4 Chairman’s Statement 7 Chief Executive’s Report 15 Directors and Advisors 16 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 60 Key Shareholder Information
• A strong outlook for 2004, which has started well. London market prices and retail rates remain firm. A robust pipeline of earnings is expected to continue to flow through from previous years *Restated for the adoption of UITFs 37 and 38. See note 5
Dividend We have a progressive dividend policy, with an ambition of steady dividend growth throughout the insurance cycle.
This means showing restraint during very profitable times in order to be able to maintain the growth in dividend, if possible, in less profitable times. In line with this policy, the Board recommends a final dividend of 2.9p (net) per ordinary share, making a total distribution for the year of 4.20p (2002: 3.54p), an increase of 19% on 2002. This will be paid on 28 June 2004 to shareholders on the register on 23 April 2004.
Prices overall remained firm during the year-end renewal season, so given the usual caveats against exceptional losses, 2004 should show another strong result. There was competition for some property risks, but liability premiums continued to increase. The earnings flow from these good years will be felt for the next few years, but we fully understand that the challenge will be to continue to produce good returns should foolish competition return. This we will do by disciplined underwriting and by hunting outside the London Market for good business. Gone are the days when we would sit patiently in Lloyd’s waiting for business to be shown to us by Lloyd’s Brokers. Our underwriters are searching for new distribution channels and using internet technology to underwrite business overseas.
“OUR REGIONAL PRESENCE GIVES US GOOD GEOGRAPHICAL COVERAGE FROM WHICH TO BUILD AND CONSOLIDATE OUR POSITION IN THE RETAIL MARKET”
business, has made good progress. We are building major corporate relationships with organisations such as the Yorkshire Bank and are generating lots of enquiries for our brokers.
Bronislaw Edmund Masojada Chief Executive (Aged 42) 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.
Carol Franklin Engler Chairman of Nominations Committee (Aged 52) Carol Franklin Engler is a partner in Vorausdenken. 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.
Dividends An interim dividend of 1.3p (net) per share (2002: 1.14p) was paid on 27 October 2003 in respect of the year ended 31 December 2003. The directors recommend the payment of a final dividend of 2.9p (net) per share (2002: 2.4p (net)). This will be paid on 28 June 2004 to shareholders on the register at the close of business on 23 April 2004.
– Employee policies: The Company has a clearly stated aim to be an employer of choice recognised for its people excellence. This influences all of its employment policies.
Our Art Café has held a number of exhibitions of young artists in the year.
Payment is then made on these terms, subject to the terms and conditions being met by the supplier. The Group had 13.6 (2002: 18.0) days purchases outstanding at 31 December 2003 based on the average daily amount invoiced by suppliers during the year ended 31 December 2003. The Company is a holding company and accordingly has no days purchases outstanding at 31 December 2003. Therefore, the Group creditors days are considered to be more representative.
Resolution 9, which will be proposed as an ordinary resolution, seeks to change the performance conditions applying to future options granted under the Hiscox Approved Share Option Scheme. Full details of the changes are set out in the Directors’ Remuneration Report.
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 Services Authority, and by our profession’s ethical guidance.
Reinsurers’ share of technical provisions Provision for unearned premiums 24 63,004 102,608
1 Basis of preparation The financial statements of the Group and the Company have been prepared in accordance with applicable accounting standards as at 31 December 2003 and under historical cost accounting rules, modified by the revaluation of investments.
World Trade Center is described in more detail in note 4 to the accounts.
3(h) Investment return All investment return is recognised in the non-technical account.
As at 29 February 2004, gross notifications had reduced to US$552 million after adjusting for a US$15 million reduction on the loss for a transportation company which remains subject to market agreement. This would result in a net loss to Hiscox plc of approximately £65 million at £1:$1.79.
Syndicate 33 has reduced its bad debt provision on reinsurance recoveries from the WTC loss to US$4.5 million following successful commutations. No reinsurer on our programme has yet refused to pay a claim through insolvency. It has been assumed that no major reinsurer will fail.
Trading profit for Group share of continuing operations (Note 7c) 86,800 40,592 *For the 2003 year of account, the Group owned 65% (2002: 63%) 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.
Cost at 31 December 2003 584 b) Investment in subsidiary undertakings £000 £000
No. of No. of Market Market shares at No. of No. of No. of shares at price at price at Date from 1 January shares shares shares 31 December date of date of Date of which Expiry 2003 awarded lapsed issued 2003 grant exercise award exercisable date
RRS Hiscox 27,364 – – – 27,364 1.07 – 15 Jun 00 1 April 04 31 Dec 10
*Hiscox Insurance Company (Guernsey) Limited has subscribed cellular share capital of $1,175,000 in a cell in Harlequin Insurance PCC Limited, a protected cell company incorporated in Guernsey under the Protected Cell Companies Ordinance, 1997 (as amended). This cell, Cell Hiscox, made a loss in the year of $680,363 (2002: profit of $910,621) which has been included in the figures of Hiscox Insurance Company (Guernsey) Limited and consolidated in this Report and Accounts. The cumulative loss of Cell Hiscox to date is $1,067,174.
Acquisitions and disposals Payments to acquire investment in associated undertaking (50) – Acquisition of subsidiary undertaking – – Net cash and investments acquired with subsidiary – –