“A record half-year result”
|
|
HY 2007 |
HY 2006 |
|
Gross premiums written |
£733.0 million |
£625.1 million |
|
Profit before tax |
£105.6 million |
£61.3 million |
|
Earnings per share |
20.3p |
12.1p |
|
Dividend per share |
4.0p |
3.0p |
|
Net asset value per share |
185.4p |
149.8p |
|
Combined ratio |
84.8% |
94.6% |
Financial Highlights
- Profit before tax increased 72.1% to £105.6 million (2006: £61.3 million)
- Gross premiums written increased 17.3% to £733.0 million (2006: £625.1 million) despite weak dollar
- Net earned premium increased 17.5% to £471.9 million (2006: £401.7 million)
- Group combined ratio 84.8% (2006: 94.6%)
- Earnings per share increased to 20.3p (2006: 12.1p)
- Net asset value per share increased to 185.4p (2006: 149.8p)
- Dividend increased 33% to 4p (2006: 3p)
- Investment portfolio secure and liquid
Operational Highlights
- Increased profit driven by Hiscox Global Markets.
- Firm rates for catastrophe exposed insurance and reinsurance. Rates increasing in the UK property market but marked competition in commodity lines elsewhere. Specialty lines broadly stable.
- Regional businesses in UK, Europe and the USA continue to grow through diverse channels. Acquisition of American Live Stock Insurance Co will access new markets in the USA.
- Losses arising from floods in the UK within expectations for a UK catastrophe both in the regional and the reinsurance accounts.
Robert Hiscox, Chairman, Hiscox Ltd, commented:
“A record half-year result despite a turbulent period of catastrophes in the UK and Europe. The acquisition of a US insurance company has added a further building block to our regional specialist business. We continue to build a strong insurance group balanced between reinsurance and insurance and global and regional business, well spread geographically and backed by powerful marketing to emphasise that we are different.”
For further information:
Hiscox Ltd
Robin Mehta, Company Secretary +1 441 278 8300
Kylie O’Connor, Head of Communications, London +44 (0) 20 7448 6458
Maitland
Suzanne Bartch +44 (0) 20 7379 5151
Richard Farnsworth +44 (0) 20 7379 5151
Notes to editors
About Hiscox
Hiscox, headquartered in Bermuda, is a specialist insurance group listed on the London Stock Exchange. There are three main underwriting parts of the Group – Hiscox Global Markets, Hiscox UK and Europe, and Hiscox International. Hiscox Global Markets underwrites mainly internationally traded business in the London Market – generally large or complex business which needs to be shared with other insurers or needs the international licences of Lloyd’s. Hiscox UK and Hiscox Europe offer a range of specialist insurance for professionals and business customers, as well as high net worth individuals. Hiscox International includes operations in Bermuda, Guernsey and the USA.
For further information, visit www.hiscox.com
Chairman’s statement
This is a record result for the first half-year driven by our Global Markets division in London, complemented by a solid performance by the regional accounts worldwide despite Windstorm Kyrill and the UK June floods. Our strategy continues to be to build a balanced insurance and reinsurance business, growing when the rates are high and consolidating when they reduce, writing global reinsurance and large insurance risks through London and Bermuda with satellite marketing offices, and writing books of regional business throughout the UK, Europe and the USA.
Results
The results for the half-year to 30th June 2007 were an increase of 72.1% in profit before tax to £105.6 million (2006: £61.3 million). Gross premiums written increased 17.3% to £733.0 million (2006: £625.1 million) and net earned premium increased 17.5% to £471.9 million (2006: £401.7 million) despite a weak dollar. The Group combined ratio reduced to 84.8% (2006: 94.6%). Earnings per share increased 67.8% to 20.3p (2006: 12.1p) and net assets per share rose 23.8% to 185.4p (2006: 149.8p). A strong set of figures. The second half of the year is exposed to hurricanes in the USA, but a good first half lays a strong foundation for the year.
Dividend
The Board stated at the 2006 year-end that it would target a total dividend of 12p per share for 2007 subject to adequate profitability and shareholder approval. We will pay an interim dividend of 4p (net) per ordinary share (2006: 3p) on 1st October 2007 to shareholders on the register at the close of business on 31st August 2007.
