Final Results

12th Mar 2007 07:04

Hiscox Ltd12 March 2007 Hiscox Ltd Preliminary results for the year ended 31 December 2006 "Record profits after substantial investment in the future" Hiscox Ltd, the specialist insurer, today announces preliminary results for theyear ended 31 December 2006. 2006 2005Gross written premiums £1,126.2m £861.2mNet earned premiums £888.8m £693.3mProfit before tax £201.1m £70.2mEarnings per share 41.7p 15.6pFinal dividend per share 7.0p 4.75pNet asset value per share 173.2p 147.7pGroup combined ratio 88.3% 96.0%Return on equity 28.9% 12.8% Financial highlights • Record pre-tax profits up 186% to £201.1m (2005: £70.2m) • Earnings per share on profit after tax up 167% to 41.7p (2005: 15.6p) • Final dividend of 7p per share (2005:4.75p) making 10p for the full year, an increase of 43% (2005: 7p) • Dividend of 12p per share targeted for 2007 • Gross written premium income increased 30.8% to £1,126.2m (2005: £861.2m) • Hiscox Global Markets business made a very strong pre-tax profit of £116.6m (2005: £20.7m) with a combined ratio of 89.0% (2005: 99.9%) • Hiscox International increased pre-tax profits to £51.9m (2005: £6.2m) with a combined ratio of 62.2% (2005: 91.3%) • Hiscox UK and Hiscox Europe delivered pre-tax profits of £32.6m (2005: £43.4m) after investing significantly in advertising and the further expansion of the company's regional network. Operational highlights • Redomicile to Bermuda completed • New operations, Hiscox Bermuda and Hiscox USA, made excellent starts • Panther Re, the first Lloyd's market sidecar, was launched substantially increasing Syndicate 33's catastrophe reinsurance underwriting capacity • Our investment in marketing in the UK, which featured our first ever TV advertising campaign, improved brand awareness and drove up demand Robert Hiscox, Chairman, Hiscox Ltd, commented: "It has been a very good year for Hiscox. Our decision to increase ourcatastrophe reinsurance book by opening in Bermuda after two bad catastropheyears and with every pundit forecasting more disasters, has paid off handsomely.In addition, our retail businesses continue to grow in the UK, Europe and theUSA. "We will continue to focus on our specialist business lines around the world, aiming to build a balanced overall account with sustainable profitability." Copies of the Chairman's statement, Chief Executive's report and the Group'sfinancial information as at 31 December 2006 are attached. Ends For further information: Hiscox LtdRobin Mehta, Company Secretary +1 44 1278 8300Sebastian St John Clarke, Head of Communications, London +44 (0) 20 7448 6458 MaitlandPhilip Gawith +44 (0) 20 7379 5151Suzanne Bartch +44 (0) 20 7379 5151 Notes to editors About Hiscox Hiscox, headquartered in Bermuda, is a specialist insurance group listed on theLondon Stock Exchange. There are three main underwriting parts of the Group -Hiscox Global Markets, Hiscox UK and Europe, and Hiscox International. HiscoxGlobal Markets underwrites mainly internationally traded business in the LondonMarket - generally large or complex business which needs to be shared with otherinsurers or needs the international licences of Lloyd's. Hiscox UK and HiscoxEurope offer a range of specialist insurance for professionals and businesscustomers, as well as high net worth individuals. Hiscox International includesoperations in Bermuda, Guernsey and the USA. For further information, visit www.hiscox.com Chairman's Statement This is my first report as Chairman of Hiscox Ltd, the new Bermudian holdingcompany of the Hiscox Group. It is pleasing to report a record profit for theGroup, helped by a benign hurricane season (despite all the forecasts to thecontrary) which contributed to an excellent result by our Global Marketsdivision and our new insurance company in Bermuda. The timing was right to makea substantial investment in the future growth and prosperity of our regionalbusinesses, which have shown a solid performance in 2006 after considerablemarketing spend and start-up costs. ResultsThe results for the year ending 31 December 2006 were a record profit before taxof £201.1 million (2005: £70.2 million). Gross written premium increased30.8 per cent to £1,126.2 million (2005: £861.2 million) and net earned premiumincreased 28.2 per cent to £888.8 million (2005: £693.3 million). The combinedratio was 88.3 per cent (2005: 96.0 per cent). Earnings per share on profitafter tax increased by 167 per cent to 41.7p (2005: 15.6p) and net assets pershare increased by 17.3 per cent to 173.2p (2005: 147.7p). Return on equityincreased to 28.9 per cent (2005: 12.8 per cent). DividendIn 2005, the Board proposed dividends totalling 9p for the year. The exceptional profit has led the Board to propose, subject to shareholders' approval, a final dividend of 7p (2005: 4.75p) making a total distribution for the year of 10p (2005: 7p), an increase of 43 per cent. This will be paid on 5 June 2007 to shareholders on the register on 4 May 2007. The Board also agreed that we would target a total dividend of not less than 12p for 2007 subject to adequate profitability and shareholders' approval. We will maintain a policy of steady dividend growth if possible. I quiteunderstand the desire of shareholders to get a tangible return from thebusiness, especially as they have regularly provided money to us when required.But this is a capital hungry business. We have to have around 50% of ourturnover in readily realisable assets. When this is combined with our strategyof a wide spread of geographical distribution initiatives and the need to have aUS admitted insurer, we currently have an obvious good use of capital as weexpand. If in the future we contract and have surplus capital, we will of courseconsider buying back shares or other similar capital reduction initiatives. The ambitionWe want Hiscox to be a highly respected international specialist insurance andreinsurance company. The respect of our investors will be earned by the returnon their investment; the respect of our customers will be earned by ourintelligent covering of their risks backed by immaculate and cost-effectiveservice; the respect of our peers will be earned by the overall quality of allparts of the business. All that will be achieved by employing the best people,admired for their energy, discipline, integrity and instinct. It will beachieved consistently by balancing the risks we take between volatileinternational catastrophe business with more steady local and regional business,and by focusing on specific areas in which we are expert. Progress so farAs always I will highlight a few salient points leaving the detail to the ChiefExecutive's report which follows. The major corporate event of 2006 was the successful redomicile to Bermuda.Bermuda is a thriving commercial and intellectual insurance centre and it feelsa natural progression for Hiscox, with over 70 per cent of its businessemanating from outside the UK, to be headquartered there. During the year wealso launched the first sidecar in Lloyd's for our Syndicate 33 giving it theability to write $180 million more reinsurance premium. We also led the reform of the Lloyd's Market to electronic trading through the so-called G6 initiative. Commercially, a key event was the non-event of catastrophic hurricanes whichboosted our Global Markets and Hiscox Bermuda results. Our new ventures inBermuda, writing catastrophe reinsurance, and in the USA writing regionalbusiness had very successful first years. In the UK regional arena we continuedour major marketing drive to increase brand awareness and the flow of businessfrom all sources. We also opened new offices in the UK and continental Europe. Hiscox Global MarketsIt is easy to say that our great result was due to the lack of hurricane damage,but it took strong nerve at the time for the Global Markets team in London towrite the same exposure as the previous year despite every weather forecasterprophesying another truly catastrophic year of storms. Feast followed famine. Asubstantial profit was made despite having to cover a considerable deficit fromincreased claims coming in during the year from the 2005 hurricanes. Themultiple storms and the extraordinary damage in 2005 gave valid reasons for ournot being able to forecast the arrival of those late claims. We have learnt fromthem and will factor them into future forecasting. Rates have remained properly high for reinsurance and insurance exposed tonatural catastrophes. Climate change is at the top of most agendas, and we arenot assuming that last year's lack of catastrophes is the new norm. But mostcompetitors want to balance their obviously risky exposure with less risky, sorates are under pressure elsewhere. The decision of the State of Florida towrite a substantial proportion of the reinsurance of domestic insurers in theState may reduce income to us and other reinsurers. The Governor of Florida wasappalled that the insurance industry had made an estimated $3 billion in Floridain 2006, ignoring the fact that it suffered losses in the state of $26 billionin the previous two years. It will be interesting to see who buys reinsurancefrom the State with the political conditions attached and with no Federalguarantee. Global Markets also writes a good, steady book of regional business to balancein part their catastrophe account, giving a measure of stability within what isby its nature a volatile division. Hiscox InternationalThis section covers our operations in Bermuda, our new USA venture and Guernsey.Bermuda writes catastrophe exposed business, whereas Hiscox USA and Guernseywrite non-catastrophe regional and retail business. A good balance. Hiscox Bermuda had a perfect start. It wrote its budgeted income but did nothave the budgeted claims. Again, it must be remembered that the forecasts forthe year were very gloomy, but like the traditional naval officers of old, theysailed to the sound of gunfire to great benefit. Our new venture in Armonk, New York which started in March 2006 completed astorming first year well ahead of original budget. Hiscox Guernsey maintained its excellent record and truly is a jewel in ourcrown. Hiscox UK and EuropeOur regional business in the UK and Europe made solid progress. In the UK, theprices weakened in several large books of business and our underwriters let ourmore optimistic competitors take them from us. Our core accounts have filled thegap and expanded, showing good growth where we want it most, and we expectfurther progress from the renewed marketing spend this year. Competition is strong, but we have many years of experience and specialistexpertise in our core products. We also have excellent relationships withbrokers, especially with those who realise that the cheapest price is often themost expensive for the clients if it does not buy them the cover they need. Our direct account almost doubled its income and obviously benefited from theadvertising campaign. The campaign also greatly helped brokers sell ourpolicies, with fewer customers asking "who is Hiscox?" Our offices in Continental Europe achieved a profit for the third year running,and during the year additional country representative offices were opened inPortugal and Sweden. We retain our focus on our specialist areas of business, but believe in a widespread of distribution outlets as local business is placed locally, especiallyin Europe where regions within countries are like separate countries. InvestmentsThe investment return is an essential part of the underwriting business. We havehad interest rates steadily reducing from 15 per cent in 1990 to 3 per centrecently which has been a constant squeeze on our profits. Interest rates of 15per cent have a terrible effect on underwriting standards as the investmentreturn swamps the losses from bad underwriting. (Insurance companies wereregularly described as investment trusts with an expensive habit.) The squeezehas been good for underwriting standards as they have been fully exposed, so itis a healthier market as a result. However, the recent interest rate increasesto over 5 per cent has given a steady and meaningful increase to our basicprofitability, with the good underwriters doing better than the bad as thebetter you underwrite the more money you have to invest. We need to preserve our capital. We have needed every penny of it and any fallwould mean a reduction in our underwriting, so the investment of it has beenconservative. We will continue to try to squeeze every drop of return withinthat prudent stance. PeopleThis business is only people, capital and computers. Computers do what peopleprogram them to do, and capital is freely available to the best people. So theonly way we will achieve our ambition is to employ the best people, train themthoroughly and keep them motivated. I think we have excellent people throughoutthe Group and I am truly grateful to them for taking Hiscox to where it istoday. I must make special mention of Bronek Masojada, the Chief Executive, who leadsthe company with indefatigable energy and commercial acumen, and of RobertChilds, the Chief Underwriting Officer, who moved to Bermuda to help oversee therunning of the Group from there, and is also CEO of the Bermudian company andChairman of the US operation. FinallyChange at Hiscox is constant - and vital. It is essential that we constantlyadapt to the changing world outside our business, and keep ahead of ourcompetitors. This year we are running a bigger group of international businesses around theworld from Bermuda. We have the same strategy of balance which has served uswell in the last few years. If competition reduces rates on our internationalbook, our investment in the long-term growth of our more steady regionalbusinesses will truly come to the fore. It has been a year of wonderful profits.It has also been a year of investment in the future. The market looks aschallenging as ever, but we have the people and the tools to achieve ourambition. Robert Hiscox Chief Executive's Report OverviewIn 2006 Hiscox focused on five initiatives to grow both the short and long termprofitability of the Group. First, we commenced underwriting through our newBermudian reinsurance business whilst simultaneously growing our existingreinsurance business in London. Second, we opened for business in the USA.Third, we launched a brand building campaign in the UK, including our first TVcommercials. Fourth, we focused on the development of our sales skills inEurope. Finally, we moved our domicile to Bermuda. Our tactics in reinsurance in Bermuda and London and the sales focus in Europehave paid off immediately. The creation of Hiscox USA and the UK marketingcampaign have required an investment of almost £20 million which will paydividends for the Group over a longer time period. All of these effortspropelled the Group to record revenue and profits - both on an absolute and aper share basis. Net assets per share have grown to record levels as well. Looking forward we expect the market to get trickier during the course of thisyear - rates will be attractive in aggregate but discipline will be required toensure we underwrite the right risks at the right price. We believe that ourlong-term strategy of balancing retail business with volatile risks willcontinue to serve us well in this environment. We see great opportunities in ourretail activities in Europe, the UK and the USA. The investments we have madethis year will help them in their drive to develop organically. If, however, wecan find attractive businesses to acquire at the right price, we will do so. Hiscox Bermuda will expand its underwriting this year, making the transitionfrom a start-up to an established player on the Island. Hiscox Global Markets isseeking to widen its access to the