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Chief Executive’s report continued Insurer of the Year’ for the third year running, and also won the title of ‘General Insurer of the Year’ at the British Insurance Awards. We are not resting on our laurels. In 2010, we will seek to grow our direct business further, pushing it into profit. We foresee a tougher claims environment in some sectors as professional firms get blamed for their customers’ recession-related misfortunes. Prices will have to rise to reflect this. Hiscox Europe: 2009 was a disappointing year for Europe, in spite of premium growth of 6.8% to €131.6 million (2008: €123.2 million). Its underwriting performance in 2009 was significantly worse than 2008, due to a series of unconnected large losses. In 2009, after a few poor years, our German operation succeeded in making a profit through a rigorous re-underwriting of its high net worth book and new focus on expanding in commercial lines. We have been building a business in Europe for the past decade, but we know that the ROE – the return on effort that is – is below expectations. Pierre-Olivier Desaulle, who we appointed Managing Director of Hiscox Europe during the year, will inject new energy into the operation. As MD of Hiscox France since 2000 he grew it six-fold and delivered sustainable profits. The European Management Team is focused on repeating this success across the continent. Hiscox International Hiscox International comprises our businesses located in Bermuda, Guernsey and the US. The businesses faced quite different challenges in 2009: Bermuda: Had a fantastic year. Its primary focus is property catastrophe insurance. After shrinking its top line in 2008, it responded aggressively to the rebounding rates and grew by 24.2% to $262.9 million (2008: $211.7 million). We also created a healthcare insurance and reinsurance team, who will focus on catastrophic exposures in the medical sector. In addition, we are building a small portfolio of catastrophe bonds issued by insurers and others. As this is an alternative route to assuming catastrophe risk we regard this as an extension of our reinsurance underwriting business and 8 Chief Executive’s report Hiscox Ltd Report and Accounts 2009 consider it when we look at our aggregate exposure to insurance events. During the year Charles Dupplin assumed leadership of Hiscox Bermuda from Robert Childs, its founding CEO. Robert and a small team went to Bermuda in late 2005. Since then Hiscox Bermuda has underwritten $943 million of premium income, generated significant profits and grown the balance sheet from $500 million (of which $200 million was borrowed) to $1 billion before paying a dividend to the Group at the end of 2009. This is a fantastic achievement and one for which we are all very grateful. Hiscox Guernsey: Had another good year. Its focus is on kidnap and ransom, piracy, fine art and terrorism. Premiums grew considerably, particularly in the piracy sector, due to the increased threat around the Horn of Africa. Our success is a reflection of both our risk appetite and our excellent client service. Our team in Guernsey is able to provide a quote, confirm cover, issue a policy and collect the premium in a few hours. This is a testament to the good cooperation between its underwriting and operations teams. Looking forward we see Guernsey continuing to be the leader for the Group in the kidnap and ransom and piracy areas. The Guernsey fine art book saw a small reduction in size due to the reduction in values of insured works. Hiscox USA: Saw a year of dramatic expansion. We took advantage of the broader financial difficulties in 2008 and set out on an ambitious plan to attract quality staff. We were able to hire seasoned experts in inland marine, property, construction, terrorism, kidnap and ransom and media, among other lines. We also opened new offices in Los Angeles, Boston, Miami, Atlanta and Kansas City, and expanded our existing offices in San Francisco, Chicago, New York City and Armonk. In all we recruited 84 people, pushing our total headcount up to 184 people. In order to provide the clarity of focus to accompany our big investment, we created a single US business, merging the New York based London Market activities with our smaller ticket professional lines business. Richard Watson has moved to the US to head up the overall business. Ed Donnelly continues as President of our activities and will drive forward our specialist lines and all of our branch offices. Under Ed’s leadership our smaller ticket professional lines activities reached break even in 2008, and we believe that working together, Ed and Richard will build a very successful business. Hiscox International 2009 2008 £m £m Gross premiums written 351.4 244.4 Net premiums earned 277.5 197.0 Underwriting profit 59.5 34.8 Investment result 57.7 (8.4) Foreign exchange 7.0 (22.1) Profit before tax 124.2 4.3 Combined ratio 76.3% 93.1% Combined ratio excluding foreign exchange 78.6% 82.5%
