20th Aug 2007 07:02
Hiscox Ltd20 August 2007 Hiscox Ltd Interim Results for the six months ended 30 June 2007 "A record half-year result" HY 2007 HY 2006Gross premiums written £733.0 million £625.1 millionProfit before tax £105.6 million £61.3 millionEarnings per share 20.3p 12.1pDividend per share 4.0p 3.0pNet asset value per share 185.4p 149.8pCombined ratio 84.8% 94.6% Financial Highlights •Profit before tax increased 72.1% to £105.6 million (2006: £61.3 million) •Gross premiums written increased 17.3% to £733.0 million (2006: £625.1 million) despite weak dollar •Net earned premium increased 17.5% to £471.9 million (2006: £401.7 million) •Group combined ratio 84.8% (2006: 94.6%) •Earnings per share increased to 20.3p (2006: 12.1p) •Net asset value per share increased to 185.4p (2006: 149.8p) •Dividend increased 33% to 4p (2006: 3p) •Investment portfolio secure and liquid Operational Highlights • Increased profit driven by Hiscox Global Markets. • Firm rates for catastrophe exposed insurance and reinsurance. Rates increasing in the UK property market but marked competition in commodity lines elsewhere. Specialty lines broadly stable. • Regional businesses in UK, Europe and the USA continue to grow through diverse channels. Acquisition of American Live Stock Insurance Co will access new markets in the USA. • Losses arising from floods in the UK within expectations for a UK catastrophe both in the regional and the reinsurance accounts. Robert Hiscox, Chairman, Hiscox Ltd, commented: "A record half-year result despite a turbulent period of catastrophes in the UKand Europe. The acquisition of a US insurance company has added a furtherbuilding block to our regional specialist business. We continue to build astrong insurance group balanced between reinsurance and insurance and global andregional business, well spread geographically and backed by powerful marketingto emphasise that we are different." For further information: Hiscox LtdRobin Mehta, Company Secretary +1 441 278 8300Kylie O'Connor, Head of Communications, London +44 (0) 20 7448 6458 MaitlandSuzanne Bartch +44 (0) 20 7379 5151Richard Farnsworth +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 a record result for the first half-year driven by our Global Marketsdivision in London, complemented by a solid performance by the regional accountsworldwide despite Windstorm Kyrill and the UK June floods. Our strategycontinues to be to build a balanced insurance and reinsurance business, growingwhen the rates are high and consolidating when they reduce, writing globalreinsurance and large insurance risks through London and Bermuda with satellitemarketing offices, and writing books of regional business throughout the UK,Europe and the USA. Results The results for the half-year to 30th June 2007 were an increase of 72.1% inprofit before tax to £105.6 million (2006: £61.3 million). Gross premiumswritten increased 17.3% to £733.0 million (2006: £625.1 million) and net earnedpremium increased 17.5% to £471.9 million (2006: £401.7 million) despite a weakdollar. The Group combined ratio reduced to 84.8% (2006: 94.6%). Earnings pershare increased 67.8% to 20.3p (2006: 12.1p) and net assets per share rose 23.8%to 185.4p (2006: 149.8p). A strong set of figures. The second half of the yearis exposed to hurricanes in the USA, but a good first half lays a strongfoundation for the year. Dividend The Board stated at the 2006 year-end that it would target a total dividend of12p per share for 2007 subject to adequate profitability and shareholderapproval. We will pay an interim dividend of 4p (net) per ordinary share (2006:3p) on 1st October 2007 to shareholders on the register at the close of business on 31st August 2007. Overall comment The news has been dominated recently by the floods in the UK and the effect oninvestments of the subprime mortgage problems in the USA. Our investment managers have kept our funds short and predominantly inGovernment or well rated securities, with almost no exposure to subprimemortgage backed products. The floods have caused considerable distress to many people and communities. Theforecast overall loss to the Group from the June floods is £30.0 million, ofwhich £5.0 million comes from the UK household account, the balance coming fromthe reinsurance accounts in Global Markets and Bermuda. These losses are withinour expectations for such events, especially in the UK household account whichis well covered by reinsurance. The recent floods also follow Windstorm Kyrillwhich ravaged the UK and mainland Europe in January, the forecast loss from which remains at £25 million as previously forecast. Therefore the UK andEurope regional accounts have done well to make small profits in the half year. Our drive is to build the territorial spread of the regional accounts to givethem a geographical balance, and also to build these accounts in the two largelyuncorrelated areas of property (the household accounts) and liability (theprofessional indemnity accounts). The acquisition of American Live Stock Insurance Co in the USA, which wecompleted in August, is an important step in building our USA regional account. It has a specialist book of livestock business which we will nurture, and through the company we will have licences to underwrite our specialist lines on an "admitted" basis in the USA in addition to the "surplus lines" basis which we underwrite through our Lloyd's licence. Global Markets made a strong profit helped by good results from its specialtybusinesses. Global Markets balances its reinsurance and major risk accounts withbooks of specialty business such as personal accident, household, kidnap &ransom, bloodstock, contingency, marine and professional indemnity. Hiscox Global Markets This division uses the global licences, distribution network and credit ratingavailable through Lloyd's to serve clients throughout the world. The division made a profit before tax of £87.5 million (2006: £22.1 million) onan increased written premium income of £423.7 million (2006: £401.4 million)with a combined ratio of 75.9% (2006: 95.5%). As mentioned above, the reinsurance account has suffered losses from Kyrill andthe