market. It is developing hub offices in Parisand New York and working with competitors to launch peer to peer electronictrading initiatives. We will be tested as we seek to do all of this but success in our endeavourswill generate continued profits to the benefit of shareholders and staff. Group performanceThe pre-tax profit for the year was £201.1 million (2005: £70.2 million). Thisis a record performance for the Group. Total revenues controlled by the Groupgrew by 27.3 per cent to £1,407 million (2005: £1,105 million). Hiscox Ltd'sshare of this grew by 30.8 per cent to £1,126.2 million (2005: £861.2 million)which equals 286.9p per share (2005: 277.1p per share). Dividends for the yearhave been increased to 10p per share (2005: 7p per share). Our record results are in part due to the good fortune of a low loss year, andin part due to our decision to expand our catastrophe reinsurance writingssignificantly. This was a brave decision when it was made in late 2005 and Iwould like to thank shareholders for supporting us in this course - both withtheir words and with their money. I hope that they feel adequately rewarded bythese results. Hiscox Global MarketsThis business division uses the global licences, distribution network and creditrating available at Lloyd's to serve clients around the world. Seventy per centof the business is more volatile big ticket reinsurance, marine, energy andother international property and liability business. The remainder is lessvolatile, smaller ticket business which provides the division with some balance. Richard Watson took over as Managing Director of the division at the end of2005. Under Richard's leadership the division has maximised its revenues to takeadvantage of the re-rating that occurred in some lines of business after thehurricanes of 2005. Gross written premiums increased 24.3 per cent to £689.9million (2005: £555.2 million) and the division made a pre-tax profit of £116.6million (2005: £20.7 million) with a combined ratio of 89.0 per cent (2005: 99.9per cent). This record result has contributed materially to the Group'sperformance. Looking at the major business units of the division in turn: • Our London based reinsurance team took full advantage of the opportunity created by the strong rating environment. They expanded their business to £209.7 million (2005: £160.9 million) excluding inwards reinstatement premiums. During the course of the year we worked with W L Ross & Co to create a special purpose reinsurance vehicle, Panther Re, (the "sidecar") which will write a 40 per cent pro-rata share of this division's property catastrophe business in 2007. This was a first for the Lloyd's market. The team will benefit from the increased market presence the sidecar gives them and will receive a ceding commission and a profit commission based on actual performance. Rates in the reinsurance area remain attractive, despite the flow of underwriting capacity into this area over the past 12 months. • The large property, terrorism, marine and offshore energy teams all had a good year. Aggregate income grew to £254.3 million (2005: £213.4 million). Rating trends vary across these lines of business. Energy rates are firm following losses in the Gulf of Mexico last year and we continue to have an appetite for this area - albeit supported by quota-share reinsurance. Marine hull rates are under some pressure and we do not anticipate growth in this area. Rates for large property risks continue to increase and we are doing more business. Terrorism rates are under pressure as new entrants look to expand into areas not affected by natural catastrophes. • Technology, Media and Telecoms (TMT) has had another good year - with good profitability and increased distribution. Distribution initiatives include a focus on the Indian market and the recruitment and training of local underwriters in the USA, UK and European regional offices. At the end of the year the global professional indemnity account was brought under the management of the TMT leadership. We expect that this overlap will lead to shared underwriting discipline and better marketing. • Our Specialty team includes personal accident, kidnap and ransom, bloodstock and cancellation and abandonment business. It also writes some high value household and other smaller property business in the USA. Other than the household and property area, rates in this business have remained steady and we have enjoyed another profitable year. The household and smaller property business saw much increased rates after the 2005 hurricanes. Again we kept our nerve in the face of the unprecedented market losses in 2005 and have prospered as a result of maintaining our involvement. Looking forward, the Global Markets division is working on several relatedchallenges which include broadening its access to worldwide insurance businessand using technology to deliver better service. At the moment most of theDivision's business arrives in London via Lloyd's brokers, presenting risks inthe form of paper proposal forms to underwriters at boxes at Lloyd's. The teamis working on electronic peer to peer trading initiatives which will allowbrokers around the world to submit business electronically. This will besupported by a trading floor which we are building in our London office. GlobalMarkets has also widened its access to new business that has not always comeinto London by establishing two hub offices - one in Paris and the other in NewYork. These hubs and the e-trading approaches have already contributed in excessof $75 million of revenue to Global Markets. We expect that this will growmaterially in the years ahead. Hiscox InternationalThis business division was created during 2005 to cover our activities in theUSA, Bermuda and Guernsey. It has had a great year - becoming a driver of bothrevenues and profits for the Group. Total revenues for the division were £151.3million (2005: £43.7 million), profits were £51.9 million (2005: £6.2 million)with a combined ratio of 62.2 per cent (2005: 91.3 per cent). In 2005 all therevenues and profits came from Hiscox Guernsey, however during 2006 all theunits were fully active. • Hiscox Bermuda was capitalised with $500 million in December 2005. Around $300 million was raised by a Rights Issue, with the balance coming from debt facilities. Robert Childs, Chief Executive of Bermuda, set out to write $165 million of third party property catastrophe reinsurance business from a standing start sourced from Bermuda. He and his team surpassed this by writing $171 million. Balancing this business were the internal quota share arrangements which allowed the other businesses in the Group to expand their own activities. Bottom line results were outstanding, reflecting the absence of significant catastrophes and Hiscox Bermuda's attractive business mix. This strong start means that Hiscox Bermuda is well positioned to take advantage of the continuing favourable market environment. • Hiscox USA opened for business in March 2006. Ed Donnelly, President of Hiscox USA, set out to underwrite $15 million of business in the first year of operation. The actual income achieved was $25 million. The significant investment we are making to equip this business properly has impacted on profitability but has provided solid foundations on which to grow going forwards. At the moment, Hiscox USA's business is placed on commercial third party terms with Syndicate 33. We would ideally like to acquire a carrier to allow Hiscox USA to develop as a separately capitalised entity. • Hiscox Guernsey continues its excellent performance. Steve Camm, Underwriting Director in Guernsey, has worked to expand the office's core product lines of kidnap and ransom insurance and other related lines such as fine art, personal accident and terrorism insurance. Hiscox Insurance Company (Guernsey) Limited was awarded an A- rating this year by AM Best. This reflects both its excellent track record and the quota share reinsurance relationship it has with Hiscox Bermuda. Hiscox UK and Hiscox EuropeHiscox UK and Hiscox Europe have expanded their revenues during the year. Theirreduction in profitability reflects the outstanding year they had in 2005 andthe decision to invest substantially in both businesses at a time when globalbig ticket and reinsurance rates were high - making a bigger investment than ifthey had been stand alone entities. The performance of each unit is reviewedbelow: • Hiscox UK has seen its top line grow to £226.3 million (2005: £207.3 million) with profits down to £31.9 million (2005: £40.4 million). The combined ratio was 95.0 per cent (2005: 84.1 per cent). The fall in our combined ratio and profits is in part due to the large increase in marketing expenditure during the year. Steve Langan, Managing Director of Hiscox UK, joined us in October 2005 and has had a good first year. He has brought marketing skill and knowledge to the business, making sure that our £10 million increase in marketing budget was wisely used. The main focus to date of our marketing efforts has been on the Art and Private Client business. It remains a market leader, but we feel that we can expand our penetration, particularly through the direct and partnership channels. We are also working with some major brokers to help them reshape their ability to serve private client customers by using some of our direct capabilities. We saw strong growth in our Professions and Specialty Commercial area, particularly in our core target market of small and very small commercial businesses. Our confidence in the performance of these two areas has allowed us to resist some of the untenable requests put to us by intermediaries and we have walked away from business rather than write it on inappropriate terms. In 2007 we will continue with our marketing push, which we intend to broaden to ensure it supports both our commercial and our personal lines activities. The external environment is competitive, but we expect that our specialist focus will continue to insulate us in part from rate deteriorations. • Hiscox Europe has enjoyed a third year of aggregate profitability. Revenues rose to £58.7 million (2005: £55.0 million) with profits of £0.7 million (2005: £3.0 million). The combined ratio reduced to 98.7 per cent (2005: 99.7 per cent), closer to our target range of 95 per cent to 98 per cent. Marc van der Veer, Managing Director of Hiscox Europe, has led a drive to build a sales focused culture which has reaped rewards. Aggregate revenues have grown despite the need to cancel and re-underwrite some business to deal with the problems of the past. Europe has reached critical mass in aggregate, but results in individual countries are still volatile reflecting their smaller individual scale. France deserves special mention for its consistent performance. It has shown us what we can expect when each country achieves appropriate scale. Looking forward we will continue to expand our business in the countries where we are currently active. We opened offices in Lyon and Cologne during the year, moving our strategy from a 'flag in capital cities' to deeper penetration in countries in which we are already present. We expect to open more regional offices in France and Germany during the course of 2007. Claims, Operations and ITAt Hiscox we aim to pay valid claims fast and with a smile. Client surveyssuggest that to date we are achieving this reputation in their eyes. In order toensure this continues as the Group grows we have appointed Jeremy Pinchin,previously Head of Claims at Lloyd's, to lead this area. Jeremy is leading aprogram of skill building amongst staff, segmentation of our approach to claimsand further automation. These will ensure that claims attitude and paymentcontinues to support the Hiscox brand. Efficient operations are a cornerstone for any insurance business. We have beguna multi-year investment process to replace our core Global Market systems,allowing for global product management and sharing of risks around the world.The Operations team are also the change agents in the move to e-trading. In ourretail areas we continue to automate and eliminate waste. As pricing pressurescontinue, efficiency gains can offset, in part, some of the margin pressure wewill face. InvestmentsInvested assets in the Group grew to £1.74 billion (2005: £1.65 billion). Duringthe year we retained our conservative stance on both equities and bonds as wewanted to ensure we preserved our available capital to support underwriting. Thetotal return across the portfolio was £78.5 million (excluding derivativegains), equal to a 4.6 per cent return on average invested assets. Our investments are supervised by the team at Hiscox Investment Management. Theyalso look after £170 million of funds for third party investors. Our specialist financial funds had another good year, beating their benchmarks and earning performance fees. Balance sheetNet assets grew to 173.2p per share (2005: 147.7p) and tangible net assets grewto 164.8p per share (2005: 139.3p). For once we had a relatively quiet year onthe financing front as we concentrated on making sure the capital we raised atthe end of 2005 was put to good work. The most material financing activity wasthe arrangement of standby letters of credit so that Hiscox Bermuda could meetUS funding requirements in the event of a large loss. We hedged the net capital supporting our Bermudian activities so that wehave not been affected by the weakness of the dollar. The gains on thesederivatives have largely offset the non-cash losses we suffered in our accountsdue to the obscure way in which deferred acquisition costs and unearnedpremiums are not re-valued under IFRS. We hope that in time the accountingstandard setters will listen to the practical views of those who managebusinesses rather than the theoreticians in their think tanks. On 31 December 2006 we closed our final salary pension scheme to future accrual.This has resulted in a £7 million charge to this year's income statement. Allactive members who left the pension scheme joined the defined contributionscheme which has been in place for new joiners since 1 January 2001. The business has generated, and we hope will continue to generate, a healthycash flow. In the past our strategy has always been to reduce gearing as theinsurance market softens. However financial markets are throwing up interestingfinancing tools which allow for longer term debt than we have previouslyarranged. We will be working during 2007 to establish the optimal balance sheetmix for the market conditions we expect to prevail over the next several years.In order to ensure we have sufficient flexibility we will be seeking shareholderapproval to amend our bylaws to allow us to buy back shares into treasury. PeopleThe delivery of our ambitious business plan has put stresses and strains on allour staff. As the business grows the leadership challenge is being shared bymore and more people. During 2006 we launched management training initiativeswhich cover the needs of an individual from the time they begin to manage othersto the time they lead a division of the Group. This will complement our existingprogram for underwriting and professional training and personal development. For the past four years Hiscox has been one of the 'Top 100' places to work inthe UK Sunday Times survey. We were not in the final 100 this year - in part nodoubt due to the pension changes. We remain committed to being a well regardedplace to work and hope that we will receive this level of recognition again inthe future. Current tradingDuring January the insurance industry was impacted by two external events -Windstorm Kyrill and legislative changes in Florida. Windstorm Kyrill blew through the UK and Continental