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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hiscox Ltd | LSE:HSX | London | Ordinary Share | BMG4593F1389 | ORD 6.5P (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -3.00 | -0.26% | 1,160.00 | 1,160.00 | 1,162.00 | 1,190.00 | 1,151.00 | 1,190.00 | 157,269 | 14:30:03 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Ins Agents,brokers & Service | 967.8M | 712M | 2.0481 | 5.64 | 4.02B |
From May 2019 to May 2024
TIDMHSX
RNS Number : 8578X
Hiscox Ltd
27 February 2017
Hiscox Ltd full year results
For the year ended 31 December 2016
"A record result"
Hot Features
Premium
2016 2015
Gross premiums written GBP2,402.6m GBP1,944.2m
Net premiums earned GBP1,675.0m GBP1,435.0m
Profit before tax GBP354.5m GBP216.1m
Earnings per share 119.8p 72.8p
Total ordinary dividend
per share for year 27.5p 24.0p
Special dividend 16.0p
Net asset value per share 649.9p 545.0p
Group combined ratio 84.4% 85.0%
Return on equity 23.0% 16.0%
Investment return 1.9% 1.0%
Foreign exchange gains GBP152.4m GBP15.2m
Reserve releases GBP213.0m GBP205.9m
Highlights
-- A record profit of GBP354.5 million, an increase of 64%, with gross written premium growth of 23.6% (14.1% in local currency).
-- Hiscox Retail now accounts for 49% of the Group's GWP, 61% of NWP and 45% of profits (60% excluding foreign exchange gains). Hiscox UK and Europe doubled profits, and Hiscox USA remains the stand-out performer with premium growth of over 30%.
-- Hiscox London Market is navigating its way through a challenging trading environment, growing selectively and focusing on long-term opportunity.
-- Hiscox Re and ILS delivered an excellent result. It benefited from good underwriting and an increasing contribution from fees and profit commissions. Kiskadee Investment Managers' Assets Under Management now $1.25 billion.
-- Final dividend of 19.0p, a step up in the full year ordinary dividend to 27.5p, which is an increase of 15%. Going forward we will maintain our progressive dividend policy. The Group continues to use retained profits to fund future growth opportunities.
Bronek Masojada, Chief Executive of Hiscox Ltd, commented:
"This is a good result, flattered by foreign exchange and boosted by a strong investment return. Our retail business has come of age, driving growth and profitability for the Group. This gives us options and, although there are uncertainties in both the insurance and political environments, we have the right people, footprint and financial power to adapt. We will remain focused and disciplined where margins are shrinking and invest where we see opportunities for long-term profitable growth."
For further information
Hiscox Ltd Jeremy Pinchin, Group Company Secretary, Bermuda +1 441 278 8300 Kylie O'Connor, Head of Group Communications, London +44 (0)20 7448 6656 Brunswick Tom Burns +44 (0)20 7404 5959 Simone Selzer +44 (0)20 7404 5959
Notes to editors
About The Hiscox Group
Hiscox is a global specialist insurer, headquartered in Bermuda and listed on the London Stock Exchange (LSE:HSX). Our ambition is to be a respected specialist insurer with a diverse portfolio by product and geography. We believe that building balance between catastrophe-exposed business and less volatile local specialty business gives us opportunities for profitable growth throughout the insurance cycle. It's a long-standing strategy which in 2016 helped generate gross premiums written of GBP2,402.6 million and a record profit before tax of GBP354.5 million.
The Hiscox Group employs over 2,300 people in 13 countries, and has customers worldwide. Through the retail businesses in the UK, Europe and the US, we offer a range of specialist insurance for professionals and business customers as well as homeowners. Internationally traded, bigger ticket business and reinsurance is underwritten through Hiscox London Market and Hiscox Re and ILS.
Our values define our business, with a focus on people, quality, courage and excellence in execution. We pride ourselves on being true to our word and our award-winning claims service is testament to that. For more information, visit www.hiscoxgroup.com.
Chairman's statement
I am pleased to report a record profit of GBP354.5 million (2015: GBP216.1 million), over 60% more than last year. This year we maintained our underwriting discipline and benefited from a very favourable foreign exchange gain and good investment return.
On-going investment in our brand, infrastructure, and the hard work of our highly talented, energetic teams have all contributed to a strong result for Hiscox Retail. Hiscox USA has performed particularly well and continues to represent an excellent growth opportunity for the Group.
Hiscox London Market delivered a good result against a backdrop of fierce competition in specialty classes of business. Profitability is under pressure in most lines, and on the whole we are exercising caution. We hunt for opportunities where we can but are not afraid to sit on our hands where margins are thin. We are cautiously growing in some lines, particularly in new product areas and in our fledgling MGA business, which gives us access to attractive returns, helping to offset reductions elsewhere.
Hiscox Re and ILS (insurance-linked securities) has been very successful. Our strategy of reducing volatility in our earnings by diversifying our operations saw us create an ILS business in 2013 which has grown quickly to reach US$1.25 billion in assets under management and is now firmly in the premier league of ILS businesses. It performs a number of very useful functions for the Group, enabling us to leverage our underwriting expertise to give clients a full range of solutions, as well as providing an attractive source of regular fee income. It sits comfortably alongside our well-developed partnership with various quota share reinsurers.
Hiscox has had the same strategy for the 30 years I have been here. We continue to grow the retail businesses between 5% and 15% on average each year, whilst managing the more volatile London Market and reinsurance businesses more aggressively up and down as the opportunity and conditions dictate. This strategy has resulted in our transformation from a niche Lloyd's underwriter to an international insurance group with a strong consumer brand. This has required discipline and persistence by an experienced management team led by Bronek. Our retail business, outside of the London Market and Bermuda, now delivers 45% of profits (60% excluding foreign exchange gains), 49% of income and again its profits cover the dividend.
Results
The result for the year ending 31 December 2016 was a record profit before tax of GBP354.5 million (2015: GBP216.1 million). Gross written premium increased by 23.6% to GBP2,402.6 million (2015: GBP1,944.2 million). The combined ratio was 84.4% (2015: 85.0%). Earnings per share increased to 119.8p (2015: 72.8p) and the net asset value per share increased by 19.2%, or over GBP1, to 649.9p (2015: 545.0p). Return on equity was 23.0% (2015: 16.0%).
Dividend, balance sheet and capital management
In view of the performance of the Group, the growing contribution of the retail business, and the diversification of our reinsurance offering, I am pleased to announce a final dividend of 19.0p, a step up in the full year ordinary dividend to 27.5p, which is an increase of 15%. Going forward we will maintain our progressive dividend policy. The record date for the dividend will be 12 May 2017 and the payment date will be 20 June 2017.
The Board proposes to offer a scrip alternative subject to the terms and conditions of Hiscox Ltd's 2016 Scrip Dividend Scheme. The last date for receipt of scrip elections will be 19 May 2017 and the reference price will be announced on 30 May 2017.
The Group continues to use retained profits to capitalise on the opportunities for profitable growth which we have created. Despite our shifting profile towards retail, as in previous years our key capital constraint remains the view of rating agencies on our solvency.
Investments
We made a much improved investment return of GBP74.8 million (2015: GBP33.7 million), excluding derivatives, which equates to a return of 1.9% (2015:1.0%) on total assets under management. We would happily have accepted this at the beginning of the year, particularly given the political surprises that added considerably to the already challenging investment environment. Our bond portfolios, which traditionally deliver the majority of our returns, all benefited from the dramatic decline in yields following the UK referendum outcome. However, in the US Dollar market, where the bulk of our assets are invested, yields soon rose again, which created a particularly difficult end to the year, although we were somewhat protected by our focus on investment grade credit and short-duration investments. Our risk assets portfolio also made a useful contribution in absolute terms over the year, but lagged our benchmark.
In 2017, our expectation is that yields are more likely to rise than fall. Our largely short-duration portfolio means we are well positioned to take advantage of such a move. Capital gains will be harder to come by in such an environment and income will play a more important role, so our preference for corporate credit is likely to remain given the higher coupons available. The outlook remains unclear, and we therefore expect another year of relatively modest investment returns.
Industry stress test
Last year I talked about my desire to gain consensus on an industry-wide 'dry run' to test the London Market's ability to withstand a mega-catastrophe. This year, I'm delighted to say we have accomplished that task. It is rare for such an initiative to be driven by the industry rather than the regulator, but we succeeded in bringing together insurers, brokers, Lloyd's, rating agencies, regulators and Her Majesty's Treasury.
We learnt a number of valuable lessons from the exercise. The industry has a vital part to play in the economy in the aftermath of a major event, and this exercise demonstrated that it has all the ingredients it needs not just to survive such a market-turning event, but to thrive. We confirmed that the resilience of the London Market depends on the robustness of reinsurance and recapitalisation arrangements and the ability of firms to implement these arrangements during a turbulent financial environment. We also resolved that out of five critical factors - capital, rates, liquidity, underwriting expertise and regulatory response - it is a deep underwriting expertise and surefooted regulatory response that will differentiate the London insurance market in a market-turning event.
The London Market is the world's pre-eminent insurance market and our industry-led approach to this exercise is one of many reasons this market is so special. This exercise sets us apart from others at a time when there is greater fluidity of capital and a growing expertise in other territories to challenge us. We now have a blueprint for what the London insurance market needs to do to maintain its leadership position.
People
We should never think that we know everything. For the Group to thrive, it needs to continually adapt to the changes in our industry, and to do that we must embrace new ideas and perspectives. That is why it is so important to us to attract and retain the brightest and best people from a range of backgrounds.
2016 was a great year for us in this respect. Further consolidation in the London Market enabled us to recruit several market-leading specialty teams, and our new apprenticeship scheme for non-graduates also saw us take on clever, enthusiastic young people whose positive attitude and fresh outlook are beneficial to our business.
It has also been pleasing to see our Board and Executive Committee boosted by the addition of Aki Hussain, our new Chief Financial Officer, who brings different skills to our top team as well as important regulatory experience. His positive impact is already being felt and we are learning a lot from him.
Ultimately our people and our culture set us apart. I am always hugely impressed by the passion and positivity I encounter when I visit any of our 30 offices around the world. I am grateful to all our people for their focus and commitment to excellence, and thank them for their hard work over the year.
Outlook
In 2016 we saw favourable foreign exchange movements produce increased profits despite declining margins. We are very happy to take the exchange gain but are equally aware it can go the other way. Margins are under pressure in big-ticket business and are not likely to improve next year. This is where our retail strategy comes into its own. We have plenty of room for growth in all retail segments as our penetration in professional lines and homeowners is far from complete.
The last time I saw market conditions like this was in the 1990s, but the difference between then and now is that the Group has a depth of expertise and experience and more tools to deal with market challenges than before. Hiscox remains disciplined, and our longstanding strategy serves us well. We expect the tension between underwriting discipline and market relevance to continue in 2017, particularly in the London Market, and will respond by retreating in those lines where margins are vanishing.
Despite the difficult trading environment, the Hiscox Group has never been in better shape. The strategy we began so many years ago is guiding us in the soft market, giving us precisely the kind of options and flexibility that we could only have dreamt of some years ago. We look forward with optimism and confidence.
Robert Childs
27 February 2017
Chief Executive's report
Our 2016 result represents a record year for Hiscox with profits before tax of GBP354.5 million (2015: GBP216.1 million), beating our previous record of GBP320.6 million achieved in 2009. The improvement since last year is thanks to increased investment returns, significant foreign exchange gains and good underwriting which has offset the impact of a softening market. At the same time we were able to grow our revenues to GBP2,402.6 million (2015: GBP1,944.2 million), an increase of 14.1% at constant exchange rates.
Hiscox Retail is becoming an ever more important part of our business, growing revenues by 13.2% in local currency and doubling profits to GBP158.0 million (2015: GBP78.6 million). Our retail business has come of age and now accounts for 49% of the Group's GWP, 61% of NWP and 45% of profits (60% excluding foreign exchange gains), and again covers the dividend. Our long-held strategy of balance and diversity gives us choice and flexibility in this soft market and the symbiotic relationship we have created between our retail operations and bigger-ticket, more volatile lines, is not quickly replicated. It is the culmination of years of investment in infrastructure, our skills and our brand.
These very good results mask on-going soft market challenges. Our London Market business continues to face pricing pressure in most lines. Despite this, it delivered a strong profit of GBP44.0 million (2015: GBP54.6 million) and growth in local currency of 14.2%. Our investment in new teams has offset the decline in some established lines. We expect the soft market conditions to continue in 2017, and that particularly tortured London Market lines will shrink.
Hiscox Re and ILS has spent the last three years evolving and adapting to market disruption, successfully navigating new capital and declining rates to become a premier league player in the reinsurance and ILS space. Through good underwriting and good fortune we have avoided significant losses in what has been the worst year for catastrophes since 2012, increasing profits to GBP115.5 million (2015: GBP97.5 million).
Our adaptability has meant we have evolved organically over the past decade. We are now a lot more than a Lloyd's business with a retail play on the side. We are a diversified international insurance Group with a powerful brand, strong balance sheet and plenty of room to grow. We are not afraid to take bets, make difficult decisions or shrink as we adapt to the markets around us.
Hiscox Retail
Hiscox Retail continues to grow in significance and this year generated almost half of the Group's gross written premiums at GBP1,181.4 million (2015: GBP989.8 million). It is the single biggest segment in the Group, a strong profit contributor, and it differentiates us from our peers. We continue to invest heavily in our brand and our significant investment in IT infrastructure in both the UK and USA will support our next phase of growth.
Our retail businesses doubled profits to GBP158.0 million (2015: GBP78.6 million) and delivered a combined ratio of 88.1% (2015: 92.9%), the result of good underwriting decisions and a modest year for claims. Rates are broadly flat in retail, with marginal increases in select areas offset by declines elsewhere. Hiscox UK and Ireland saw increases in personal lines, though new business rates in casualty remain under pressure.
