Last checked at 27 Jul 2015 07:01
Hiscox Ltd interim results
For the six months ended 30 June 2015
"An excellent start"
H1 2015 | H1 2014 | |
Gross premiums written | £1,096.3m | £978.9m |
Net premiums earned | £709.8m | £643.5m |
Profit before tax | £135.1m | £124.6m |
Earnings per share | 43.7p | 36.4p |
Interim dividend per share | 8.0p | 7.5p |
Net asset value per share | 505.5p | 425.6p |
Group combined ratio | 82.5% | 82.0% |
Return on equity (annualised) | 19.9% | 18.9% |
Investment return (annualised) | 1.8% | 2.0% |
Reserve releases | £122.6m | £90.0m |
Foreign exchange impact | £(15.7)m | £(16.4)m |
Highlights
· Hiscox Retail delivered record profits of £59.3 million (2014: £37.4 million)
· Strong growth in Hiscox London Market and Hiscox USA improves capital utilisation
· Hiscox Re benefits from product innovation and an absence of catastrophes to deliver excellent profits of £59.6 million (2014: £75.6 million)
Bronek Masojada, Chief Executive Officer, Hiscox Ltd, commented
"We are reaping the benefits of our growing retail specialty businesses in the UK, Europe and the USA. Although conditions for reinsurance and big ticket insurance remain tough, our teams have demonstrated their creativity and determination to succeed. Hiscox has the brand, distribution and talent for a bright future."
ENDS
Contacts:
Hiscox
| |
Jeremy Pinchin, Company Secretary, Bermuda | +1 441 278 8300 |
Kylie O'Connor, Head of Communications, London | +44 (0) 20 7448 6656 |
Brunswick | |
Tom Burns | +44 (0)20 7404 5959 |
Notes to editors
About Hiscox
Hiscox, the international specialist insurer, is headquartered in Bermuda and listed on the London Stock Exchange (LSE:HSX). There are three main underwriting divisions in the Group - Hiscox Retail (which includes Hiscox UK and Europe, Hiscox Guernsey, Hiscox USA and subsidiary brand, DirectAsia), Hiscox London Market and Hiscox Re. Through its retail businesses in the UK, Europe and the US Hiscox offers a range of specialist insurance for professionals and business customers, as well as homeowners. Hiscox underwrites internationally traded, bigger ticket business and reinsurance through Hiscox London Market and Hiscox Re.
For further information visit www.hiscoxgroup.com.
Chairman's statement
Hiscox delivered a pleasing profit of £135.1 million in the first half, thanks to a combination of sound underwriting, the growing strength of our retail operations, and a paucity of major catastrophes. The top line was up by 12.0% (2014: - 3.8%) driven mainly by opportunities in the London Market business and a continued good performance from Hiscox USA. As usual, we are reporting on the cusp of the hurricane season and Mother Nature can still deliver some surprises in the second half.
Strong results across the industry mask what we regard as a market that is defying gravity, as pension funds and others pour capital in, fuelling further competition in big-ticket insurance and reinsurance. Rating levels are being gnawed away, yet attritional losses remain constant, and thus underlying loss ratios are creeping up. The market's profitability is being propped up by a lack of meaningful catastrophe losses.
Hiscox is well placed to deal with any challenges that lie ahead. Our strategy remains unchanged, balancing volatile big-ticket business with more stable specialty retail lines. It provides us with opportunities regardless of prevailing conditions, and we see plenty of room for further expansion in our chosen markets.
Results
The half-year result to 30 June 2015 was a very good pre-tax profit of £135.1 million (2014: £124.6 million). Gross written premiums increased to £1,096.3 million (2014: £978.9 million). Net earned premiums were £709.8 million (2014: £643.5 million). The impact of foreign exchange was relatively constant at a loss of £15.7 million (2014: loss of £16.4 million). The net combined ratio was a healthy 82.5% (2014: 82.0%). Earnings per share were 43.7p (2014: 36.4p) and net assets per share grew to 505.5p (2014: 425.6p). The annualised return on equity was 19.9% (2014: 18.9%).
Dividend, balance sheet and capital management
The Board of Hiscox Ltd has declared an interim dividend for 2015 of 8.0p per share (2014: 7.5p) an increase of 6.7%. The record date for the dividend will be 7 August and the payment date will be 16 September.
The Board proposes to offer again a scrip dividend alternative in respect of the interim dividend, subject to the terms and conditions of Hiscox Ltd's Scrip Dividend Alternative. A circular with further details will be sent on 10 August.
During the period the Group returned capital via a special distribution of £192 million (60p per share), including a final dividend equivalent of £48 million (15p per share). Net asset value per share has increased by 9.3% from the year end.
At this stage in the year it is too early to anticipate capital returns as the hurricane season has just started and earthquakes can happen at any time. In addition, the impact of Solvency II, continued desire to invest in the brand, and ongoing growth, especially in more long-tail casualty business means that our capital requirements are increasing. These will all affect our assessment of what constitutes excess capital at the end of the year.
Rates
Rating levels in insurance lines are still satisfactory across many territories and products, although we are seeing a downward trend in some lines such as property, marine and energy.
Trading conditions in reinsurance remain tough, though there are signs that rates are now finding their floor. Rates for US property catastrophe business were down on average by 10% at the 1 June and 1 July renewals. International property catastrophe business was down by 10% at the July renewals. In our retrocession book we saw increases of between 5% and 20% on mid-year renewals, as demand outstripped supply. Other non-catastrophe exposed lines of business saw more modest reductions.
Hiscox Retail
The Hiscox Retail segment comprises Hiscox UK and Europe, and Hiscox International.
Hiscox UK and Europe
This division provides personal lines cover - from high-value household, fine art and collectibles to luxury motor - and commercial insurance for small and medium sized businesses, typically operating in white collar industries. These products are distributed via brokers and through a growing network of partnerships. For some simple risks we distribute policies direct-to-consumer in the UK, France and Germany.
Gross written premiums | £318.2 million (2014: £309.4 million) |
Profit before tax | £45.4 million (2014: £26.3 million) |
Combined ratio | 87.0% (2014: 92.9%) |
Hiscox UK and Europe delivered another good result helped by a very quiet period for claims. Weather conditions have been mostly perfect for insurers - not too wet, not too cold nor too dry.
After a period of strong investment, these businesses are finding efficiencies in underwriting practices - delivering electronic trading solutions to our brokers and partners and finding ways to automate the simple risks, leaving underwriters to focus on complex risks where they add more value to customers.
Hiscox UK and Ireland
Premium income grew by 5.2% to £223.6 million (2014: £212.6 million). The regional network of offices across the UK continues to perform very well, producing good growth particularly in commercial lines. Excellent business retention of 86% is also driving profitability.
In personal lines, the luxury motor area has benefited from improvements to customer segmentation, pricing and claims handling. Building on our ambition to be a top specialist car insurer in the UK, we recently announced that we have reached an agreement with Willis to acquire its specialist UK classic car business, RH Specialist Insurance. This acquisition will provide us with new opportunities to distribute our existing products to members of prestigious vehicle clubs.
We continue to invest heavily in marketing as we see real value in building a strong brand, which has driven growth in our direct-to-consumer small business operation by 16%.
The project to insource the customer sales and service function for our direct commercial business is nearly complete with our team in York now taking over 97% of calls. I am pleased that customer satisfaction scores remained at world-class levels throughout the transition.
Hiscox was awarded 'personal lines claims initiative of the year' at the Insurance Times' Claims Excellence Awards 2015, recognition of our team's effort to create customers for life, through which we have improved customer satisfaction from 95% to 98%.
Hiscox Europe
Gross written premiums in local currency grew by 8.1% to €125.9 million (2014: €116.5 million) and decreased by 2.3% to £94.6 million (2014: £96.8 million) in Sterling. Growth was mainly driven by our businesses in the Benelux, Germany and Spain, with contributions from all product lines. Adverse foreign exchange movements also impacted profits but, like other territories, the business benefited from modest claims activity and has delivered good profitability.
Hiscox Europe is building on successes in the UK market by extending the specialty commercial product in France and Germany to include a wider range of property and liability risks. This is our largest business line within Hiscox UK and Ireland, and we are replicating this success in Europe. We have also increased our appetite for schemes business, where we work with brokers to offer insurance solutions to customers with similar risk profiles. These initiatives are receiving very positive feedback from brokers, and we are looking at other ways to share products and knowledge across the Group.
The small business cyber and data risks product launched in the UK and across Germany, France and the Netherlands is gaining momentum as the markets gradually evolve from expressions of interest to preparedness to buy.
Fine art continues to perform very well and our private client business has recovered historical growth rates.
Building quality specialty retail businesses takes time, continued investment and a lot of local knowledge. In 2015, we are celebrating the 20th anniversary of our French and German businesses, which are now significant contributors to profit and income for the Group.
Hiscox International
This division comprises Hiscox Guernsey, Hiscox USA and DirectAsia.