Europe. This was a smallnet loss to our retail businesses in the UK and Europe. Our reinsurance accountwas also affected. Based on a market loss of $5 billion we expect the overall net cost of Windstorm Kyrill to the Group will be approximately £25 million. In early February the State of Florida decided to double the amount of hurricanelosses it will "nationalise" to $28 billion per event. The exact impact thatthis will have on the market is not yet clear, though the reduction of demandwill inevitably put some pressure on prices elsewhere. We are fortunate that wehave a broader book of business with Florida personal lines reinsurance businessonly comprising 1.69 per cent of our controlled premium income last year, so theproportionate impact on Hiscox will be less than others. For the Hiscox book of business, rates in aggregate remain at attractive levels,though this disguises different trends in different parts of the account. Ratesin catastrophe exposed lines have climbed to new peaks, whilst rates innon-catastrophe exposed lines are under pressure. We will therefore need to bemore discriminatory in our underwriting, giving the good insured the reductionthey deserve, but holding firm where the record is poor or exposure is growing. ConclusionOver the past two years the Hiscox Group has changed from a London focusedbusiness to a specialist business with a substantial global reach, deliveringrecord results. Reflecting this change it is now domiciled in Bermuda. Thisevolution has been achieved largely by organic growth with substantialinvestments in building new businesses, supported at critical times with capitalfrom shareholders. The market outlook is attractive but will become morechallenging. Strong discipline will be required in deciding which risks tounderwrite and which business initiatives to pursue. We believe that ourstrategy of balancing retail and volatile risks will give us the flexibility tomake the right choices for the benefit of the business and its owners. Bronek Masojada CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 Notes £000 £000Income Gross premiums written 3 1,126,164 861,174Outward reinsurance premiums (150,767) (179,938)------------------------------------------------------------------------------Net premiums written 3 975,397 681,236------------------------------------------------------------------------------Gross premiums earned 1,033,585 879,344Premiums ceded to reinsurers (144,757) (186,045)------------------------------------------------------------------------------Net premiums earned 3 888,828 693,299 Investment result 4 105,550 43,883Other income 6 15,858 81,297------------------------------------------------------------------------------Net revenue 1,010,236 818,479 ExpensesClaims and claim adjustment expenses, net of reinsurance (382,341) (457,025)Expenses for the acquisition of insurance contracts (225,849) (199,979)Administration expenses (76,533) (41,197) Other expenses 6 (115,057) (46,973)------------------------------------------------------------------------------Total expenses (799,780) (745,174)------------------------------------------------------------------------------ Results of operating activities 210,456 73,305------------------------------------------------------------------------------Finance costs (9,404) (3,334)Share of profit of associates 10 250------------------------------------------------------------------------------Profit before tax 201,062 70,221Tax expense 15 (37,216) (21,591)------------------------------------------------------------------------------Profit for the year (all attributable to equityshareholders of the Company) 163,846 48,630------------------------------------------------------------------------------ Earnings per share on profit attributable toequity shareholders of the Company Basic 17 41.7p 15.6p Diluted 17 40.5p 15.1p The related notes 1 to 18 are an integral part of this document. CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2006 2006 2005 Notes £000 £000Assets Intangible assets 33,212 33,099Property, plant and equipment 13,821 12,128Investments in associates 28 18Deferred acquisition costs 117,115 106,747Financial assets carried at fair value 9 1,241,910 1,237,778Loans and receivables including insurancereceivables 10 446,272 436,981Reinsurance assets 8 302,772 506,376Cash and cash equivalents 12 502,871 413,759-------------------------------------------------------------------------------Total assets 2,658,001 2,746,886------------------------------------------------------------------------------- Equity and Liabilities Shareholders' equityShare capital 19,694 19,570Share premium - 401,365Contributed surplus 442,425 -Other reserves (40,396) 38,789Retained earnings 260,362 118,289-------------------------------------------------------------------------------Total equity 682,085 578,013------------------------------------------------------------------------------- Employee retirement benefit obligations 16 3,801 16,677Deferred Tax 8,467 15,193Insurance liabilities 13 1,594,101 1,723,000Financial liabilities carried at fair value 9 93,929 126,246Current tax 20,793 16,581Trade and other payables 14 254,825 271,176-------------------------------------------------------------------------------Total liabilities 1,975,916 2,168,873-------------------------------------------------------------------------------Total equity and liabilities 2,658,001 2,746,886------------------------------------------------------------------------------- The related notes 1 to 18 are an integral part of this document. Currency Capital Share Share Contributed Merger Translation Redemption Retained Capital Premium Surplus Reserve Reserve Reserve Earnings Total Notes £000 £000 £000 £000 £000 £000 £000 £000 Balance at 1January 2005 14,685 234,267 - 4,723 (468) 33,244 82,375 368,826 Currency translationdifferences - - - - 1,290 - - 1,290----------------------------------------------------------------------------------------------------------------------- Net income/(expense) recognised directly in equity - - - - 1,290 - - 1,290Profit for the year - - - - - - 48,630 48,630-----------------------------------------------------------------------------------------------------------------------Total recognisedincome for year - - - - 1,290 - 48,630 49,920Employee share options: Equity settled share based payments - - - - - - 2,059 2,059 Deferred tax release on share based payments - - - - - - 1,950 1,950 Proceeds from shares issued 67 1,522 - - - - - 1,589Rights Issue of equity shares 4,818 171,550 - - - - - 176,368Expenses related toRights Issue of equity shares - (5,974) - - - - - (5,974)Change in own shares - - - - - - 192 192Dividends toshareholders 18 - - - - - - (16,917) (16,917)-----------------------------------------------------------------------------------------------------------------------Balance at 31December 2005 19,570 401,365 - 4,723 822 33,244 118,289 578,013Currency translationdifferences - - - - (41,218) - - (41,218)-----------------------------------------------------------------------------------------------------------------------Net income/(expense) recognised directly in equity - - - - (41,218) - - (41,218)Profit for the year - - - - - - 163,846 163,846-----------------------------------------------------------------------------------------------------------------------Total recognisedincome for year - - - - (41,218) - 163,846 122,628Employee share options: Equity settled share based payments - - - - - - 5,238 5,238 Deferred tax release on share based payments - - - - - - 3,367 3,367 Proceeds from shares issued 124 2,829 264 - - - - 3,217Transfer on reverse acquisition 2.3 - (404,194) 442,161 (4,723) - (33,244) - -Change in own shares - - - - - - 50 50Dividends toshareholders 18 - - - - - - (30,428) (30,428)-----------------------------------------------------------------------------------------------------------------------Balance at 31December 2006 19,694 - 442,425 - (40,396) - 260,362 682,085----------------------------------------------------------------------------------------------------------------------- CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 CONSOLIDATED GROUP 2006 2005 £000 £000 Profit before tax 201,062 70,221Adjustments for:Interest and equity dividend income (70,243) (48,072)Net (gains)/losses on financial assets (9,422) 4,289Retirement benefit contributions paid in excess of charges (12,876) (18,041)Depreciation 3,898 3,281Charges in respect of share based payments 5,238 2,059Other non-cash charges 10,955 690 Changes in operational assets and liabilities:Insurance and reinsurance contracts 45,426 212,462Financial assets 1,311 (256,280)Other assets and liabilities (17,953) 13,048------------------------------------------------------------------------------Cash flows from operations 157,396 (16,343)Interest received 68,644 46,844Equity dividends received 1,599 1,228Interest paid (9,416) (2,573)Current tax paid (36,363) (10,239)------------------------------------------------------------------------------Net cash flows from operating activities 181,860 18,917Cash flows from the acquisition and sale of subsidiariesand associates - 3,750Cash flows from the purchase of property, plant andequipment (5,452) (4,474)Cash flows from the purchase of intangible assets (300) (3,277)Loans repaid by related parties - 1,580------------------------------------------------------------------------------Net cash flows from investing activities (5,752) (2,421)Proceeds from the issue of ordinary shares 3,217 171,983Proceeds from the sale of treasury shares 50 192Dividends paid to company's shareholders (30,428) (16,917)Proceeds from borrowings - 121,133Repayments of borrowings (14,334) (102)------------------------------------------------------------------------------Net cash flows from financing activities (41,495) 276,289------------------------------------------------------------------------------Net increase in cash and cash equivalents 134,613 292,785------------------------------------------------------------------------------ Cash and cash equivalents at 1 January 413,759 119,563Net increase in cash and cash equivalents 134,613 292,785Effect of exchange rate fluctuations on cash and cashequivalents (45,501) 1,411------------------------------------------------------------------------------Cash and cash equivalents at 31 December 502,871 413,759------------------------------------------------------------------------------ The purchase, maturity and disposal of financial assets is part of the Group'sinsurance activities and is therefore classified as an operating cashflow. Thepurchase, maturity and disposal of derivative contracts is also classified as anoperating cashflow. Included within cash and cash equivalents held by the Group are balances totalling £41,304,000 (2005: £50,313,000) not available for use by the Group which are held within the Lloyd's Syndicate. The related notes 1 to 18 are an integral part of this document. NOTES TO THE FINANCIAL STATEMENTS 1 General information The Hiscox Group, which is headquartered in Hamilton, Bermuda, comprises HiscoxLtd (the parent Company, referred to herein as the 'Company') and itssubsidiaries (collectively, the 'Hiscox Group' or the 'Group'). The Grouprelocated its parent Company domicile during the year from the United Kingdom toBermuda. The Group provides insurance, reinsurance and investment managementservices to its clients worldwide. It has operations in the UK, Europe, USA andBermuda and employs over 700 people worldwide. The Company is registered and domiciled in Bermuda and on 12 December 2006, itsordinary shares were listed on the London Stock Exchange. As such it is requiredto prepare financial information in accordance with the Bermuda Companies Act1981, which permits the Group to prepare financial statements which comprise theconsolidated income statement, the consolidated balance sheet, the consolidatedstatement of changes in equity, the consolidated cash flow statement and therelated notes in accordance with International Financial Reporting Standards('IFRS'). Accordingly, the financial information has been prepared in accordancewith Bermuda Law. The consolidated financial statements for the year ended 31 December 2006comprise all of the Group's subsidiary companies and the Group's interest inassociates. All amounts relate to continuing operations. The financial statements were approved for issue by the Directors on 12 March2007. 2 Significant accounting policies The principal accounting policies applied in the preparation of theseconsolidated Group financial statements are set out below. 2.1 Statement of complianceThe consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards and in accordance with theprovisions of the Bermuda Companies Act 1981. The Group's consolidated financialstatements for the prior financial year were published in accordance with thoseInternational Financial Reporting Standards adopted for use in the EuropeanUnion. No adjustments are necessary to the amounts measured previously therein,for their inclusion as comparatives in these consolidated financial statements. Since 2002, the standards adopted by the IASB have been referred to as'International Financial Reporting Standards' (IFRS). The standards from prioryears continue to bear the title 'International Accounting Standards' (IAS).Insofar as a particular standard is not explicitly referred to, the two termsare used in these financial statements synonymously. Compliance with IFRSincludes the adoption of interpretations issued by the International FinancialReporting Interpretations Committee (IFRIC). In March 2004, the IASB issued IFRS 4 Insurance Contracts which specifies thefinancial reporting for insurance contracts by an insurer. The standard is onlythe first phase in the IASB's insurance contract project and as such is only astepping stone to phase II, introducing limited improvements to accounting forinsurance contracts. Accordingly, to the extent that IFRS 4 does not specify therecognition or measurement of insurance contracts, transactions reported inthese consolidated financial statements have been prepared in accordance withanother comprehensive body of accounting principles, namely accountingprinciples generally accepted in the UK at the date of transition to IFRS. 2.2 Basis of preparationThe financial statements are presented in Pounds Sterling and are rounded to thenearest thousand unless otherwise stated. They are prepared on the historicalcost basis except that pension scheme plan assets included in the measurement ofthe employee retirement benefit obligation and financial instruments at fairvalue through profit or loss, are measured at fair value. Employee retirementbenefit obligations are determined using actuarial analysis. The balance sheetof the Group is presented in order of increasing liquidity. The accounting policies have been applied consistently by all Group entities, toall periods presented, solely for the purpose of producing the consolidatedGroup financial statements. The Group elected to apply the transitionalarrangements contained in IFRS 4 that permitted the disclosure of only fiveyears of data in claims development tables, in the year ended 31 December 2005which was the year of adoption. The number of years of data presented wasincreased to six in the current financial year, and will be increased in eachsucceeding additional year, up to a maximum of ten years, if materialoutstanding claims exist for such periods. The Directors have considered recently published IFRS, new interpretations andamendments to existing standards that are mandatory to the Group's accountingperiods commencing on or after 1 January 2007 and which have not been subject toearly adoption. The main developments that are expected to be of relevance toforthcoming financial years are: - IFRS 7 Financial Instruments: Disclosures, and a complementary amendment toIAS 1 Presentation of Financial Statements - Capital Disclosures (effective foraccounting periods beginning on or after 1 January 2007). IFRS 7 introducesadditional minimum disclosure requirements regarding exposures to risk arisingfrom financial instruments. The amendment to IAS 1 introduces minimumdisclosures about the level of an entity's capital and how it manages thatcapital. The Directors' current assessment is that the main additionaldisclosures arising from the application of these developments from 1 January2007 will be more detailed sensitivity analysis to market risk, and additionalcapital management disclosures. - IFRS 8 Operating Segments (effective for accounting periods beginning on orafter 1 January 2009). IFRS 8 will result in a number of amendments to theGroup's presentation of segmental reporting such that users will be able toappraise summary segment results on an operational basis consistent with thatused by management. - IFRIC 10 Interim Financial Reporting and Impairment (effective for accountingperiods beginning on or after 1 November 2006). IFRIC 10 prohibits theimpairment losses recognised in an interim period on goodwill and investments inequity instruments and in financial assets carried at cost to be reversed at asubsequent balance sheet date. The Group will apply IFRIC 10 from 1 January 2007but it is not expected to have any significant impact on the Group's financialstatements. 