity funds 9,949 7,515 Global equity funds 35,495 46,129 Bond funds 48,901 38,580 US equities 24,530 16,302
The movement in liability recognised in the Group’s balance sheet is as follows: Group defined benefit liabilities at beginning of the year 75 32,166 Third-party Names’ share of liability (13) (5,422) Net defined benefit liability at beginning of year 62 26,744 Defined benefit cost included in net income 172 1,825 Credit from third-party Names (28) (271) Total remeasurement included in other comprehensive income 46,531 (28,236) Net defined benefit liability at end of year 46,737 62 Third-party Names’ share of liability 9,402 13 Group defined benefit liability at end of year 56,139 75
Additional memorandum information at the end of the current and previous six accounting periods is presented below: Present value of scheme obligations 271,072 199,120 227,375 179,479 173,420 155,685 146,737 Fair value of scheme assets (214,933) (199,045) (195,209) (185,666) (156,513) (140,517) (144,056) Present value of unfunded obligations/(surplus scheme assets) 56,139
Effect of asset ceiling/onerous liability – – – 10,553 – – – Gross liability recognised on balance sheet 56,139 75 32,166 4,366 16,907 – –
The average life expectancy in years of a pensioner retiring at age 60 on the balance sheet date is as follows: 2016 years 2015 years
Profit for the year attributable to the owners of the Company (£000) 336,986 209,895 Weighted average number of ordinary shares in issue (thousands) 281,175 288,209 Adjustments for share options (thousands) 9,402 9,603 Weighted average number of ordinary shares for diluted earnings per share (thousands) 290,577 297,812 Diluted earnings per share (pence per share) 116.0p 70.5p
Diluted earnings per share has been calculated after taking account of 8,653,254 (2015: 8,872,744) options and awards under employee share option and performance plan schemes and 748,600 (2015: 730,477) options under SAYE schemes.
Interim dividend for the year ended: 31 December 2016 of 8.5p (net) per share 24,260 – 31 December 2015 of 8.0p (net) per share – 22,403
160 Hiscox Ltd Report and Accounts 2016 2 Strategic report 35 Governance 73 Remuneration 101 Financial summary Notes to the consolidated financial statements
(c) Hiscox Insurance Company Limited has arranged a Letter of Credit of £50,000 (2015: £50,000) with NatWest Bank plc to support its consortium activities with Lloyd’s the arrangement is collateralised with cash of £50,000 (2015: £50,000).
(e) As Hiscox Insurance Company (Bermuda) Limited (Hiscox Bermuda) is not an admitted insurer or reinsurer in the US, the terms of certain US insurance and reinsurance contracts require Hiscox Bermuda to provide Letters of Credit or other terms of collateral to clients. Hiscox Bermuda has in place a Letter of Credit Reimbursement and Pledge Agreement with Citibank for the provision of a Letter of Credit facility in favour of US ceding companies and other jurisdictions, and also Letter of Credit facility agreements with National Australia Bank and Commerzbank AG. The agreements combined are a three-year secured facility that allowed Hiscox Bermuda to request the issuance of up to US$400 million in Letters of Credit (2015: US$350 million). Letters of Credit issued under these facilities are collateralised by cash, US government and corporate securities of Hiscox Bermuda. Letters of Credit under these facilities totalling US$95.9 million were issued with an effective date of 31 December 2016 (2015: US$81.1 million on a US$350 million facility) and these were collateralised by US government and corporate securities with a fair value of US$109.1 million (2015: US$92.4 million). In addition, Hiscox Bermuda holds US$468 million (2015: US$404 million) of restricted cash and marketable securities collateralising reinsurance obligations.
34 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, equipment and software development was £1,881,000 (2015: £2,168,000).
Operating lease commitments The Group acts as both lessee and lessor in relation to various offices in the UK and overseas which are held under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The Group also has payment obligations in respect of operating leases for certain items of office equipment. Operating lease rental expenses for the year totalled £9,236,000 (2015: £9,794,000). Operating lease rental income for the year totalled £448,000 (2015: £226,000).
The total future aggregate minimum lease rentals receivable by the Group as lessor under non-cancellable operating property leases are as follows: No later than one year 528 149 Later than one year and no later than five years 352 746 Later than five years – –
35 Principal subsidiary companies of Hiscox Ltd at 31 December 2016
Hiscox plc* Holding company Great Britain Hiscox Insurance Company Limited General insurance Great Britain Hiscox Insurance Company (Guernsey) Limited* General insurance Guernsey Hiscox Holdings Inc. Insurance holding company USA (Delaware) ALTOHA, Inc. Holding company USA (Delaware) Hiscox Insurance Company Inc. General insurance USA (Illinois) Hiscox Inc. Underwriting agent USA (Delaware) Hiscox Insurance Company (Bermuda) Limited* General insurance and reinsurance Bermuda Hiscox Dedicated Corporate Member Limited Lloyd’s corporate Name Great Britain Hiscox Holdings Limited** Insurance holding company Great Britain Hiscox Syndicates Limited Lloyd’s managing agent Great Britain Hiscox ASM Ltd Insurance intermediary Great Britain Hiscox Underwriting Group Services Limited Service company Great Britain Hiscox Capital Ltd* Reinsurance Bermuda Hiscox Underwriting Ltd Underwriting agent Great Britain Hiscox Europe Underwriting Limited Insurance intermediary Great Britain Direct Asia Insurance (Holdings) Pte Ltd Holding company Singapore Direct Asia Insurance (Singapore) Pte Limited General insurance Singapore *Held directly.
**Hiscox Holdings Limited held 38,030 shares in Hiscox Ltd at 31 December 2016 (2015: 38,030).
All principal subsidiaries are wholly owned. The proportion of voting rights of subsidiaries held is the same as the proportion of equity shares held.
162 Hiscox Ltd Report and Accounts 2016 2 Strategic report 35 Governance 73 Remuneration 101 Financial summary Notes to the consolidated financial statements
Hiscox Group insurance carriers 54,302 19,181 31,802 58,960 Hiscox Group insurance intermediaries 6,890 6,425 (16,336) (15,396) Other Hiscox Group companies – – (6,626) (8,043)
(b) Transactions with associates Certain companies within the Group conduct insurance and other business with associates. These transactions arise in the normal course of obtaining insurance business through brokerages, and are based on arm’s length arrangements.
37 Subsequent events On 27 February 2017, the Lord Chancellor announced a change to the discount rate in relation to compensation claims as a result of personal injury from +2.5% to -0.75%. The impact to the Group has been assessed as not material.
Profit for the year after tax 336,986 209,895 216,152 237,758 208,026 Assets employed
Financial assets carried at fair value 3,792,033 2,921,585 2,828,847 2,585,054 2,406,269
Five-year summary 164 Hiscox Ltd Report and Accounts 2016 2 Strategic report 35 Governance 73 Remuneration 101 Financial summary