Gross written premiums | £183.9 million (2014: £146.4 million) |
Profit before tax | £13.9 million (2014: £11.1 million) |
Combined ratio | 92.9% (2014: 92.1%) |
Hiscox Guernsey - Hiscox Special Risks
Hiscox Special Risks underwrites kidnap and ransom, personal accident, classic car, jewellery and fine art risks. Led from Guernsey, Hiscox Special Risks has teams in London, Munich, Paris, New York, Los Angeles and Miami.
Despite the competitive market, Guernsey continues to perform well with gross written premiums increasing to £36.3 million (2014: £34.0 million). We are maintaining our market share in the increasingly competitive kidnap and ransom business, where clients benefit from our expertise and exclusive relationship with Control Risks.
Hiscox USA
Hiscox USA underwrites the small-to-mid market commercial risks through brokers, other insurers and directly to businesses online and over the telephone.
Hiscox USA has built on the success of last year, increasing premiums by 28.2% to £138.1 million (2014: £107.8 million), 16.9% in local currency, despite the impact of withdrawing from unprofitable construction property business in 2014. Hiscox USA also benefited from a continued good claims experience. The professions business, which includes E&O (errors and omissions) and general liability cover, did extremely well, more than offsetting reductions in lines where rates are under pressure, such as commercial property.
The USA team continues to add new specialist business to the Hiscox Pro portfolio. This range of E&O solutions designed for emerging industries has now expanded to include security and staffing services, and testing labs.
Ongoing investment in building the Hiscox brand in the US, including the Courageous Leaders documentaries and continued thought leadership is delivering results, with our direct-to-consumer policies now numbering 100,000.
DirectAsia
DirectAsia is a direct-to-consumer business in Singapore, Hong Kong and Thailand that sells motor insurance with ancillary lines in travel, healthcare and life. Hiscox acquired the business in April 2014.
DirectAsia continues to perform in line with our expectations, growing its premium income to £9.5 million. The business is making good progress across all markets, with revised marketing activities helping to drive record sales.
Hiscox London Market
This segment uses the global licences, distribution network and credit rating available through Lloyd's to insure clients throughout the world.
Gross written premiums | £306.4 million (2014: £251.7 million) |
Profit before tax | £23.4 million (2014: £24.8 million) |
Combined ratio | 89.8% (2014: 87.2%) |
Hiscox London Market had an excellent start to the year despite fierce competition in many lines. Good growth of 21.7% (13.6% in local currency) was achieved despite the team walking away from poorly rated business. Growth was mainly driven by our support for the Willis 360 facility, our auto physical damage business where rates continue to rise, and business generated by our new teams in personal accident and casualty.
Hiscox London Market had a better claims experience in this half, despite losses in aviation and space, two moderate energy losses, and potential claims arising from political unrest in the Ukraine which we have reserved at net £20 million. We also significantly reduced the price and improved the efficiency of our outwards reinsurance programme.
Our relationship with White Oak, a specialist automotive and equipment underwriting agency, continues to grow.
Disruption in the market caused by frenetic merger and acquisitions activity has given us the opportunity to attract high quality people. We have boosted our expertise in three lines where we see potential for prudent profitable growth: general liability, product recall and marine cargo.
Small bolt-on acquisitions that complement our existing expertise and strengthen our distribution capability are an important area of potential growth for the Group. During the period, we acquired R&Q Marine Services (RQMS) for £9 million, an established managing general agent (which also underwrites on behalf of other insurers). RQMS specialises in yachts and general marine leisure insurance and we will continue to combine their knowledge with our distribution and marketing capabilities to serve more customers in our target segments. RQMS will form the core of a new managing agency business, which will underwrite on behalf of other capital providers as well as Hiscox.
Hiscox Re
The Hiscox Re segment comprises the Group's reinsurance businesses in London, Paris and Bermuda, Insurance Linked Security (ILS) activity and healthcare business.
Gross written premiums | £287.8 million (2014: £271.5 million) |
Profit before tax | £59.6 million (2014: £75.6 million) |
Combined ratio | 45.5% (2014: 41.8%) |
Gross written premiums for Hiscox Re increased by 6.0%, as we successfully developed business for our third party ILS partners in our Kiskadee funds. Healthcare and specialty lines continue to grow steadily. Hiscox Re continues to benefit from the lack of major catastrophes, and had minimal exposure to Cyclone Marcia and the severe weather that hit Texas in April and May.
Our focus on product innovation has paid dividends, as brokers and cedants appreciate our efforts to address their more complex needs. The release of 12 new products over the past 18 months has added $50 million in gross written premiums.
As of 1 July our Kiskadee family of insurance linked funds has attracted over $540 million in capital, up from $400 million anticipated at 1 January 2015, and during this period Kiskadee wrote gross written premiums of $87 million.
Investments
Uncertainty and low yields continue to be a feature of financial markets. With our conservative bond portfolio and an exposure to equity markets the investment performance for the first six months has been in line with expectations. Following the £192 million return of capital to shareholders in April, and excluding the Kiskadee Funds, assets under management at 30 June 2015 were £3,032 million (2014: £2,965 million) and our investment result, before derivatives, was £27.9 million (2014: £30.1 million), 1.8% on an annualised basis (2014: 2.0%).
After a positive start to the year, on the back of the ECB's quantitative easing programme, the investment background was less supportive in the second quarter and was particularly challenging for bond investors. We were largely protected by our cautious stance on duration but the gains from our fixed income portfolios were modest, being reliant mostly on the extra yield from non-government bonds. The result was however supplemented by a useful contribution from our risk assets portfolio, which despite the setbacks in June delivered good returns.
With the Federal Reserve and, latterly, the Bank of England paving the way for official rate increases, we continue to position the bond portfolios with a view to minimising the impact of rising yields. We expect that such a move will be accompanied by a pick-up in volatility but remain comfortable with our allocation to risk assets which now represent 9% of the overall portfolio.
Regulatory response to market events
Although in our industry we regularly model the impact of a wide range of serious catastrophes, we fully support the Prudential Regulation Authority's (PRA) new stress test to show how insurers would cope in the event of a range of extreme scenarios. However, I feel this does not go far enough, and that there needs to be a detailed practical 'dry run' of how a serious catastrophe may play out involving all London Market players, including our supervisors at the PRA and Lloyd's.
It is nearly 14 years since the September 11 attacks, and I think it is more important than ever to test how our market would handle another major calamity. Much has changed since 2001 - both within our business and wider society - and our regulatory framework is in the process of fundamental change. Mega-catastrophes create huge disruption and panic, but supervisors gave us the green light to trade through the aftermath of 9/11, despite the widespread uncertainty. Their pragmatism enabled us to keep the wheels of global business turning. However, with Solvency II, a new regulator in the PRA (with a different remit from its predecessor), and a prevailing mood of suspicion and skepticism towards the financial services industry, I'm unsure whether this pragmatic approach will exist next time round.
Running such a simulation would, in my opinion, help to reassure regulators (and ratings agencies) that our market could withstand a shock loss giving them the confidence to allow us to perform our primary role, which is to deal with the fallout from catastrophes. The London Market needs to act boldly in a major crisis, to provide clients with risk capital when they need it most, if it is to fulfill its role as the world's specialty insurance centre.
Outlook
We expect the current tough conditions to continue for our big-ticket insurance and reinsurance businesses into 2016. The importance of balancing our desire to grow in these areas with managing our exposure (particularly when prices are close to walk-away levels) remains crucial. Our teams in Bermuda and the London Market have shown good discipline, dexterity and creativity thus far and I believe have the energy and strong relationships to succeed in the future.
The balance and diversity of our business, has long been a key driver of the Group's profitability. Our retail businesses have plenty of room for profitable growth, and will continue to find new opportunities where others find the conditions more challenging. Hiscox has excellent people, a restless spirit and a strong independent future.