June floods but the overall account has shown a good profit. The Global Markets reinsurance team did well to increase their written premiumincome and to feed the Hiscox "sidecar" Panther Re with well-priced business. Webelieve sidecars are an excellent way to harness capital for a period when ratesare high without diluting our equity. The threat that we would lose business inFlorida evaporated in the event as reinsureds bought more cover and we were ableto write the income we wanted at the price we wanted. Rates for catastrophe exposed business were strong for the July 1st renewals,but other commodity business is very competitive. Our specialist lines aregenerally more stable. As highlighted in our June trading statement, we havereduced Syndicate 33's Lloyd's capacity by 20% for 2008 to £700 million (2007:£875 million) in order to maximise the use of capital and to ensure underwritingdiscipline. I am aware that, as always, every senior executive of every insurer andreinsurer is preaching discipline and yet many rates are still magicallyreducing. Unlike the regional business, where performance of insurers does varyand brand is important, in the big-ticket internationally traded business, aslong as the security is adequate, price tends to be the sole determinant, so theway to grow is to win the bidding (downwards). Next year we will not grow inthis area unless Mother Nature frightens more discipline into the market. We have expanded our reach for Global Markets from the traditional London baseto offices in Paris, New York and San Francisco, and will continue to try tofind business that does not currently come to London. Hiscox International This division covers Bermuda, the USA and Guernsey. It generated written premiumof £154.0 million (2006: £94.9 million), and a profit of £12.1 million (2006:£7.8 million). Hiscox Bermuda continues to build a worldwide book of catastrophe business andto reinsure selected parts of the rest of the Group. Its external writtenpremium income increased to £121.2 million (2006: £65.2 million) with a combinedratio of 99.1% (2006: 93.7%) caused by the losses from Windstorm Kyrill and theUK's June floods set against modest first half-year earned income. Again, ifcompetition continues, Bermuda may, like Global Markets, reduce its income nextyear. Hiscox USA, which opened for business last year in March, continued to growstrongly in the specialist professional indemnity area. Plans are being laid towiden the areas of business being written, particularly terrorism insurance. Theacquisition of American Live Stock Insurance Co is an essential part of our planto expand our business in the USA by being able to offer admitted as well assurplus lines policies throughout the USA. Guernsey produced its usual excellent profit. Hiscox UK and Europe This segment covers our regional business throughout the UK and mainland Europe,and also includes our international art account. Overall written premium incomewas up 20.5% to £155.3 million (2006: £128.9 million) and the profit before taxwas £6.6 million (2006: £17.8 million). UK premium income was up 12.5% to £114.3 million (2006: £101.6 million). Ourcore areas increased well covering the loss of some less significant business.Windstorm Kyrill and the June floods have increased the combined ratio to 104.4%(2006: 87.7%) but a profit of £6.0 million was still made (2006: £16.5 million). The UK broker and direct household accounts have been fully tested so far thisyear, first by increased competition and then by natural catastrophes. Webelieve that a strong brand will help us sell our policies at a proper price,and that the quality of the Hiscox brand is proved when the policy is calledupon to respond to a claim. An insurance policy is a promise to pay, and youonly find out that you have got what you paid for when you make a claim. We havedone everything within our power and that of our appointed loss adjusters toalleviate the terrible distress of our policyholders and I believe that we haveenhanced our reputation. Inevitably, big losses to the industry have thelong-term benefits of encouraging more people to buy the proper levels ofinsurance, and insurers to be less reckless in their pricing. There are alreadywell-publicised price rises in the UK property market. We have started a new marketing campaign in August to continue to build thebrand and bring in more good business. Last year's campaign helped us attractmore business both through brokers and our direct channels and won the MarketingSociety's 2007 Award for Excellence for Brand Extension. The regional commercial business in the UK has done well despite increasedcompetition. We specialise in small risks which are less competed for, and wehave underwriting and claims experience that clients want more than the cheapestprice. Again, the advertising helps strengthen the Hiscox brand message that weare different. Our European offices increased their combined written income to £41.0 million(2006: £27.3 million). The figures are a bit distorted due to accounting timing,but the real comparative growth is 17.1% which is healthy and has been helped bya new focus on specialty commercial business in addition to the householdaccount. They had losses from Windstorm Kyrill which hit Germany, theNetherlands and Belgium the hardest, so did well to manage a small profit of£0.6 million (2006: £1.3 million). Investments Assets under management rose to £1,823 million at 30th June 2007 (2006: £1,678million) and the yield for the half-year was 2.6% (2006: 1.6%), giving a totalinvestment return of £47.9 million (2006: £27.1 million). Concerns overinflation led to a difficult period for bond markets but we mitigated the impactby maintaining a short duration and high credit quality. We have had almost noexposure to the multitude of higher-yielding products and structured productsthat have been hit by the subprime mortgage market problems in the USA. Ourholdings in equities and other risk assets added value and were increased to 10%of assets by the end of June 2007. The recent turmoil within the subprime market in the USA is leading to morerealistic pricing for risk in many parts of the