2.3 New holding companyHiscox Ltd was incorporated under the laws of Bermuda on 6 September 2006. Witheffect from 12 December 2006, under a scheme of arrangement involving a shareexchange with the members of Hiscox plc, the Company became the new holdingcompany of the Hiscox Group. Throughout the period from incorporation to 12December 2006, Hiscox Ltd was a shell company with no material revenues or assets and therefore did not constitute a 'business' as defined by IFRS 3Business Combinations. Consequently, due to the relative values of bothCompanies, the shareholders of Hiscox plc immediately before the share exchangeacquired, in effect, 100% of the enlarged share capital of Hiscox Ltd oncompletion of the transaction. In order to appropriately reflect the substance of the transaction outlinedabove, the new holding Company has been accounted for using the reverseacquisition principles outlined in IFRS 3. Consequently, Hiscox plc is deemed tobe the acquirer for accounting purposes and the legal parent Company, HiscoxLtd, is treated as a subsidiary whose identifiable assets and liabilities areincorporated into the Group at fair value. The Group's consolidated financial statements are issued in the name of thelegal parent Company, Hiscox Ltd. However, as a consequence of applying reverseacquisition accounting, the results for the year ended 31 December 2006represent a continuation of the consolidated activities of Hiscox plc for theyear ended 31 December 2006 plus those of Hiscox Ltd from 12 December 2006 to 31 December 2006. The consolidated balance sheet at 31 December 2006 reflects the issued share capital and contributed surplus of Hiscox Ltd. The comparative figures are those of Hiscox plc as originally reported for the year ended 31 December 2005. In accordance with Bermuda law the previously reported share premium, merger reserve and capital redemption reserve are presented as contributed surplus. The comparative earnings per share amounts are not altered by the application guidance of IFRS 3. 2.4 Basis of consolidation(a) SubsidiariesSubsidiaries are those entities controlled by the Group. Control exists when theGroup has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. Inassessing control, potential voting rights that are currently exercisable orconvertible are taken into account. The consolidated financial statementsinclude the assets, liabilities and results of the Group up to 31 December eachyear. The financial statements of subsidiaries are included in the consolidatedfinancial statements only from the date that control commences until the datethat control ceases. Hiscox Dedicated Corporate Member Limited and the subsidiaries of Hiscox SelectHoldings Limited underwrite as corporate members of Lloyd's on the Syndicatemanaged by Hiscox Syndicates Limited (the 'managed Syndicate'). In view of theseveral but not joint liability of underwriting members at Lloyd's for thetransactions of Syndicates in which they participate, the Group's attributableshare of the transactions, assets and liabilities of the Syndicate has beenincluded in the financial statements. The Group uses the purchase method of accounting to account for the acquisitionof subsidiaries. The cost of an acquisition is measured as the fair value of theassets given, equity instruments issued and liabilities incurred or assumed atthe date of exchange, plus costs directly attributable to the acquisition.Identifiable assets acquired and liabilities and contingent liabilities assumedin a business combination are measured initially at their fair values at theacquisition date, irrespective of the extent of any minority interest. Theexcess of the cost of acquisition over the fair value of the Group's share ofthe identifiable net assets acquired is recorded as goodwill. If the cost ofacquisition is less than the fair value of the net assets of the subsidiaryacquired, the difference is recognised directly in the income statement. (b) AssociatesAssociates are those entities in which the Group has significant influence butnot control over the financial and operating policies. The consolidatedfinancial statements include the Group's share of the total recognised gains andlosses of associates on an equity accounted basis from the date that significantinfluence commences until the date that significant influence ceases. TheGroup's share of its associates' post-acquisition profits or losses after tax isrecognised in the income statement each period, and its share of the movement inthe associates' net assets is reflected in the investments' carrying values inthe balance sheet. When the Group's share of losses equals or exceeds thecarrying amount of the associate, the carrying amount is reduced to nil andrecognition of further losses is discontinued except to the extent that theGroup has incurred obligations in respect of the associate. (c) Transactions eliminated on consolidationIntragroup balances, transactions and any unrealised gains arising fromintragroup transactions are eliminated in preparing the consolidated financialstatements. Unrealised losses are also eliminated unless the transactionprovides evidence of an impairment of the asset transferred. Unrealised gainsarising from transactions with associates are eliminated to the extent of theGroup's interest in the entity. Unrealised gains arising from transactions inassociates are eliminated against the investment in the associate. 2.5 Foreign currency translation(a) Functional and presentational currencyItems included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the 'functional currency'). The functional currency of allindividual entities in the Group is deemed to be Sterling with the exception ofthe entities operating in France, Germany, the Netherlands and Belgium whosefunctional currency is Euros, those entities operating from the USA and Bermudawhose functional currency is US Dollars, and Hiscox Insurance Company (Guernsey)Limited whose functional currency is also US Dollars. (b) Transactions and balancesForeign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from theretranslation at year end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement, exceptwhen deferred in equity as qualifying net investment hedges.Non-monetary items carried at historical cost are translated in the balancesheet at the exchange rate prevailing on the original transaction date.Non-monetary items measured at fair value are translated using the exchange rateruling when the fair value was determined. (c) Group companiesThe results and financial position of all the Group entities that have afunctional currency different from the presentation currency are translated intothe presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated atthe closing rate at the date of that balance sheet. (ii) income and expenses for each income statement are translated at averageexchange rates (unless this average is not a reasonable approximation of thecumulative effect of the rates prevailing on the transaction dates, in whichcase income and expenses are translated at the date of the transactions). (iii) all resulting exchange differences are recognised as a separate componentof equity. When a foreign operation is sold, such exchange differences are recognised inthe income statement as part of the gain or loss on sale. Goodwill and fairvalue adjustments arising on the acquisition of a foreign entity are treated asthe foreign entity's assets and liabilities and are translated at the closingrate. 2.6 Property, plant and equipmentProperty, plant and equipment are stated at historical cost less depreciationand any impairment loss. Historical cost includes expenditure that is directlyattributable to the acquisition of the items. Subsequent costs are included inthe asset's carrying amount or recognised as a separate asset, as appropriate,only when it is probable that future economic benefits associated with the itemwill flow to the Group and the cost of the item can be measured reliably. Allother repairs and maintenance are charged to the income statement during thefinancial period in which they are incurred. Land and Artwork assets are not depreciated as they are deemed to haveindefinite useful economic lives. Depreciation on other assets is calculatedusing the straight-line method to allocate their cost or revalued amounts, lesstheir residual values, over their estimated useful lives, as follows: - Buildings 50 years- Vehicles 3 years- Short leasehold fixtures and fittings 10-15 years- Furniture, fittings and equipment 3-15 years The assets' residual values and useful lives are reviewed at each balance sheetdate and adjusted if appropriate. An asset's carrying amount is written downimmediately to its recoverable amount if the asset's carrying amount is greaterthan its estimated recoverable amount. Gains and losses on disposals aredetermined by comparing proceeds with carrying amount. These are included in theincome statement. 2.7 Intangible assets(a) GoodwillGoodwill represents amounts arising on acquisition of subsidiaries andassociates. In respect of acquisitions that have occurred since 1 January 2004,goodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the net identifiable assets of the acquired subsidiaryor associate at the acquisition date. In respect of acquisitions prior to thisdate, goodwill is included on the basis of its deemed cost, which represents theamount recorded under previous GAAP. Goodwill on acquisition of subsidiaries isincluded in intangible assets. Goodwill on acquisition of associates is includedin investments in associates. Goodwill is not amortised but is tested annuallyfor impairment and carried at cost less accumulated impairment losses. Theimpairment review process examines whether or not the carrying value of thegoodwill attributable to individual cash generating units exceeds its impliedvalue. Any excess of goodwill over the implied value arising from the reviewprocess indicates impairment. Gains and losses on the disposal of an entityinclude the carrying amount of goodwill relating to the entity sold. (b) Syndicate capacityThe cost of purchasing the Group's participation in the Lloyd's insuranceSyndicates is not amortised but is tested annually for impairment and is carriedat cost less accumulated impairment losses. Having considered the futureprospects of the London insurance market, the Board believe that the Group'sownership of Syndicate capacity will provide economic benefits over anindefinite number of future periods. (c) Rights to intangible customer contractual relationshipsCosts directly attributable to securing rights to customer contractrelationships are recognised as an intangible asset where they can be identifiedseparately and measured reliably and it is probable that they will be recoveredby directly related future profits. These costs are amortised over the usefuleconomic life which is deemed to be 20 years and are carried at cost lessaccumulated amortisation and impairment losses. (d) Computer softwareAcquired computer software licences are capitalised on the basis of the costsincurred to acquire and bring into use the specific software. These costs areamortised over the expected useful life of the software of three years on astraight-line basis. Internally developed computer software is only capitalisedwhere the cost can be measured reliably, the Group intends to and has adequateresources to complete development and where the computer software will yieldfuture economic benefits in excess of the costs incurred. 2.8 InvestmentsThe Group has classified financial investments as a) financial assets designatedat fair value through profit or loss, and b) loans and receivables. Managementdetermines the classification of its financial investments at initialrecognition. The decision by the Group to designate all financial investmentsother than loans and receivables at fair value through profit or loss reflectsthe fact that the investment portfolios are managed, and their performanceevaluated, on a fair value basis. Regular way purchases and sales of investmentsare accounted for at the date of trade. Financial investments are derecognised when the right to receive cash flows fromthem expires or where they have been transferred and the Group has alsotransferred substantially all risks and rewards of ownership. Fair value for securities quoted in active markets is the bid price exclusive oftransaction costs. For instruments where no active market exists, fair value isdetermined by referring to recent transactions and other valuation factorsincluding the discounted value of expected future cash flows. Fair value changesare recognised immediately within the investment result line in the incomestatement. (a) Financial assets at fair value through profit or lossA financial asset is classified into this category at inception if it is managedand evaluated on a fair value basis in accordance with documented strategy, ifacquired principally for the purpose of selling in the short-term, or if itforms part of a portfolio of financial assets in which there is evidence ofshort-term profit taking. (b) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted on an active market. Receivablesarising from insurance contracts are also classified in this category and arereviewed for impairment as part of the impairment review of loans andreceivables. Loans and receivables are carried at amortised cost less anyprovision for impairment in value. 2.9 Cash and cash equivalentsThe Group has classified cash deposits and short-term highly liquid investmentsas cash and cash equivalents. These assets are readily convertible into knownamounts of cash and are subject to inconsequential changes in value. Cashequivalents are financial investments with less than three months to maturity atthe date of acquisition. 