Robert Childs
27 July 2015
Condensed consolidated interim income statement
For the six month period ended 30 June 2015
Note | 6 months to 30 June 2015 | 6 months to 30 June 2014 | Year to31 Dec 2014 | |
£000 | £000 | £000 | ||
Income | ||||
Gross premiums written | 7 | 1,096,299 | 978,932 | 1,756,260 |
Outward reinsurance premiums | (236,215) | (246,340) | (412,850) | |
Net premiums written | 860,084 | 732,592 | 1,343,410 | |
Gross premiums earned | 882,169 | 797,117 | 1,674,982 | |
Premiums ceded to reinsurers | (172,346) | (153,646) | (358,723) | |
Net premiums earned | 709,823 | 643,471 | 1,316,259 | |
Investment result | 10 | 29,356 | 29,218 | 56,212 |
Other revenues | 11 | 2,513 | 9,093 | 19,956 |
Revenue | 741,692 | 681,782 | 1,392,427 | |
Expenses | ||||
Claims and claim adjustment expenses | (308,965) | (280,684) | (645,145) | |
Reinsurance recoveries | 55,622 | 33,089 | 113,477 | |
Claims and claim adjustment expenses, net of reinsurance | (253,343) | (247,595) | (531,668) | |
Expenses for the acquisition of insurance contracts | (173,651) | (149,304) | (318,616) | |
Operational expenses | 11 | (160,210) | (141,461) | (310,853) |
Foreign exchange (losses)/gains | 20 | (15,678) | (16,415) | 4,974 |
Total expenses | (602,882) | (554,775) | (1,156,163) | |
Results of operating activities | 138,810 | 127,007 | 236,264 | |
Finance costs | 12 | (4,406) | (3,175) | (6,418) |
Share of profit of associates after tax | 671 | 788 | 1,229 | |
Profit before tax | 135,075 | 124,620 | 231,075 | |
Tax expense | 13 | (5,695) | (4,774) | (14,923) |
Profit for the period (all attributable to owners of the Company) | 129,380 | 119,846 | 216,152 | |
Earnings per share on profit attributable to owners of the Company | ||||
Basic | 15 | 43.7p | 36.4p | 67.4p |
Diluted | 15 | 41.9p | 34.8p | 64.5p |
The notes to the condensed consolidated interim financial statements are an integral part of this document. |
Condensed consolidated interim statement of comprehensive income
For the six month period ended 30 June 2015, after tax
| 6 months to 30 June 2015 | 6 months to 30 June 2014 | Year to31 Dec 2014 | |
£000 | £000 | £000 | ||
Profit for the period | 129,380 | 119,846 | 216,152 | |
Other comprehensive income | ||||
Items never reclassified to profit and loss: | ||||
Actuarial gains/(losses) on defined benefit plan | 21,930 | (1,558) | (22,759) | |
Income tax relating to components of other comprehensive income | (5,268) | 374 | 5,470 | |
16,662 | (1,184) | (17,289) | ||
Items that may be reclassified to profit and loss: | ||||
Exchange differences on translating foreign operations | (8,443) | (22,941) | 34,019 | |
Income tax relating to components of other comprehensive income | - | - | - | |
(8,443) | (22,941) | 34,019 | ||
Other comprehensive income/(loss) net of tax | 8,219 | (24,125) | 16,730 | |
Total comprehensive income for the year (all attributable to owners of the Company) | 137,599 | 95,721 | 232,882 | |
The notes to the condensed consolidated interim financial statements are an integral part of this document. |
Condensed consolidated interim balance sheet
At 30 June 2015
Note | 30 June 2015 | 30 June 2014 | 31 Dec 2014 | |
£000 | £000 | £000 | ||
Assets | ||||
Intangible assets | 119,331 | 91,896 | 105,946 | |
Property, plant and equipment | 34,289 | 21,395 | 29,497 | |
Investment in associates | 11,341 | 10,229 | 10,670 | |
Deferred tax | 33,063 | 30,862 | 33,490 | |
Deferred acquisition costs | 274,727 | 230,892 | 230,373 | |
Financial assets carried at fair value | 18 | 2,633,210 | 2,563,129 | 2,828,847 |
Reinsurance assets | 14 | 577,303 | 513,957 | 525,345 |
Loans and receivables including insurance receivables | 693,730 | 591,474 | 556,259 | |
Current tax asset | 4,952 | - | 8,031 | |
Cash and cash equivalents | 746,371 | 452,708 | 650,651 | |
Total assets | 5,128,317 | 4,506,542 | 4,979,109 | |
Equity and liabilities | ||||
Shareholders' equity | ||||
Share capital | 17 | 19,002 | 19,852 | 19,913 |
Share premium | 12,129 | 6,942 | 10,417 | |
Contributed surplus | 89,864 | 89,864 | 89,864 | |
Currency translation reserve | 48,257 | (260) | 56,700 | |
Retained earnings | 1,244,561 | 1,215,189 | 1,276,446 | |
Total equity (all attributable to owners of the Company) | 1,413,813 | 1,331,587 | 1,453,340 | |
Non controlling interest | 866 | 866 | 866 | |
Total equity | 1,414,679 | 1,332,453 | 1,454,206 | |
Employee retirement benefit obligation | 6,574 | 6,512 | 32,166 | |
Deferred tax | 26,372 | 50,719 | 26,390 | |
Insurance liabilities | 14 | 2,985,706 | 2,739,838 | 2,835,199 |
Financial liabilities carried at fair value | 18 | 273,745 | - | 7,109 |
Current tax | 12,550 | 32,801 | 32,379 | |
Trade and other payables | 408,691 | 344,219 | 591,660 | |
Total liabilities | 3,713,638 | 3,174,089 | 3,524,903 | |
Total equity and liabilities | 5,128,317 | 4,506,542 | 4,979,109 |
The notes to the condensed consolidated interim financial statements are an integral part of this document. |
Condensed consolidated interim statement of changes in equity
For the six month period ended 30 June 2015
Share capital | Share premium | Contributed surplus | Currency translation reserve | Retained earnings | Non controlling interest | Total | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | |
Balance at 1 January 2015 | 19,913 | 10,417 | 89,864 | 56,700 | 1,276,446 | 866 | 1,454,206 |
Total recognised comprehensive income for the period (all attributable to owners of the company) | - | - | - | (8,443) | 146,042 | - | 137,599 |
Employee share options: | |||||||
Equity settled share based payments | - | - | - | - | 8,822 | - | 8,822 |
Proceeds from shares issued | 19 | 814 | - | - | - | - | 833 |
Deferred and current tax | - | - | - | - | 2,778 | - | 2,778 |
E/F Share scheme: | |||||||
Return of capital, special distribution (note 17) | - | (32) | - | - | (141,422) | - | (141,454) |
Final dividend equivalent (note 17) | - | - | - | - | (48,105) | - | (48,105) |
Share consolidation and subdivision (note 17) | (930) | 930 | - | - | - | - | - |
Balance at 30 June 2015 | 19,002 | 12,129 | 89,864 | 48,257 | 1,244,561 | 866 | 1,414,679 |
The notes to the condensed consolidated interim financial statements are an integral part of this document. |
Condensed consolidated interim statement of changes in equity
For the six month period ended 30 June 2014
Share capital | Share premium | Contributed surplus | Currency translation reserve | Retained earnings | Non controlling interest | Total | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | |
Balance at 1 January 2014 | 20,854 | 4,953 | 89,864 | 22,681 | 1,271,109 | - | 1,409,461 |
Total recognised comprehensive income for the period (all attributable to owners of the company) | - | - | - | (22,941) | 118,662 | - | 95,721 |
Employee share options: | |||||||
Equity settled share based payments | - | - | - | - | 7,479 | - | 7,479 |
Proceeds from shares issued | 30 | 992 | - | - | - | - | 1,022 |
Deferred and current tax | - | - | - | - | 777 | - | 777 |
C/D Share scheme: | |||||||
Return of capital, special distribution (note 17) | - | (35) | - | - | (126,049) | - | (126,084) |
Final dividend equivalent (note 17) | - | - | - | - | (49,728) | - | (49,728) |
Share consolidation and subdivision (note 17) | (1,032) | 1,032 | - | - | - | - | - |
Shares purchase by Trust (note 17) | - | - | - | - | (7,061) | - | (7,061) |
Acquisition of DirectAsia | - | - | - | - | - | 866 | 866 |
Balance at 30 June 2014 | 19,852 | 6,942 | 89,864 | (260) | 1,215,189 | 866 | 1,332,453 |
Condensed consolidated interim statement of changes in equity
For the year ended 31 December 2014
Share capital | Share premium | Contributed surplus | Currency translation reserve | Retained earnings | Non controlling interest | Total | ||
£000 | £000 | £000 | £000 | £000 | £000 | £000 | ||
Balance at 1 January 2014 | 20,854 | 4,953 | 89,864 | 22,681 | 1,271,109 | - | 1,409,461 | |
Profit for the year (all attributable to owners of the company) | - | - | - | - | 216,152 | - | 216,152 | |
Other comprehensive income/(expense) net of tax (all attributable to owners of the company) | - | - | - | 34,019 | (17,289) | - | 16,730 | |
Employee share options: | ||||||||
Equity settled share based payments | - | - | - | - | 14,439 | - | 14,439 | |
Proceeds from shares issued | 74 | 2,669 | - | - | - | - | 2,743 | |
Deferred and current tax on employee share options | - | - | - | - | 1,874 | - | 1,874 | |
C/D Share Scheme: | ||||||||
Return of capital, special distribution (note 17) | - | (35) | - | - | (126,049) | - | (126,084) | |
Final dividend equivalent (note 17) | - | - | - | - | (49,728) | - | (49,728) | |
Share consolidation and subdivision (note 17) | (1,032) | 1,032 | - | - | - | - | - | |
Shares purchased by Trust (note 17) | - | - | - | - | (10,593) | - | (10,593) | |
Acquisition of DirectAsia | - | - | - | - | - | 866 | 866 | |
Scrip dividends | 17 | 1,798 | - | - | - | - | 1,815 | |
Dividends paid to owners of the Company | - | - | - | - | (23,469) | - | (23,469) | |
Balance at 31 December 2014 | 19,913 | 10,417 | 89,864 | 56,700 | 1,276,446 | 866 | 1,454,206 |
The notes to the condensed consolidated interim financial statements are an integral part of this document.