Hiscox Retail comprises Hiscox UK and Ireland, Hiscox Europe, and Hiscox International. I review them in turn below.
Hiscox UK and Europe
This division provides commercial insurance for small and medium-sized businesses, typically operating in white-collar industries, and personal lines cover - predominantly high-value household, fine art and collectibles, and luxury motor. These products are distributed via brokers, through a growing network of partnerships, and direct to consumers.
Our retail businesses in the UK and Europe doubled profits to GBP122.0 million (2015: GBP59.6 million) and experienced a benign year for claims, with minimal exposure to Storm Katie in the UK and Storm Elvira in France.
Hiscox UK and Ireland
Our most mature retail operation, Hiscox UK and Ireland, increased gross written premiums by 12.5% to GBP498.6 million (2015: GBP443.3 million), with every region contributing.
The broker channel remains a key driver of growth, particularly in professions and specialty commercial lines where we have expanded our appetite for larger risks. Within our technology book, our cyber and data risks product continues to perform well, supported by a focused marketing campaign. Underwriting partnerships grew by over 60% and we have made good progress in motor following our acquisition of RH Classics in 2015. Our market-leading position in media, entertainment and events, and specialised claims handling team, continue to set us apart, achieving double-digit premium growth in the period.
In our direct-to-consumer business, the investment in infrastructure that I have spoken about previously is bearing fruit. We completed our migration to a new online platform with an improved user experience, and that has helped to drive good growth, particularly in commercial lines where we have broadened our appetite to include more businesses at the 'medium' end of the SME scale. In direct home, we are already benefiting from our new IT system's ability to tailor pricing intelligently.
In 2016 we successfully launched a number of new products. These included Hiscox Trader, an e-trading solution for commercial brokers to make it easier for them to quote and sell Hiscox products to their clients; a renovation and extension product that provides homeowners with additional protection when undertaking sizable building works; a liability product for tradespeople and contractors; and a crime product to protect small businesses from a broad range of fraudulent acts. All have performed well so far, particularly Hiscox Trader which has helped us to streamline the way we quote and process small risks.
2016 was also the year we saw the much-debated Flood Re scheme go live. We are proud to have supported our customers by successfully campaigning for higher council tax band homes to be included within the scheme. However, we were disappointed to see the government announce further increases to Insurance Premium Tax (IPT) in the Autumn Statement. This is the third price increase in 18 months, taking IPT from 10% to 12% from June 2017 and, alongside the Flood Re levy of 4%, punishes the prudent. The latest hike amounts to a 300% increase since the introduction of IPT in 1994 and is hitting consumers' pockets and their ability to protect their assets - which I am sure is not the aim of HM Revenue and Customs.
It has been little over a year since we opened our landmark office in York, the home of our UK direct business. We now have 255 people working there and were pleased to be recognised by the British Council for Offices, winning the Best Workplace in the North award.
Continued investment in our brand saw us achieve some of our strongest ever brand health scores in 2016. Targeted small business and cyber insurance campaigns boosted brand affinity amongst SMEs to a record high of 53%. Our home insurance marketing also delivered strong results amongst target customer groups and helped new business to grow by 21%.
Our strong brand, established broker and partner relationships and award-winning claims service continue to deliver good opportunities in the UK market.
Hiscox Europe
Hiscox Europe grew gross written premiums to GBP174.7 million (2015: GBP148.3 million), 9.0% in constant currency. This good growth was driven by Germany, Spain and Benelux, all of which exceeded expectations at both the top and bottom line, and by our specialty commercial business which performed well in all markets.
Our German operations are doing very well. Here, core homeowner and small business products continue to deliver, while a focus on classic cars, the expansion of our cyber business, and new products launched for online shops and IT freelancers all help to differentiate us. It is a similar story in Benelux, where our classic car product (available through brokers) is proving popular, and our cyber offering is gaining traction. Cyber is a growing area of focus for our business, and this year a refined cyber offering will be launched in both France and Iberia.
In Spain, all lines are growing, with a particularly good performance in professional indemnity and directors and officers' business. We have also expanded our appetite for partnerships with financial service providers, with promising early signs.
Hiscox France experienced a difficult year following the loss of a number of key underwriters in 2015 and the cancellation of a challenged home surveyors' scheme. Our direct operations are performing well, helped by a move away from brand-building activity towards more focused acquisition marketing.
Our Shared Service Centre in Lisbon continues to improve our expense ratio for Europe. Around one third of our 325 Hiscox Europe staff are based there, and the team are involved not only in credit control and collection processes, but also in underwriting, pricing, broker relations, claims and IT.
Hiscox International
This division comprises Hiscox USA, Hiscox Special Risks and DirectAsia. Its revenues grew by 27.6% to GBP508.1 million (2015: GBP398.2 million), 16.9% at constant currency, and it achieved a combined ratio of 93.6% (2015: 93.9%). Hiscox USA was the biggest contributor to the division's growth and profit improvement.
Hiscox USA
Hiscox USA underwrites small-to-mid market commercial risks through brokers, other insurers and directly to businesses online and over the telephone. The outstanding momentum in this business has not stopped, delivering excellent growth of 30% in constant currency to GBP400.0 million (2015: GBP280.7 million) and a second year of aggregate profitability. Our business model is working.
Our broker business and direct and partnerships division have both performed well, with key contributors being our professional liability and cyber lines. The general liability account is also now established. Our first mover advantage in the direct and partnerships division is reaping rewards, delivering almost US$100 million in premium in 2016 and increasing its customer base to 175,000 policyholders. The low loss environment which benefited our terrorism line was offset by a more normal loss experience in the property account to deliver a good result in a challenging market.
During the year we expanded our cyber and data risk solutions to include Hiscox CyberClear, a product aimed at small and medium-sized enterprises in the U.S. with less than US$1 billion in annual revenue. This complements our existing offering for larger businesses. We also launched a new workplace violence coverage for our management liability product, and re-launched our industry-leading terrorism product to include a wider range of risks, such as the threat of an 'active shooter'.
Our operating model continues to adapt and evolve to accommodate a fast-growing business. We now have over 20 professionals working in a dedicated underwriting centre in Atlanta to service small accounts efficiently, which in turn enables our field underwriters to win more complex middle-market business, and we are benefiting from this approach. We are also embarking on a major project to replace our underlying US infrastructure with a more digital-friendly environment to ensure we have the capacity to support the size of business we would like to build.
On-going investment in the brand, including a US$28 million marketing spend, is paying off, with brand affinity amongst our target customers growing to 23% (2015: 7%). Our UK experience is that brand investment combined with good service drives customer growth, and that certainly appears to be the case here.
We remain very optimistic about our ability to grow profitably in the US market. We expect that Hiscox's combination of flexible underwriting delivered locally and our willingness to challenge convention by developing our direct offering will continue to differentiate us.
Hiscox Special Risks
This business underwrites special risks including kidnap and ransom, fine art and executive security from offices in Cologne, London, Los Angeles, Miami, Munich, New York, Paris and St Peter Port.
The business delivered gross written premiums of GBP95.2 million (2015: GBP99.3 million), a decrease of 4.2% or 11.6% in constant currency, due to intense competition and rate pressure across all lines. We continue to find opportunities in new and established markets though, helped by disciplined underwriting and careful expense management to protect profitability. In the Middle East, our fine art offering has been well received, and Latin America remains a source of great opportunity. New partnerships and distribution channels have also proven successful.
In partnership with global risk consultants Control Risks, we have developed a broader security-based offering for corporate and private clients, beyond our traditional kidnap and ransom product. The Security Incident Response product includes cover for criminal threats, workplace violence, corporate espionage and cyber extortion, and so responds to the changing needs of our clients. We expect these initiatives will return the business to growth in 2017.
DirectAsia
DirectAsia is a direct-to-consumer business in Singapore and Thailand that sells predominantly motor insurance. Hiscox acquired the business in April 2014. Its premiums shrank to GBP13.0 million (2015: GBP18.2 million), following the sale of our business in Hong Kong.
The team is navigating a highly competitive motor insurance market in Singapore, where restrictions on car ownership limit the size of the opportunity. In 2017 the Singapore team will focus on the core motor market and begin exploring the potential to use our digital platform to enter other lines of business.
In Thailand we see strong growth potential and our brand-building work continues to deliver results. Thailand has some 60 million people and over 12 million cars, so the opportunity for us here is significant. The challenge is to build the operational infrastructure to a level which can efficiently convert enquiries into sales. This will remain our focus for 2017.
Hiscox London Market
Conditions in the London Market remain challenging, with pressure on rates, terms and conditions, and acquisition costs. Against this backdrop, our London Market business delivered a profit of GBP44.0 million (2015: GBP54.6 million) whilst increasing premiums by 27.1% to GBP726.0 million (2015: GBP571.0 million). On a constant currency basis, premium growth was 14.2%.
Hiscox London Market's combined ratio of 91.0% (2015: 86.6%), reflects the impact of the challenging market combined with a return to a more normal loss experience. This included claims in property (where we saw losses from Hurricane Matthew, the Alberta wildfires, Houston floods and Texas hailstorm), marine and energy (including the Jubilee Oil Field loss), personal accident and terrorism (where we had a small exposure to the Brussels terrorist attack), and a number of large directors and officers' claims.
The current trading environment is reminiscent of the London Market in the 1990s. The on-going abundance of capital and a lack of major loss events have resulted in pricing pressure and lead to a conflict between underwriting discipline and marketplace relevance. This is the reality of the market, and our response is to remain disciplined and accept that we may need to shrink and even exit lines of business where we cannot see the opportunity for long-term profitability. We are growing very selectively in areas where we have introduced new lines - like US flood, where we believe we have an edge over our competitors - or where we have employed new teams, such as general liability, product recall and cargo.
Looking at each division in turn:
Property
Our property division includes US and international commercial property, power and mining risks, and US catastrophe-exposed personal and small commercial lines traded in the London Market.
Our property teams shrank in areas where rates are under most pressure such as large commercial property, power and mining. It has seen some growth in catastrophe-exposed personal and small commercial lines, where rates have held up. We see real opportunity for growth in US flood insurance, where the market is deregulating. Our new FloodPlus product has been well received by the market and was awarded Best Product Innovation at the Lloyd's Market Innovation Awards.
Marine and Energy
Our marine and energy business is one of the most challenged divisions, yet continues to deliver excellent profits.
The marine and energy liability and hull accounts are broadly flat, with some reductions in the upstream energy book. Due to rate reductions, a lack of new business, and the continuing depression in oil prices, we are actively managing our business in these lines. The cargo team we hired in 2016 is already bringing us new opportunities and we will cautiously grow in 2017. We have avoided some of the large cargo losses in the market.
Casualty
Our casualty division includes our directors and officers', cyber, professional indemnity and general liability lines.
Market challenges are less pronounced in our casualty business, where we have invested in new teams and products. We have received good support from brokers for our new general liability product as the team brings business to London which would otherwise have been written elsewhere. We will continue to grow in these lines in 2017, particularly in cyber which remains an opportunity for the Group.
Aerospace and Specialty
This division includes our aviation, space, contingency, terrorism, political risks, personal accident and product recall business. It has had a mixed year, with some lines under more pressure than others.
In aviation we have significantly reduced our airline account as prices remain under pressure, but have looked to grow our products and airports business. Personal accident had a challenging year as the market was hit by a number of losses but we saw good top line growth. Our focus for 2017 is to ensure this account is well balanced and profitable. Terrorism has benefited from a lack of losses, and our leadership position in the market stands us in good stead, however this is an area of the market where broker pressure on acquisition costs is at its most severe. We continue to grow the product recall account, where we have a market-leading team, and will expand in both product and distribution in 2017. We have taken the decision to exit political risks as the growing length of cover - now regularly over five years - and greater role of credit has moved it outside of our risk appetite.
Alternative Distribution
Our support for the underwriting agency White Oak has been a major part of our business, but after five years of working together we are materially reducing our involvement in 2017. We will not be renewing the extended warranty business and will write a much reduced line on the physical damage portfolio.
The role of the alternative distribution division is to facilitate innovation in the use of technology and specialist data to serve different markets, but to succeed at this requires a degree of selection and discipline. We are expanding in our portfolio business, where we are supporting other expert underwriters with not only capacity but also claims, wordings and pricing expertise. We have a very strong pipeline of opportunities and this area is growing profitably.
Hiscox MGA
Hiscox MGA underwrites and distributes products where customers' requirements for capacity exceeds Hiscox's own risk appetite. It operates out of London, Paris and Miami.
Our mega yacht business faced a challenging year and was not without losses, but our focus on the Mediterranean yacht market - and local presence - is already bearing fruit. For 2017, our Paris-based space team will become part of Hiscox MGA. Space is a longstanding class of business for us, and in offering material line sizes by underwriting on behalf of not only Hiscox but other insurers, we can remain relevant in this challenging market. In Miami, which serves as our gateway to Latin America, we have made good progress in our fine art, property and terrorism lines, and will be launching a casualty offering to the market in 2017. We have also extended the reach of our terrorism and political violence coverage, writing risks in the Middle East and Africa from London.
Hiscox Re and ILS
Hiscox Re and ILS comprises the Group's reinsurance businesses across the world and ILS activity through our flagship Kiskadee funds.
Gross written premiums for Hiscox Re and ILS increased by 29.1% to GBP495.2 million (2015: GBP383.4 million), 16.1% in constant currency, driven by growth in casualty and specialty lines as well as business written on behalf of Kiskadee. Net of cessions to supporting capital partners, premiums remained constant at GBP226.8 million (2015: GBP225.0 million), although declined 10.7% in constant currency. In a challenging trading environment, the business delivered a profit of GBP115.5 million (2015: GBP97.5 million) and a 53.7% combined ratio (2015: 46.6%), an excellent result boosted by a material contribution from fees and profit commissions. This was down to good risk selection, which saw the business avoid significant losses in a year of high frequency, and lower severity catastrophe activity.