financial markets and we arebeginning to see some interesting opportunities which will enable us to increaserisk and potential reward modestly in the portfolio. Conclusion As usual I am writing this in the middle of the USA wind season which peaks inSeptember but, unusually, we have already been tested in the first half-year inthe UK and Europe by some considerable natural catastrophes. There have been further floods in the UK in July for which we forecast an overall loss to the Group of £20 million. We have seen all these losses as a chance to prove ourselves with extraordinary service and thereby enhance the perception of the Hiscox brand. Rates are now generally being increased for household business - necessarily given the extraordinary weather we are experiencing - so our property account should flourish. Both in our property and commercial accounts, we will continue to develop books of quality business, attracted by our specialist knowledge, creativity and integrity in both underwriting and in the settlement of claims. Our Global Markets and Bermuda businesses have developed well-priced accountsbut we must wait and see what Mother Nature does in the next two or threemonths. We factor a significant hurricane in the USA into our underwriting andforecasts, and so we are prepared. We will always remain ready to take rapid advantage of favourable conditions inwhichever market we are in, but we will also have the discipline to maintain asensible pricing structure when competition becomes foolish, even if it meanslosing business. We want to establish a brand that establishes us as differentand well known for offering good cover at a sensible price, with rapid and fairsettlement of claims, and long-term growth in value to its shareholders. Robert HiscoxChairman20 August 2007 Condensed consolidated interim income statementfor the six month period ended 30 June 2007 6 months to Year to 6 months to 30 June 2006 31 Dec 2006 30 June 2007 (unaudited) (audited) Notes (unaudited) restated* restated* £000 £000 £000--------------------------------------------------------------------------------IncomeGross premiums written 733,029 625,152 1,126,164Net premiums written 547,142 504,703 975,397Net premiums earned 471,852 401,662 888,828-------------------------------------------------------------------------------- Investment result 7 46,761 44,375 105,550Other revenues 8 8,514 5,149 15,692-------------------------------------------------------------------------------- Net revenue 527,127 451,186 1,010,070--------------------------------------------------------------------------------ExpensesClaims and claim adjustmentexpenses, net of reinsurance 10 (216,612) (198,050) (382,341)Expenses for the acquisitionof insurance contracts (126,271) (113,393) (235,797)Administration expenses (40,574) (26,970) (76,533)Other expenses 8 (33,983) (46,605) (104,943)--------------------------------------------------------------------------------Total expenses (417,440) (385,018) (799,614)--------------------------------------------------------------------------------Results of operating activities 109,687 66,168 210,456Finance costs 9 (4,201) (4,824) (9,404)Share of profit of associateafter tax 76 5 10-------------------------------------------------------------------------------- Profit before tax 105,562 61,349 201,062Tax expense (25,550) (14,029) (37,216)--------------------------------------------------------------------------------Profit for the period (allattributable to equity shareholders of the Company) 80,012 47,320 163,846-------------------------------------------------------------------------------- Earnings per share on profit attributable to shareholders of the CompanyBasic 11 20.3p 12.1p 41.7pDiluted 11 19.6p 11.9p 40.5p *restated for the reclassification of certain minor overseas underwriting agencycommissions and expenses between income statement categories (note 2). The notes to the condensed consolidated interim financial statements are anintegral part of this document. Condensed consolidated interim balance sheetat 30 June 2007 30 June 2007 30 June 2006 31 Dec 2006 Notes (unaudited) (unaudited) (audited) £000 £000 £000--------------------------------------------------------------------------------AssetsIntangible assets 33,122 33,016 33,212Property, plant and equipment 13,962 12,891 13,821Investment in associate 104 23 28Deferred acquisition costs 146,529 128,898 117,115Financial assets carried atfair value 13 1,501,900 1,210,543 1,241,910Loans and receivablesincluding insurancereceivables 481,534 464,522 446,272Deferred tax - 13,129 -Reinsurance assets 371,602 435,094 302,772Cash and cash equivalents 13,16 321,309 467,904 502,871--------------------------------------------------------------------------------Total assets 2,870,062 2,766,020 2,658,001-------------------------------------------------------------------------------- Equity and liabilitiesShareholders' equityShare capital 19,829 19,649 19,694Share premium 3,227 403,259 -Contributed surplus 414,698 - 442,425Other reserves (45,611) 16,705 (40,396)Retained earnings 342,807 148,750 260,362--------------------------------------------------------------------------------Total equity 734,950 588,363 682,085-------------------------------------------------------------------------------- Employee retirement benefitobligations 3,452 17,308 3,801Deferred tax 12,102 - 8,467Insurance liabilities 1,803,903 1,769,644 1,594,101Financial liabilities carriedat fair value 13 91,000 115,064 93,929Current tax 23,863 44,264 20,793Trade and other payables 200,792 231,377 254,825--------------------------------------------------------------------------------Total liabilities 2,135,112 2,177,657 1,975,916--------------------------------------------------------------------------------Total equity and liabilities 2,870,062 2,766,020 2,658,001-------------------------------------------------------------------------------- The notes to the condensed consolidated interim financial statements are anintegral part of this document. Condensed consolidated interim statement of changes in equityfor the six month period ended 30 June 2007 Currency Share Share