Condensed consolidated interim cash flow statement
For the six month period ended 30 June 2015
Note | 6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | |
£000 | £000 | £000 | ||
Profit before tax | 135,075 | 124,620 | 231,075 | |
Adjustments for: | ||||
Interest and equity dividend income | (21,343) | (21,471) | (45,146) | |
Interest expense | 12 | 4,406 | 3,175 | 6,418 |
Net fair value (gains)/losses on financial assets and liabilities | (5,949) | (6,090) | (12,121) | |
Depreciation and amortisation | 7,905 | 6,158 | 12,857 | |
Charges in respect of share based payments | 8,822 | 7,479 | 14,439 | |
Other non-cash movements | 1,389 | (1,400) | (497) | |
Effect of exchange rate fluctuations on cash presented separately | 11,769 | 12,563 | 6,740 | |
Changes in operational assets and liabilities: | ||||
Insurance and reinsurance contracts | (107,190) | 13,062 | 174,158 | |
Financial assets carried at fair value | 189,270 | (12,327) | (171,076) | |
Financial liabilities carried at fair value | 264,306 | - | 6,880 | |
Other assets and liabilities | (196,980) | (22,403) | (27,943) | |
Cash flows from operations | 291,480 | 103,366 | 195,784 | |
Cash paid to the defined benefit pension scheme | - | - | (200) | |
Interest received | 21,189 | 19,420 | 43,292 | |
Equity dividends received | 790 | 1,097 | 1,702 | |
Interest paid | (3,649) | (3,007) | (5,990) | |
Current tax paid | (23,924) | (23,021) | (62,563) | |
Cash flows from subscriptions received in advance | 35,032 | - | 169,928 | |
Net cash flows from operating activities | 320,918 | 97,855 | 341,953 | |
Cash flow from the purchase and sale of a subsidiary, net of cash balance | 22 | (6,171) | (1,277) | (2,627) |
Cash flow from the sale and purchase of associates | - | (2,103) | (1,687) | |
Cash flows from the purchase of property, plant and equipment | (10,057) | (2,414) | (11,727) | |
Cash flows from the purchase of intangible assets | (8,475) | (9,314) | (27,580) | |
Net cash flows from investing activities | (24,703) | (15,108) | (43,621) | |
Proceeds from the issue of ordinary shares | 833 | 1,022 | 2,743 | |
Distributions paid to owners of the Company | 16,17 | (189,559) | (175,812) | (197,466) |
Shares repurchased | 17 | - | (7,061) | (10,593) |
Net cash flows from financing activities | (188,726) | (181,851) | (205,316) | |
Net increase/(decrease) in cash and cash equivalents | 107,489 | (99,104) | 93,016 | |
Cash and cash equivalents at 1 January | 650,651 | 564,375 | 564,375 | |
Net increase/(decrease) in cash and cash equivalents | 107,489 | (99,104) | 93,016 | |
Effect of exchange rate fluctuations on cash and cash equivalents | (11,769) | (12,563) | (6,740) | |
Cash and cash equivalents at end of period | 21 | 746,371 | 452,708 | 650,651 |
The notes to the condensed consolidated interim financial statements are an integral part of this document. | ||||
Notes to the condensed consolidated interim financial statements
1. Reporting entity |
Hiscox Ltd (the 'Company') is a public limited company registered and domiciled in Bermuda. The condensed consolidated interim financial statements for the Company as at, and for the six months ended, 30 June 2015 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interest in associates. The Chairman's statement accompanying these condensed consolidated interim financial statements forms the Interim Management Report for the half year ended 30 June 2015. The Directors of Hiscox Ltd are listed in the Group's 2014 Report and Accounts, with the exception of the following changes. Anne MacDonald and Lynn Carter were appointed as Non Executive Directors on 20 May 2015. Richard Gillingwater and Dr James King resigned on 20 May 2015. Daniel Healey is acting as the interim Senior Independent Director. A list of current Directors is maintained and available for inspection at the registered office of the Company located at 4th Floor, Wessex House, 45 Reid Street, Hamilton, HM 12, Bermuda.
|
2. Basis of preparation |
These condensed consolidated interim financial statements have been prepared in accordance with the Listing Rules issued by the Financial Conduct Authority. The information presented herein does not include all of the disclosures typically required for full consolidated financial statements. Consequently these financial statements should be read in conjunction with the full consolidated financial statements of the Group as at, and for the year ended, 31 December 2014 which are available from the Company's registered office or at www.hiscoxgroup.com. Except where otherwise indicated, all amounts are presented in Pounds Sterling and rounded to the nearest thousand. After making enquiries, the Directors have an expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason the condensed consolidated interim financial statements have been prepared on a going concern basis and are prepared on the historical cost basis except that pension scheme assets included in the measurement of the employee retirement benefit obligation, and certain financial instruments including derivative instruments are measured at fair value. Taxes on income for the interim period are accrued using the estimated effective tax rate that would be applicable to estimated total annual earnings. The independent auditors have reported on the Group's full consolidated financial statements as at, and for the year ended, 31 December 2014. The report of the independent auditors was not qualified. The amounts presented for the 30 June 2015 and 30 June 2014 periods are unaudited. These condensed consolidated interim financial statements were approved on behalf of the Board of Directors by the Chief Executive, B E Masojada and the Chief Financial Officer, S J Bridges. Accordingly the Half Yearly Report to the London Stock Exchange was approved for issue on Monday, 27 July 2015 following receipt of confirmation from the auditors that they had reviewed the final content.
|
3. Accounting policies and methods of computation |
The accounting policies applied in these condensed consolidated interim financial statements are consistent with those applied by the Group in its consolidated financial statements as at, and for the year ended, 31 December 2014. The consolidated financial statements as at, and for the year ended, 31 December 2014 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. The Interim Report is compliant with IAS 34 Interim Financial Reporting as adopted by the European Union. In preparing these interim financial statements, Management make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
The significant judgements made by Management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2014.
|
4. Financial, insurance and other risk management | |||||
The Group's financial, insurance and other risk management objectives and policies are consistent with that disclosed in note 3 of the full consolidated financial statements as at, and for the year ended, 31 December 2014. The principal risks and uncertainties are unchanged and may be summarised as underwriting risk, reserving risk, reliability of fair values, equity price risk, interest rate risk, liquidity risk, credit risk, currency risk and capital risk. The Group continues to monitor all aspects of its financial risk appetite and the resultant exposure taken with caution, and has consequently suffered insignificant defaults on investments held, and other third-party balances during the period under review. As detailed in note 18, the Group's investment allocation is broadly comparable to that at 31 December 2014 as outlined in the Group Report and Accounts. The Group also continues to be mindful of the processes required for establishing the reliability of fair values obtained for some classes of financial assets affected by ongoing periods of diminished liquidity. In order to assist users, the Group has disclosed the measurement attributes of its investment portfolio in a fair value hierarchy in note 19 in accordance with IFRS 13 Fair Value Measurement. The Group remains susceptible to fluctuations in rates of foreign exchange, in particular between Pound Sterling and the US Dollar. Strong treasury management has ensured that the Group's balance sheet remains well capitalised and its operations are financed to accommodate foreseen liquidity demands together with a high level of capital sufficient to meet future catastrophe obligations even if difficult investment market conditions were to prevail for a period of time.
| |||||
5. Seasonality and weather | |||||
Historically the Group's most material exposure to catastrophe losses on certain lines of business such as reinsurance inwards and marine and major property risk have been greater during the second half of the calendar year, broadly in line with the most active period of the North Atlantic hurricane season. In contrast, a majority of gross premium income written in these lines of business occurs during the first half of the calendar year. The Group actively participates in many regions and if any catastrophic events do occur, it is likely that the Group will share some of the market's losses. Consequently, the potential for significantly greater volatility in expected returns remains during the second half of the year. Details of the Group's recent exposures to these classes of business are disclosed in the Group's 2014 Report and Accounts. | |||||
6. Related party transactions | |||||
Transactions with related parties during the period are consistent in nature and scope with those disclosed in note 38 of the Group's 2014 Report and Accounts. | |||||
7. 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, Guernsey 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, Hiscox UK includes elements of specialty and international employees and officers' insurance written by Syndicate 3624.
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.