The market continues to be awash with capital from new and traditional sources, which has seen rating pressure across the portfolio. While single-digit rate reductions at the important January renewals were within expectations, we remain willing to walk away from unattractively priced business. We are finding opportunity in non-catastrophe-exposed lines, such as smaller-ticket casualty and specialty reinsurance.
Product innovation continues to be a key focus for the team. New products developed in 2016 include cyber reinsurance covers and a collateralised reinsurance ILS offering which was launched for the 2017 renewal season.
Kiskadee assets under management reached US$1.25 billion in 2016. Demand for participation in the funds continues to increase, with the only constraint to growth being access to adequately priced opportunities. Pleasingly, the Hiscox Re and ILS team were awarded Underwriting Team of the Year at the Insurance Day London Market Awards.
Claims
We sell a promise to pay should the worst happen, and claims is where that promise is tested. We were therefore delighted to be rated number one in the Gracechurch London Claims Report for overall service quality for the second year in a row. One of our staff also received the Young Claims Professional of the Year Award at the Insurance Insider Honours Awards, and our net promoter scores remained at very positive levels. These are all signs that our on-going investment in claims does not go unnoticed and is in fact recognised by clients, brokers and competitors alike.
In 2016 the global insurance market returned to a more normal claims environment with earthquakes in Japan and Ecuador, Hurricanes Hermine and Matthew, wildfires in Alberta and floods in Louisiana. With the exception of Hurricane Matthew these events had limited impact on Hiscox.
Hurricane Matthew was the first material storm to make landfall on the East Coast of the United States since Hurricane Sandy in 2012. The Group set aside net US$35 million for the event, based on an insured market loss of US$8 billion, to cover claims and reduced profit commissions. This event was within our expected catastrophe loss budget for the year.
Hiscox's prudent approach to reserving is again reflected in reserve releases for 2016 of GBP213.0 million (2015: GBP205.9 million).
Marketing
In 2016 the Group spent GBP42.1 million on marketing and brand-building activity (2015: GBP44.5 million). This was focused on our key retail businesses with incremental marketing investment accelerating the growth of our direct-to-consumer lines around the world. In the UK our consistent marketing approach helped maintain excellent brand awareness and relevance in the small business sector and a new home insurance marketing campaign contributed to a 25% year-on-year increase in new business premium. In the US we doubled brand awareness to a record 38% (2015: 21%) through the successful activation of the "Encourage Courage" campaign, which also helped to deliver 45% growth in our direct small business division.
This year saw the successful activation of some new sponsorships, including the London to Brighton Veteran Car Run in the UK and the International Edelweiß Bergpreis in Germany, both of which helped to promote our classic car and high net worth business. In order to drive awareness of DirectAsia, we became the Official Club Partner of Leicester City Football Club (LCFC) for the 2016/17 season.
We continue to support the arts through corporate sponsorship such as Sculpture in the City, and through key local partnerships, particularly in York where we are establishing ourselves as a major local employer.
IT
Robust infrastructure is required as we grow into a business whose customer numbers will be measured in the millions, not the tens of thousands, so an investment in IT is a multi-year priority for the Group.
We are undertaking some significant IT infrastructure projects, particularly within our Retail businesses. In the UK, a new underwriting and policy administration platform will allow the business to grow scale efficiently, adapt to the increasingly digital world and meet customers changing expectations. The UK direct business has already migrated to our new platform and is already benefiting from better conversion rates, more targeted pricing and improved customer service. The UK broker channel commercial business will follow suit during 2017. Hiscox USA is beginning the task of replacing its policy and claims administration system to ensure we are fit for future growth. This will be another multi-year investment.
We expect that as these new systems come on stream their impact on efficiency will more than offset the increased depreciation cost.
Investments
We have learnt to live with lower investment returns for the last few years and have resisted the temptation to stretch for yield given the high valuations that prevail in many parts of the bond and equity markets. Our strategy however has been one of low risk rather than no risk given that so-called risk free returns remain at minimal, and in many parts of the world, negative levels. The result for 2016 therefore is a good one and certainly exceeds the expectations we had at the beginning of the year. Our investments, before derivatives, made GBP74.8 million (2015: GBP33.7 million) equating to a return of 1.9% (2015: 1.0%). The significant improvement on last year is pleasing and masks the volatility in bond and equity markets which arose following the main political events on either side of the Atlantic. Whilst the Brexit vote in June provided a boost for our bond portfolios, the election of President Trump in November reversed much of the benefit, particularly in the US bond market where many of our assets are invested. Our bond managers performed well in the fast changing conditions and the overall return of 1.9% from the bond portfolios is the highest for several years and comfortably ahead of the benchmarks against which they are measured. After initial weakness both outcomes were viewed as being positive for equities but with a wide range of performance between sectors. The risk assets portfolio delivered 6.2% in a challenging year for active managers.
There is currently much debate as to whether the increase in US yields that has occurred recently will persist in 2017. We have seen numerous false dawns on this front but with the Federal Reserve indicating that they intend to continue along a path of gradually increasing interest rates, our hope and expectation is that they will indeed rise. Such a move would be welcome and, given the short duration of our bond portfolios, we are well positioned to benefit. On balance we continue to err on the side of caution. Whilst there are signs of improvement economically, emergency monetary measures remain in place in many parts of the world prolonging the period of artificially elevated asset prices and doing little to reduce the overall levels of debt in the world. Political uncertainty can be added to the likely source of volatility in 2017 and, as 2016 has shown us, predicting outcomes and market reaction to them is something of a lottery. At risk of repetition, the outlook for 2017 therefore seems no clearer or more predictable than of late and our focus on resilience over return is likely to remain in place.
Capital management
The key measure of value creation in insurance is return on equity. All of our internal financial incentives are focused on having a good return on equity, with reasonable leverage and within a tightly defined appetite for risk. In 2016 we delivered a 23.0% return on equity (2015: 16.0%).
Retaining our capital efficiency is an important priority. We are proposing a 15% increase in our annual dividend and remain committed to progressive increases in the future whilst retaining the balance of our profits to fund our growth. Areas for capital deployment include our retail businesses in the UK, US and Europe. In our London Market business we do not expect an immediate capital release as this business shrinks and we have to manage the associated reserving risk as the business on our books matures.
A further demand for capital will be to fund the creation of an EU-27 carrier to allow us to trade in Europe post-Brexit. This will require some initial capital commitment, though we expect that as the European business with our UK carrier develops there will be a release of capital here. Inevitably though there will be a timing difference.
For some time we have been communicating to rating agencies and regulators that Hiscox has a broad diversified business, both by product and geography, and we are no longer a London Market business with a retail operation on the side. Slowly they are seeing this in our results, and this year with retail contributing to 45% of pre-tax profits, I think that they will see that reality matches our message.
Political environment
2016 has seen some major changes in the political environment. Brexit is becoming a reality and it is possible that the US may enact major changes to its trading and taxation relationships with other countries.
Hiscox has been planning for a Brexit in which the UK will have regulatory equivalence with the EU-27, but no passporting or freedom of services. This means that to continue to conduct business in Europe we will have to incorporate a new carrier within the EU-27. Our European business employs 300 people, underwrites GBP174.7 million in premiums and has a combined ratio of 86.3%, so we have an incentive to retain and expand this business. We are in discussions with two regulators about domiciling our new legal entity in their country. We expect to begin the process of incorporation in the first half of this year, so that we are in a position to write new business into the new carrier before the end of 2018.
The only difficulty we see at the moment is the handling of claims on in-force or historic policies. The cost of a Part VII court approved process to transfer these liabilities to a new EU-27 carrier is significant. In the Brexit negotiations to come we hope that pragmatism will prevail and practical transition arrangements will be developed.
Another source of business uncertainty is the emerging conversation in the US on its relationship with the rest of the world. There is much talk of 'border adjustment taxes', changes to the taxation of related party transactions and a reduction in the headline rate of corporation tax. It is very uncertain what will be enacted by Congress and the Senate and approved by the President. We currently feel that Hiscox has the flexibility and capital to adjust to these developments as they unfold, but we will be keeping a close eye on trends in the US.
People
During 2016 we successfully managed a number of senior changes. In September we welcomed Aki Hussain as our new Group Chief Financial Officer. Aki is already proving to be an excellent addition to our senior team, bringing extensive financial services experience, strong regulatory exposure, and a fresh perspective. I would like to take this opportunity to thank John Worth, our interim CFO, for his great contribution over his tenure.
During the year Pierre-Olivier Desaulle stepped down as Managing Director of Hiscox Europe. When Pierre-Olivier assumed leadership of this business it had a premium income of EUR19.5 million and was loss making. It is now a EUR218.5 million business and a valuable profit contributor to the Group. I would like to thank Pierre-Olivier for his endeavours over his tenure. He is succeeded by Stéphane Flaquet, Group IT Director and formerly Chief Operating Officer of Hiscox Europe. His knowledge of our business and the European territories in which we operate is already having a positive effect and we look forward to continued growth and steadily increasing profits under his leadership.
After five years in Bermuda Jeremy Pinchin, Chief Executive Officer of Hiscox Re and ILS and Chief Executive Officer of Hiscox Bermuda, is to return to London next year where he will continue to serve as our Global Head of Claims and also join the Board of Hiscox Special Risks. Mike Krefta, currently the Chief Underwriting Officer of Hiscox Re, will succeed Jeremy in these roles with effect from 1 August 2017, subject to regulatory and immigration approvals. Jeremy has made a major contribution to this business in his time in Bermuda. He brought together the Bermuda, London and Paris reinsurance teams into a powerful single unit, made innovation a core part of our client interaction and was instrumental in the creation of Kiskadee Investment Managers. Hiscox remain a material participant in the reinsurance market thanks to Jeremy's leadership.
There is, understandably, interest in the inclusiveness of businesses and their gender pay gap. There are two elements to this - first, whether individuals performing the same roles with the same level of competence are paid equally, and second, the gender mix at different levels of seniority. Hiscox conducted an audit of the first and have corrected any anomalies. In the second, despite a 50/50 gender split at entry level, Hiscox sees a decline in females filling senior roles. Although this has been a focus in the last two years, we have decided to take further steps to address this and Richard Watson, our Chief Underwriting Officer, has become the champion of our internal efforts in this regard.
As Hiscox grows and evolves, we are pleased that our people are able to fulfil their personal ambitions and build their careers here. The success and adaptability of Hiscox is thanks to the collective endeavours of each person. I would like to thank all 2,300 of my colleagues for their commitment and achievements throughout the year.
Outlook
2017 will represent yet another step change in the evolution of our business, with our retail businesses further growing in importance. We have diversity by earnings, investments, geography, product and distribution. We are increasingly leveraging our underwriting expertise and brand to generate fees and commissions.
We talk a lot about the symbiotic relationship between our retail and big-ticket businesses. This has never been more relevant than this business plan cycle as we proactively reduce the big-ticket insurance lines, but continue to grow the retail lines to drive growth and profits.
There are uncertainties, both from the insurance and the political environments, but Hiscox has the right talent, footprint and financial power to adapt to what lies ahead, taking advantage of trends for the benefit of shareholders, customers and staff.
Bronek Masojada
27 February 2017
Inside Information
This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation.
Hiscox Ltd
Consolidated income statement
For the year ended 31 December 2016
2016 2015
Total Total
Note GBP000 GBP000
------------------------------- ----- ------------ ------------
Income
Gross premiums written 4 2,402,579 1,944,220
Outward reinsurance
premiums (614,636) (372,376)
-------------------------------- ----- ------------ ------------
Net premiums written 4 1,787,943 1,571,844
Gross premiums earned 2,220,853 1,828,334
Premiums ceded to reinsurers (545,840) (393,318)
-------------------------------- ----- ------------ ------------
Net premiums earned 4 1,675,013 1,435,016
Investment result 7 74,991 35,381
Other income 9 37,594 17,156
-------------------------------- ----- ------------ ------------
Total income 1,787,598 1,487,553
-------------------------------- ----- ------------ ------------
Expenses
Claims and claim adjustment
expenses (1,004,601) (685,897)
Reinsurance recoveries 264,829 113,444
-------------------------------- ----- ------------ ------------
Claims and claim adjustment
expenses, net of reinsurance 17 (739,772) (572,453)
Expenses for the acquisition
of insurance contracts (538,467) (441,376)
Reinsurance commission
income 128,627 97,093
Operational expenses 9 (415,719) (361,215)
Net foreign exchange
gains 152,408 15,153
-------------------------------- ----- ------------ ------------
Total expenses (1,412,923) (1,262,798)
-------------------------------- ----- ------------ ------------
Results of operating
activities 374,675 224,755
Finance costs (20,266) (9,662)
Share of profit from
associates after tax 134 1,007
-------------------------------- ----- ------------ ------------
Profit before tax 354,543 216,100
Tax expense 19 (17,557) (6,205)
-------------------------------- ----- ------------ ------------
Profit for the year
(all attributable to
owners of the Company) 336,986 209,895
-------------------------------- ----- ------------ ------------
Earnings per share
on profit attributable
to owners of the Company
Basic 20 119.8p 72.8p
Diluted 20 116.0p 70.5p
-------------------------------- ----- ------------ ------------
The related notes 1 to 22 are an integral part of this document.