Contributed translation Retained 2007 2006 Capital Premium surplus reserve Earnings Total Total (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £000 £000 £000 £000 £000 £000 £000--------------------------------------------------------------------------------------------------------------------Balance at 1January 19,694 - 442,425 (40,396) 260,362 682,085 578,013Currencytranslationdifferences - - - (7,072) - (7,072) (22,084)Netinvestment hedge - - - 1,857 - 1,857 --------------------------------------------------------------------------------------------------------------------- Net income /(expense)recogniseddirectly inequity - - - (5,215) - (5,215) (22,084)Profit forthe period - - - - 80,012 80,012 47,320 --------------------------------------------------------------------------------------------------------------------Totalrecognisedincome /(expense)for the period - - - (5,215) 80,012 74,797 25,236 Employeeshareoptions :Equitysettledshare-based payments - - - - 2,787 2,787 1,780Deferred taxon sharedbased payments - - - - (354) (354) -Proceedsfrom sharesissued 135 3,227 - - - 3,362 1,973Change in own shares - - - - - - -Dividends toequityshareholders(note 12) - - (27,727) - - (27,727) (18,639)--------------------------------------------------------------------------------------------------------------------Balance at30 June 19,829 3,227 414,698 (45,611) 342,807 734,950 588,363-------------------------------------------------------------------------------------------------------------------- The notes to the condensed consolidation interim financial statements are aintegral part of this document. Condensed consolidated interim cash flow statementfor the six month period ended 30 June 2007 6 months to 6 months to Year to 30 June 2007 30 June 2006 31 Dec 2006 Notes (unaudited) (unaudited) (audited) £000 £000 £000--------------------------------------------------------------------------------Profit before tax 105,562 61,349 201,062Interest and equity dividendincome (40,928) (33,339) (70,243)Net (gains)/losses onfinancial instruments (4,166) 4,967 (9,422)Retirement benefitcontributions paid in excessof charges (349) 631 (12,876)Depreciation 2,067 1,800 3,898Charges in respect of sharebased payments 2,787 1,780 5,238Other charges 4,658 (24,618) 10,955Changes in operational assetsand liabilities:Insurance and reinsurancecontracts 25,989 69,019 45,426Financial assets 16 (256,902) 19,844 1,311Other assets and liabilities (3,397) (20,819) (17,953)--------------------------------------------------------------------------------Cash flows from operations (164,679) 80,614 157,396Interest received 40,007 32,892 68,644Equity dividends received 921 447 1,599Interest paid (4,516) (2,409) (9,416)Current tax paid (19,199) (14,668) (36,363)--------------------------------------------------------------------------------Net cash flows from operatingactivities (147,466) 96,876 181,860Cash flows from thesale/(purchase) of property,plant and equipment (2,419) (2,534) (5,452)Cash flows from the purchaseof intangible assets - - (300)--------------------------------------------------------------------------------Net cash flows from investingactivities (2,419) (2,534) (5,752)Proceeds from the issue ofordinary shares 3,362 1,973 3,217Net cash flow fromtransactions in own shares - - 50Dividends paid to Company'sshareholders 12 (27,727) (18,639) (30,428)Repayments of borrowings andfinancial liabilities (59) (319) (14,334)--------------------------------------------------------------------------------Net cash flows from financingactivities (24,424) (16,985) (41,495)--------------------------------------------------------------------------------Net movement in cash and cashequivalents (174,309) 77,357 134,613--------------------------------------------------------------------------------Cash and cash equivalents at1 January 502,871 413,759 413,759Net increase in cash and cashequivalents (174,309) 77,357 134,613Effect of exchange ratefluctuations on cash and cashequivalents (7,253) (23,212) (45,501)--------------------------------------------------------------------------------Cash and cash equivalents atend of period 16 321,309 467,904 502,871-------------------------------------------------------------------------------- The notes to the condensed consolidated interim financial statements are anintegral part of this document. Notes to the condensed consolidated interim financial statements 1 Reporting entity Hiscox Ltd (the "Company") is a public limited company registered and domiciledin Bermuda. The condensed consolidated interim financial statements for thecompany as at, and for the six months ended, 30 June 2007 comprise the Companyand its subsidiaries (together referred to as the "Group") and the Group'sinterest in associates. 2 Basis of preparation These condensed consolidated interim financial statements have been prepared inaccordance with the Listing Rules issued by the Financial Services Authority.The information presented herein does not include all of the disclosurestypically required for full consolidated financial statements. Consequentlythese financial statements should be read in conjunction with the fullconsolidated financial statements of the Group as at, and for the year ended, 31December 2006 which are available from the Company's registered office or atwww.hiscox.com. Except where otherwise indicated, all amounts are presented inPounds Sterling, rounded to the nearest thousand. The comparative amounts reported herein for the six months ended 30 June 2006and year ended 31 December 2006 have been extracted from the previouslypublished reports for each relevant period, but have been adjusted for areclassification of certain minor overseas agency underwriting expenses andcommissions from 'other expenses' and 'other revenues' to 'expenses for theacquisition of insurance contracts', and for the Group's revised presentation ofsegment information (note 5). The effect of the reclassification of theaforementioned expenses and commissions is to increase the previously reported'expenses for the acquisition of insurance contracts' for the six months to 30June 2006, and year ended 31 December 2006 