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. 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 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. The segment also captures the performance of Kiskadee, the Hiscox Group's Insurance Linked Securities business. 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 13 of the Group's Report and Accounts for the year ended 31 December 2014. Corporate Centre forms a reportable segment due to its investment activities which earn significant external returns. 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.
| |||||
6 months ended 30 June 2015 | |||||
Hiscox Retail | Hiscox London Market | Hiscox Re | Corporate centre | Total | |
£000 | £000 | £000 | £000 | £000 | |
Gross premiums written | 502,140 | 306,408 | 287,751 | - | 1,096,299 |
Net premiums written | 472,474 | 217,122 | 170,488 | - | 860,084 |
Net premiums earned | 424,547 | 179,107 | 106,169 | - | 709,823 |
Investment result | 11,390 | 5,544 | 6,329 | 6,093 | 29,356 |
Other revenues | 4,084 | 2,473 | (4,226) | 182 | 2,513 |
Revenue | 440,021 | 187,124 | 108,272 | 6,275 | 741,692 |
Claims and claim adjustment expenses, net of reinsurance | (147,483) | (85,686) | (20,174) | - | (253,343) |
Expenses for the acquisition of insurance contracts | (109,506) | (54,980) | (9,165) | - | (173,651) |
Operational expenses | (112,965) | (18,789) | (18,539) | (9,917) | (160,210) |
Foreign exchange losses | (11,262) | (4,352) | 243 | (307) | (15,678) |
Total expenses | (381,216) | (163,807) | (47,635) | (10,224) | (602,882) |
Results of operating activities | 58,805 | 23,317 | 60,637 | (3,949) | 138,810 |
Finance costs | - | (26) | (1,015) | (3,365) | (4,406) |
Share of profit of associates after tax | 515 | 156 | - | - | 671 |
Profit/(loss) before tax | 59,320 | 23,447 | 59,622 | (7,314) | 135,075 |
100% ratio analysis* | |||||
Claims ratio (%) | 34.6 | 47.2 | 18.3 | - | 35.7 |
Expense ratio (%) | 51.8 | 40.1 | 26.9 | - | 44.6 |
Combined ratio excluding foreign exchange impact (%) | 86.4 | 87.3 | 45.2 | - | 80.3 |
Foreign exchange impact (%) | 2.7 | 2.5 | 0.3 | - | 2.2 |
Combined ratio (%) | 89.1 | 89.8 | 45.5 | - | 82.5 |
Total assets | 1,595,749 | 1,220,083 | 1,978,434 | 334,051 | 5,128,317 |
Total liabilities | 1,405,898 | 1,214,817 | 1,060,707 | 32,216 | 3,713,638 |
6 months ended 30 June 2014 | |||||
Hiscox Retail | Hiscox London Market | Hiscox Re | Corporate centre | Total | |
£000 | £000 | £000 | £000 | £000 | |
Gross premiums written | 455,775 | 251,700 | 271,457 | - | 978,932 |
Net premiums written | 418,029 | 189,463 | 125,100 | - | 732,592 |
Net premiums earned | 373,352 | 163,078 | 107,041 | - | 643,471 |
Investment result | 8,368 | 6,070 | 11,169 | 3,611 | 29,218 |
Other revenues | 3,499 | 1,852 | 3,458 | 284 | 9,093 |
Revenue | 385,219 | 171,000 | 121,668 | 3,895 | 681,782 |
Claims and claim adjustment expenses, net of reinsurance | (152,678) | (81,269) | (13,648) | - | (247,595) |
Expenses for the acquisition of insurance contracts | (96,555) | (41,491) | (11,258) | - | (149,304) |
Operational expenses | (96,003) | (16,877) | (16,881) | (11,700) | (141,461) |
Foreign exchange losses | (2,981) | (6,556) | (3,597) | (3,281) | (16,415) |
Total expenses | (348,217) | (146,193) | (45,384) | (14,981) | (554,775) |
Results of operating activities | 37,002 | 24,807 | 76,284 | (11,086) | 127,007 |
Finance costs | - | (24) | (718) | (2,433) | (3,175) |
Share of profit of associates after tax | 373 | - | - | 415 | 788 |
Profit/(loss) before tax | 37,375 | 24,783 | 75,566 | (13,104) | 124,620 |
100% ratio analysis* | |||||
Claims ratio (%) | 40.7 | 48.5 | 12.4 | - | 37.9 |
Expense ratio (%) | 51.2 | 34.4 | 25.8 | - | 41.8 |
Combined ratio excluding foreign exchange impact (%) | 91.9 | 82.9 | 38.2 | - | 79.7 |
Foreign exchange impact (%) | 0.8 | 4.3 | 3.6 | - | 2.3 |
Combined ratio (%) | 92.7 | 87.2 | 41.8 | - | 82.0 |
Total assets | 1,494,074 | 1,008,195 | 1,670,010 | 334,263 | 4,506,542 |
Total liabilities | 1,284,804 | 982,020 | 819,243 | 88,022 | 3,174,089 |
Year ended 31 December 2014 | ||||||
Hiscox Retail | Hiscox London Market | Hiscox Re | Corporate centre | Total | ||
£000 | £000 | £000 | £000 | £000 | ||
Gross premiums written | 891,115 | 510,825 | 354,320 | - | 1,756,260 | |
Net premiums written | 825,878 | 336,895 | 180,637 | - | 1,343,410 | |
Net premiums earned | 790,721 | 332,497 | 193,041 | - | 1,316,259 | |
Investment result | 25,934 | 8,719 | 9,348 | 12,211 | 56,212 | |
Other revenues | 6,643 | 6,283 | 6,777 | 253 | 19,956 | |
Revenue | 823,298 | 347,499 | 209,166 | 12,464 | 1,392,427 | |
Claims and claim adjustment expenses, net of reinsurance | (325,806) | (159,864) | (45,998) | - | (531,668) | |
Expenses for the acquisition of insurance contracts | (205,748) | (93,569) | (19,299) | - | (318,616) | |
Operational expenses | (209,213) | (40,597) | (39,623) | (21,420) | (310,853) | |
Foreign exchange losses | (5,121) | 9,044 | 2,682 | (1,631) | 4,974 | |
Total expenses | (745,888) | (284,986) | (102,238) | (23,051) | (1,156,163) | |
Results of operating activities | 77,410 | 62,513 | 106,928 | (10,587) | 236,264 | |
Finance costs | - | (46) | (1,365) | (5,007) | (6,418) | |
Share of profit of associates after tax | 655 | 182 | - | 392 | 1,229 | |
Profit/(loss) before tax | 78,065 | 62,649 | 105,563 | (15,202) | 231,075 | |
100% ratio analysis* | ||||||
Claims ratio (%) | 40.9 | 47.4 | 22.0 | - | 39.8 | |
Expense ratio (%) | 52.0 | 39.8 | 29.6 | - | 44.9 | |
Combined ratio excluding foreign exchange impact (%) | 92.9 | 87.2 | 51.6 | - | 84.7 | |
Foreign exchange impact (%) | 0.6 | (3.0) | (1.8) | - | (0.8) | |
Combined ratio (%) | 93.5 | 84.2 | 49.8 | - | 83.9 | |
Total assets | 1,598,928 | 1,200,237 | 1,868,321 | 311,623 | 4,979,109 | |
Total liabilities | 1,433,459 | 1,146,574 | 920,783 | 24,087 | 3,524,903 | |
* The Group's percentage participation in Syndicate 33 can fluctuate from year to year and consequently, presentation of the ratios at the 100% level removes any distortions arising therefrom.