Consolidated statement of comprehensive income
For the year ended 31 December 2016
2016 2015
Total Total
GBP000 GBP000
--------------------------------------------- --------- --------
Profit for the year 336,986 209,895
Other comprehensive income
Items that will not be reclassified
to profit and loss
Remeasurements of the net defined
benefit obligation (46,531) 28,236
Income tax on the remeasurement of
other comprehensive income 9,502 (6,762)
---------------------------------------------- --------- --------
(37,029) 21,474
---------------------------------------------- --------- --------
Items that may be reclassified subsequently
to profit and loss:
Exchange differences on translating
foreign operations 111,094 34,478
Income tax on the remeasurement of - -
other comprehensive income
---------------------------------------------- --------- --------
111,094 34,478
Other comprehensive income net of tax 74,065 55,952
Total comprehensive income for the
year (all attributable to owners of
the Company) 411,051 265,847
The related notes 1 to 22 are an integral part of this document.
Consolidated balance sheet
At 31 December 2016
2016 2015
Note GBP000 GBP000
--------------------------------- ---- ------ ---------- ----------
Assets
Goodwill and intangible
assets 123,724 126,222
Property, plant and
equipment 48,425 46,509
Investment in associates 13,835 13,525
Deferred tax 41,392 35,147
Deferred acquisition
costs 346,592 271,517
Financial assets carried
at fair value 12 3,792,033 2,921,585
Reinsurance assets 11,17 805,649 538,810
Loans and receivables including
insurance receivables 13 802,906 619,563
Current tax asset 2,406 3,243
Cash and cash equivalents 16 664,816 727,880
--------------------------------------- ------ ---------- ----------
Total assets 6,641,778 5,304,001
--------------------------------------- ------ ---------- ----------
Equity and liabilities
Shareholders' equity
Share capital 19,060 19,030
Share premium 18,035 15,231
Contributed surplus 89,864 89,864
Currency translation
reserve 202,272 91,178
Retained earnings 1,488,306 1,312,660
--------------------------------------- ------ ---------- ----------
Equity attributable to
owners of the Company 1,817,537 1,527,963
----------------------------------- ------ ---------- ----------
Non-controlling interest 866 866
Total equity 1,818,403 1,528,829
Employee retirement
benefit obligations 56,139 75
Deferred tax 17,030 29,814
Insurance liabilities 17 3,852,976 3,048,362
Financial liabilities 12 276,293 275,679
Current tax 21,735 4,884
Trade and other payables 18 599,202 416,358
--------------------------------------- ------ ---------- ----------
Total liabilities 4,823,375 3,775,172
--------------------------------------- ------ ---------- ----------
Total equity and liabilities 6,641,778 5,304,001
--------------------------------------- ------ ---------- ----------
The related notes 1 to 22 are an integral part of this
document.
Consolidated statement of changes in equity
For the year ended 31 December 2016
Equity
attributable
Currency to owners Non
Share Share Contributed translation Retained of the controlling Total
capital premium surplus reserve earnings Company interest equity
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at
1 January
2015 19,913 10,417 89,864 56,700 1,276,446 1,453,340 866 1,454,206
Profit for
the year (all
attributable
to owners
of the company) - - - - 209,895 209,895 - 209,895
Other
comprehensive income/(expense) net of tax (all attributable to owners of the company) - - - 34,478 21,474 55,952 - 55,952 Employee share options: Equity settled share based payments - - - - 17,726 17,726 - 17,726 Proceeds from shares issued 29 1,400 - - - 1,429 - 1,429 Deferred and current tax on employee share options - - - - 5,761 5,761 - 5,761 E/F Share Scheme: Return of capital, special distribution 21 - (32) - - (141,422) (141,454) - (141,454) Final dividend equivalent 21 - - - - (48,105) (48,105) - (48,105) Share consolidation and sub division (930) 930 - - - - - - Shares purchased by Trust - - - - (6,712) (6,712) - (6,712) Shares issued in relation to Scrip dividends 21 18 2,516 - - - 2,534 - 2,534 Dividends paid to owners of the Company 21 - - - - (22,403) (22,403) - (22,403) Balance at 31 December 2015 19,030 15,231 89,864 91,178 1,312,660 1,527,963 866 1,528,829 ------------------- ----- -------- -------- ------------ ------------ ---------- ------------- ------------ ---------- Profit for the year (all attributable to owners of the company) - - - - 336,986 336,986 - 336,986 Other comprehensive income net of tax (all attributable to owners of the company) - - - 111,094 (37,029) 74,065 - 74,065 Employee share options: Equity settled share based payments - - - - 26,274 26,274 - 26,274 Proceeds from shares issued 22 1,534 - - - 1,556 - 1,556 Deferred and current tax on employee share options - - - - 1,907 1,907 - 1,907 Shares purchased by Trust - - - - (38,558) (38,558) - (38,558) Shares issued in relation to Scrip dividends 21 8 1,270 - - - 1,278 - 1,278 Dividends paid to owners of the Company 21 - - - - (113,934) (113,934) - (113,934) ------------------- ----- -------- -------- ------------ ------------ ---------- ------------- ------------ ---------- Balance at 31 December 2016 19,060 18,035 89,864 202,272 1,488,306 1,817,537 866 1,818,403 ------------------- ----- -------- -------- ------------ ------------ ---------- ------------- ------------ ----------
The related notes 1 to 22 are an integral part of this document
Consolidated statement of cash flows
For the year ended 31 December 2016
2016 2015
Note GBP000 GBP000
------------------------------------------ ------ ---------- ----------
Profit before tax 354,543 216,100
Adjustments for:
Net foreign exchange gains (152,408) (15,153)
Interest and equity dividend
income (54,789) (40,951)
Interest expense 20,266 9,662
Net fair value losses/(gains)
on financial assets (13,786) 8,538
Depreciation, amortisation
and impairment 28,162 22,734
Charges in respect of share
based payments 26,274 17,726
Other non-cash movements - (782)
Changes in operational assets
and liabilities:
Insurance and reinsurance
contracts 251,836 38,975
Financial assets carried
at fair value (431,324) (5,606)
Financial liabilities carried
at fair value 458 (7,093)
Financial liabilities carried 156 -
at amortised cost
Other assets and liabilities 3,687 41,441
Interest received 55,273 40,768
Equity dividends received 505 1,027
Interest paid (21,852) (8,453)
Current tax paid (6,108) (27,757)
Cash derecognised on loss
of control (17,477) (342,655)
Cash flows from subscriptions
(paid)/received in advance (4,000) 123,000
------------------------------------------- ------ ---------- ----------
Net cash flows from operating
activities 39,416 71,521
Cash flows from the purchase
of subsidiaries - (7,375)
Cash flows from the sale 13,596 -
of subsidiaries
Cash flows from the purchase
of associates (450) (2,089)
Cash flows from the sale 2 -
of associates
Cash flows from the purchase
of property, plant and equipment (5,770) (19,272)
Cash flows from the purchase
of intangible assets (20,909) (30,952)
Net cash flows from investing
activities (13,531) (59,688)
Proceeds from the issue of
ordinary shares 1,556 1,429
Shares repurchased (38,558) (6,712)
Proceeds from long-term debt
issue, net of fees - 273,909
Distributions made to owners
of the Company 21 (112,656) (209,428)
Net cash flows from financing
activities (149,658) 59,198
------------------------------------------- ------ ---------- ----------
Net increase in cash and
cash equivalents (123,773) 71,031
------------------------------------------- ------ ---------- ----------
Cash and cash equivalents
at 1 January 727,880 650,651
Net increase in cash and
cash equivalents (123,773) 71,031
Effect of exchange rate fluctuations
on cash and cash equivalents 60,709 6,198
------------------------------------------- ------ ---------- ----------
Cash and cash equivalents
at 31 December 664,816 727,880
------------------------------------------- ------ ---------- ----------
The purchase, maturity and disposal of financial assets
is part of the Group's insurance activities and is
therefore classified as an operating cash flow. The
purchase, maturity and disposal of derivative contracts
is also classified as an operating cash flow. Included
within cash and cash equivalents held by the Group
are balances totalling GBP136 million (2015: GBP126
million) not available for immediate use by the Group
outside of the Lloyd's Syndicate within which they
are held. Additionally GBP38 million (2015: GBP172
million) is pledged cash against Funds at Lloyd's
and GBP13 million is held within trust funds against
reinsurance arrangements.
The presentation of the cash flow statement has been
reformatted to extract the foreign exchange movements
on to one line to better represent the movements in
the other lines. The prior year has been adjusted
for comparison.
The related notes 1 to 22 are an integral part of
this document.
Notes to the consolidated financial statements
1. General information
The financial information set out in this statement
is extracted from the Group's consolidated financial
statements for the year ended 31 December 2016. The
financial statements are subject to completion of audit
activity. We anticipate receiving an unqualified audit
opinion.
The Hiscox Group, which is headquartered in Hamilton,
Bermuda, comprises Hiscox Ltd (the parent Company,
referred to herein as the 'Company') and its subsidiaries
(collectively, the 'Hiscox Group' or the 'Group').
For the period under review the Group provided insurance
and reinsurance services to its clients worldwide.
It has operations in Bermuda, the UK, Europe, Asia
and USA with over 2,300 staff.
The Company is registered and domiciled in Bermuda
and on 12 December 2006 its ordinary shares were listed
on the London Stock Exchange. As such it is required
to prepare its annual audited financial information
in accordance with Section 4.1 of the Disclosure and
Transparency Rules and the Listing Rules, both issued
by the Financial Conduct Authority (FCA), in addition
to the Bermuda Companies Act 1981. The first two pronouncements
issued by the FCA require the Group to prepare financial
statements which comprise the consolidated income statement,
the consolidated statement of comprehensive income,
the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated statement of
cash flows and the related notes 1 to 22 in accordance
with International Financial Reporting Standards ('IFRS')
adopted by the European Union.
The consolidated financial statements for the year
ended 31 December 2016 include all of the Group's subsidiary
companies and the Group's interest in associates. All
amounts relate to continuing operations. The financial
statements were approved for issue by the Board of
Directors on 27 February 2017.
2. Significant accounting policies
Except as described below, the accounting policies
applied in these consolidated financial statements
are consistent with the prior year. The consolidated
financial statements as at, and for the year ended
31 December 2016 were compliant with International
Financial Reporting Standards as adopted by the European
Union and in accordance with the provisions of the
Bermuda Companies Act 1981.
Changes in accounting policies
A number of new standards, amendments to standards and
interpretations, as adopted by the European Union, are
effective for annual periods beginning on or after 1
January 2016. They have been applied in preparing these
consolidated financial statements. There were no new
standards, amendments or interpretations that had a
material impact on the Group.
The amendments included minor changes to the following
standards:
IAS1: Presentation of Financial Statements
IAS16: Property, Plant and Equipment
IAS38: Intangible Assets
Annual Improvements to IFRSs 2010-2012 cycle
IAS19: Employee Benefits
The following new standards, amendments to standards
and interpretations are effective for annual periods
beginning on or after 1 January 2017 and have not been
applied in preparing these financial statements.
- IFRS 17 will replace IFRS 4 and is expected to include
a number of significant changes to the measurement of
insurance contracts and as such adoption of a final
standard will likely have a significant impact on the
results of the Group. In addition, the IASB has stated
they will allow approximately three full years from
the date of any final standard to actual implementation,
therefore 2021 is likely to be the earliest date for
the adoption of a new standard. The date of the release
of the standard is not yet known.
- IFRS 9: Financial Instruments; Classification and
Measurement. The new standard is effective for annual
periods beginning on or after 1 January 2018.The IASB
has stated they will allow insurers to defer implementation
of IFRS9 until the earlier of the effective date of
IFRS 17 and 2021. The Group will adopt the deferral
approach to better align the implementation of the new
standards. The Group qualifies for the deferral option
by having a ratio of Insurance Liabilities to Total
Liabilities greater than 80% and by not having any significant
non-insurance related activities. A full impact analysis
is expected to be completed at least 12 months prior
to the effective date of the standard.
- IFRS 15: Revenue from Contracts with Customers replaces
IAS 18 and is effective from 1 January 2018. Revenue
from contracts accounted for under IFRS 4 is outside
the scope of IFRS 15. The new standard's requirement
for accounting for variable consideration could change
the timing of revenue recognition for non-insurance
contracts issued by the Company. The impact of this
standard is expected to be limited to the timing of
the recognition of Profit Commission, and is not deemed
to have a material impact at December 2016.
- IFRS 16: Leases, will take effect from 1 January 2019
and specifies how the Company will recognise, measure,
present and disclose leases. The standard requires lessees
to implement a 'right-of-use' model, replacing the 'risks
and rewards' model of IAS 17. The new standard will
therefore require the Company to recognise an asset
and liability at the inception of nearly all leases.
The impact of the new standard on the 2016 consolidated
statement of financial position would have been an increase
in assets and liabilities by GBP51.3 million. There
is little change in how the Company is required to account
for leases in the instances where the Company is the
lessor.
2.1. Statement of compliance
The consolidated financial statements have been prepared
in accordance with IFRS as adopted by the European Union
and in accordance with the provisions of the Bermuda
Companies Act 1981.
Since 2002, the standards adopted by the International
Accounting Standards Board have been referred to as
IFRS. The standards from prior years continue to bear
the title 'International Accounting Standards' (IAS).
Insofar as a particular standard is not explicitly referred
to, the two terms are used in these financial statements
synonymously. Compliance with IFRS includes the adoption
of interpretations issued by the International Financial
Reporting Interpretations Committee (IFRIC).
The Group currently applies IFRS 4 Insurance Contracts
which specifies the financial reporting for insurance
contracts by an insurer. The standard was issued by
the IASB as the first phase in their project to develop
a comprehensive standard for insurance contracts. Accordingly,
to the extent that IFRS 4 does not specify the recognition
or measurement of insurance contracts, transactions
reported in these consolidated financial statements
have been prepared in accordance with another comprehensive
body of accounting principles for insurance contracts,
namely accounting principles generally accepted in the
UK.
2.2. Basis of preparation
The financial statements are presented in Pounds Sterling
and are rounded to the nearest thousand unless otherwise
stated.
They are compiled on a going concern basis and prepared
on the historical cost basis except that pension scheme
assets included in the measurement of the employee retirement
benefit obligation, and financial instruments including
derivative instruments, are measured at fair value.