2.10 Impairment of assetsAssets that have an indefinite useful life are not subject to amortisation andare tested annually or whenever there is an indication of impairment. Assetsthat are subject to amortisation are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount may not berecoverable. Objective factors that are considered when determining whether a non-monetaryasset (such as an intangible asset or item of property, plant and equipment) orgroup of non-monetary assets may be impaired include, but are not limited to,the following: - adverse economic, regulatory or environmental conditions that may restrictfuture cashflows and asset usage and/or recoverability;- the likelihood of accelerated obsolescence arising from the development of newtechnologies and products;- the disintegration of the active market(s) to which the asset is related. Objective factors that are considered when determining whether a monetary assetor group of monetary assets may be impaired include, but are not limited to, thefollowing:- negative rating agency announcements in respect of investment issuers,reinsurers and debtors;- significant reported financial difficulties of investment issuers, reinsurersand debtors;- actual breaches of credit terms such as persistent late payments or actualdefault;- the disintegration of the active market(s) in which a particular asset istraded or deployed; and- adverse economic or regulatory conditions that may restrict future cash flowsand asset recoverability. An impairment loss is recognised for the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverable amount is the higher ofan asset's fair value less costs to sell and value in use. For the purpose ofassessing impairment, assets are grouped at the lowest levels for which thereare separately identifiable cash flows (cash generating units). Where an impairment loss subsequently reverses, the carrying amount of the assetis increased to the revised estimate of its recoverable amount, but so that theincreased carrying amount does not exceed the carrying amount that would havebeen determined had no impairment loss been recognised for the asset in prioryears. A reversal of an impairment loss is recognised as income immediatelyunless the relevant asset was carried previously at a revalued amount and wherethe original revaluation had been recognised directly in equity. 2.11 Derivative financial instrumentsDerivatives are initially recognised at fair value on the date on which aderivative contract is entered into and are subsequently valued at their fairvalue at each balance sheet date. Fair values are obtained from quoted marketvalues, and if these are not available, valuation techniques including optionpricing models as appropriate. The method of recognising the resulting gain orloss depends on whether the derivative is designated as a hedging instrument,and if so, the nature of the item being hedged. For derivatives not formallydesignated as a hedging instrument, fair value changes are recognisedimmediately in the income statement. Changes in the value of derivative and other financial instruments formallydesignated as hedges of net investments in foreign operations are recognised inthe currency translation reserve to the extent they are effective; gains orlosses relating to the ineffective portion of the hedging instruments arerecognised immediately in the consolidated income statement. The Group had no financial instruments designated for hedge accounting duringthe current and prior financial year. 2.12 Own sharesWhere any Group company purchases the parent Company's equity share capital (ownshares), the consideration paid, including any directly attributable incrementalcosts (net of income taxes), is deducted from equity attributable to theCompany's equity holders. Where such shares are subsequently sold, reissued orotherwise disposed of, any consideration received is included in equityattributable to the Company's equity holders, net of any directly attributableincremental transaction costs and the related income tax effects. 2.13 Net revenueNet revenue comprises insurance premiums earned, net of reinsurance, togetherwith profit commission, investment returns, agency fees and other incomeinclusive of foreign exchange gains. The Group's share of the result ofassociates is reported separately. The accounting policies for insurancepremiums are outlined below. Profit commission, investment income and othersources of income are recognised on an accruals basis. 2.14 Insurance contracts(a) ClassificationThe Group issues short-term casualty and property insurance contracts thattransfer significant insurance risk. Such contracts may also transfer a limitedlevel of financial risk. (b) Recognition and measurementGross premiums written comprise premiums on business incepting in the financialyear together with adjustments to estimates of premiums written in prioraccounting periods. Estimates are included for pipeline premiums and anallowance is also made for cancellations. Premiums are stated before thededuction of brokerage and commission but net of taxes and duties levied.Premiums are recognised as revenue (earned premiums) proportionally over theperiod of coverage. The portion of premium received on in-force contracts thatrelates to unexpired risks at the balance sheet date is reported as the unearnedpremium liability. Claims and associated expenses are charged to profit or loss as incurred basedon the estimated liability for compensation owed to contract holders or thirdparties damaged by the contract holders. They include direct and indirect claimssettlement costs and arise from events that have occurred up to the balancesheet date even if they have not yet been reported to the Group. The Group doesnot discount its liabilities for unpaid claims. Liabilities for unpaid claimsare estimated using the input of assessments for individual cases reported tothe Group and statistical analysis for the claims incurred but not reported, andan estimate of the expected ultimate cost of more complex claims that may beaffected by external factors e.g. court decisions. (c) Deferred acquisition costs ('DAC')Commissions and other direct and indirect costs that vary with and are relatedto securing new contracts and renewing existing contracts are capitalised asdeferred acquisition costs. All other costs are recognised as expenses whenincurred. The DAC is amortised over the terms of the policies as premium isearned. (d) Liability adequacy testAt each balance sheet date, liability adequacy tests are performed by eachsegment of the Group to ensure the adequacy of the contract liabilities net ofrelated DAC. In performing these tests, current best estimates of futurecontractual cash flows and claims handling and administration expenses, as wellas investment income from assets backing such liabilities, are used. Anydeficiency is immediately charged to profit or loss initially by writing-off DACand by subsequently establishing a provision for losses arising from liabilityadequacy tests ('the unexpired risk provision'). Any DAC written-off as a resultof this test cannot subsequently be reinstated. (e) Outwards reinsurance contracts heldContracts entered into by the Group, with reinsurers, under which the Group iscompensated for losses on one or more insurance or reinsurance contracts andthat meet the classification requirements for insurance contracts, areclassified as insurance contracts held. Contracts that do not meet theseclassification requirements are classified as financial assets. The benefits to which the Group is entitled under outwards reinsurance contractsare recognised as reinsurance assets. These assets consist of short-termbalances due from reinsurers (classified within loans and receivables) as wellas longer-term receivables (classified as reinsurance assets) that are dependenton the expected claims and benefits arising under the related reinsuredinsurance contracts. Reinsurance liabilities primarily comprise premiums payablefor 'outwards' reinsurance contracts. These amounts are recognised in profit orloss proportionally over the period of the contract. Receivables and payablesare recognised when due. The Group assesses its reinsurance assets on a regular basis and if there isobjective evidence, after initial recognition, of an impairment in value, theGroup reduces the carrying amount of the reinsurance asset to its recoverableamount and recognises the impairment loss in the income statement. (f) Receivables and payables related to insurance contractsReceivables and payables are recognised when due. These include amounts due toand from agents, brokers and insurance contract holders. If there is objectiveevidence that the insurance receivable is impaired, the Group reduces thecarrying amount of the insurance receivable accordingly and recognises theimpairment loss in profit or loss. (g) Salvage and subrogation reimbursementsSome insurance contracts permit the Group to sell property acquired in settlinga claim (i.e. salvage). The Group may also have the right to pursue thirdparties for payment of some or all costs (i.e. subrogation). Estimates of salvage recoveries are included as an allowance in the measurementof the insurance liability for claims and salvage property is recognised inother assets when the liability is settled. The allowance is the amount that canreasonably be recovered from the disposal of the property. Subrogationreimbursements are also considered as an allowance in the measurement of theinsurance liability for claims and are recognised in other assets when theliability is settled. The allowance is the assessment of the amount that can berecovered from the action against the liable third party. 2.15 Deferred taxDeferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the financial statements. However, if the deferred incometax arises from initial recognition of an asset or liability in a transactionother than a business combination that at the time of the transaction affectsneither accounting nor taxable profit or loss, it is not recognised. Deferredtax is determined using tax rates and laws that have been enacted orsubstantively enacted by the balance sheet date and are expected to apply whenthe related deferred tax asset is realised or the deferred tax liabilitysettled. Deferred tax assets are recognised to the extent that it is probable that thefuture taxable profit will be available against which the temporary differencescan be utilised. Deferred tax is provided on temporary differences arising on investments insubsidiaries and associates, except where the Group controls the timing of thereversal of the temporary difference and it is probable that the temporarydifference will not reverse in the foreseeable future. 2.16 Employee benefits(a) Pension obligationsThe Group operated both defined contribution and defined benefit pension schemesduring the year under review. The defined benefit scheme closed to futureaccrual with effect from 31 December 2006 and active members were offeredmembership of the defined contribution scheme from 1 January 2007. A defined contribution plan is a pension plan under which the Group pays fixedcontributions into a separate entity and has no further obligation beyond theagreed contribution rate. A defined benefit plan is a pension plan that definesan amount of pension benefit that an employee will receive on retirement,usually dependant on one or more factors such as age, years of service andcompensation. For defined contribution plans, the Group pays contributions to publicly orprivately administered pension insurance plans on a contractual basis. The Grouphas no further payments obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they aredue. Prepaid contributions are recognised as an asset to the extent that a cashrefund or a reduction in future payments is available. The liability recognised in the balance sheet in respect of defined benefitpension plans is the present value of the defined benefit obligation at thebalance sheet date less the fair value of plan assets, together with adjustmentsfor unrecognised actuarial gains or losses and past service costs. Plan assetsexclude any insurance contracts issued by the Group. Until curtailment, actuarial gains and losses arising from experienceadjustments and changes in actuarial assumptions are charged or credited toincome over the employees' expected average remaining working lives. Inaddition, until curtailment, actuarial gains and losses are only recognised whenthe net cumulative unrecognised actuarial gains and losses for each individualplan at the end of the previous accounting period exceeds 10% of the higher ofthe defined benefit obligation and the fair value of the plan assets at thatdate. On curtailment, all unrecognised actuarial gains or losses are recognisedin the income statement where relevant. Past service costs are recognised immediately in income, unless the changes tothe pension plan are conditional on the employees remaining in service for aspecified period of time (the vesting period). In this case, the past servicecosts are amortised on a straight-line basis over the vesting period. Rights to reimbursement from other parties participating in the Lloyd'sSyndicate of some of the expenditure required to settle the defined benefitobligation are recognised as a component of the income statement charge orcredit and within receivables in accordance with the policies outlined at 2.8(b) above. (b) Other long-term employee benefitsThe Group provides sabbatical leave to employees on completion of a minimumservice period of ten years. The present value of the expected costs of thesebenefits is accrued over the period of employment. (c) Share based compensationThe Group operates a number of equity settled share based employee compensationplans. These include both approved and unapproved share option schemes togetherwith the Group's save as you earn ('SAYE') schemes. The fair value of the employee services received, measured at grant date, inexchange for the grant of awards is recognised as an expense with thecorresponding credit being recorded in retained earnings within equity. Thetotal amount to be expensed over the vesting period is determined by referenceto the fair value of the awards granted, excluding the impact of any non marketvesting conditions (e.g. profitability or net asset growth targets). Non marketvesting conditions are included in assumptions about the number of awards thatare expected to become exercisable. At each balance sheet date the Group revisesits estimates of the number of awards that are expected to vest. It recognisesthe impact of the revision of original estimates, if any, in the incomestatement, and a corresponding adjustment to equity, over the remaining vestingperiod. When the terms and conditions of an equity settled share based employeecompensation plan are modified, and the expense to be recognised increases as aresult of the modification, the increase is recognised evenly over the remainingvesting period. When a modification reduces the expense to be recognised, thereis no adjustment recognised and the pre-modification expense continues to beapplied. The proceeds received net of any directly attributable transaction costs arecredited to share capital and share premium when share options are exercised. In accordance with the transitional provisions of IFRS 2, only share basedawards granted or modified after 7 November 2002 but not yet vested at the dateof adoption of IFRS, are required to be included in the calculations. (d) Termination benefitsTermination benefits are payable when employment is terminated before the normalretirement date, or whenever an employee accepts voluntary redundancy inexchange for these benefits. The Group recognises termination benefits when itis demonstrably committed to either: terminating the employment of currentemployees according to a detailed formal plan without the possibility ofwithdrawal; or providing termination benefits as a result of an offer made toencourage voluntary redundancy. (e) Profit sharing and bonus plansThe Group recognises a liability and an expense for bonuses and profit sharing,based on a formula that takes into consideration the profit attributable to theCompany's shareholders after certain adjustments. The Group recognises aprovision where contractually obliged or where there is a past practice that hascreated a constructive obligation. (f) Accumulating compensation benefitsThe Group recognises a liability and an expense for accumulating compensationbenefits (e.g. holiday entitlement), based on the additional amount that theGroup expects to pay as a result of the unused entitlement accumulated at thebalance sheet date. 2.17 BorrowingsBorrowings are financial liabilities and are designated on inception as beingheld at fair value through profit or loss if they are managed and evaluated on afair value basis in accordance with a documented strategy or if it eliminates orsignificantly reduces a measurement or recognition inconsistency. Financialliabilities are consequently measured at fair value at each balance sheet datethereafter, using observable market interest rate data for similar instruments,with all changes in value from one accounting period to the next reflected inthe income statement. 