8. Net asset value per share | ||||||
30 June 2015 | 30 June 2014 | 31 Dec 2014 | ||||
Net asset value (total equity) | NAV per share pence | Net asset value (total equity) | NAV per share pence | Net asset value (total equity) | NAV per share pence | |
£000 | £000 | £000 | ||||
Net asset value | 1,414,679 | 505.5 | 1,332,453 | 425.6 | 1,454,206 | 462.5 |
Net tangible asset value | 1,295,348 | 462.8 | 1,240,557 | 396.2 | 1,348,260 | 428.8 |
The net asset value per share is based on 279,875,668 shares (30 June 2014: 313,090,274; 31 December 2014: 314,419,567), being the adjusted number of shares in issue at each reference date. Net tangible assets comprise total equity excluding intangible assets. |
9. Return on equity | ||||
6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | ||
£000 | £000 | £000 | ||
Profit for the period | 129,380 | 119,846 | 216,152 | |
Opening shareholders' equity | 1,454,206 | 1,409,461 | 1,409,461 | |
Adjusted for the time weighted impact of capital distributions and issuance of shares | (91,892) | (86,855) | (142,812) | |
Adjusted opening shareholders' equity | 1,362,314 | 1,322,606 | 1,266,649 | |
Annualised return on equity (%) | 19.9 | 18.9 | 17.1 | |
10. Investment result | ||
i. | Analysis of investment result | |
The total investment result for the Group before taxation comprises: | 6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | ||||||||
£000 | £000 | £000 | |||||||||
Investment income including interest receivable | 21,343 | 21,471 | 45,146 | ||||||||
Net realised gains/(losses) on financial investments at fair value through profit or loss | 2,064 | 1,657 | (1,055) | ||||||||
Net fair value gains on financial investments at fair value through profit or loss | 4,450 | 6,987 | 12,264 | ||||||||
Investment result - financial assets | 27,857 | 30,115 | 56,355 | ||||||||
Fair value gains/(losses) on derivative financial instruments | 1,499 | (897) | (143) | ||||||||
Total result | 29,356 | 29,218 | 56,212 | ||||||||
Investment expenses are presented within other expenses (note 11). | |||||||||||
ii. | Annualised investment yields | ||||||||||
6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | |||||||||
£000 | £000 | £000 | |||||||||
Return £000 | Yield % | Return £000 | Yield % | Return £000 | Yield % | ||||||
Debt and fixed income securities | 15,038 | 1.3 | 21,211 | 1.8 | 36,714 | 1.5 | |||||
Equities and shares in unit trusts | 11,910 | 9.3 | 7,914 | 7.2 | 17,604 | 7.6 | |||||
Deposits with credit institutions/cash and cash equivalents | 909 | 0.4 | 990 | 0.4 | 2,037 | 0.4 | |||||
27,857 | 1.8 | 30,115 | 2.0 | 56,355 | 1.8 | ||||||
11. Other revenues and operational expenses | |||
6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | |
£000 | £000 | £000 | |
Agency related income | 4,987 | 4,277 | 8,060 |
Profit commission | 3,386 | 4,313 | 9,965 |
Other underwriting income and insurance linked funds | (6,374) | (286) | 1,136 |
Other income | 514 | 789 | 795 |
Other revenues | 2,513 | 9,093 | 19,956 |
Wages and salaries | 56,564 | 49,081 | 108,622 |
Social security costs | 11,126 | 9,052 | 19,551 |
Pension cost - defined contribution | 4,071 | 3,713 | 8,112 |
Pension cost - defined benefit | 749 | 274 | 660 |
Share based payments | 8,822 | 7,479 | 14,439 |
Marketing expenses | 19,276 | 15,151 | 31,829 |
Investment expenses | 1,826 | 1,865 | 4,192 |
Depreciation and amortisation | 7,905 | 6,158 | 12,857 |
Other expenses | 49,871 | 48,688 | 110,591 |
Operational expenses | 160,210 | 141,461 | 310,853 |
In accordance with IAS 32 any changes in the fair value of the Third party investment in Kiskadee Funds, classified as a financial liability, are recognised as fair value gains or losses through profit or loss (note 18). As at 30 June 2015, the Group has recognised a loss of £6,374,000 (2014: £286,000).
12. Finance costs | ||||
6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | ||
£000 | £000 | £000 | ||
Interest and expenses associated with bank borrowings | 1,120 | 905 | 1,931 | |
Interest and charges associated with Letters of Credit | 2,457 | 1,952 | 3,894 | |
Interest charges on experience account | 829 | 318 | 593 | |
4,406 | 3,175 | 6,418 | ||
As at 30 June 2015, the total amount drawn by way of Letter of Credit to support the Funds at Lloyd's requirement was $529.5 million (30 June 2014: $338.0 million, 31 December 2014: $441.5 million). | ||||
13. 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 condensed consolidated income statement comprise the following: | |
6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | |||
£000 | £000 | £000 | |||
Current tax | |||||
Expense for the year | 11,121 | 31,552 | 65,537 | ||
Adjustments in respect of prior years | (595) | (2,121) | (3,365) | ||
Total current tax | 10,526 | 29,431 | 62,172 | ||
Deferred tax | |||||
Credit for the year | (4,473) | (24,328) | (45,633) | ||
Adjustments in respect of prior years | (358) | (329) | (811) | ||
Effect of rate change | - | - | (805) | ||
Total deferred tax | (4,831) | (24,657) | (47,249) | ||
Total tax charged to the income statement | 5,695 | 4,774 | 14,923 | ||
The Group records its income tax expense based on the expected effective rate for the full year. | |||||
14. Insurance liabilities and reinsurance assets | |||||
30 June 2015 | 30 June 2014 | 31 Dec 2014 | |||
£000 | £000 | £000 | |||
Gross | |||||
Claims and claim adjustment expenses outstanding | 1,908,893 | 1,804,902 | 1,967,864 | ||
Unearned premiums | 1,076,813 | 934,936 | 867,335 | ||
Total insurance liabilities, gross | 2,985,706 | 2,739,838 | 2,835,199 | ||
Recoverable from reinsurers | |||||
Claims and claim adjustment expenses outstanding | 357,218 | 322,946 | 368,319 | ||
Unearned premiums | 220,085 | 191,011 | 157,026 | ||
Total reinsurers' share of insurance liabilities | 577,303 | 513,957 | 525,345 | ||
Net | |||||
Claims and claim adjustment expenses outstanding | 1,551,675 | 1,481,956 | 1,599,545 | ||
Unearned premiums | 856,728 | 743,925 | 710,309 | ||
Total insurance liabilities, net | 2,408,403 | 2,225,881 | 2,309,854 | ||
Net claims and claim adjustment expenses include releases of £122.6m (30 June 2014: £90.0m, 31 December 2014: £172.2m) of reserves established in prior reporting periods. | ||||||||||||
The development of net claims reserves by accident years are detailed below. | ||||||||||||
Insurance claims and claims expenses reserves - net at 100% | ||||||||||||
Accident year ending 31 December ** | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | Total | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||
Estimate of ultimate claims costs as adjusted for foreign exchange*: | ||||||||||||
at end of accident year** | 524,356 | 685,983 | 776,122 | 689,201 | 802,661 | 1,003,936 | 795,704 | 766,772 | 796,167 | 420,380 | 7,261,282 | |
one period later** | 516,421 | 622,785 | 693,422 | 576,896 | 707,166 | 936,068 | 709,332 | 677,833 | 740,582 | - | 6,180,505 | |
two periods later** | 499,538 | 601,510 | 689,269 | 552,281 | 666,470 | 888,825 | 654,582 | 623,871 | - | - | 5,176,346 | |
three periods later** | 458,549 | 572,715 | 648,744 | 553,412 | 649,725 | 882,947 | 638,291 | - | - | - | 4,404,383 | |
four periods later** | 472,742 | 569,268 | 615,664 | 546,687 | 638,400 | 877,771 | - | - | - | - | 3,720,532 | |
five periods later** | 460,016 | 543,146 | 608,716 | 542,228 | 634,637 | - | - | - | - | - | 2,788,743 | |
six periods later** | 453,402 | 539,082 | 601,887 | 539,992 | - | - | - | - | - | - | 2,134,363 | |
seven periods later** | 453,769 | 525,947 | 594,013 | - | - | - | - | - | - | - | 1,573,729 | |
eight periods later** | 451,622 | 525,461 | - | - | - | - | - | - | - | - | 977,083 | |
nine periods later** | 451,032 | - | - | - | - | - | - | - | - | - | 451,032 | |
Current estimate of cumulative claims | 451,032 | 525,461 | 594,013 | 539,992 | 634,637 | 877,771 | 638,291 | 623,871 | 740,582 | 420,380 | 6,046,030 | |
Cumulative payments to date | (427,078) | (486,824) | (561,903) | (466,344) | (516,467) | (704,230) | (448,059) | (379,401) | (286,363) | (61,688) | (4,338,357) | |
Liability recognised at 100% level | 23,954 | 38,637 | 32,110 | 73,648 | 118,170 | 173,541 | 190,232 | 244,470 | 454,219 | 358,692 | 1,707,673 | |
Liability recognised in respect of prior accident years at 100% level | 92,276 | |||||||||||
Total net liability to external parties at 100% | 1,799,949 | |||||||||||
* The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 30 June 2015.
** With the exception of the most recent development data for each accident year, which only relates to the six months ending 30 June 2015, the term period refers to one full calendar year.
Reconciliation of 100% disclosures above to Group's share - net |
| |||||||||||||||||||||
Accident year | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | Total | |||||||||||
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||||||||||||
Current estimate of cumulative claims | 451,032 | 525,461 | 594,013 | 539,992 | 634,637 | 877,771 | 638,291 | 623,871 | 740,582 | 420,380 | 6,046,030 | |||||||||||
Less: attributable to external Names | (94,763) | (102,690) | (105,068) | (84,404) | (86,234) | (118,788) | (71,696) | (61,114) | (76,624) | (51,850) | (853,231) | |||||||||||
Group share of current ultimate claims estimate | 356,269 | 422,771 | 488,945 | 455,588 | 548,403 | 758,983 | 566,595 | 562,757 | 663,958 | 368,530 | 5,192,799 | |||||||||||
Cumulative payments to date | (427,078) | (486,824) | (561,903) | (466,344) | (516,467) | (704,230) | (448,059) | (379,401) | (286,363) | (61,688) | (4,338,357) | |||||||||||
Less: attributable to external Names | 88,525 | 93,775 | 98,706 | 71,535 | 67,305 | 95,308 | 46,692 | 34,254 | 27,335 | 5,035 | 628,470 | |||||||||||
Group share of cumulative payments | (338,553) | (393,049) | (463,197) | (394,809) | (449,162) | (608,922) | (401,367) | (345,147) | (259,028) | (56,653) | (3,709,887) | |||||||||||
Liability for 2006 to 2015 accident yearsrecognised on Group's balance sheet | 17,716 | 29,722 | 25,748 | 60,779 | 99,241 | 150,061 | 165,228 | 217,610 | 404,930 | 311,877 | 1,482,912 | |||||||||||
Liability for accident years before 2006 recognised on Group's balance sheet | 68,763 | |||||||||||||||||||||
Total Group liability to external parties included in the balance sheet, net† | 1,551,675 | |||||||||||||||||||||
† This represents the claims element of the Group's insurance liabilities and reinsurance assets.