Employee retirement benefit obligations are determined
using actuarial analysis.
The balance sheet of the Group is presented in order
of increasing liquidity. The accounting policies have
been applied consistently by all Group entities and
to all periods presented, solely for the purpose of
producing the consolidated Group financial statements.
The Group has financial assets and cash of over GBP4.4
billion. The portfolio is predominantly invested in
liquid short dated bonds and cash to ensure significant
liquidity to the Group and to reduce risk from the financial
markets. In addition the Group has significant borrowing
facilities in place.
The Group writes a balanced book of insurance and reinsurance
business spread by product and geography. As such, the
Directors believe that the Group is well placed to manage
its business risk and continue to trade successfully.
The Directors have an expectation that the Company and
the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing
the Annual Report and Accounts.
The consolidated financial statements include the assets,
liabilities and results of the Group up to 31 December
each year. The financial statements of subsidiaries
are included in the consolidated financial statements
only from the date that control commences until the
date that control ceases.
2.3. Reporting of additional performance measures
The Directors consider that the claims ratio, expense
ratio and combined ratio measures reported in respect
of operating segments and the Group overall at note
4 provide useful information regarding the underlying
performance of the Group's businesses. These measures
are widely recognised by the insurance industry and
are consistent with internal performance measures reviewed
by senior management including the chief operating decision
maker. However, these three measures are not defined
within the IFRS framework and body of standards and
interpretations and therefore may not be directly comparable
with similarly titled additional performance measures
reported by other companies. Net asset value per share
and return on equity measures, disclosed at notes 5
and 6, are likewise considered to be additional performance
measures, along with reserve releases, profit excluding
foreign exchange gains and losses and gross written
premium growth in local currency. Previous measures
identified and explained can be seen in the Group's
Interim Statement.
3. Financial risk
Credit risk
The Group mitigates counterparty credit risk by concentrating
debt and fixed income investments in high quality instruments,
including a particular emphasis on government bonds
issued mainly by North American countries and the European
Union. The Group has no exposure to sovereign debt in
Spain, Italy, Ireland, Greece or Portugal.
An analysis of the Group's major exposures to counterparty
credit risk excluding loans and receivables and equities
and units in unit trusts, based on Standard & Poor's
or equivalent rating, is presented below:
As at 31 December 2016 AAA AA A Other Total
/ non-rated
GBP000 GBP000 GBP000 GBP000 GBP000
Debt and fixed income
securities 631,414 1,577,814 651,362 554,359 3,414,949
Deposits with credit
institutions - 5,194 5,252 14,146 24,592
Reinsurance assets 196,484 165,708 419,598 23,859 805,649
Cash and cash equivalents 21,188 87,641 531,178 24,809 664,816
-------------------------------- ------------- ------------ ---------- ------------- -------------
Total 849,086 1,836,357 1,607,390 617,173 4,910,006
-------------------------------- ------------- ------------ ---------- ------------- -------------
Amounts attributable
to largest single counterparty 155,887 793,654 179,857 23,756
-------------------------------- ------------- ------------ ---------- ------------- -------------
As at 31 December 2015 AAA AA A Other Total
/ non-rated
GBP000 GBP000 GBP000 GBP000 GBP000
Debt and fixed income
securities 603,086 1,160,692 460,922 390,314 2,615,014
Deposits with credit
institutions - 555 5,963 166 6,684
Reinsurance assets 116,637 141,751 256,655 23,767 538,810
Cash and cash equivalents 96,917 32,994 593,286 4,683 727,880
-------------------------------- ------------- ------------ ---------- ------------- -------------
Total 816,640 1,335,992 1,316,826 418,930 3,888,388
-------------------------------- ------------- ------------ ---------- ------------- -------------
Amounts attributable
to largest single counterparty 117,973 578,741 109,060 15,712
-------------------------------- ------------- ------------ ---------- ------------- -------------
The largest counterparty exposure within AAA rating
at 31 December 2016 and 2015 is with the German Government.
For the AA rating it is with the US Treasury at both
31 December 2016 and 2015. A significant proportion
of 'other/non-rated' assets are rated BBB and BB at
31 December 2016 and 2015. At 31 December 2016 and 2015,
the Group held no material debt and fixed income securities
that were past due or impaired beyond their reported
fair values. For the current period and prior period,
the Group did not experience any material defaults on
debt securities.
The Group's AAA rated reinsurance assets include fully
collateralised positions at 31 December 2016 and 2015.
An analysis of the Group's debt and fixed income securities
at 31 December by class is detailed below:
2016 2015
% %
Government issued bonds
and instruments 30 33
Agency and government
supported debt 13 12
Asset backed securities 5 8
Mortgage backed instruments
- agency 5 3
Mortgage backed instruments
- non-agency 2 2
Mortgage backed instruments
- commercial 1 3
Corporate bonds 41 37
Lloyd's deposits and
bond funds 3 2
Within the fixed income portfolios, which include debt
securities, deposits with credit institutions and cash
equivalent assets, there are exposures to a range of
government borrowers, on either a direct or guaranteed
basis, and banking institutions. The Group, together
with its investment managers, closely manages its geographical
exposures across government issued and supported debt.
Liquidity risk
A significant proportion of the Group's investments
are in highly liquid assets which could be converted
to cash in a prompt fashion and at minimal expense.
The deposits with credit institutions largely comprise
short-dated certificates for which an active market
exists and which the Group can easily access. The Group's
exposure to equities is concentrated on shares and funds
that are traded on internationally recognised stock
exchanges.
The main focus of the investment portfolio is on high-quality
short duration debt and fixed income securities, and
cash. There are no significant holdings of investments
with specific repricing dates. Notwithstanding the regular
interest receipts and also the Group's ability to liquidate
these securities and the majority of its other financial
instrument assets for cash in a prompt and reasonable
manner, the contractual maturity profile of the fair
value of these securities at 31 December was as follows:
Debt and Deposits Cash and 2016 2015 total
fixed income with credit cash total
securities institutions equivalents
GBP000 GBP000 GBP000 GBP000 GBP000
Less than one
year 706,700 21,039 664,816 1,392,555 1,245,186
Between one
and two years 1,004,085 3,054 - 1,007,139 836,800
Between two
and five years 1,182,680 499 - 1,183,179 922,242
Over five years 521,484 - - 521,484 345,350
Total 3,414,949 24,592 664,816 4,104,357 3,349,578
----------------- ------------- ------------- ------------ ------------------------- -------------
The Group's equities and shares in unit trusts and other
non-dated instruments have no contractual maturity terms
but could also be liquidated in an orderly manner for
cash in a prompt and reasonable time frame within one
year of the balance sheet date.
4. Operating segments
The Group's operating segment reporting follows the
organisational structure and management's internal reporting
systems, which form the basis for assessing the financial
reporting performance of, and allocation of resource
to each business segment.
The Group's four primary business segments are identified
as follows:
* Hiscox Retail brings together the results of the UK
and Europe, and Hiscox International being the US,
Special Risks and Asia retail business divisions.
Hiscox UK and Europe underwrite European personal and
commercial lines of business through Hiscox Insurance
Company Limited, together with the fine art and
non-US household insurance business written through
Syndicate 33. In addition, the UK includes elements
of specialty and international employees and
officers' insurance written by Syndicate 3624 and
Hiscox Europe excludes the kidnap and ransom business
written by Hiscox Insurance Company Limited. Hiscox
International comprises the specialty and fine art
lines written through Hiscox Insurance Company
(Guernsey) Limited, and the motor business written
via DirectAsia, together with US commercial, property
and specialty business written by Syndicate 3624 and
Hiscox Insurance Company Inc. via the Hiscox USA
business division. It also includes the European
kidnap and ransom business written by Hiscox
Insurance Company Limited and Syndicate 33.
* Hiscox London Market comprises the internationally
traded insurance business written by the Group's
London-based underwriters via Syndicate 33, including
lines in property, marine and energy, casualty and
other specialty insurance lines, excluding the kidnap
and ransom business. In addition, the segment
includes elements of business written by Syndicate
3624 being auto physical damage, auto extended
warranty and aviation business.
* Hiscox Re is the Reinsurance division of the Hiscox
Group, combining the underwriting platforms in
Bermuda, London and Paris. The segment comprises the
performance of Hiscox Insurance Company (Bermuda)
Limited, excluding the internal quota share
arrangements, with the reinsurance contracts written
by Syndicate 33. In addition, the healthcare and
casualty reinsurance contracts written in the Bermuda
hub on Syndicate capacity are also included.
* Corporate Centre comprises the investment return,
finance costs and administrative costs associated
with Group management activities. Corporate Centre
also includes the majority of foreign currency items
on economic hedges and intragroup borrowings. These
relate to certain foreign currency items on economic
hedges and intragroup borrowings, further details of
these can be found in note 22. Corporate Centre forms
a reportable segment due to its investment activities
which earn significant external returns.
The Group has aligned its kidnap and ransom business
under Special Risks during 2016, and as a result, has
restated the prior year period segmental information.
All amounts reported below represent transactions with
external parties only. In the normal course of trade,
the Group's entities enter into various reinsurance
arrangements with one another. The related results of
these transactions are eliminated on consolidation and
are not included within the results of the segments.
This is consistent with the information used by the
chief operating decision maker when evaluating the results
of the Group. Performance is measured based on each
reportable segment's profit before tax.
a. Profit before tax by segment
Year ended 31 December 2016
Hiscox
Hiscox London Hiscox Corporate
Retail Market Re centre Total
GBP000 GBP000 GBP000 GBP000 GBP000
Gross premiums
written 1,181,384 726,045 495,150 - 2,402,579
Net premiums
written 1,091,969 469,143 226,831 - 1,787,943
Net premiums
earned 1,020,531 443,129 211,353 - 1,675,013
----------------- ------------- ------------- ------------ ---------- ----------------------------
Investment
result 31,328 13,351 11,749 18,563 74,991
Other income 14,075 9,121 13,704 694 37,594
----------------- ------------- ------------- ------------ ---------- ----------------------------
Total income 1,065,934 465,601 236,806 19,257 1,787,598
----------------- ------------- ------------- ------------ ---------- ----------------------------
Claims and claim
adjustment
expenses,
net of
reinsurance (396,137) (260,468) (83,167) - (739,772)
Expenses for
the acquisition
of insurance
contracts (262,545) (137,177) (10,118) - (409,840)
Operational
expenses (287,642) (57,933) (49,335) (20,809) (415,719)
Foreign exchange
gains 37,248 34,991 22,959 57,210 152,408
Total expenses (909,076) (420,587) (119,661) 36,401 (1,412,923)
----------------- ------------- ------------- ------------ ---------- ----------------------------
Results of
operating
activities 156,858 45,014 117,145 55,658 374,675
Finance costs - - (1,654) (18,612) (20,266)
Share of profit
of associates
after tax 1,137 (1,003) - - 134
----------------- ------------- ------------- ------------ ---------- ----------------------------
Profit before
tax 157,995 44,011 115,491 37,046 354,543
----------------- ------------- ------------- ------------ ---------- ----------------------------
Year ended 31 December 2015, restated
Hiscox
Hiscox London Hiscox Corporate
Retail Market Re centre Total
GBP000 GBP000 GBP000 GBP000 GBP000
Gross premiums
written 989,787 571,021 383,412 - 1,944,220
Net premiums
written 936,576 410,280 224,988 - 1,571,844
Net premiums
earned 887,982 366,360 180,674 - 1,435,016
----------------- ------------- ------------- ------------ ---------- ----------------------------
Investment
result 17,361 6,841 4,664 6,515 35,381
Other income 9,004 7,520 (149) 781 17,156
----------------- ------------- ------------- ------------ ---------- ----------------------------
Total income 914,347 380,721 185,189 7,296 1,487,553
----------------- ------------- ------------- ------------ ---------- ----------------------------
Claims and claim
adjustment
expenses,
net of
reinsurance (343,391) (180,765) (48,297) - (572,453)
Expenses for
the acquisition
of insurance
contracts (234,110) (104,581) (5,592) - (344,283)
Operational
expenses (250,513) (47,955) (40,694) (22,053) (361,215)
Foreign exchange
(losses)/gains (8,364) 6,862 8,327 8,328 15,153
Total expenses (836,378) (326,439) (86,256) (13,725) (1,262,798)
----------------- ------------- ------------- ------------ ---------- ----------------------------
Results of
operating
activities 77,969 54,282 98,933 (6,429) 224,755
Finance costs - (52) (1,472) (8,138) (9,662)
Share of profit
of associates
after tax 661 346 - - 1,007
----------------- ------------- ------------- ------------ ---------- ----------------------------
Profit before
tax 78,630 54,576 97,461 (14,567) 216,100
----------------- ------------- ------------- ------------ ---------- ----------------------------
The Group's wholly owned subsidiary, Hiscox Syndicates
Limited, oversees the operation of Syndicate 33 at Lloyd's.