2.18 Finance costsFinance costs consist of interest charges accruing on the Group's borrowings andbank overdrafts together with commission fees charged in respect of letters ofcredit. Arrangement fees in respect of financing arrangements are charged overthe life of the related facilities. 2.19 ProvisionsThe Group is subject to various insurance related assessments and guarantee fundlevies. Provisions are recognised where there is a present obligation (legal orconstructive) as a result of a past event that can be measured reliably and itis probable that an outflow of economic benefits will be required to settle thatobligation. 2.20 LeasesLeases in which significantly all of the risks and rewards of ownership aretransferred to the Group are classified as finance leases. At the commencementof the lease term, finance leases are recognised as assets and liabilities atthe lower of the fair value of the asset and the present value of the minimumlease payments. The minimum lease payments are apportioned between financecharges and repayments of the outstanding liability, finance charges beingcharged to each period of the lease term so as to produce a constant rate ofinterest on the outstanding balance of the liability. All other leases are classified as operating leases. Payments made underoperating leases (net of any incentives received from the lessor) are charged tothe income statement on a straight-line basis over the period of the lease. 2.21 Dividend distributionDividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved. 2.22 Use of critical estimates and assumptionsThe Directors consider the accounting policies for determining insuranceliabilities, amounts denominated in foreign currencies, the valuation ofinvestments, the recognition of premiums and the valuation of retirement benefitobligations as being most critical to an understanding of the Group's result andposition. The inherent uncertainty of insurance risk requires the Group to make estimatesand assumptions that affect the reported amounts of assets and liabilities atthe balance sheet date. The most significant area of uncertainty in thefinancial statements relates to insurance claim liabilities of the Group and therelated loss adjustment expenses. Estimates and judgements are continuallyevaluated based on historical experience and other factors, includingexpectations of future events that are believed to be reasonable in thecircumstances. There are several sources of uncertainty that need to be considered in theestimation of the liabilities that the Group will ultimately pay for validclaims. These include but are not restricted to: inflation; changes inlegislation; changes in the Group's claims handling procedures; and discordantjudicial opinions which extend the Group's coverage of risk beyond thatenvisaged at the time of original policy issuance. The Group seeks to gathercorroborative evidence from all relevant sources before making judgements as toeventual outcome of claims, particularly those under litigation, which haveoccurred and have been notified to the Group but which remain unsettled at thebalance sheet date. Note 13 in this document provides a greater analysis of the main methods used bythe Group when formulating estimates of the insurance claims liabilities at eachbalance sheet date. With regard to employee retirement benefit obligations, the assets, liabilitiesand charges disclosed are sensitive to assumptions regarding mortality, interestrates, inflation and investment returns. 3. Segmental Information At 31 December 2006, the Group was managed on a worldwide basis in three primarybusiness segments: - Global Markets and Corporate Centre comprises the results of Syndicate 33, excluding Syndicate 33's specie, fine art, UK regional events coverage, non-US household business and the underwriting results of Hiscox Inc. It also includes the investment return and administrative costs associated with the Company and other Group management activities. - UK and Europe comprises the results of Hiscox Insurance Company Limited, the results of Syndicate 33's specie, fine art, UK regional events coverage and non-US household business, together with the income and expenses arising from the Group's retail agency activities in the UK and in continental Europe. - International comprises the results of Hiscox Insurance Company (Guernsey) Limited, Hiscox Inc. and Hiscox Insurance Company (Bermuda) Limited. This segmentation reflects the internal operational structure within the Groupand how the business units are strategically managed to offer different productsand services, with different risk profiles, to specific customer groups. Allrevenue sources are captured by one of the three business segments shown above. The primary segment results for the year, presented in operational reportingformat, are as follows: a) Profit before tax by segment Year to 31 December 2006 Year to 31 December 2005 Global Global Markets & Markets & Corporate UK and Corporate UK and Centre Europe International Total Centre Europe Corporate Total £000 £000 £000 £000 £000 £000 £000 £000----------------------------------------------------------------------------------------------------------------------- Gross premiums written 689,912 284,946 151,306 1,126,164 555,183 262,271 43,720 861,174Net premiums written 587,315 250,661 137,421 975,397 417,128 235,276 28,832 681,236Net premiums earned 549,284 246,071 93,473 888,828 428,334 241,603 23,362 693,299-----------------------------------------------------------------------------------------------------------------------Investment result basedon longer term ratesof return 38,786 18,169 13,109 70,064 36,181 14,300 1,632 52,113 Net claims incurred (256,949) (109,488) (15,904) (382,341) (347,865) (108,498) (662) (457,025)Acquisition costs (142,139) (74,773) (27,478) (244,390) (118,546) (81,827) (18,380) (218,753)Administrative expenses (35,149) (33,212) (8,172) (76,533) (14,342) (24,571) (2,284) (41,197)Foreign exchange gains / (losses) (39,577) (1,693) 2,916 (38,354) 55,060 2,362 (162) 57,260-----------------------------------------------------------------------------------------------------------------------Trading result 114,256 45,074 57,944 217,274 38,822 43,369 3,506 85,697 Agency and other income 5,007 23,639 421 29,067 8,376 22,640 2,469 33,485Profit commission 5,332 - - 5,332 7,357 - - 7,357Short term investmentreturn fluctuations 29,757 2,389 3,340 35,486 (15,252) 6,081 (70) (9,241)Other expenses (28,448) (38,461) (9,794) (76,703) (15,253) (28,740) - (43,993)-----------------------------------------------------------------------------------------------------------------------Operating result 125,904 32,641 51,911 210,456 24,050 43,350 5,905 73,305 Finance costs (9,368) - (36) (9,404) (3,334) - - (3,334)Associates result 10 - - 10 - - 250 250-----------------------------------------------------------------------------------------------------------------------Profit before tax 116,546 32,641 51,875 201,062 20,716 43,350 6,155 70,221-----------------------------------------------------------------------------------------------------------------------The longer term rates of return are calculated based on a 6% return on equitiesand 4% for all other investments including cash. These rates are applied to theaverage value of investments held in each class during the current and priorfinancial year. b) 100% level underwriting results by segment The Group's wholly owned subsidiary, Hiscox Syndicates Limited, oversees theoperation of Syndicate 33 at Lloyd's. The Group's percentage participation inSyndicate 33 can fluctuate from year to year and consequently presentation ofthe results at the 100% level removes any distortions arising therefrom. Year to 31 December 2006 Year to 31 December 2005 Global Global Markets & Markets & Corporate UK and Corporate UK and Centre Europe International Total Centre Europe International Total £000 £000 £000 £000 £000 £000 000 £000----------------------------------------------------------------------------------------------------------------------- Gross premiums written 950,169 302,043 154,999 1,407,211 786,347 274,886 43,720 1,104,953Net premiums written 809,973 265,342 141,114 1,216,429 584,132 245,823 28,832 858,787Net premiums earned 766,053 260,457 94,794 1,121,304 626,784 256,472 23,362 906,618----------------------------------------------------------------------------------------------------------------------- Investment result based on longer termrates of return 53,620 19,032 13,109 85,761 51,287 14,300 1,632 67,219Net claims incurred (357,632) (118,421) (16,597) (492,650) (504,042) (115,659) (662) (620,363)Acquisition costs (201,056) (79,376) (27,763) (308,195) (174,189) (87,501) (18,380) (280,070)Administrative expenses (66,804) (33,821) (8,172) (108,797) (30,777) (25,385) (2,284) (58,446)Foreign exchange gains / (losses) (58,664) (2,330) 2,916 (58,078) 83,887 3,536 - 87,423-----------------------------------------------------------------------------------------------------------------------Trading result based on longer termrates of return 135,517 45,541 58,287 239,345 52,950 45,763 3,668 102,381----------------------------------------------------------------------------------------------------------------------- 100 % Ratio analysis Year to 31 December 2006 Year to 31 December 2005 Global Global Markets & Markets & Corporate UK and Corporate UK and Centre Europe International Total Centre Europe International Total-----------------------------------------------------------------------------------------------------------------------Claims ratio (%) 54.6 45.5 17.5 49.3 70.8 45.1 2.8 61.8Expense ratio (%) 34.4 50.2 44.7 39.0 29.1 41.8 88.5 34.2-----------------------------------------------------------------------------------------------------------------------Combined ratio (%) 89.0 95.7 62.2 88.3 99.9 86.9 91.3 96.0----------------------------------------------------------------------------------------------------------------------- In calculating the claims and expenses ratios the Group has applied an estimatedallocation of the exchange gains and losses to each category. The impact on profit before tax of a 1% change in each component of thesegmental combined ratios are: Year to 31 December 2006 Year to 31 December 2005 Global Global Markets/ UK and Markets/ UK and Group Europe International Group Europe International £000 £000 £000 £000 £000 £000-----------------------------------------------------------------------------------------------------------------------At 100% level1% change in claims or expense ratio 7,661 2,605 948 6,268 2,565 234-----------------------------------------------------------------------------------------------------------------------At Group level1% change in claims or expense ratio 5,493 2,461 935 4,289 2,416 234----------------------------------------------------------------------------------------------------------------------- c) Net asset value per share Year to 31 December 2006 Year to 31 December 2005 Net asset NAV per share Net asset NAV per share value p value p £000 £000 -----------------------------------------------------------------------------------------------------------------------Net asset value 682,085 173.2 578,013 147.7Net tangible asset value 648,873 164.8 544,914 139.3-----------------------------------------------------------------------------------------------------------------------The net asset value per share is based on 393,725,396 shares (2005:391,216,294), being the adjusted number of shares in issue at 31 December. Thereis no impact on the comparative amount for the application of reverseacquisition accounting (note 2.3). 4. Investment result The total investment return for the Group comprises : 2006 2005 £000 £000 Investment income including interest receivable 75,526 48,172Net realised losses on financial assets at fair value through profit or loss (5,731) (8,040)Net fair value gains on financial assets at fair value through profit or loss 8,721 10,155-----------------------------------------------------------------------------------------------------------------------Return on investments (note 5) 78,516 50,287Fair value gains/(losses) on derivative instruments 27,034 (6,404)-----------------------------------------------------------------------------------------------------------------------Total return on financial assets 105,550 43,883-----------------------------------------------------------------------------------------------------------------------Investment expenses are presented within other operating expenses (note 6). 5. Analysis of return on investments The return on investments for the year by currency was: 2006 2005 % %--------------------------------------------------------------------------------Sterling 5.4 6.1US Dollar 4.8 2.5Other 2.2 2.2-------------------------------------------------------------------------------- The return on investments for the year by asset class was: Global Markets and 2006 Corporate Centre UK and Europe International Total £000 % £000 % £000 % £000 %Debt and fixed income securities at fair valuethrough profit or loss 33,263 4.1 8,509 3.6 323 2.6 42,095 4.0 Equities and shares in unit trusts at fairvalue through profit or loss 5,314 10.4 7,189 10.2 1,014 17.6 13,517 10.6 Deposits with credit institutions/cashand cash equivalents 2,932 3.7 4,860 4.3 15,112 4.9 22,904 4.6----------------------------------------------------------------------------------------------------------------------- 41,509 4.4 20,558 4.9 16,449 5.1 78,516 4.6----------------------------------------------------------------------------------------------------------------------- Global Markets and 2005 Corporate Centre UK and Europe International Total £000 % £000 % £000 % £000 %Debt and fixed income securities at fair valuethrough profit or loss 20,627 2.9 5,992 4.4 114 1.7 26,733 3.1 Equities and shares in unit trusts at fairvalue through profit or loss 4,294 10.8 7,524 15.2 460 10.8 12,278 13.1 Deposits with credit institutions/cashand cash equivalents 3,855 2.9 6,434 4.4 987 3.5 11,276 3.7----------------------------------------------------------------------------------------------------------------------- 28,776 3.2 19,950 6.0 1,561 4.0 50,287 4.0----------------------------------------------------------------------------------------------------------------------- 6. Other income and expenses 2006 2005 £000 £000Agency related income 5,027 3,044Profit commission 5,332 9,807Exchange gains - 57,420Other income 5,499 11,026--------------------------------------------------------------------------------Other income 15,858 81,297--------------------------------------------------------------------------------Managing agency expenses 17,258 9,869Underwriting agency expenses 32,147 19,886Connect agency expenses 12,547 6,135Exchange losses 38,354 -Investment expenses 1,306 1,013Other Group expenses including depreciation and amortisation 13,445 10,070--------------------------------------------------------------------------------Other expenses 115,057 46,973-------------------------------------------------------------------------------- 7. Employee benefit expense The aggregate remuneration and associated costs were: 2006 2005 £000 £000Wages and salaries 58,568 37,581Social security costs 7,512 6,124Share based payments cost of options granted to Directorsand employees 5,238 2,059Pension costs - defined contribution 1,689 825Pension costs - net expense arising on defined benefit plan (note 16) 12,180 4,047-------------------------------------------------------------------------------- 85,187 50,636--------------------------------------------------------------------------------The average monthly number of staff employed by the Group was 637 (2005: 514)comprising 270 underwriting and 367 administrative staff (2005: 190 and 324respectively). Of the total remuneration shown above, an amount of £20,780,000(2005: £14,433,000) was recharged to the Syndicate managed by Hiscox SyndicatesLimited. 