|
| |||||||||||||||||||||
15. 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 ordinary shares in issue during the period, excluding ordinary shares purchased by the Group and held in treasury as own shares. | ||||
6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | ||
Profit for the period attributable to owners of the Company (£000) | 129,380 | 119,846 | 216,152 | |
Weighted average number of ordinary shares in issue (thousands) | 295,787 | 329,341 | 320,554 | |
Basic earnings per share (pence per share) | 43.7p | 36.4p | 67.4p | |
Diluted Diluted earnings per share is calculated by adjusting the assumed conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares, share options and awards. 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. If the inclusion of potentially issuable shares would decrease the loss per share, the potentially issuable shares are excluded from the diluted earnings per share calculation. | |||
6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | |
Profit for the period attributable to owners of the Company (£000) | 129,380 | 119,846 | 216,152 |
Weighted average number of ordinary shares in issue (thousands) | 295,787 | 329,341 | 320,554 |
Adjustment for share options (thousands) | 12,806 | 14,553 | 14,315 |
Weighted average number of ordinary shares for diluted earnings per share (thousands) | 308,593 | 343,894 | 334,869 |
Diluted earnings per share (pence per share) | 41.9p | 34.8p | 64.5p |
Diluted earnings per share has been calculated after taking account of outstanding options under both employee share schemes and also SAYE schemes.
|
16. Dividends paid to owners of the Company |
6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | ||
£000 | £000 | £000 | ||
Interim dividend for the year ended: | ||||
- | 31 December 2014 of 7.5p (net) per share | - | - | 23,469 |
- | - | 23,469 | ||
The final dividend equivalent for the year ended 31 December 2014 was paid as part of the E/F Share Scheme (2013: C/D Share Scheme), see note 17. 243,449,661 E and 77,251,864 F Shares of 60p each were issued, of which 15p per share was in lieu of a final dividend for 2014 of a cash value of £48,105,000. During 2014, the final dividend equivalent for the year ended 31 December 2013 was settled as 261,555,693 C and 93,647,894 D Shares of 50p each, of which 14p per share was issued in lieu of a final cash dividend of £49,728,000.
The interim dividend for 2014 was 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 2014 was paid in cash of £22,049,000 and 270,917 shares for the scrip dividend.
An interim dividend of 8.0p (net) per ordinary share has been declared payable on 16 September 2015 to shareholders registered on 7 August 2015 in respect of the six months to 30 June 2015 (30 June 2014: 7.5p (net) per ordinary share). A scrip dividend alternative will be offered to the owners of the Company. The dividend was declared in Bermuda on 24 July 2015 and accordingly has not been included as a distribution or liability in this interim consolidated financial information in accordance with IAS 10 Events after the balance sheet date.
| ||||
17.Share Capital
The amounts presented in the equity structure of the Group above relate to Hiscox Ltd, the legal parent Company. At 30 June 2015, there are approximately 8.1 million ordinary shares held in Treasury.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
E/F Share issue and return of capital On 2 March 2015, Hiscox Ltd announced its intention to return approximately £192 million, or 60p per existing ordinary share, to shareholders. This comprised 45p per share in the form of a special distribution and a final dividend equivalent of 15p per share. This was also accompanied by a consolidation of the Company's existing ordinary share capital as described below. These proposals were approved by shareholders at an Extraordinary General Meeting held on 25 March 2015. On 26 March 2015, E/F Shares were issued to existing shareholders on the basis of one E or F Share (at the election of the shareholder) for each existing ordinary share held. Each E Share entitled the shareholder to receive 60p in the form of a dividend payable on 2 April 2015. Each F Share would be purchased by UBS Limited for the same amount. Following its purchase of the F Shares, UBS Limited exercised a put option requiring the Company to buy the shares for 60p each. There were no E/F Shares outstanding at 30 June 2015 as both classes of shares had been redeemed and cancelled by that date. As a result of these arrangements, total capital of £189,559,000 was returned to shareholders, of which £32,000 was charged against the share premium account and the remaining £189,527,000 charged against retained earnings. An additional £2,862,000 of E Shares were distributed to the Employee Benefit Trust. The amount is not reported as a distribution as the trust forms part of the consolidated result. In an effort to ensure that the net tangible asset value per share remained the same pre and post the return of capital, a 88 for 100 share consolidation was also undertaken. This was accompanied by a separate issue of deferred shares which were subsequently cancelled in order to arrive at a new par value for the ordinary shares of 6.5p each. No deferred shares were in issue at 30 June 2015 as all shares had been redeemed and cancelled by that date.
Share repurchase The Trustees of the Group's Employee Benefit Trust purchased Hiscox Ltd shares through the market during 2014 to facilitate the settlement of vesting awards under the Group's performance share plan. As the trust is consolidated into the Group financial results, these purchases have been accounted for in the same way as treasury shares and have been charged against retained earnings. The shares are held by the Trustees for the beneficiaries of the trust.
| |||||||||||||
18. Financial assets and liabilities | |||||||||||||
i. | Analysis of financial assets carried at fair value | ||||||||||||
30 June 2015 | 30 June 2014 | 31 Dec 2014 |
| ||||||||||
£000 | £000 | £000 |
| ||||||||||
Debt and fixed income securities | 2,356,908 | 2,312,367 | 2,526,179 |
| |||||||||
Equities and shares in unit trusts | 263,865 | 223,001 | 252,916 |
| |||||||||
Deposits with credit institutions | 7,318 | 8,216 | 26,385 |
| |||||||||
Total investments | 2,628,091 | 2,543,584 | 2,805,480 |
| |||||||||
Insurance linked fund | 5,033 | 19,377 | 22,888 |
| |||||||||
Derivative financial instruments | 86 | 168 | 479 |
| |||||||||
Total financial assets carried at fair value | 2,633,210 | 2,563,129 | 2,828,847 |
| |||||||||
| |||||||||||||
ii. | Analysis of financial liabilities carried at fair value |
| |||||||||||
30 June 2015 £000 | 30 June 2014 £000 | 31 Dec 2014 £000 |
| ||||||||||
Third-party investment in Kiskadee Funds | 273,745 | - | 7,033 |
| |||||||||
Derivative financial instruments | - | - | 76 |
| |||||||||
Total financial liabilities | 273,745 | - | 7,109 |
| |||||||||
iii. | Investment and cash allocation | ||||||||||||
30 June 2015 | 30 June 2014 | 31 Dec 2014 | |||||||||||
£000 | % | £000 | % | £000 | % | ||||||||
Debt and fixed income securities | 2,356,908 | 69.9 | 2,312,367 | 77.2 | 2,526,179 | 73.1 | |||||||
Equities and shares in unit trusts | 263,865 | 7.8 | 223,001 | 7.4 | 252,916 | 7.3 | |||||||
Deposits with credit institutions/cash and cash equivalents | 753,659 | 22.3 | 460,924 | 15.4 | 677,036 | 19.6 | |||||||
Total | 3,374,432 | 2,996,292 | 3,456,131 | ||||||||||
Included in cash and cash equivalents at 30 June 2015 are £307,568,000 (30 June 2014 : £30,622,000; 31 Dec 2014 : £41,258,000) of cash held by the special purpose vehicles which are consolidated by the Group through the Kiskadee Funds but in which the Group has an interest of less than 100%. The remaining interests are held by third-party investors and included in the consolidated balance sheet as financial liabilities in accordance with IAS 32.