Overall comment
The news has been dominated recently by the floods in the UK and the effect on investments of the subprime mortgage problems in the USA.
Our investment managers have kept our funds short and predominantly in Government or well rated securities, with almost no exposure to subprime mortgage backed products.
The floods have caused considerable distress to many people and communities. The forecast overall loss to the Group from the June floods is £30.0 million, of which £5.0 million comes from the UK household account, the balance coming from the reinsurance accounts in Global Markets and Bermuda. These losses are within our expectations for such events, especially in the UK household account which is well covered by reinsurance. The recent floods also follow Windstorm Kyrill which ravaged the UK and mainland Europe in January, the forecast loss from which remains at £25 million as previously forecast. Therefore the UK and Europe regional accounts have done well to make small profits in the half year.
Our drive is to build the territorial spread of the regional accounts to give them a geographical balance, and also to build these accounts in the two largely uncorrelated areas of property (the household accounts) and liability (the professional indemnity accounts).
The acquisition of American Live Stock Insurance Co in the USA, which we completed in August, is an important step in building our USA regional account. It has a specialist book of livestock business which we will nurture, and through the company we will have licences to underwrite our specialist lines on an “admitted” basis in the USA in addition to the “surplus lines” basis which we underwrite through our Lloyd’s licence.
Global Markets made a strong profit helped by good results from its specialty businesses. Global Markets balances its reinsurance and major risk accounts with books of specialty business such as personal accident, household, kidnap & ransom, bloodstock, contingency, marine and professional indemnity.
Hiscox Global Markets
This division uses the global licences, distribution network and credit rating available through Lloyd’s to serve clients throughout the world.
The division made a profit before tax of £87.5 million (2006: £22.1 million) on an increased written premium income of £423.7 million (2006: £401.4 million) with a combined ratio of 75.9% (2006: 95.5%).
As mentioned above, the reinsurance account has suffered losses from Kyrill and the June floods but the overall account has shown a good profit.
The Global Markets reinsurance team did well to increase their written premium income and to feed the Hiscox “sidecar” Panther Re with well-priced business. We believe sidecars are an excellent way to harness capital for a period when rates are high without diluting our equity. The threat that we would lose business in Florida evaporated in the event as reinsureds bought more cover and we were able to write the income we wanted at the price we wanted.
Rates for catastrophe exposed business were strong for the July 1st renewals, but other commodity business is very competitive. Our specialist lines are generally more stable. As highlighted in our June trading statement, we have reduced Syndicate 33’s Lloyd’s capacity by 20% for 2008 to £700 million (2007: £875 million) in order to maximise the use of capital and to ensure underwriting discipline.
I am aware that, as always, every senior executive of every insurer and reinsurer is preaching discipline and yet many rates are still magically reducing. Unlike the regional business, where performance of insurers does vary and brand is important, in the big-ticket internationally traded business, as long as the security is adequate, price tends to be the sole determinant, so the way to grow is to win the bidding (downwards). Next year we will not grow in this area unless Mother Nature frightens more discipline into the market.
We have expanded our reach for Global Markets from the traditional London base to offices in Paris, New York and San Francisco, and will continue to try to find business that does not currently come to London.
Hiscox International
This division covers Bermuda, the USA and Guernsey. It generated written premium of £154.0 million (2006: £94.9 million), and a profit of £12.1 million (2006: £7.8 million).
Hiscox Bermuda continues to build a worldwide book of catastrophe business and to reinsure selected parts of the rest of the Group. Its external written premium income increased to £121.2 million (2006: £65.2 million) with a combined ratio of 99.1% (2006: 93.7%) caused by the losses from Windstorm Kyrill and the UK’s June floods set against modest first half-year earned income. Again, if competition continues, Bermuda may, like Global Markets, reduce its income next year.
Hiscox USA, which opened for business last year in March, continued to grow strongly in the specialist professional indemnity area. Plans are being laid to widen the areas of business being written, particularly terrorism insurance. The acquisition of American Live Stock Insurance Co is an essential part of our plan to expand our business in the USA by being able to offer admitted as well as surplus lines policies throughout the USA.
