Financial summary 78 Independent auditor’s report 79 Consolidated income statement 79 Consolidated statement of comprehensive income 80 Consolidated balance sheet 81 Consolidated statement of changes in equity 82 Consolidated statement of cash flows 83 Notes to the consolidated financial statements 132 Five-year summary
Investment in the Hiscox brand continues to deliver, with retail customers now exceeding 600,000.
– In the UK, 97% of Hiscox Home Insurance customers who have made a claim would recommend us. – Our broker partners value our claims expertise, rating Hiscox number one in the Gracechurch London Claims Report for overall service quality. – In 2015 we received industry accolades which included Insurance Company of the Year at the City A.M. Awards and the Hiscox London Market Directors and Officers’ team being awarded Underwriting Team of the Year at the Insurance Day London Market Awards.
Hiscox Retail comprises Hiscox UK and Europe, and Hiscox International. I review them in turn below.
Our US business, entering its tenth year of operation in 2016, contributed significantly to the Group’s growth in 2015, increasing premiums by 21.5% and delivering a healthy profit. Hiscox London Market demonstrated its adaptability with growth of 14.6% and good profits. Hiscox Re continued to evolve whilst making a material profit contribution, with Kiskadee, our insurance linked securities business, expected to manage US$1 billion by the end of 2016. Hiscox UK, Hiscox Europe and Hiscox Guernsey have all had a good year, with good progress shown in DirectAsia.
Hiscox Guernsey Hiscox Guernsey comprises our Guernseybased kidnap and ransom, private fine art and executive security underwriting operations with sales offices in London and Miami.
The personal accident team recruited last year is making a strong impact, delivering profitable growth in a specialist line we are keen to lead. Similarly, our new product recall team has made a good start. Other lines, including contingency and kidnap and ransom, are holding steady and delivering strong profits driven by good risk selection.
Steve joined Hiscox in 2005 after a highly successful marketing and management career with Diageo, Coca-Cola, Nestlé, Bass Brewers and Scottish & Newcastle across the UK, Europe and South America. He has been at the forefront of developing the Hiscox brand globally, including the development of its first television advertising campaign in 2006 and the successful launch of the brand in the USA, Europe and (under the DirectAsia brand) in Singapore, Hong Kong and Thailand. Since 2013, Steve has led the UK and Ireland and Europe businesses as a combined entity and in 2014 he also became CEO of the DirectAsia Group postacquisition. Steve became a Fellow of the Marketing Society in 2012 and is a Freeman of the City of London.
Risk management continued opportunities throughout the cycle; – taking a transparent approach to risk in the decision-making process.
Insurance cycle Hiscox competes against major international insurance and reinsurance groups. At times, some of these groups may choose to underwrite risks at prices that fall below the breakeven technical price. Prolonged periods when premium levels are low or when competition is intense are likely to have a negative impact on the Group’s financial performance.
– Communication: regular and open communication with the major credit rating agencies helps to ensure we continue to meet their expectations.
– Cash: available cash is invested according to the Group’s investment policy and our cash requirements can normally be met through our regular income streams: premiums, investment income, existing cash balances or by realising investments that have reached maturity.
The community Hiscox Bermuda has pursued a wide range of community initiatives. It continued its support of the Hiscox 11-and-under youth cricket league, and is the lead sponsor of Reef Watch, a citizenscience initiative for coral reef conservation. Employees play an active role in the Keep Bermuda Beautiful’s ‘Adopt an Area’ programme, participate in YouthNet’s Reading Mentoring programme, and, with the Eliza Dolittle Society, helped prepare and serve Thanksgiving dinner to around 200 members of the community. It also makes a number of donations to groups that support the island’s youth and families: Chain Reaction, The Family Center, The Bermuda Sloop Foundation, The Women’s Resource Center and the BSMART Foundation. Its donation to Project 100 supported disabled adults in assisted living facilities, while its donation to the National Museum of Bermuda has assisted with the much-needed repairs from hurricanes in 2014 and 2015.
Bronek Masojada joined Hiscox in 1993. From 1989 to 1993 he was employed by McKinsey and Co. Bronek served as a Deputy Chairman of Lloyd’s from 2001 to 2007 and was Chairman of the Lloyd’s Tercentenary Research Foundation from 2008 to 2014. He is a past President of The Insurance Institute of London and immediate Past Master of The Worshipful Company of Insurers. He is currently a member of the Board of the Association of British Insurers.
The Committee also has a role in considering the succession planning for Executive Directors and senior managers, and a remit to make recommendations on the succession planning for the Chairman and the Chief Executive and other members of the senior management group. During the year Stuart Bridges resigned as Chief Financial Officer in order to take up an alternative role outside the Group and left the Board on 31 August 2015. Details of the severance terms for Mr Bridges were posted on the Company’s website from 1 September 2015 until publication of this Annual Report and are set out on page 68. The Committee approved a role specification and has instituted a process to find a new Chief Financial Officer.