8. Reinsurance assets 2006 2005 £000 £000Reinsurers' share of insurance liabilities 306,550 514,248Provision for non recovery and impairment (3,778) (7,872)-------------------------------------------------------------------------------- 302,772 506,376--------------------------------------------------------------------------------Amounts due from reinsurers in respect of outstanding premiums and claimsalready paid by the Group are included in loans and other receivables (note 10).The Group recognised a gain during the year of £4,094,000 (2005: £1,811,000) inrespect of the recovery and reversal of previously impaired amounts. 9. Financial assets and liabilities carried at fair value Financial assets and liabilities are all measured at their bid price fair valuesand ask price fair values respectively, with all changes from one accountingperiod to the next being recorded through the income statement as provided forby IAS 39. i) Analysis of financial assets at fair value through profit or loss 2006 2005 £000 £000Debt and fixed income securities 1,043,669 1,028,795Equities and shares in unit trusts 141,841 119,407Deposits with credit institutions 54,715 89,576--------------------------------------------------------------------------------Total investments 1,240,225 1,237,778Derivative instrument assets (note 11) 1,685 --------------------------------------------------------------------------------- 1,241,910 1,237,778-------------------------------------------------------------------------------- ii) Analysis of financial liabilities at fair value through profit or loss 2006 2005 £000 £000Borrowings from credit institutions 92,852 121,190Derivative instrument liabilities (note 11) 1,077 5,056-------------------------------------------------------------------------------- 93,929 126,246-------------------------------------------------------------------------------- iii) Investment and cash allocation 2006 2005 £000 % £000 %-------------------------------------------------------------------------------- Debt and fixed income securities 1,043,669 59.9 1,028,795 62.3Equities and shares in unit trusts 141,841 8.1 119,407 7.2Deposits with credit institutions/cashand cash equivalents 557,586 32.0 503,335 30.5-------------------------------------------------------------------------------- 1,743,096 1,651,537-------------------------------------------------------------------------------- iv) Investment and cash allocation by currency 2006 2005 % %-------------------------------------------------------------------------------- Sterling 31.6 29.9US Dollars 55.6 57.5Euro and other currencies 12.8 12.6-------------------------------------------------------------------------------- 10. Loans and receivables including insurance receivables 2006 2005 £000 £000Gross receivables arising from insurance and reinsurancecontracts 356,354 351,051less provision for non recovery and impairment (875) (1,018)--------------------------------------------------------------------------------Net receivables arising from insurance and reinsurance contracts 355,479 350,033--------------------------------------------------------------------------------Due from contract holders, brokers, agents and intermediaries 280,694 302,571Due from reinsurance operations 74,785 47,462-------------------------------------------------------------------------------- 355,479 350,033Other loans and receivables: Prepayments and accrued income 6,746 8,632 Net profit commission receivable 14,443 17,410 Accrued interest 6,065 6,943 Right to reimbursement of defined benefit obligation 1,163 5,462 Share of Syndicate's other debtors balances 44,316 40,579 Other debtors including related party amounts 18,060 7,922--------------------------------------------------------------------------------Total loans and receivables including insurance receivables 446,272 436,981-------------------------------------------------------------------------------- 11. Derivative financial instruments The Group's derivative instruments are used to hedge several economicrelationships including the foreign exchange volatility arising from translatingthe net investments in, and results of, subsidiary companies with differentfunctional currencies, and the foreign exchange impact of insurance businessdenominated in foreign currencies. During the current and prior financial year,the Group has not elected to denominate any derivative contracts as formalhedging instruments and, as a consequence, has not applied the hedge accountingprovisions of IAS 39 Financial Instruments: Recognition and Measurement. At 31 December 2006 the net fair value position of the Group's derivativeexposure on foreign exchange cylinder option contracts was a financial asset of£1,685,000 (2005: liability of £4,892,000 included within financialliabilities). The Group recognised gains totalling £6,577,000 in respect ofthese contracts in the current year (2005: loss of £6,240,000). No expense orcharges were incurred in the acquisition of the derivative contracts (2005:£nil). 2006 2005 Contract Fair Fair Contract Fair Fair notional value of value of notional value of value of amounts assets liabilities amounts assets liabilities US$000 £000 £000 US$000 £000 £000Foreign exchange cylinder optioncontracts expiring: Within one year 50,000 1,700 15 160,000 297 4,010Between one and five years - - - 50,000 472 1,651-----------------------------------------------------------------------------------------------------------------------Total at 31 December 50,000 1,700 15 210,000 769 5,661----------------------------------------------------------------------------------------------------------------------- Foreign exchange forward contract expiring: Within one year 293,000 - 1,077 292,689 - 164-----------------------------------------------------------------------------------------------------------------------Total at 31 December 293,000 - 1,077 292,689 - 164-----------------------------------------------------------------------------------------------------------------------The Group had the right and intention to settle each of the above contracts on anet basis at 31 December 2005. Consequently the net liability was recognised inthe 2005 balance sheet. The Group also entered into foreign exchange forward contracts during thecurrent and prior year primarily to manage the net investment in the Bermudianoperation and currency exposures related to the proceeds from the Rights Issue.The contract outstanding at the balance sheet date requires the Group to sellUS$293,000,000 (2005: US$292,689,000) at an agreed future rate to Pound Sterlingat a fixed date within one year of the balance sheet date. At 31 December 2006,the fair value position of the contract outstanding to the Group was a liabilityof £1,077,000 (2005: £164,000). The Group recognised gains totalling £20,457,000in respect of these contracts in the current year (2005: loss of £164,000). 12. Cash and cash equivalents 2006 2005 £000 £000Cash at bank and in hand 142,200 370,165Short-term bank deposits 360,671 43,594-------------------------------------------------------------------------------- 502,871 413,759--------------------------------------------------------------------------------The short term bank deposits of the Group has an original maturity of threemonths or less. The carrying amount of these assets approximates to their fairvalue. 13. Insurance liabilities and reinsurance assets 2006 2005 £000 £000GrossClaims reported and loss adjustment expenses 703,159 815,307Claims incurred but not reported 425,170 507,186Unearned premiums 465,772 400,507--------------------------------------------------------------------------------Total insurance liabilities, gross 1,594,101 1,723,000-------------------------------------------------------------------------------- Recoverable from reinsurersClaims reported and loss adjustment expenses 214,148 281,746Claims incurred but not reported 50,925 186,054Unearned premiums 37,699 38,576--------------------------------------------------------------------------------Total reinsurers' share of insurance liabilities 302,772 506,376-------------------------------------------------------------------------------- NetClaims reported and loss adjustment expenses 489,011 533,561Claims incurred but not reported 374,245 321,132Unearned premiums 428,073 361,931--------------------------------------------------------------------------------Total insurance liabilities, net 1,291,329 1,216,624--------------------------------------------------------------------------------The gross claims reported, the loss adjustment expenses liabilities and theliability for claims incurred but not reported are net of expected recoveriesfrom salvage and subrogation. The amounts for salvage and subrogation at the endof 2006 and 2005 are not material. Claims development tables The development of insurance liabilities provides a measure of the Group'sability to estimate the ultimate value of claims. The Group analyses actualclaims development compared with previous estimates on an accident year basis.This exercise is performed to include the liabilities of Syndicate 33 at the100% level regardless of the Group's actual level of ownership, which hasincreased significantly over the last six years. Analysis at the 100% level isrequired in order to avoid distortions arising from reinsurance to closearrangements which subsequently increase the Group's share of ultimate claimsfor each accident year three years after the end of that accident year. The top half of each table illustrates how estimates of ultimate claim costs foreach accident year have changed at successive year ends. The bottom halfreconciles cumulative claim costs to the amounts still recognised asliabilities. A reconciliation of the liability at the 100% level to the Group'sshare, as included in the balance sheet, is also shown. Insurance claims and claims expenses reserves - gross at 100% Accident year 2001 2002 2003 2004 2005 2006 Total £000 £000 £000 £000 £000 £000 £000----------------------------------------------------------------------------------------------------------------------- Estimate of ultimate claims costs as adjusted for foreign exchange*: at end of accident year 584,594 354,025 393,710 588,360 957,095 505,542 3,383,326 one year later 570,042 375,217 401,846 649,915 1,056,674 - 3,053,694 two years later 629,080 381,274 377,883 614,305 - - 2,002,542 three years later 648,468 367,076 388,264 - - - 1,403,808 four years later 683,400 363,443 - - - - 1,046,843 five years later 680,365 - - - - - 680,365 Current estimate of cumulative claims 680,365 363,443 388,264 614,305 1,056,674 505,542 3,608,593Cumulative payments to date (530,063) (266,737) (264,799) (393,401) (526,250) (116,794) (2,098,044)----------------------------------------------------------------------------------------------------------------------- Liability recognised at 100% level 150,302 96,706 123,465 220,904 530,424 388,748 1,510,549Liability recognised in respect ofprior accident years at 100% level 28,689----------------------------------------------------------------------------------------------------------------------- Total gross liability to externalparties at 100% level 1,539,238----------------------------------------------------------------------------------------------------------------------- Reconciliation of 100% disclosures above to Group's share - gross Accident year 2001 2002 2003 2004 2005 2006 Total £000 £000 £000 £000 £000 £000 £000----------------------------------------------------------------------------------------------------------------------- Current estimate of cumulative claims 680,365 363,443 388,264 614,305 1,056,674 505,542 3,608,593Attributable to external names (211,422) (93,162) (107,196) (177,085) (285,104) (103,814) (977,783)----------------------------------------------------------------------------------------------------------------------- Group share of current ultimate claimsestimate 468,943 270,281 281,068 437,220 771,570 401,728 2,630,810 Cumulative payments to date (530,063) (266,737) (264,799) (393,401) (526,250) (116,794) (2,098,044)Attributable to external names 159,859 63,138 69,510 115,202 141,797 20,347 569,853----------------------------------------------------------------------------------------------------------------------- Group share of cumulative payments (370,204) (203,599) (195,289) (278,199) (384,453) (96,447) (1,528,191) Liability for 2001 to 2006 accident years recognised on Group's balance sheet 98,739 66,682 85,779 159,021 387,117 305,281 1,102,619Liability for accident years before 2001recognised on Group's balance sheet - - - - - - 25,710-----------------------------------------------------------------------------------------------------------------------Total Group liability to external partiesincluded in balance sheet - gross** 1,128,329-----------------------------------------------------------------------------------------------------------------------* The foreign exchange adjustment arises from the retranslation of the estimatesat each date using the exchange rate ruling at 31 December 2006.