Guernsey produced its usual excellent profit.
Hiscox UK and Europe
This segment covers our regional business throughout the UK and mainland Europe, and also includes our international art account. Overall written premium income was up 20.5% to £155.3 million (2006: £128.9 million) and the profit before tax was £6.6 million (2006: £17.8 million).
UK premium income was up 12.5% to £114.3 million (2006: £101.6 million). Our core areas increased well covering the loss of some less significant business. Windstorm Kyrill and the June floods have increased the combined ratio to 104.4% (2006: 87.7%) but a profit of £6.0 million was still made (2006: £16.5 million).
The UK broker and direct household accounts have been fully tested so far this year, first by increased competition and then by natural catastrophes. We believe that a strong brand will help us sell our policies at a proper price, and that the quality of the Hiscox brand is proved when the policy is called upon to respond to a claim. An insurance policy is a promise to pay, and you only find out that you have got what you paid for when you make a claim. We have done everything within our power and that of our appointed loss adjusters to alleviate the terrible distress of our policyholders and I believe that we have enhanced our reputation. Inevitably, big losses to the industry have the long-term benefits of encouraging more people to buy the proper levels of insurance, and insurers to be less reckless in their pricing. There are already well-publicised price rises in the UK property market.
We have started a new marketing campaign in August to continue to build the brand and bring in more good business. Last year’s campaign helped us attract more business both through brokers and our direct channels and won the Marketing Society’s 2007 Award for Excellence for Brand Extension.
The regional commercial business in the UK has done well despite increased competition. We specialise in small risks which are less competed for, and we have underwriting and claims experience that clients want more than the cheapest price. Again, the advertising helps strengthen the Hiscox brand message that we are different.
Our European offices increased their combined written income to £41.0 million (2006: £27.3 million). The figures are a bit distorted due to accounting timing, but the real comparative growth is 17.1% which is healthy and has been helped by a new focus on specialty commercial business in addition to the household account. They had losses from Windstorm Kyrill which hit Germany, the Netherlands and Belgium the hardest, so did well to manage a small profit of £0.6 million (2006: £1.3 million).
Investments
Assets under management rose to £1,823 million at 30th June 2007 (2006: £1,678 million) and the yield for the half-year was 2.6% (2006: 1.6%), giving a total investment return of £47.9 million (2006: £27.1 million). Concerns over inflation led to a difficult period for bond markets but we mitigated the impact by maintaining a short duration and high credit quality. We have had almost no exposure to the multitude of higher-yielding products and structured products that have been hit by the subprime mortgage market problems in the USA. Our holdings in equities and other risk assets added value and were increased to 10% of assets by the end of June 2007.
The recent turmoil within the subprime market in the USA is leading to more realistic pricing for risk in many parts of the financial markets and we are beginning to see some interesting opportunities which will enable us to increase risk and potential reward modestly in the portfolio.
Conclusion
As usual I am writing this in the middle of the USA wind season which peaks in September but, unusually, we have already been tested in the first half-year in the UK and Europe by some considerable natural catastrophes. There have been further floods in the UK in July for which we forecast an overall loss to the Group of £20 million. We have seen all these losses as a chance to prove ourselves with extraordinary service and thereby enhance the perception of the Hiscox brand. Rates are now generally being increased for household business – necessarily given the extraordinary weather we are experiencing – so our property account should flourish. Both in our property and commercial accounts, we will continue to develop books of quality business, attracted by our specialist knowledge, creativity and integrity in both underwriting and in the settlement of claims.
Our Global Markets and Bermuda businesses have developed well-priced accounts but we must wait and see what Mother Nature does in the next two or three months. We factor a significant hurricane in the USA into our underwriting and forecasts, and so we are prepared.
We will always remain ready to take rapid advantage of favourable conditions in whichever market we are in, but we will also have the discipline to maintain a sensible pricing structure when competition becomes foolish, even if it means losing business. We want to establish a brand that establishes us as different and well known for offering good cover at a sensible price, with rapid and fair settlement of claims, and long-term growth in value to its shareholders.
Robert Hiscox
Chairman
20 August 2007
For the full regulatory statement click here.