The Executive Committee The Executive Committee was established as a Committee of the Board in February 2015. It comprises Senior Executives, as listed on page 17, and will normally meet every six weeks. It makes recommendations to the Board and approves various matters (some of which may also require Board approval). The Committee approves senior appointments and remuneration outside the scope of the Remuneration Committee or Nominations Committee, approves operational policy, takes decisions on annual budgets and business plans, mergers and acquisitions, considers significant issues raised by management and approves exceptional spend within the limits established by the Board. Below this there are local management teams that drive the local businesses.
In addition to the internal evaluation of the Board, the then interim Senior Independent Director, Mr Stokholm, met with the other Non Executive Directors without the Chairman present to appraise the performance of the Chairman. During the year, the Non Executives also periodically met without the Executive Directors to discuss a wide range of issues concerning the Company. The Chairman held one-to-one meetings with each of the Non Executive Directors during the year to review their performance including their attendance, contribution and preparation for meetings and to discuss any training and development needs. No issues arose which would prevent the Chairman from recommending the re-appointment of a Non Executive Director. The Chairman met with the Chief Executive and the Chief Executive met with each of the Executive Directors, to discuss their performance over the year and to set targets for the year ahead.
– New clawback arrangements In addition to the existing malus provisions, all future bonus (including the deferred element) and PSP awards will be subject to clawback provisions that will apply for up to two years after the end of the relevant performance period. As with our existing malus provisions the Remuneration Committee would have the ability to apply clawback in the event of a retrospective material restatement of the results, or gross misconduct leading to the Company suffering significant reputational or financial damage.
Awards are generally subject to continued employment however, awards may vest to leavers in certain scenarios (e.g. ‘good’ leaver circumstances).
On target performance Fixed reward plus variable pay for the purpose of illustration as follows. – Annual incentive: assume a bonus equivalent to 150% of salary. – PSP: assume vesting of 50% of the maximum award.
notice on either side, no contractual termination payments being due and subject to retirement pursuant to the Bye-laws at the Annual General Meeting. The contract for the Chairman is subject to a six-month notice provision on either side.
If the departing Executive Director does not sign a release of claims, they would normally be entitled to payments defined under point 1 only. In the event that the Executive is dismissed for gross misconduct, they would forfeit any payments under UK employment law. In the event of a voluntary resignation to join another company, no payments would normally be made other than remaining on the payroll, with associated benefits during the contractual notice period of six months.
Dividend and return of capital to shareholders (£m) -46.7 (% change)
Note 24 to the consolidated financial statements on employee share schemes (page 117)
Current tax 4,884 32,379 Trade and other payables 27 416,358 591,660
2.1 Statement of compliance The consolidated financial statements have been prepared in accordance with
The assets’ residual values and useful lives are reviewed at each balance sheet date and adjusted if appropriate. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement.
To the extent that a surplus emerges on the defined benefit obligation, it is only recognisable on the asset side of the balance sheet when it is probable that future economic benefits will be recovered by the
3 Management of risk continued 3.1 Insurance risk continued i) Underwriting risk continued claims under these policies. The Group’s exposure to commodity price risk in relation to these types of insurance contracts is very limited, given the controlled extent of business interruption cover offered in the areas prone to losses of asset production.
The Group sets the amount of capital required in its funding structure in proportion to risk. The Group then manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk 3 Management of risk continued 3.2 Financial risk continued
At 100% level (note 4b) 1% change in claims or expense ratio 8,891 4,852 2,067 – 8,089 4,273 2,293 –
12 Net foreign exchange gains The net foreign exchange gains for the year include the following amounts: Exchange gains recognised in the consolidated income statement 15,153 4,974 Exchange gains classified as a separate component of equity 34,478 34,019
Acquisitions on purchase of subsidiary 2,079 – – 6,390 6,666 15,135
During 2015, the Group increased its holding in White Oak Underwriting Agency Limited to 29.8% for £2,089,000.
The foreign exchange forward contracts are represented by gross fair value of assets and liabilities as detailed below: Gross fair value of assets 19,596 3,003 22,599 Gross fair value of liabilities (19,117) (3,079) (22,196)
The movement in liability recognised in the Group’s balance sheet is as follows: Group defined benefit liabilities at beginning of the year 32,166 4,366 Third-party Names’ share of liability (5,422) (731)
The scheme operates under UK trust law and the Trust is a separate legal entity from the Group. The scheme is governed by a board of trustees, comprised of member and employee trustees. The trustees are required by law to act in the best interests of scheme members and are responsible for setting certain policies together with the principal employer. The scheme is funded by the Group when required. Funding of the scheme is based on a separate actuarial valuation for funding purposes for which the assumptions may differ from the assumptions above. Funding requirements are formally set out in the statement of funding principles, schedule of contributions and recovery plan agreed between the trustees and the Company.
Net asset value per share (p) 545.0 462.5 402.2 346.4 323.5