** This represents the claims element of the Group's insurance liabilities. Insurance claims and claims expenses reserves - net at 100% Accident year 2001 2002 2003 2004 2005 2006 Total £000 £000 £000 £000 £000 £000 £000-----------------------------------------------------------------------------------------------------------------------Estimate of ultimate claims costs as adjusted for foreign exchange*: at end of accident year 287,548 236,498 306,099 491,109 571,081 450,286 2,342,621 one year later 323,118 257,998 321,054 534,718 653,143 - 2,090,031 two years later 381,780 264,783 296,203 514,606 - - 1,457,372 three years later 313,712 250,729 306,634 - - - 871,075 four years later 403,887 245,056 - - - - 648,943 five years later 391,767 - - - - - 391,767 Current estimate of cumulative claims 391,767 245,056 306,634 514,606 653,143 450,286 2,561,492Cumulative payments to date (329,036) (175,157) (211,058) (318,682) (291,425) (105,412) (1,430,770)-----------------------------------------------------------------------------------------------------------------------Liability recognised at 100% level 62,731 69,899 95,576 195,924 361,718 344,874 1,130,722Liability recognised in respect ofprior accident years at 100% level 44,684-----------------------------------------------------------------------------------------------------------------------Total net liability to externalparties at 100% level 1,175,406----------------------------------------------------------------------------------------------------------------------- Reconciliation of 100% disclosures above to Group's share - net Accident year 2001 2002 2003 2004 2005 2006 Total £000 £000 £000 £000 £000 £000 £000-----------------------------------------------------------------------------------------------------------------------Current estimate of cumulative claims 391,767 245,056 306,634 514,606 653,143 450,286 2,561,492Attributable to external names (114,746) (60,478) (83,802) (148,811) (168,326) (92,735) (668,898)-----------------------------------------------------------------------------------------------------------------------Group share of current ultimate claimsestimate 277,021 184,578 222,832 365,795 484,817 357,551 1,892,594 Cumulative payments to date (329,036) (175,157) (211,058) (318,682) (291,425) (105,412) (1,430,770)Attributable to external names 93,414 38,284 53,905 93,099 72,324 18,729 369,755-----------------------------------------------------------------------------------------------------------------------Group share of cumulative payments (235,622) (136,873) (157,153) (225,583) (219,101) (86,683) (1,061,015) Liability for 2001 to 2006 accident yearsrecognised on Group's balance sheet 41,399 47,705 65,679 140,212 265,716 270,868 831,579Liability for accident years before 2001recognised on Group's balance sheet - - - - - - 31,677-----------------------------------------------------------------------------------------------------------------------Total net liability to external partiesincluded in the balance sheet** 863,256-----------------------------------------------------------------------------------------------------------------------* The foreign exchange adjustment arises from the retranslation of the estimatesat each date using the exchange rate ruling at 31 December 2006.** This represents the claims element of the Group's insurance liabilities andreinsurance assets. Movement in insurance claims liabilities and reinsurance claims assets 2006 2006 2006 2005 2005 2005 Gross Reinsurance Net Gross Reinsurance NetYear ended 31 December £000 £000 £000 £000 £000 £000-----------------------------------------------------------------------------------------------------------------------Total at beginning of year (1,322,493) 467,800 (854,693) (830,681) 195,730 (634,951)Claims and claims handling expense for the year (395,497) 13,156 (382,341) (810,678) 353,653 (457,025)Cash paid for claims settled in the year 504,656 (193,527) 311,129 391,710 (109,904) 281,806Exchange differences and other movements 85,005 (22,356) 62,649 (72,844) 28,321 (44,523)-----------------------------------------------------------------------------------------------------------------------Total at end of year (1,128,329) 265,073 (863,256) (1,322,493) 467,800 (854,693)-----------------------------------------------------------------------------------------------------------------------Notified claims (703,159) 214,148 (489,011) (815,307) 281,746 (533,561)Incurred but not reported (425,170) 50,925 (374,245) (507,186) 186,054 (321,132)-----------------------------------------------------------------------------------------------------------------------Total at end of year (1,128,329) 265,073 (863,256) (1,322,493) 467,800 (854,693)----------------------------------------------------------------------------------------------------------------------- The insurance claims expense reported in the consolidated income statement iscomprised as follows: 2006 2006 2006 2005 2005 2005 Gross Reinsurance Net Gross Reinsurance Net £000 £000 £000 £000 £000 £000-----------------------------------------------------------------------------------------------------------------------Current year claims and loss adjustment expenses (353,895) 3,275 (350,620) (785,128) 322,278 (462,850)(Under)/over provision in respect of prior yearclaims and loss adjustment expenses (41,602) 9,881 (31,721) (25,550) 31,375 5,825-----------------------------------------------------------------------------------------------------------------------Total claims and claims handling expense (395,497) 13,156 (382,341) (810,678) 353,653 (457,025)----------------------------------------------------------------------------------------------------------------------- 14. Trade and other payables 2006 2005 £000 £000Creditors arising out of direct insurance operations 33,473 30,945Creditors arising out of reinsurance operations 126,319 150,947-------------------------------------------------------------------------------- 159,792 181,892-------------------------------------------------------------------------------- Obligations under finance leases 442 449Share of Syndicate's other creditors balances 15,481 34,331Reinsurers' share of deferred acquisition costs 6,529 2,496Social security and other taxes payable 5,846 6,191Other creditors 8,049 12,255-------------------------------------------------------------------------------- 36,347 55,722-------------------------------------------------------------------------------- Accruals and deferred income 58,686 33,562-------------------------------------------------------------------------------- 254,825 271,176-------------------------------------------------------------------------------- 15. Taxation The amounts charged in the consolidated income statement comprise the following: 2006 2005 £000 £000Current tax expense 8,770 22,564Deferred tax expense/(credit) 28,446 (973)-------------------------------------------------------------------------------- 37,216 21,591-------------------------------------------------------------------------------- The tax expense on the Group's profit before tax differs from the theoreticalamount that would arise using the weighted average tax rate applicable toprofits of the consolidated companies as follows: 2006 2005 £000 £000Profit before tax 201,062 70,221-------------------------------------------------------------------------------- Tax calculated at the standard corporation tax rateapplicable in the UK* of 30% (2005:30%) 60,319 21,067Effects of: Expenses not deductible for tax purposes 652 687Income not subject to tax (10,264) (113)Group entities subject to overseas tax at lower rates (18,121) (2,535)Tax losses for which no deferred tax asset has been recognised 4,351 1,011Prior year tax adjustments 354 1,821Other items (75) (347)--------------------------------------------------------------------------------Tax charge for the period 37,216 21,591--------------------------------------------------------------------------------* The principal charge to current tax arises in respect of the Group's UKsubsidiaries. 16. Employee retirement benefit obligations The gross amount recognised in the Group balance sheet is determined as follows: 2006 2005 £000 £000Present value of funded obligations 137,461 137,533Fair value of plan assets (133,660) (101,409)--------------------------------------------------------------------------------Present value of unfunded obligations 3,801 36,124Unrecognised actuarial losses - (19,447)--------------------------------------------------------------------------------Gross liability in the balance sheet 3,801 16,677--------------------------------------------------------------------------------Included within loans and receivables for the Group (note 10) is a right toreimbursement of £1,163,000 (2005: £5,462,000) recoverable from third partynames in Syndicate 33 representing their contribution to funding the definedbenefit scheme obligation. The defined benefit obligation is calculated annually by independent actuariesusing the projected unit credit method. A full actuarial valuation is performedon a triennial basis and updated at each intervening balance sheet date by theactuaries. The last full actuarial valuation was performed at 31 December 2006.The present value of the defined benefit obligation is determined by discountingthe estimated future cash flows using interest rates of AA rated corporate bondsthat have terms to maturity that approximate the terms of the related pensionliability. The plan assets are invested as follows: At 31 December 2006 2005 £000 £000Equities 98,738 81,577Debt and fixed income securities 10,098 4,993Cash 24,824 14,839--------------------------------------------------------------------------------Closing fair value of scheme assets 133,660 101,409-------------------------------------------------------------------------------- The amounts recognised in the Group's income statement are as follows: 2006 2005 £000 £000Current service cost 4,191 2,916Interest cost 6,397 5,228Expected return on plan assets (6,431) (4,767)Net actuarial losses including curtailment chargesrecognised during the year 7,355 -Past service cost 668 670--------------------------------------------------------------------------------Total included in staff costs 12,180 4,047-------------------------------------------------------------------------------- The actual return on plan assets was £12,911,000 (2005: £15,531,000). The movement in liability recognised in the Group's balance sheet is as follows: 2006 2005 £000 £000At beginning of year 16,677 34,718Total expense charged in the income statement 12,180 4,047Contributions paid (25,056) (22,088)---------------------------------------------------------------------------------At end of year 3,801 16,677-------------------------------------------------------------------------------- A reconciliation of the fair value of the scheme assets is as follows: 2006 2005 £000 £000Opening fair value of scheme assets 101,409 65,020Expected return on scheme assets 6,431 4,767Difference between expected and actual return on scheme assets 6,480 10,764Contributions by the employer 25,056 22,048Benefits paid (5,716) (1,190)--------------------------------------------------------------------------------Closing fair value of scheme assets 133,660 101,409-------------------------------------------------------------------------------- A reconciliation of the present value of funded obligations of the scheme is asfollows: 2006 2005 £000 £000Benefit obligation at beginning of year 137,533 99,229Current service cost 4,191 2,916Interest cost 6,397 5,228Actuarial (gains)/losses (5,917) 30,680Benefits paid from plan (5,716) (1,190)Curtailments and amendments 973 670--------------------------------------------------------------------------------Closing present value of funded obligations 137,461 137,533-------------------------------------------------------------------------------- The Group's actuaries have based their assessment on the most recent mortalitydata available which suggests that the average pensionable period in whichbenefits will be paid to members is 26 years (2005: 26 years). The otherprincipal actuarial assumptions used in determining the defined benefit scheme'sobligation were as follows: 2006 2005 % %Discount rate 5.10 4.75Expected return on plan assets 6.09 5.79Future salary increases 4.30 4.00Inflation assumption 3.30 3.00Pension increases 3.30 3.00-------------------------------------------------------------------------------- During the year the Group contributed to the defined benefit scheme at the rateof 33.3% (2005: 22.6%) of pensionable salaries. Additional contributions of£20,570,000 were paid during 2006 (2005: £19,400,000) to reduce the deficit. TheGroup has agreed that further additional contributions will be made. 61% of thedeficit calculated is recharged to Syndicate 33. The expected return on planassets is based on historical data and management's expectations of long-termfuture returns. 17. Earnings per share Basic earnings per share is calculated by dividing the profit attributable toequity holders of the Company by the weighted average number of shares in issueduring the year, excluding ordinary shares purchased by the Group and held asown shares. The earnings per share amounts are not impacted by applying the application guidance of IFRS3 in relation to the reverse acquisition of Hiscox Ltd. Basic 2006 2005 Profit attributable to the Company's equity holders (£000) 163,846 48,630Weighted average number of ordinary shares (thousands) 392,558 310,797Basic earnings per share (pence per share) 41.7p 15.6p-------------------------------------------------------------------------------- Diluted Diluted earnings per share is calculated adjusting for the assumed conversion ofall dilutive potential ordinary shares. The Company has one category of dilutivepotential ordinary shares, share options. For the share options, a calculationis made to determine the number of shares that could have been acquired at fairvalue (determined as the average annual market share price of the Company'sshares) based on the monetary value of the subscription rights attached tooutstanding share options. The number of shares calculated as above is comparedwith the number of shares that would have been issued assuming the exercise ofthe share options. 2006 2005 Profit attributable to Company's equity holders (£000) 163,846 48,630-------------------------------------------------------------------------------- Weighted average number of ordinary shares in issue (thousands) 392,558 310,797Adjustments for share options (thousands) 12,449 12,283--------------------------------------------------------------------------------Weighted average number of ordinary shares for dilutedearnings per share (thousands) 405,007 323,080--------------------------------------------------------------------------------Diluted earnings per share (pence per share) 40.5p 15.1p--------------------------------------------------------------------------------- Diluted earnings per share has been calculated after taking account of11,806,000 (2005: 11,829,000) options under employee share schemes and 643,000(2005: 454,000) options under SAYE schemes. 18. Dividends 2006 2005 £000 £000--------------------------------------------------------------------------------Interim dividend for the year ended :- 31 December 2005 of 2.25p (net) per share - 6,631- 31 December 2006 of 3.0p (net) per share 11,790 -Final dividend for the year ended :- 31 December 2004 of 3.5p (net) per share - 10,286- 31 December 2005 of 4.75p (net) per share 18,638 --------------------------------------------------------------------------------- 30,428 16,917--------------------------------------------------------------------------------A final dividend in respect of 2006 of 7p per share, amounting to a totaldividend of 10p for the year, is to be proposed at the Annual General Meeting on23 May 2007. These financial statements do not reflect this final dividend as adistribution or liability in accordance with IAS 10 Events after the BalanceSheet Date. Notes: 1. The financial information set out in this statement is extracted from theGroup's consolidated financial statements for the year ended 31 December 2006.The auditors have reported on those 2006 financial statements which includescomparative amounts for 2005. Their report was unqualified. 2. The Annual Report and Accounts for 2006 will be posted to shareholders nolater than 23 April 2007. Copies of the Report may be obtained by writing to theCompany Secretary, Hiscox Ltd, Canon's Court, 22 Victoria Street, Hamilton HM12,Bermuda. This information is provided by RNS The company news service from the London Stock Exchange

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Related Shares:

Hiscox