by £5,404,000 and £9,948,000respectively. Simultaneous identical reductions have been made in total to'other expenses' and 'other revenues'. These presentational adjustments have noimpact on the Group's previously reported result from operating activities,profit before tax or shareholders' equity. The directors' believe that theamended classification of these expenses and commissions provides a moreappropriate presentation of their operating nature. The condensed consolidated interim financial statements for the 30 June 2007 and30 June 2006 periods are unaudited but have been subject to a review by theindependent auditors. The independent auditors have reported on the Group's fullconsolidated financial statements as at, and for the year ended, 31 December2006. The report of the independent auditors was not qualified. These condensed consolidated interim financial statements were approved by theBoard of Directors on 20 August 2007. 3 Accounting policies The accounting policies applied in these condensed consolidated interimfinancial statements are consistent with those applied by the Group in itsconsolidated financial statements as at, and for the year ended, 31 December2006 which were prepared in accordance with International Financial ReportingStandards. During the current period the Group designated certain foreign currencyborrowings as a hedging instrument in a net investment hedge relationship.Consequently, to the extent that the hedging relationship is effective, allgains or losses on the retranslation of the hedging instrument between the dateof designation and the balance sheet date are now recognised directly within thecurrency translation reserve in equity. The accounting policies applied in these condensed consolidated interimfinancial statements are also consistent with those that the Group expects toapply for the year ending 31 December 2007. The Group has not adopted IAS 34Interim Financial Reporting. 4 Financial risk management The Group's financial risk management objectives and policies are consistentwith that disclosed in the full consolidated financial statements as at, and forthe year ended, 31 December 2006. 5 Segment information The Group's segment reporting follows the organisational structure andmanagement's internal reporting systems, which form the basis for assessing thefinancial performance of, and allocating resources to, each business segment.The Group has recently made minor changes to the structure of its internalorganisation in a manner that now causes the composition of reportable segmentsto change. The main effect of this change is that the Group's central functionsare now separately identified as the "Corporate Centre" segment, with a greaterproportion of central revenues and expenses now being allocated to individualoperating segments where appropriate. Previously all central revenues andexpenses were included with the Global Markets business within a singlereportable segment. The remaining central items now reported in the new discreteCorporate Centre segment relate mainly to treasury and financing activities, andother expenses associated with oversight of the Group which are independent ofindividual operating units. The Group therefore now reports four primarybusiness segments. The other impact of restructuring the reporting segments is that the Group'sspecie business, all of which is written in Syndicate 33, is now presentedwithin the Global Markets segment and not within the UK and Europe segment aspreviously reported. The Global Markets segment also now includes all of theGroup's larger technology and media (TMT) risks. In prior years, those risksunderwritten by Hiscox Insurance Company Limited were reported in the UK andEurope segment. As a consequence of the change in reportable segments, the correspondingoperating results and combined ratios for earlier periods presented have beenrestated on a comparable basis, capturing the increase in attributed centralfunction items within individual business operating segments. The comparativeamounts have also been restated to reflect the reclassification of certainagency expenses and commissions outlined at note 2 above. The Group's four primary business segments are identified as follows: - Global Markets comprises the results of Syndicate 33, excluding Syndicate 33's fine art, UK regional events coverage, non-US household business and underwriting result of Hiscox Inc. It includes the results of the larger retail TMT business written by Hiscox Insurance Company Limited. - UK and Europe comprises the results of Hiscox Insurance Company Limited, the results of Syndicate 33's 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. It excludes the results of the larger retail TMT business written by Hiscox Insurance Company Limited. - International comprises the results of Hiscox Insurance Company (Guernsey) Limited, Hiscox Inc and Hiscox Insurance Company (Bermuda) Limited. - Corporate Centre comprises the investment return and administrative costs associated with the Company and other Group management activities. The segment results for the 6 months ended 30 June 2007 were as follows: 6 Months ended 30 June 2007(Unaudited) Global UK and Corporate Markets Europe International Centre Total £000 £000 £000 £000 £000-------------------------------------------------------------------------------------Gross premiumswritten 423,685 155,353 153,991 - 733,029Net premiums written 288,163 134,780 124,199 - 547,142 Net premiums earned 270,367 118,946 82,539 - 471,852------------------------------------------------------------------------------------- Investment result 18,128 11,406 9,453 7,774 46,761Other income 5,752 1,356 368 1,038 8,514------------------------------------------------------------------------------------- Net revenue 294,247 131,708 92,360 8,812 527,127------------------------------------------------------------------------------------- Claims and claimadjustment expenses,net of reinsurance (100,485) (58,963) (57,164) - (216,612)Expenses for theacquisition ofinsurance contracts (76,471) (32,324) (17,476) - (126,271)Administrationexpenses (16,617) (19,709) (4,248) - (40,574)Other expenses (13,165) (14,111) (1,278) (5,429) (33,983)------------------------------------------------------------------------------------- Total expenses (206,738) (125,107) (80,166) (5,429) (417,440)------------------------------------------------------------------------------------- Results of operatingactivities 87,509 6,601 12,194 3,383 109,687Finance costs (35) - (83) (4,083) (4,201)Share of profit ofassociate after tax - - - 76 76------------------------------------------------------------------------------------- Profit before tax 87,474 6,601 12,111 (624) 105,562------------------------------------------------------------------------------------- 100% level netcombined ratio (%) 75.9% 103.8% 95.3% - 84.8%------------------------------------------------------------------------------------- 6 Months ended 30 June 2006(Unaudited) restated Global UK and Corporate Markets Europe International Centre Total £000 £000 £000 £000 £000-------------------------------------------------------------------------------------Gross premiums written 401,356 128,908 94,888 - 625,152Net premiums written 319,846 108,508 76,349 - 504,703Net premiums earned 265,552 105,708 30,402 - 401,662-------------------------------------------------------------------------------------Investment result 9,966 7,312 6,839 20,258 44,375Other income 1,863 1,517 471 1,298 5,149-------------------------------------------------------------------------------------Net revenue 277,381 114,537 37,712 21,556 451,186-------------------------------------------------------------------------------------Claims and claimadjustment expenses,net of reinsurance (147,503) (40,774) (9,773) - (198,050)Expenses for theacquisition ofinsurance contracts (69,650) (32,036) (11,707) - (113,393)Administrationexpenses (13,752) (10,083) (3,135) - (26,970)Other expenses (24,366) (13,797) (5,253) (3,189) (46,605)-------------------------------------------------------------------------------------Total expenses (255,271) (96,690) (29,868) (3,189) (385,018)------------------------------------------------------------------------------------- Results of operatingactivities 22,110 17,847 7,844 18,367 66,168Finance costs (18) - - (4,806) (4,824)Share of profit ofassociate after tax - - - 5 5-------------------------------------------------------------------------------------Profit before tax 22,092 17,847 7,844 13,566 61,349-------------------------------------------------------------------------------------100% level netcombined ratio (%) 95.5% 90.5% 98.5% - 94.6%------------------------------------------------------------------------------------- Year ended 31 December 2006 (Audited) restated Global UK and Corporate Markets Europe International Centre Total £000 £000 £000 £000 £000------------------------------------------------------------------------------------- Gross premiumswritten 709,080 265,778 151,306 - 1,126,164Net premiums written 603,562 234,414 137,421 - 975,397 Net premiums earned 567,490 227,865 93,473 - 888,828-------------------------------------------------------------------------------------Investment result 33,123 19,327 16,449 36,651 105,550Other income 6,878 4,931 421 3,462 15,692-------------------------------------------------------------------------------------Net revenue 607,491 252,123 110,343 40,113 1,010,070------------------------------------------------------------------------------------- Claims and claimadjustment expenses,net of reinsurance (271,120) (95,317) (15,904) - (382,341)Expenses for theacquisition ofinsurance contracts (145,458) (62,861) (27,478) - (235,797)Administrationexpenses (37,001) (31,360) (8,172) - (76,533)Other expenses (62,933) (29,473) (6,878) (5,659) (104,943)-------------------------------------------------------------------------------------Total expenses (516,512) (219,011) (58,432) (5,659) (799,614)-------------------------------------------------------------------------------------Results of operatingactivities 90,979 33,112 51,911 34,454 210,456Finance costs (312) - (36) (9,056) (9,404)Share of profit ofassociate after tax - - - 10 10-------------------------------------------------------------------------------------Profit before tax 90,667 33,112 51,875 25,408 201,062-------------------------------------------------------------------------------------100% level netcombined ratio (%) 90.1% 96.2% 62.7% - 89.1%------------------------------------------------------------------------------------- 6 Return on equity 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000--------------------------------------------------------------------------------Profit for the period 80,012 47,320 163,846Opening shareholders' equity 682,085 578,013 578,013Adjusted for the time weighted impactof:- Distribution and other movements in capital 268 (205) (10,149)-------------------------------------------------------------------------------- Adjusted opening shareholders' equity 682,353 577,808 567,864--------------------------------------------------------------------------------Annualised return on equity (%) 24.8% 17.0% 28.9%-------------------------------------------------------------------------------- 7 Investment result i) Analysis of investment result 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000--------------------------------------------------------------------------------Investment income includinginterest receivable 42,595 35,128 75,526Net realised gains/(losses) oninvestments at fair value throughprofit or loss 11 (7,185) (5,731)Net fair value gains/(losses) oninvestments at fair value throughprofit or loss 5,265 (795) 8,721--------------------------------------------------------------------------------Return on investments 47,871 27,148 78,516Net realised (losses)/gains onderivative instruments (1,110) 18,091 -Net fair value (losses)/gains onderivative instruments - (864) 27,034--------------------------------------------------------------------------------Total returns on financial assets 46,761 44,375 105,550-------------------------------------------------------------------------------- Investment expenses are presented within other operating expenses (note 8). ii) Annualised investment