The Group's percentage participation in Syndicate 33
can fluctuate from year to year and consequently presentation
of the results at the 100% level removes any distortions
arising therefrom.
b. 100% operating results by segment
Year ended 31 December 2016
Hiscox
Hiscox London Hiscox Corporate
Retail Market Re centre Total
GBP000 GBP000 GBP000 GBP000 GBP000
Gross premiums
written 1,212,774 894,825 565,006 - 2,672,605
Net premiums
written 1,119,546 581,322 263,452 - 1,964,320
Net premiums
earned 1,046,838 550,229 242,462 - 1,839,529
----------------- ------------- ------------- ------------ ---------- ----------------------------
Investment
result 32,417 17,668 13,054 18,563 81,702
Other income 8,693 2,331 8,754 694 20,472
Claims and claim
adjustment
expenses,
net of
reinsurance (402,508) (315,951) (94,819) - (813,278)
Expenses for
the acquisition
of insurance
contracts (270,986) (165,131) (10,337) - (446,454)
Operational
expenses (289,028) (67,376) (54,015) (20,809) (431,228)
Foreign exchange
gains 40,115 48,101 28,927 57,210 174,353
----------------- ------------- ------------- ------------ ---------- ----------------------------
Results of
operating
activities 165,541 69,871 134,026 55,658 425,096
----------------- ------------- ------------- ------------ ---------- ----------------------------
Year ended 31 December 2015, restated
Hiscox
Hiscox London Hiscox Corporate
Retail Market Re centre Total
GBP000 GBP000 GBP000 GBP000 GBP000
Gross premiums
written 1,017,608 709,655 437,777 - 2,165,040
Net premiums
written 961,551 512,690 249,680 - 1,723,921
Net premiums
earned 913,296 461,064 206,669 - 1,581,029
----------------- ------------- ------------- ------------ ---------- ----------------------------
Investment
result 17,601 9,157 5,465 6,515 38,738
Other income 3,873 1,421 (3,993) 781 2,082
Claims and claim
adjustment
expenses,
net of
reinsurance (346,251) (225,740) (53,787) - (625,778)
Expenses for
the acquisition
of insurance
contracts (242,703) (126,262) (6,322) - (375,287)
Operational
expenses (250,829) (57,497) (46,115) (22,053) (376,494)
Foreign exchange
(losses)/gains (8,404) 10,342 9,893 8,328 20,159
----------------- ------------- ------------- ------------ ---------- ----------------------------
Results of
operating
activities 86,583 72,485 111,810 (6,429) 264,449
----------------- ------------- ------------- ------------ ---------- ----------------------------
100% ratio analysis
Year ended 31 December 2016
Hiscox
Hiscox London Hiscox Corporate
Retail Market Re centre Total
Claims ratio
(%) 38.4 57.4 39.1 - 44.2
Expense ratio
(%) 53.5 42.3 26.5 - 46.6
----------------- ------------- ------------- ------------ ---------- ----------------------------
Combined ratio
excluding
foreign
exchange impact
(%) 91.9 99.7 65.6 - 90.8
Foreign exchange
impact (%) (3.8) (8.7) (11.9) - (6.4)
----------------- ------------- ------------- ------------ ---------- ----------------------------
Combined ratio
(%) 88.1 91.0 53.7 - 84.4
----------------- ------------- ------------- ------------ ---------- ----------------------------
Year ended 31 December 2015, restated
Hiscox Hiscox Hiscox Corporate Total
Retail London Re centre
Market
Claims ratio
(%) 37.9 49.0 26.0 - 39.6
Expense ratio
(%) 54.1 39.8 25.4 - 46.1
----------------- ------------- ------------- ------------ ---------- ----------------------------
Combined ratio
excluding
foreign
exchange impact
(%) 92.0 88.8 51.4 - 85.7
Foreign exchange
impact (%) 0.9 (2.2) (4.8) - (0.7)
----------------- ------------- ------------- ------------ ---------- ----------------------------
Combined ratio
(%) 92.9 86.6 46.6 - 85.0
----------------- ------------- ------------- ------------ ---------- ----------------------------
The impacts on profit before tax of a 1% change in
each component of the segmental combined ratios are:
Year to 31 December Year ended 31 December
2016 2015, restated
Hiscox Hiscox
Hiscox London Hiscox Corporate Hiscox London Hiscox Corporate
Retail Market Re centre Retail Market Re centre
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 100%
level
1% change
in claims
or
expense
ratio 10,468 5,502 2,425 - 9,133 4,611 2,067 -
----------- ----------- ----------- ------- ---------- ----------- ---------- ------- ----------
At Group
level
1% change
in claims
or
expense
ratio 10,205 4,431 2,114 - 8,880 3,664 1,807 -
----------- ----------- ----------- ------- ---------- ----------- ---------- ------- ----------
5. Net asset
value per share
2016 2015
Net asset Net asset Net asset Net asset
value value value value
(total per share (total per share
equity) equity)
------------------------ ----------- ------- ---------- ----------- ------------------- ----------
GBP000 pence GBP000 p
Net asset value 1,818,403 649.9 1,528,829 545.0
Net tangible
asset value 1,694,679 605.7 1,402,607 500.0
------------------------ ----------- ------- ---------- ----------- ------------------- ----------
The net asset value per share is based on 279,805,393
shares (2015: 280,516,658), being the shares in issue
at 31 December, less those held in treasury and those
held by the Group's Employee Benefit Trust. Net tangible
assets comprise total equity excluding intangible assets.
6. Return on
equity
2016 2015
GBP000 GBP000
---------------------------------------------- ----------------------- ---------- -------------------
Profit for the year (all attributable
to owners of the Company) 336,986 209,895
Opening shareholders' equity 1,528,829 1,454,206
Adjusted for the time weighted
impact of capital distributions
and issuance of shares (60,742) (146,028)
---------------------------------------------- ----------------------- ---------- -------------------
Adjusted opening shareholders'
equity 1,468,087 1,308,178
---------------------------------------------- ----------------------- ---------- -------------------
Return on equity (%) 23.0 16.0
---------------------------------------------- ----------------------- ---------- -------------------
7. Investment
result
The total investment result 2016 2015
for the Group before taxation
comprises:
GBP000 GBP000
---------------------------------------------- ----------------------- ---------- -------------------
Investment income including
interest receivable 54,789 40,951
Net realised gains/(losses)
on financial investments at
fair value through profit or
loss 6,416 2,968
Net fair value gains/(losses)
on financial investments at
fair value through profit or
loss 13,631 (10,239)
---------------------------------------------- ----------------------- ---------- -------------------
Investment result - financial
assets 74,836 33,680
Net fair value gains/(losses)
on derivative financial instruments
and borrowings (note 14) 155 1,701
---------------------------------------------- ----------------------- ---------- -------------------
Total result 74,991 35,381
---------------------------------------------- ----------------------- ---------- -------------------
Investment expenses are presented within other expenses
(note 9).
8. Analysis of return on financial investments
i. The weighted average return on financial investments
for the year by currency, based on monthly asset values,
was:
2016 2015
% %
Sterling 3.2 2.1
US Dollar 1.5 0.8
Other 0.7 0.6
---------------------------------------------------- ------------ ---------- -----------------
ii. Investment return:
2016 2015
GBP000 % GBP000 %
Debt and fixed
income securities 55,709 1.9 21,585 0.9
Equities and
shares in unit
trusts 17,246 6.2 10,410 4.0
Deposits with
credit institutions/cash
and cash equivalents 1,881 0.3 1,685 0.4
-------------------------------------------- ----- -------- ---------- ------- --------
74,836 1.9 33,680 1.0
-------------------------------------------- ----- -------- ---------- ------- --------
9. Other income and operational expenses
2016 2015
GBP000 GBP000
Agency related income 11,743 9,117
Profit commission 11,720 10,000
Other underwriting income 3,666 (4,196)
Other income 10,465 2,235
---------------------------------------------------- ------------ ------------------- --------
Other income 37,594 17,156
---------------------------------------------------- ------------ ------------------- --------
Wages and salaries 145,997 124,466
Social security costs 23,288 21,884
Pension cost - defined contribution 8,243 8,432
Pension cost - defined benefit 172 1,825
Share based payments 26,274 17,726
Marketing expenses 42,051 44,499
Investment expenses 4,361 4,267
Depreciation, amortisation
and impairment 28,162 22,734
Other expenses 137,171 115,382
---------------------------------------------------- ------------ ------------------- --------
Operational expenses 415,719 361,215
---------------------------------------------------- ------------ ------------------- --------
Wages and salaries have been shown net of transfers
to acquisition and claims expenses.
Other expenses include, but not limited to, legal
and professional costs, computer costs, contractor-based
costs and property costs. None of the items are individually
material.
10. Net foreign exchange gains
The net foreign exchange gains for the year include
the following amounts:
2016 2015
GBP000 GBP000
Exchange gains recognised in the consolidated
income statement 152,408 15,153
Exchange gains classified as a separate
component of equity 111,094 34,478
------------------------------------------------------------------ ---------- -----------------
Overall impact of foreign exchange
related items on net assets 263,502 49,631
------------------------------------------------------------------ ---------- -----------------
The above excludes profits or losses on foreign exchange
derivative contracts which are included within the
investment result and are outlined in note 14.
Net unearned premiums and deferred acquisition costs
are treated as non-monetary items in accordance with
IFRS. As a result, a foreign exchange mismatch arises
caused by these items being earned at historical rates
of exchange prevailing at the original transaction
date whereby resulting claims are retranslated at
the end of each period. The impact of this mismatch
on the income statement is shown below.
2016 2015
GBP000 GBP000
Opening balance sheet impact of non-retranslation
of non-monetary items 3,450 1,608
Gain included within profit representing
the non-retranslation of non-monetary
items 8,094 1,842
------------------------------------------------------------------ ---------- -----------------
Closing balance sheet impact of non-retranslation
of non-monetary items 11,544 3,450
------------------------------------------------------------------ ---------- -----------------
11. Reinsurance assets
2016 2015
GBP000 GBP000
Reinsurers' share of insurance liabilities 806,245 539,540
Provision for non-recovery and impairment (596) (730)
------------------------------------------------------------------ ---------- -----------------
Reinsurance assets (note 17) 805,649 538,810
------------------------------------------------------------------ ---------- -----------------
Amounts due from reinsurers in respect of outstanding
premiums and claims already paid by the Group are
included in loans and receivables (note 13). The Group
recognised a gain during the year of GBP134,000 (2015:
gain GBP10,000) in respect of impaired balances.
12. Financial assets and liabilities
Financial assets designated at fair value through
profit or loss are measured at their bid price values,
with all changes from one accounting period to the
next being recorded through the income statement.
2016 2015
GBP000 GBP000
Debt and fixed income securities 3,414,949 2,615,014
Equities and shares in unit trusts 305,342 259,705
Deposits with credit institutions 24,592 6,684
------------------------------------------------------------------ ---------- -----------------
Total investments 3,744,883 2,881,403
Insurance linked fund 46,821 40,045
Derivative financial assets (note 14) 329 137
------------------------------------------------------------------ ---------- -----------------
Total financial assets carried at fair
value 3,792,033 2,921,585
------------------------------------------------------------------ ---------- -----------------
2016 2015
GBP000 GBP000
Derivative financial liabilities (note
14) 474 16
--------------------------------------------------- ------------- ------------
Total financial liabilities carried
at fair value 474 16
--------------------------------------------------- ------------- ------------
Long-term debt 274,019 273,909
Accrued interest on long-term debt 1,800 1,754
--------------------------------------------------- ------------- ------------
Total financial liabilities carried
at amortised cost 275,819 275,663
--------------------------------------------------- ------------- ------------
On 24 November 2015, the Group issued GBP275 million
6.125% fixed-to-floating rate callable subordinated
notes due 2045, with a first call date of 2025. The
notes bear interest from and including 24 November
2015 at a fixed rate of 6.125% per annum payable annually
in arrears starting 24 November 2016 up until the first
call date in November 2025, and thereafter at a floating
rate of interest equal to three-month LIBOR plus 5.076%
payable quarterly in arrears on each floating interest
payment date. The fair value of the long-term debt
is estimated as GBP292.3 million and is classified
in Level 1 of the fair value hierarchy.
Investments at 31 December are denominated in the following
currencies at their fair value:
2016 2015
GBP000 GBP000
Sterling 786,504 579,879
US Dollars 2,571,078 1,973,501
Euro and other currencies 387,301 328,023
-------------------------------------- ----------- ------------- ------------
Total investments 3,744,883 2,881,403
-------------------------------------- ----------- ------------- ------------
13. Loans and receivables including insurance receivables
2016 2015
GBP000 GBP000
Gross receivables arising from insurance
and reinsurance contracts 699,768 538,652
Provision for impairment (1,276) (2,175)
--------------------------------------------------- ------------- ------------
Net receivables arising from insurance
and reinsurance contracts 698,492 536,477
--------------------------------------------------- ------------- ------------
Due from contract holders, brokers,
agents and intermediaries 524,958 405,284
Due from reinsurance operations 173,534 131,193
--------------------------------------------------- ------------- ------------
698,492 536,477
Prepayments and accrued income 7,713 8,130
Other loans and receivables:
Net profit commission receivable 21,232 26,139
Accrued interest 12,590 8,637
Share of Syndicate's other debtors
balances 30,223 13,173
Other debtors including related party
amounts 32,656 27,007
--------------------------------------------------- ------------- ------------
Total loans and receivables including
insurance receivables 802,906 619,563
--------------------------------------------------- ------------- ------------
There is no significant concentration of credit risk
with respect to loans and receivables, as the Group
has a large number of internationally dispersed debtors.
The Group has recognised a gain of GBP899,000 (2015:
loss of GBP44,000) for the impairment of receivables
during the year ended 31 December 2016. This is recorded
under operational expenses in the consolidated income
statement. The carrying amounts disclosed above are
reasonably approximate to the fair value at the reporting
date.
14. Derivative financial instruments
The Group entered into both exchange-traded and over-the-counter
derivative contracts for a number of purposes during
2016. The Group had the right and intention to settle
each contract on a net basis. The assets and liabilities
of these contracts at 31 December 2016 all mature within
one year of the balance sheet date and are detailed
below.