We have also worked hard to develop new products for both the surplus lines and the admitted market. In the surplus lines market there is great flexibility in pricing and wording. In the admitted market, advance approval of rates, forms and underwriting guidelines is required in each US state before launching a new product. Gaining approval has taken far longer than we had anticipated, but we are making steady progress. Although Hiscox USA grew its top line to $162.1 million, up 24.6% (2008: $130.1 million), this growth was less than we had budgeted, as the anticipated upturn in the US domestic market did not occur. Our response has been to call a temporary Hiscox UK and Europe rating index Index level (%). 12 month rolling period 160 140 120 100 80 60 40 20 0 UK commercial lines UK personal lines Jan 01 to Dec 01 May 01 to Apr 02 Sep 01 to Aug 02 Jan 02 to Dec 02 May 02 to Apr 03 Sep 02 to Aug 03 Jan 03 to Dec 03 May 03 to Apr 04 Sep 03 to Aug 04 Jan 04 to Dec 04 halt to expanding our product range and to focus in 2010 on marketing those products we have already developed. We are confident this is the right way to improve the underlying financial performance of the business. Investment returns In 2009 we made a tremendous return on our investments. David Astor, our Chief Investment Officer, steered our portfolio very effectively through the financial crisis and kept his nerve when many others panicked. His courage was rewarded with an outstanding investment income result of £182.8 million, a return of 7.2% on invested assets (2008: -£27.6 million; -1.3%). This was achieved by maintaining a well spread portfolio, comprising corporate bonds, quality Europe personal lines Europe commercial lines May 04 to Apr 05 Sep 04 to Aug 05 Jan 05 to Dec 05 May 05 to Apr 06 Sep 05 to Aug 06 Jan 06 to Dec 06 May 06 to Apr 07 Sep 06 to Aug 07 Jan 07 to Dec 07 May 07 to Apr 08 Sep 07 to Aug 08 Jan 08 to Dec 08 May 08 to Apr 09 Sep 08 to Aug 09 Chief Executive’s report Hiscox Ltd Report and Accounts 2009 9 Jan 09 to Dec 09 May 09 to Apr 10 Sep 09 to Aug 10 Jan 10 to Dec 10
Page 1 and 2: Hiscox Ltd Report and Accounts 2009
Page 3 and 4: Corporate highlights Group key perf
Page 5 and 6: Chairman’s statement It is an eno
Page 7 and 8: Chief Executive’s report In 2009
Page 9: Hiscox London Market Hiscox London
Page 13 and 14: We have continued to invest in trai
Page 15 and 16: Hiscox London Market Hiscox London
Page 17 and 18: Group financial performance Group f
Page 19 and 20: The expense ratio deteriorated by 7
Page 21 and 22: High quality and well diversified p
Page 23 and 24: Risk management The risk management
Page 25 and 26: Credit Reinsurance counterparties T
Page 27 and 28: Boxplot and whisker diagram of Hisc
Page 29 and 30: in essence a non-bureaucratic organ
Page 31 and 32: Cougar Syndicate 6104 Cougar Syndic
Page 33 and 34: Hiscox Insurance Company (Bermuda)
Page 35 and 36: Independent Non Executive Directors
Page 37 and 38: ecent and relevant financial experi
Page 39 and 40: Directors’ remuneration report Th
Page 41 and 42: Executive Directors’ cash incenti
Page 43 and 44: Remuneration of Executive Directors
Page 45 and 46: Share options Number of Number of M
Page 47 and 48: Directors’ report The Directors h
Page 49 and 50: Report of the independent registere
Page 51 and 52: Consolidated balance sheet At 31 De
Page 53 and 54: Consolidated statement of cash flow
Page 55 and 56: 2 Significant accounting policies c
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2 Significant accounting policies c
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3 Management of risk continued 3.1
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4 Operating segments continued (a)
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5 Net asset value per share 2009 20
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12 Auditors’ remuneration continu
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15 Intangible assets continued Othe
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19 Reinsurance assets 2009 2008 Not
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22 Derivative financial instruments
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23 Fair value measurements continue
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25 Share capital continued Share op
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27 Insurance liabilities and reinsu
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27 Insurance liabilities and reinsu
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30 Deferred tax continued (b) Group
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31 Employee retirement benefit obli
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36 Contingencies and guarantees con
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38 Principal subsidiary companies o
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To request a copy of the 2009 Hisco
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