yields 6 months to 6 months to Year to 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited) Return Yield Return Yield Return Yield £000 % £000 % £000 %--------------------------------------------------------------------------------Debt and fixed incomesecurities at fair valuethrough profit or loss 22,201 4.0 13,852 2.8 42,095 4.0Equities and shares inunittrusts at fair value 10,516 13.5 2,702 4.4 13,517 10.6through profit or lossDeposits with creditinstitutions/cash and cashequivalents 15,154 5.3 10,594 4.0 22,904 4.6-------------------------------------------------------------------------------- 47,871 5.3 27,148 3.3 78,516 4.6-------------------------------------------------------------------------------- 8 Other income and expenses 6 months to Year to 31 6 months to 30 June 2006 Dec 2006 30 June 2007 (unaudited) (audited) (unaudited) restated restated £000 £000 £000-------------------------------------------------------------------------------- Agency related income 853 1,448 4,861Profit commission 5,225 1,130 5,332Other income 2,436 2,571 5,499--------------------------------------------------------------------------------Other income 8,514 5,149 15,692-------------------------------------------------------------------------------- Managing agency expenses 5,505 4,235 17,258Underwriting agency expenses 9,774 12,172 22,033Connect agency expenses 6,717 6,360 12,547Exchange losses 7,980 20,522 38,354Investment expenses 606 640 1,306Other Group expenses includingdepreciation and amortisation 3,401 2,676 13,445--------------------------------------------------------------------------------Other expenses 33,983 46,605 104,943-------------------------------------------------------------------------------- 9 Finance costs 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000-------------------------------------------------------------------------------- Interest and expenses associated withbank borrowings and letters of credit 4,166 4,806 9,363Interest charges arising on financeleases 35 18 41-------------------------------------------------------------------------------- 4,201 4,824 9,404-------------------------------------------------------------------------------- 10 Claims and claim adjustment expenses 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000-------------------------------------------------------------------------------- Gross insurance claims and claimadjustment expenses (267,175) (221,005) (395,497)Insurance claims recovered fromreinsurers 50,563 22,955 13,156--------------------------------------------------------------------------------Net insurance claims and claimadjustment expenses (216,612) (198,050) (382,341)-------------------------------------------------------------------------------- 11 Earnings per share Basic Basic earnings per share is calculated by dividing the profit attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the period, excluding ordinary shares purchased by the Group andheld as own shares. 6 months to 6 months to Year to 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited)--------------------------------------------------------------------------------Profit attributable to theCompany's equity holders (£000) 80,012 47,320 163,846Weighted average number ofordinary shares (thousands) 394,915 392,125 392,558--------------------------------------------------------------------------------Basic earnings per share (penceper share) 20.3p 12.1p 41.7p-------------------------------------------------------------------------------- Diluted Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume conversion of all dilutivepotential ordinary shares. The Company has one category of dilutive potentialordinary shares, share options. For the share options, a calculation is made todetermine the number of shares that could have been acquired at fair value(determined as the average annual market share price of the Company's shares)based on the monetary value of the subscription rights attached to outstandingshare options. The number of shares calculated as above is compared with thenumber of shares that would have been issued assuming the exercise of the shareoptions. Year to 6 months to 6 months to 31 Dec 30 June 2007 30 June 2006 2006 (unaudited) (unaudited) (audited)--------------------------------------------------------------------------------Profit attributable to the Company'sequity holders (£000) 80,012 47,320 163,846--------------------------------------------------------------------------------Weighted average number of ordinaryshares in issue (thousands) 394,915 392,125 392,558Adjustment for share options(thousands) 13,868 6,772 12,449--------------------------------------------------------------------------------Weighted average number of ordinaryshares for diluted earnings per share(thousands) 408,783 398,897 405,007--------------------------------------------------------------------------------Diluted earnings per share (pence pershare) 19.6p 11.9p 40.5p-------------------------------------------------------------------------------- Diluted earnings per share has been calculated after taking account ofoutstanding options under both employee share schemes and also SAYE schemes. 12 Dividends 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000--------------------------------------------------------------------------------Final dividend for the year ended:- 31 December 2006 of 7.0p (net) per share 27,727 - -- 31 December 2005 of 4.75p (net) per share - 18,639 18,639Interim dividend for the year ended:- 31 December 2006 of 3.0p (net) per share - - 11,789-------------------------------------------------------------------------------- 27,727 18,639 30,428-------------------------------------------------------------------------------- An interim dividend of 4.00p (net) per ordinary share has been declared payableon 1st October 2007 to shareholders registered on 31st August 2007 in respect of the six months to 30 June 2007 (30 June 2006: 3.0p (net) per ordinary share).The dividend was approved by the Board on 16 August 2007 and accordingly has notbeen included as a distribution or liability in this interim consolidatedfinancial information in accordance with IAS 10 Events after the Balance SheetDate. 