Also included in cash and cash equivalents at 30 June 2015 are £35,032,000 (30 June 2014 : £585,000; 31 Dec 2014 : £169,928,000) of subscriptions received in advance by the two Kiskadee Funds and not yet invested at the balance sheet date. As a result, the Group has recognised a liability under trade and other payables for the same amount.
iv. | Investment and cash allocation by currency | ||||
30 June 2015% | 30 June 2014% | 31 Dec 2014% | |||
Sterling | 19.7 | 24.0 | 22.7 | ||
US Dollars | 65.9 | 59.5 | 63.0 | ||
Euro and other currencies | 14.4 | 16.5 | 14.3 | ||
19. Fair value measurements In accordance with IFRS 13 Fair Value Measurement, 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 set out below: |
As at 30 June 2015 | Level 1 | Level 2 | Level 3 | Total |
£000 | £000 | £000 | £000 | |
Financial Assets | ||||
Debt and fixed income securities | 634,161 | 1,722,747 | - | 2,356,908 |
Equities and shares in unit trusts | - | 250,691 | 13,174 | 263,865 |
Deposits with credit institutions | 7,318 | - | - | 7,318 |
Insurance linked fund | - | - | 5,033 | 5,033 |
Derivative financial instruments | - | 86 | - | 86 |
Total | 641,479 | 1,973,524 | 18,207 | 2,633,210 |
Financial Liabilities | ||||
Third-party investment in Kiskadee Funds | - | - | 273,745 | 273,745 |
Derivative financial instruments | - | - | - | - |
Total | - | - | 273,745 | 273,745 |
As at 30 June 2014 | Level 1 | Level 2 | Level 3 | Total |
£000 | £000 | £000 | £000 | |
Financial Assets | ||||
Debt and fixed income securities | 419,601 | 1,892,766 | - | 2,312,367 |
Equities and shares in unit trusts | - | 208,249 | 14,752 | 223,001 |
Deposits with credit institutions | 8,216 | - | - | 8,216 |
Insurance linked fund | - | - | 19,377 | 19,377 |
Derivative financial instruments | - | 168 | - | 168 |
Total | 427,817 | 2,101,183 | 34,129 | 2,563,129 |
Financial Liabilities | ||||
Third-party investment in Kiskadee Funds | - | - | - | - |
Derivative financial instruments | - | - | - | - |
Total | - | - | - | - |
As at 31 December 2014 | Level 1 £000 | Level 2 £000 | Level 3 £000 | Total £000 | |
Debt and fixed income securities | 682,940 | 1,843,239 | - | 2,526,179 | |
Equities and shares in unit trusts | - | 239,238 | 13,678 | 252,916 | |
Deposits with credit institutions | 26,385 | - | - | 26,385 | |
Insurance linked fund | - | - | 22,888 | 22,888 | |
Derivative financial instruments | - | 479 | - | 479 | |
Total | 709,325 | 2,082,956 | 36,566 | 2,828,847 | |
Financial Liabilities | |||||
Third-party investment in Kiskadee Funds | - | - | 7,033 | 7,033 | |
Derivative financial instruments | - | 76 | - | 76 | |
Total | - | 76 | 7,033 | 7,109 | |
In addition, the contingent consideration payable of £1,875,000 in respect of the R&Q Marine Services Limited acquisition is measured at fair value based on Level 3 inputs, see note 22. In 2014, this was £470,000 in respect of the acquisition of DirectAsia.
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 market observable data; | |
· | level 3 - fair values measured using valuation techniques for which significant inputs are not based on market observable data. | |
The fair values 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 managers 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 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 reported by independent pricing sources or the fund manager. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Included within Level 1 of the fair value hierarchy are Government bonds, Treasury bills and exchange traded equities which are measured based on quoted prices. Level 2 of the hierarchy contains US Government agencies, corporate securities, asset backed securities and mortgage backed securities. The fair value of these assets are based on the 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 as 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 and unquoted equity securities which have limited observable inputs on which to measure fair value. Unquoted equities are initially carried at cost in the absence of observable pricing information, which is deemed to be comparable to fair value. The effect of changing one or more of the 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. The Group invested into the insurance linked fund in December 2012, which is subject to a two-year initial lock-up period. The fund specialises in catastrophe reinsurance opportunities. The fair value of the fund is estimated to be the net asset value reported by the fund administrator at the balance sheet date. This net asset value is based on the fair value of the underlying insurance contracts in the fund which are sensitive to estimates of insurances losses that have occurred. A change in these estimates could have a material impact on the valuation of the fund. The fund was partially redeemed in January 2015 with remaining redemption shares issued which are due to pay out soon after the underwriting contracts expired on 30 June 2015. The third-party investment in Kiskadee Funds consists of the third-party interest of investors in the Kiskadee Funds that is classified as a financial liability in the Group consolidated financial statements in accordance with IAS 32. The fair value of the Kiskadee Funds is estimated to be the net asset value reported to investors as at the balance sheet date by the external fund administrator. The net asset value is based on the fair value of the underlying reinsurance contracts in the fund. Significant inputs and assumptions in calculating the fair value of the underlying reinsurance contracts include the fair value of cash and cash equivalents as well as estimates of insurance assets and liabilities which are unobservable inputs. The Group has considered changes in the net asset valuation of the Kiskadee Funds if reasonably different inputs and assumptions were used in the fair value estimate of insurance assets and liabilities and has found no significant changes in the valuation given the lower level of catastrophe losses during the period. The net asset value and the third-party investment in Kiskadee Funds includes cash and cash equivalents of £272,381,000 at 30 June 2015. 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 period, there were no significant 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:
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
20. Impact of foreign exchange related items The net foreign exchange (losses)/gains for the year include the following amounts: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | ||
£000 | £000 | £000 | ||
Exchange (losses)/gains recognised in the consolidated income statement | (15,678) | (16,415) | 4,974 | |
Exchange (losses)/gains classified as a separate component of equity | (8,443) | (22,941) | 34,019 | |
Overall impact of foreign exchange related items on net assets | (24,121) | (39,356) | 38,993 | |
The above excludes profit or losses on foreign exchange derivative contracts which are included within the investment result. 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 translated at historical rates of exchange prevailing at the original transaction date and not being retranslated at the end of each period. The impact of this mismatch on the income statement is shown below. | ||||
6 months to30 June 2015 | 6 months to30 June 2014 | Year to31 Dec 2014 | ||
£000 | £000 | £000 | ||
Opening balance sheet impact of non-retranslation of non-monetary items | 1,608 | (4,790) | (4,790) | |
Losses/gains included within profit representing the non-retranslation on non-monetary items | (8,516) | 1,945 | 6,398 | |
Closing balance sheet impact of non-retranslation of non-monetary items | (6,908) | (2,845) | 1,608 | |
21. Condensed consolidated interim cash flow statement The purchase, maturity and disposal of financial assets and liabilities, including derivatives, is part of the Group's insurance activities and is therefore classified as an operating cash flow. Included within cash and cash equivalents held by the Group are balances totalling £104,082,000 (30 June 2014: £114,077,000; 31 December 2014: £142,617,000) not available for use by the Group outside of the Lloyd's Syndicates within which they are held. |
22. Business combinations
Hiscox MGA Limited (formerly R&Q Marine Services Limited)
On 27 February 2015, the Group acquired 100% of the share capital and voting rights of R&Q Marine Services Limited for £9,250,000. Soon after the acquisition, the company name was changed to Hiscox MGA Limited. The company is an underwriting agency specialising in yachts and the general marine leisure industry. They write a range of products, providing cover for super-yachts, small yachts, marina trades and yacht race cover. The acquisition will give Hiscox a platform within the yacht and marine leisure industry to underwrite to its existing Syndicate 33 on certain lines and to develop the MGA platform for the Group, providing opportunities for future growth.
Purchase consideration | £000 | |||
Initial cash consideration | 7,375 | |||
Contingent consideration | 1,875 | |||
Total purchase consideration representing fair value of net assets acquired | 9,250 | |||
The contingent consideration reflected above of £1,875,000, represents the current fair value estimate of the expected additional consideration that may be payable to the seller. The contingent consideration is payable based on Hiscox MGA Limited exceeding certain revenue targets during the first year post the acquisition.
The assets and liabilities arising from the acquisition are as follows:
Acquiree's carrying amount | Fair value and accounting policy adjustments | Fair value | ||
£000 | £000 | £000 | ||
Intangible assets | - | 9,185 | 9,185 | |
Other debtors | 299 | - | 299 | |
Cash and cash equivalents | 1,204 | - | 1,204 | |
Total assets | 1,503 | 9,185 | 10,688 | |
Net client account creditors | 1,295 | - | 1,295 | |
Other creditors | 143 | - | 143 | |
Total liabilities | 1,438 | - | 1,438 | |
Net assets acquired | 65 | 9,185 | 9,250 | |
The assets and liabilities as at the acquisition date are stated at their provisional fair values and may be amended during the year if further evidence of the appropriate fair value is received.
The intangible asset shown above is primarily from acquiring the rights to renew the existing book of business and the underwriter teams contacts and experience in the marine leisure field.
The Group incurred acquisition-related costs of £72,000 on legal fees and due diligence costs. These costs have been included in administrative expenses.
Hiscox MGA Limited contributed a profit of £534,000 to the Group's profit before tax for the period between 27 February and 30 June 2015.
Directors' responsibilities statement
The Directors confirm, to the best of our knowledge, that the Chairman's statement and condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and the Interim Statement includes a fair review of the information required by sections 4.2.7R and 4.2.8R of the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority, being: | ||
1. | an indication of important events during the first six months of the current financial year and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and | |
2. | related-party transactions that have taken place in the first six months of the current year and that have materially affected the consolidated financial position or performance of Hiscox Ltd during that period, and any changes in the related party transactions described in the last annual report that could have such a material effect. | |
The individuals responsible for authorising the responsibility statement on behalf of the Board are the Chief Executive, B E Masojada and the Chief Financial Officer, S J Bridges. Accordingly the Half Yearly Report to the London Stock Exchange was approved for issue on Monday, 27 July 2015 following receipt of confirmation from the auditors that they had reviewed the final content. | ||