31 December 2016
Gross Fair value Fair value Net balance
contract of assets of sheet
notional liabilities position
amount
Derivative financial GBP000 GBP000 GBP000 GBP000
instrument included
on balance sheet
Foreign exchange
forward contracts 26,591 312 (121) 191
Interest rate
futures contracts 56,728 17 (106) (89)
Equity index
futures 10,223 - (247) (247)
-------------------------- ---------- ----------- ------------- ------------
The foreign exchange forward contracts are represented
by gross fair value of assets and liabilities as detailed
below
Gross fair value
of assets 12,724 13,746 26,470
Gross fair value
of liabilities (12,412) (13,867) (26,279)
-------------------------- ---------- ----------- ------------- ------------
Total 312 (121) 191
-------------------------- ---------- ----------- ------------- ------------
31 December 2015
Gross Fair value Fair value Net balance
contract of assets of sheet
notional liabilities position
amount
Derivative financial GBP000 GBP000 GBP000 GBP000
instrument included
on balance sheet
Foreign exchange
forward contracts 11,610 81 (16) 65
Interest rate
futures contracts 31,031 56 - 56
Equity index - - - -
futures
------------------------- ---------- ----------- ------------- ------------
The foreign exchange forward contracts are represented
by gross fair value of assets and liabilities as detailed
below
Gross fair value
of assets 12,765 367 13,132
Gross fair value
of liabilities (12,684) (383) (13,067)
-------------------------- ---------- ----------- ------------- ------------
Total 81 (16) 65
-------------------------- ---------- ----------- ------------- ------------
Foreign exchange forward contracts
During the current and prior year the Group entered
into a series of conventional over the counter forward
contracts in order to secure translation gains made
on Euro, US Dollar and other non-Pound Sterling denominated
monetary assets. The contracts require the Group to
forward sell a fixed amount of the relevant currency
for Pound Sterling at pre-agreed future exchange rates.
The Group made a gain on these forward contracts of
GBP664,000 (2015: gain of GBP1,940,000) as included
in note 7.
There was no initial purchase cost associated with
these instruments.
Interest rate future contracts
During the year the Group continued short selling a
number of government bond futures denominated in a
range of currencies to informally hedge interest rate
risk on specific long portfolios. All contracts are
exchange traded and the Group made a loss on these
futures contracts of GBP111,000 (2015: loss of GBP239,000)
as included in note 7.
Equity index options
During the year, the Group purchased a number of equity
index futures in order to hedge equity market exposure.
All contracts were exchange traded and the Group made
a loss on these future contracts of GBP398,000 (2015:
GBPnil) as included in note 7.
15. Fair value measurements
In accordance with IFRS 13 : Fair value measurements,
the fair value of financial instruments based on a
three-level fair value hierarchy that reflects the
significance of the inputs used in measuring the fair
value is provided below.
As at 31 December 2016 Level Level Level Total
1 2 3
Financial assets GBP000 GBP000 GBP000 GBP000
-------------------------- ---------- ----------- ------------- ------------
Debt and fixed income
securities 1,005,111 2,409,838 - 3,414,949
Equities and shares
in unit trusts - 293,187 12,155 305,342
Deposits with credit
institutions 24,592 - - 24,592
Insurance linked funds - - 46,821 46,821
Derivative financial
assets - 329 - 329
-------------------------- ---------- ----------- ------------- ------------
Total 1,029,703 2,703,354 58,976 3,792,033
-------------------------- ---------- ----------- ------------- ------------
Financial liabilities
Derivative financial
liabilities - 474 - 474
-------------------------- ---------- ----------- ------------- ------------
Total - 474 - 474
-------------------------- ---------- ----------- ------------- ------------
As at 31 December 2015 Level Level Level Total
1 2 3
Financial assets GBP000 GBP000 GBP000 GBP000
-------------------------- ---------- ----------- ------------- ------------
Debt and fixed income
securities 836,950 1,778,064 - 2,615,014
Equities and shares
in unit trusts - 246,065 13,640 259,705
Deposits with credit
institutions 6,684 - - 6,684
Insurance linked funds - - 40,045 40,045
Derivative financial
assets - 137 - 137
-------------------------- ---------- ----------- ------------- ------------
Total 843,634 2,024,266 53,685 2,921,585
-------------------------- ---------- ----------- ------------- ------------
Financial liabilities
Derivative financial
liabilities - 16 - 16
-------------------------- ---------- ----------- ------------- ------------
Total - 16 - 16
-------------------------- ---------- ----------- ------------- ------------
The levels of the fair value hierarchy are defined by the standard as follows:
Level 1 - fair values measured using quoted prices (unadjusted) in active markets for identical instruments,
Level 2 - fair values measured using directly or indirectly observable inputs or other similar valuation techniques for which all significant inputs are based on observable market data,
Level 3 - fair values measured using valuation techniques for which significant inputs are not based on market observable data.
The fair value of the Group's financial assets are based on prices provided by investment managers who obtain market data from numerous independent pricing services. The pricing services used by the investment manager obtain actual transaction prices for securities that have quoted prices in active markets. For those securities which are not actively traded, the pricing services use common market valuation pricing models. Observable inputs used in common market valuation pricing models include, but are not limited to, broker quotes, credit ratings, interest rates and yield curves, prepayment speeds, default rates and other such inputs which are available from market sources.
Investments in mutual funds which are included in equities and shares in unit trusts comprise a portfolio of stock investments in trading entities which are invested in various quoted investments. The fair value of shares in unit trusts are based on the net asset value of the fund as reported by independent pricing sources or the fund manager.
Included within Level 1 of the hierarchy are certain Government bonds, Treasury bills, exchange traded equities and the long-term debt which are all measured based on quoted prices in active markets. The fair value of the long-term debt that is measured at amortised cost, is estimated at GBP292.3 million and is considered as Level 1 in the fair value hierarchy.
Level 2 of the hierarchy contains certain Government bonds, U.S Government agencies, corporate securities, asset backed securities and mortgage backed securities. The fair value of these assets is based on prices obtained from both investment managers and investment custodians as discussed above. The Group records the unadjusted price provided and validates the price through a number of methods, including a comparison of the prices provided by the investment managers with the investment custodians and the valuation used by external parties to derive fair value. Quoted prices for US Government agencies and corporate securities are based on a limited number of transactions for those securities and as such the Group considers these instruments to have similar characteristics of those instruments classified as Level 2. Also included within Level 2 are units held in traditional long funds and long and short special funds and over-the-counter derivatives.
Level 3 contains investments in a limited partnership, unquoted equity securities and an insurance linked fund which have limited observable inputs on which to measure fair value. Unquoted equities are carried at fair value. The effect of changing one or more inputs used in the measurement of fair value of these instruments to another reasonably possible assumption would not be significant and no further analysis has been performed. At 31 December 2016 the insurance linked funds of GBP46,821,000 represents the Group's investment in the Kiskadee Funds (2015: GBP40,045,000).
The fair value of the Kiskadee Funds is estimated to be the net asset value as at the balance sheet date. The net asset value is based on the fair value of the assets and liabilities in the funds. The majority of the assets of the funds are cash and cash equivalents.. Significant inputs and assumptions in calculating the fair value of assets and liabilities associated with reinsurance contracts written by the Kiskadee Funds include the amount and timing of claims payable in respect of claims incurred and periods of unexpired risk. The Group has considered changes in the net asset valuation of the Kiskadee Funds if reasonably different inputs and assumptions were used and has found no significant changes in the valuation.
In certain cases, the inputs used to measure the fair value of a financial instrument may fall into more than one level within the fair value hierarchy. In this instance, the fair value of the instrument in its entirety is classified based on the lowest level of input that is significant to the fair value measurement.
During the year, there were no transfers made between Level 1 and Level 2 of the fair value hierarchy.
The following table sets forth a reconciliation of opening and closing balances for financial instruments classified under Level 3 of the fair value hierarchy:
31 December 2016
Financial
Financial assets liabilities
-------------
Equities Third party
and shares investment
in unit Insurance in Kiskadee
trusts linked fund Total Funds
GBP000 GBP000 GBP000 GBP000
-------------
Balance at 1 January 13,640 40,045 53,685 -
Fair value gains
or losses through
profit or loss* (279) 3,666 3,387 -
Foreign exchange
gains 729 7,719 8,448 -
Purchases 305 - 305 -
Recognition/(derecognition) - - - -
on deconsolidation
Settlements (2,240) (4,609) (6,849) -
----------------------------- ------------ ------------- --------- -------------
Closing balance 12,155 46,821 58,976 -
----------------------------- ------------ ------------- --------- -------------
Unrealised gains
and losses in
the year on securities
held at the end
of the year (1,397) 2,305 908 -
----------------------------- ------------ ------------- --------- -------------
31 December 2015
Equities Insurance Total Third party
and shares linked fund investment
in unit in Kiskadee
trusts Funds
GBP000 GBP000 GBP000 GBP000
Balance at 1 January 13,678 22,888 36,566 7,033
Fair value gains
or losses through
profit or loss* (230) 2,189 1,959 6,374
Foreign exchange
gains/losses 283 2,959 3,242 (3,968)
Purchases 52 - 52 264,306
Recognition/(derecognition)
on deconsolidation - 35,362 35,362 (273,475)
Settlements (143) (23,353) (23,496) -
----------------------------- ------------ ------------- --------- -------------
Closing balance 13,640 40,045 53,685 -
----------------------------- ------------ ------------- --------- -------------
Unrealised gains
and losses in
the year on securities
held at the end
of the year (257) 2,201 1,944 -
----------------------------- ------------ ------------- --------- -------------
*Fair value gains/(losses) are included within the investment
result in the income statement for equities and shares
in unit trusts and through other income for the insurance
linked fund.
16. Cash and cash equivalents
2016 2015
GBP000 GBP000
Cash at bank and in hand 568,186 601,301
Short-term deposits 96,630 126,579
664,816 727,880
-------------------------------------------- ----------- -----------
The Group holds its cash deposits with a well diversified
range of banks and financial institutions. Cash includes
overnight deposits. Short-term deposits include debt
securities with an original maturity date of less than
three months and money market funds.
17. Insurance liabilities and reinsurance assets
2016 2015
GBP000 GBP000
Gross
Claims reported and claims adjustment
expenses 977,664 824,397
Claims incurred but not reported 1,588,160 1,213,699
Unearned premiums 1,287,152 1,010,266
-------------------------------------------- ----------- -----------
Total insurance liabilities, gross 3,852,976 3,048,362
-------------------------------------------- ----------- -----------
Recoverable from reinsurers
Claims reported and claims adjustment
expenses 159,141 118,322
Claims incurred but not reported 383,974 247,155
Unearned premiums 262,534 173,333
-------------------------------------------- ----------- -----------
Total reinsurers' share of insurance
liabilities 805,649 538,810
-------------------------------------------- ----------- -----------
Net
Claims reported and claims adjustment
expenses 818,523 706,075
Claims incurred but not reported 1,204,186 966,544
Unearned premiums 1,024,618 836,933
-------------------------------------------- ----------- -----------
Total insurance liabilities, net 3,047,327 2,509,552
-------------------------------------------- ----------- -----------
The gross claims reported, the claims adjustment expenses
liabilities and the liability for claims incurred but
not reported are net of expected recoveries from salvage
and subrogation. The amounts for salvage and subrogation
at the end of 2016 and 2015 are not material.
Claims development tables
The development of insurance liabilities provides a
measure of the Group's ability to estimate the ultimate
value of claims. The Group analyses actual claims development
compared with previous estimates on an accident year
basis. This exercise is performed to include the liabilities
of Syndicate 33 at the 100% level regardless of the
Group's actual level of ownership. Analysis at the 100%
level is required in order to avoid distortions arising
from reinsurance to close arrangements which subsequently
increase the Group's share of ultimate claims for 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 for each accident year have
changed at successive year ends. The bottom half reconciles
cumulative claim costs to the amounts still recognised
as liabilities. A reconciliation of the liability at
the 100% level to the Group's share, as included in
the balance sheet, is also shown.
Insurance claims and claims expenses reserves - gross at
100% level
Accident 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total
year
------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------
Estimate
of ultimate
claims
costs
as adjusted
for
foreign
exchange*:
at end
of
accident
year 940,241 1,347,174 996,948 1,201,724 1,543,152 1,300,193 1,034,567 1,137,696 1,226,108 1,528,757 12,256,560
one
year
later 838,997 1,135,957 816,493 1,016,047 1,394,391 1,158,433 907,425 964,030 1,094,579 - 9,326,352
two
years
later 796,659 1,104,116 749,485 944,757 1,351,867 1,070,293 806,311 895,765 - - 7,719,253
three
years
later 804,281 1,056,016 743,844 929,321 1,365,161 1,066,830 752,789 - - - 6,718,242
four
years
later 800,794 1,017,625 743,785 904,832 1,343,580 1,059,662 - - - - 5,870,278
five
years
later 768,906 976,096 739,273 891,480 1,307,009 - - - - - 4,682,764
six
years
later 749,590 964,251 724,414 870,930 - - - - - - 3,309,185
seven
years
later 730,652 948,797 724,057 - - - - - - - 2,403,506
eight
years
later 724,389 940,974 - - - - - - - - 1,665,363
nine
years
later 720,172 - - - - - - - - - 720,172
Current
estimate
of
cumulative
claims 720,172 940,974 724,057 870,930 1,307,009 1,059,662 752,789 895,765 1,094,579 1,528,757 9,894,694
Cumulative
payments
to date (689,653) (917,418) (658,604) (785,898) (1,140,107) (851,923) (607,999) (624,594) (491,118) (301,271) (7,068,585)
------------ ---------- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- ---------- ------------
Liability
recognised
at 100%
level 30,519 23,556 65,453 85,032 166,902 207,739 144,790 271,171 603,461 1,227,486 2,826,109
Liability
recognised
in respect
of prior
accident
years
at 100%
level 154,921
------------ ---------- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- ---------- ------------
Total gross liability
to external parties at
100% level 2,981,030
------------------------------------------------------------ ------------ ---------- ---------------------- ---------- ---------- ------------
* The foreign exchange adjustment arises from the retranslation
of the estimates at each date using the exchange rate ruling
at 31 December 2016.