13 Financial assets and liabilities i) Analysis of financial assets at fair value through income 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000--------------------------------------------------------------------------------Debt and fixed incomesecurities 1,194,332 1,010,472 1,043,669Equities and shares in unittrusts 183,886 131,515 141,841Deposits with creditinstitutions 123,682 67,967 54,715--------------------------------------------------------------------------------Total investments 1,501,900 1,209,954 1,240,225Derivative financial assets - 589 1,685-------------------------------------------------------------------------------- 1,501,900 1,210,543 1,241,910-------------------------------------------------------------------------------- ii) Analysis of financial liabilities at fair value through income 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000-------------------------------------------------------------------------------- Short-term borrowing from creditinstitutions 91,000 112,378 92,852Derivative financial liabilities - 2,686 1,077-------------------------------------------------------------------------------- 91,000 115,064 93,929-------------------------------------------------------------------------------- The face value of the Group's short term borrowings from credit institutions at30 June 2007 was £91,000,000 (31 December 2006: £92,852,000; 30 June 2006:£112,432,000). The Group's borrowings at 31 December 2006 and 30 June 2007served as a partial hedge of its net investment in Hiscox Insurance Company(Bermuda) Limited. The Group designated the short term borrowings fromcredit institutions for net investment hedge accounting, as permitted under IAS39 Financial Instruments: Recognition and Measurement during the current period.Consequently, a foreign exchange gain of £1,857,000 arising during 2007 has been recognised in the currency translation reserve. iii) Investment and cash allocation 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited) £000 % £000 % £000 %--------------------------------------------------------------------------------Debt and fixedincome securities 1,194,332 65.5 1,010,472 60.3 1,043,669 59.9Equities andshares in unit trusts 183,886 10.1 131,515 7.8 141,841 8.1Deposits withcreditinstitutions/cash andcash equivalents 444,991 24.4 535,871 31.9 557,586 32.0-------------------------------------------------------------------------------- 1,823,209 1,677,858 1,743,096-------------------------------------------------------------------------------- iv) Investment and cash allocation by currency 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (audited) % % %--------------------------------------------------------------------------------Sterling 28.7 34.6 31.4Dollars 59.6 52.9 55.7Euro and other currencies 11.7 12.5 12.9-------------------------------------------------------------------------------- 14 Net asset value per share 30 June 2007 30 June 2006 31 Dec 2006 Net asset NAV Net asset NAV Net asset NAV value per share value per share value per share £000 pence £000 pence £000 pence-------------------------------------------------------------------------------- Net asset value 734,950 185.4 588,363 149.8 682,085 173.2--------------------------------------------------------------------------------Net tangibleasset value 701,828 177.1 555,347 141.4 648,873 164.8-------------------------------------------------------------------------------- The net asset value per share is based on 396,387,797 shares (30 June 2006:392,794,573; 31 December 2006: 393,725,396), being the adjusted number of sharesin issue at each reference date. 15 Impact of foreign exchange related items 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 Dec 2006 (unaudited) (unaudited) (audited) £000 £000 £000--------------------------------------------------------------------------------Income statementDerivative gains/(losses) onforeign exchange hedge contractsincluded within investment return (1,110) 17,172 27,034-------------------------------------------------------------------------------- Unearned premium and deferredacquisition costs adjustment 4,356 (15,436) (25,511)Foreign exchange gains/(losses) onborrowings for economic hedging ofHiscox Insurance Company (Bermuda)Limited - 8,498 14,121Other foreign exchangegains/(losses) (12,336) (13,584) (26,964)--------------------------------------------------------------------------------Impact of foreign exchange relateditems on income statement (9,090) (3,350) (11,320)--------------------------------------------------------------------------------Balance sheetForeign exchange differencesrecognised directly in equity (5,215) (22,084) (41,218)--------------------------------------------------------------------------------Overall impact of foreign exchangerelated items on net assets (14,305) (25,434) (52,538)--------------------------------------------------------------------------------Profit before taxProfit before tax 105,562 61,349 201,062Unearned premium and deferredacquisition costs adjustment (4,356) 15,436 25,511--------------------------------------------------------------------------------Adjusted profit before tax 101,206 76,785 226,573--------------------------------------------------------------------------------100% level Combined ratio 84.8% 94.6% 89.1%100% level Combined ratio (afterunearned premium and deferredacquisition costs adjustment) 85.6% 90.8% 86.3%-------------------------------------------------------------------------------- 16 Cash and cash equivalents The purchase, maturity and disposal of financial assets is part of the Group'sinsurance activities and is therefore classified as an operating cash flow. Thepurchase, maturity and disposal of derivative contracts is also classified as anoperating cash flow. Included within cash and cash equivalents held by the Group are balancestotaling £51,409,000 (30 June 2006: £43,718,000; 31 December 2006: £41,304,000)not available for use by the Group which are held within the Lloyd's Syndicate. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hiscox