Reconciliation of 100% disclosures above to Group's share
- gross
Accident 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total
year
--------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- ---------- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- ---------- ------------
Current
estimate
of
cumulative
claims 720,172 940,974 724,057 870,930 1,307,009 1,059,662 752,789 895,765 1,094,579 1,528,757 9,894,694
Less:
attributable
to external
Names (144,291) (182,237) (128,204) (138,535) (198,495) (141,369) (84,465) (102,594) (124,604) (179,099) (1,423,893)
Group's
share
of current
ultimate
claims
estimate 575,881 758,737 595,853 732,395 1,108,514 918,293 668,324 793,171 969,975 1,349,658 8,470,801
-------------- ---------- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- ---------- ------------
Cumulative
payments
to date (689,653) (917,418) (658,604) (785,898) (1,140,107) (851,923) (607,999) (624,594) (491,118) (301,271) (7,068,585)
Less:
attributable
to external
Names 137,580 179,034 116,177 121,117 166,079 112,737 67,777 67,870 47,428 29,515 1,045,314
-------------- ---------- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- ---------- ------------
Group
share
of
cumulative
payments (552,073) (738,384) (542,427) (664,781) (974,028) (739,186) (540,222) (556,724) (443,690) (271,756) (6,023,271)
Liability
for
2007
to 2016
accident
years
recognised
on Group's
balance
sheet 23,808 20,353 53,426 67,614 134,486 179,107 128,102 236,447 526,285 1,077,902 2,447,530
Liability
for
accident
years
before
2007
recognised
on Group's
balance
sheet 118,294
-------------- ---------- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- ---------- ------------
Total Group liability to external
parties included in the balance
sheet - gross** 2,565,824
---------------------------------------------------------------------------------------- ---------------------- ---------- ---------- ------------
**This represents the claims element of the Group's insurance
liabilities.
Insurance claims and claims expenses reserves - net at
100% level
Accident 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total
year
---------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------
Estimate
of ultimate
claims
costs
as adjusted
for
foreign
exchange*:
at end
of accident
year 804,386 923,701 810,574 951,373 1,189,412 943,564 894,286 929,576 989,143 1,159,340 9,595,355
one
year
later 732,291 821,783 668,649 827,787 1,093,988 829,413 790,595 808,310 910,852 - 7,483,668
two
years
later 708,530 818,095 638,718 777,800 1,050,980 768,106 707,765 736,572 - - 6,206,566
three
years
later 674,822 769,056 640,339 757,594 1,050,396 739,800 655,427 - - - 5,287,434
four
years
later 672,936 733,702 629,004 733,884 1,042,659 734,139 - - - - 4,546,324
five
years
later 645,634 719,639 626,499 730,026 1,003,706 - - - - - 3,725,504
six
years
later 638,340 710,364 612,803 706,861 - - - - - - 2,668,368
seven
years
later 622,638 695,062 610,192 - - - - - - - 1,927,892
eight
years
later 617,337 687,151 - - - - - - - - 1,304,488
nine
years
later 612,481 - - - - - - - - - 612,481
Current
estimate
of cumulative
claims 612,481 687,151 610,192 706,861 1,003,706 734,139 655,427 736,572 910,852 1,159,340 7,816,721
Cumulative
payments
to date (587,110) (666,551) (547,900) (644,972) (883,757) (583,987) (529,952) (493,314) (399,426) (262,665) (5,599,634)
--------------- ---------- ---------- ------------ ------------ ---------- ------------ ---------- ---------- ---------- ---------- ---------------
Liability
recognised
at 100%
level 25,371 20,600 62,292 61,889 119,949 150,152 125,475 243,258 511,426 896,675 2,217,087
Liability
recognised
in respect
of prior
accident
years
at 100%
level 109,328
--------------- ---------- ---------- ------------ ------------ ---------- ------------ ---------- ---------- ---------- ---------- ---------------
Total net liability
to external parties
at 100% 2,326,415
------------------------------------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------- ---------------
*The foreign exchange adjustment arises from the retranslation
of the estimates at each date using the exchange rate
ruling at 31 December 2016.
Reconciliation of 100% disclosures above to Group's share
- net
Accident
year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total
---------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- ---------- ---------- ------------ ------------ ---------- ------------ ---------- ---------- ---------- ---------- ---------------
Current
estimate
of cumulative
claims 612,481 687,151 610,192 706,861 1,003,706 734,139 655,427 736,572 910,852 1,159,340 7,816,721
Less:
attributable
to external
Names (124,662) (125,656) (102,043) (102,294) (139,327) (81,499) (69,026) (79,824) (99,137) (118,809) (1,042,277)
Group's
share
of current
ultimate
claims
estimate 487,819 561,495 508,149 604,567 864,379 652,640 586,401 656,748 811,715 1,040,531 6,774,444
--------------- ---------- ---------- ------------ ------------ ---------- ------------ ---------- ---------- ---------- ---------- ---------------
Cumulative
payments
to date (587,110) (666,551) (547,900) (644,972) (883,757) (583,987) (529,952) (493,314) (399,426) (262,665) (5,599,634)
Less:
attributable
to external
Names 118,571 122,635 91,082 90,422 117,833 59,999 54,445 52,763 35,865 23,375 766,990
--------------- ---------- ---------- ------------ ------------ ---------- ------------ ---------- ---------- ---------- ---------- ---------------
Group
share
of cumulative
payments (468,539) (543,916) (456,818) (554,550) (765,924) (523,988) (475,507) (440,551) (363,561) (239,290) (4,832,644)
Liability
for
2007
to 2016
accident
years
recognised
on Group's
balance
sheet 19,280 17,579 51,331 50,017 98,455 128,652 110,894 216,197 448,154 801,241 1,941,800
Liability
for
accident
years
before
2007
recognised
on Group's
balance
sheet 80,909
--------------- ---------- ---------- ------------ ------------ ---------- ------------ ---------- ---------- ---------- ---------- ---------------
Total Group liability to external
parties included in the balance
sheet - net** 2,022,709
--------------------------------------------------------------------------------------------- ---------- ---------- ---------- ---------- ---------------
** This represents the claims element of the Group's insurance
liabilities and reinsurance assets.
Movement in insurance claims liabilities and reinsurance
claims assets
Year ended 31 December
2016 2015
Gross Reinsurance Net Gross Reinsurance Net
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------------- ------------ ------------------------ ------------ ---------------------- ---------------------- ------------
Total at beginning
of year (2,038,096) 365,477 (1,672,619) (1,967,864) 368,319 (1,599,545)
Claims and
claims adjustment
expenses for
the year (1,004,601) 264,829 (739,772) (685,897) 113,444 (572,453)
Cash paid
for claims
settled in
the year 776,722 (149,465) 627,257 673,083 (129,606) 543,477
Exchange differences
and other
movements (299,849) 62,274 (237,575) (57,418) 13,320 (44,098)
--------------------------------------- ------------ ------------------------ ------------ ---------------------- ---------------------- ------------
Total at end
of year (2,565,824) 543,115 (2,022,709) (2,038,096) 365,477 (1,672,619)
--------------------------------------- ------------ ------------------------ ------------ ---------------------- ---------------------- ------------
Claims reported
and claims
adjustment
expenses (977,664) 159,141 (818,523) (824,397) 118,322 (706,075)
Claims incurred
but not reported (1,588,160) 383,974 (1,204,186) (1,213,699) 247,155 (966,544)
--------------------------------------- ------------ ------------------------ ------------ ---------------------- ---------------------- ------------
Total at end
of year (2,565,824) 543,115 (2,022,709) (2,038,096) 365,477 (1,672,619)
--------------------------------------- ------------ ------------------------ ------------ ---------------------- ---------------------- ------------
The insurance claims expense reported in the consolidated
income statement is comprised as follows:
Year ended 31 December
2016 2015
Gross Reinsurance Net Gross Reinsurance Net
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Current year
claims and
claims adjustment
expenses (1,275,018) 299,564 (975,454) (943,824) 165,507 (778,317)
Over provision
in respect
of prior
year claims
and claims
adjustment
expenses 270,417 (57,465) 212,952 257,927 (52,063) 205,864
Acquisitions
/ (divestments)
and transfers - 22,730 22,730 - - -
-------------------------- ------------------------ ------------ ------------------------ ---------------------- ---------------------- ------------
Total claims
and claims
handling
expense (1,004,601) 264,829 (739,772) (685,897) 113,444 (572,453)
-------------------------- ------------------------ ------------ ------------------------ ---------------------- ---------------------- ------------
*The net movement in 2016 relates to a retroactive reinsurance
arrangement that transferred the benefits and risks of
some of the Group's insurance portfolio.
18. Trade and other payables
2016 2015
GBP000 GBP000
Creditors arising out of direct insurance
operations 27,997 20,208
Creditors arising out of reinsurance
operations 319,494 210,654
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
347,491 230,862
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
Share of Syndicate's other creditors'
balances 9,844 11,095
Social security and other taxes payable 16,429 12,266
Other creditors 5,650 11,654
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
31,923 35,015
Reinsurers' share of deferred acquisition
costs 66,681 33,211
Accruals and deferred income 153,107 117,270
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
Total 599,202 416,358
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
19. Tax expense
The Company and its subsidiaries are subject to enacted
tax laws in the jurisdictions in which they are incorporated
and domiciled.
The amounts charged in the consolidated income statement
comprise the following:
2016 2015
GBP000 GBP000
Current tax expense 27,230 9,642
Deferred tax credit (9,673) (3,437)
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
Total tax charged to the income statement 17,557 6,205
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
20. Earnings per share
Basic
Basic earnings per share is calculated by dividing the
profit attributable to equity holders of the Company
by the weighted average number of shares in issue during
the year, excluding ordinary shares purchased by the
Group and held in treasury as own shares.
2016 2015
Profit for the year attributable to
the owners of the Company (GBP000) 336,986 209,895
Weighted average number of ordinary
shares (thousands) 281,175 288,209
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
Basic earnings per share (pence per
share) 119.8p 72.8p
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
Diluted
Diluted earnings per share is calculated adjusting for
the assumed conversion of all dilutive potential ordinary
shares. The Company has one category of dilutive potential
ordinary shares, share options. For the share options,
a calculation is made to determine 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 outstanding share options. The number
of shares calculated as above is compared with the number
of shares that would have been issued assuming the exercise
of the share options.
2016 2015
Profit for the year attributable to
the owners of the Company (GBP000) 336,986 209,895
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
Weighted average number of ordinary
shares in issue (thousands) 281,175 288,209
Adjustments for share options (thousands) 9,402 9,603
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
Weighted average number of ordinary
shares for diluted earnings per share
(thousands) 290,577 297,812
Diluted earnings per share (pence per
share) 116.0p 70.5p
-------------------------------------------------------------------------------------------------------------------- ---------------------- ------------
Diluted earnings per share has been calculated after
taking account of 8,653,254 (2015: 8,872,744) options
and awards under employee share option and performance
plan schemes and 748,600 (2015: 730,477) options under
SAYE schemes.
21. Dividends paid to owners of the Company
2016 2015
GBP000 GBP000
------------------------------------------------- ------------- --------------------- -------------
Second interim dividend for the year
ended:
- 31 December 2015 of 32.0p (net) per 89,674 -
share
Interim dividend for the year ended :
24,260 -
* 31 December 2016 of 8.5p (net) per share
* 31 December 2015 of 8.0p (net) per share - 22,403
113,934 22,403
---------------------------------------------------------------- --------------------- -------------
The second interim dividend for the year ended 31 December
2015 was comprised of a final dividend equivalent of
16p per share and an additional return of capital of
16p per share. No scrip dividend alternative was offered.
The interim dividends for 2016 and 2015 were either paid
in cash or issued as a scrip dividend at the option of
the shareholder. The interim dividend for the year ended
31 December 2016 was paid in cash of GBP22,983,000 (2015:
GBP20,202,000) and 119,302 shares for the scrip dividend
(2015: 274,455).
The Board has declared a final dividend of 19.0p per
share to be paid on 20 June 2017 to shareholders on the
register at 12 May 2017, taking the total ordinary dividend
per share for the year to 27.5p (2015: 40.0p).
22. Foreign currency items on intragroup borrowings
The Group has loan arrangements denominated in US Dollars
and Euros, in place between certain Group companies.
In most cases, as one party to each arrangement has a
functional currency other than the US Dollar or the Euro,
foreign exchange gains or losses arise which are not
eliminated through the income statement on consolidation.
Implicit offsetting gains/(losses) are reflected instead
on retranslation of the counterparty company's closing
balance sheet through other comprehensive income and
into the Group's currency translation reserve within
equity.
Impact as at 31 December
2016
Consolidated Consolidated Total impact
income other comprehensive on equity
statement income 2016
2016 2016
GBP000 GBP000 GBP000
Unrealised translation
gains/(losses) on intragroup
borrowings 8,146 (8,146) -
------------------------------------------------- ------------- --------------------- -------------
Total gains/(losses)
recognised 8,146 (8,146) -
------------------------------------------------- ------------- --------------------- -------------
Impact as at 31 December
2015
Consolidated Consolidated Total impact
income other comprehensive on equity
statement income 2015
2015 2015
GBP000 GBP000 GBP000
Unrealised translation
(losses)/gains on intragroup
borrowings (1,888) 1,888 -
------------------------------------------------- ------------- --------------------- -------------
Total (losses)/gains
recognised (1,888) 1,888 -
------------------------------------------------- ------------- --------------------- -------------
Note:
The Annual Report and Accounts for 2016 will be available
to shareholders no later than 15 March 2017. Copies of
the Report may be obtained by writing to the Company
Secretary, Hiscox Ltd, Wessex House, 45 Reid Street,
Hamilton HM12, Bermuda. A copy of this and other announcements
can be found at www.hiscoxgroup.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR QQLFLDLFFBBK
(END) Dow Jones Newswires
February 27, 2017 02:01 ET (07:01 GMT)
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