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Notes to the consolidated financial statements continued 3 Management of risk continued 3.2 Financial risk continued (c) Credit risk continued An analysis of the Group’s major exposures to counterparty credit risk excluding loans and receivables, based on Standard & Poor’s or equivalent rating, is presented below: Other/ AAA AA A not rated Total As at 31 December 2009 Note £000 £000 £000 £000 £000 Debt and fixed income securities 20 1,555,636 198,001 256,120 245,980 2,255,737 Deposits with credit institutions 20 62 2,860 8,472 – 11,394 Catastrophe bonds – – – 11,310 11,310 Derivative financial instruments 20, 22 – – – 1,018 1,018 Reinsurance assets 19 8,120 151,803 230,462 29,741 420,126 Cash and cash equivalents 24 27,456 136,214 93,999 1,978 259,647 Total 1,591,274 488,878 589,053 290,027 2,959,232 Amounts attributable to largest single counterparty 308,569 57,859 17,424 10,619 Other/ AAA AA A not rated Total As at 31 December 2008 Note £000 £000 £000 £000 £000 Debt and fixed income securities 20 1,471,797 179,416 172,832 104,554 1,928,599 Deposits with credit institutions 20 4,146 11,800 12,323 – 28,269 Catastrophe bonds – – – – – Derivative financial instruments 20, 22 – 40 – – 40 Reinsurance assets 19 6,926 281,041 189,444 26,383 503,794 Cash and cash equivalents 24 54,227 330,246 56,010 139 440,622 Total 1,537,096 802,543 430,609 131,076 2,901,324 Amounts attributable to largest single counterparty 415,429 271,991 15,508 8,103 The largest counterparty exposure within AAA rating is with the US Treasury. Catastrophe bonds included within ‘other/not rated’ are rated BB or above. A significant proportion of ‘other/not rated’ reinsurance assets at 31 December 2009 and 31 December 2008 are supported by Letter of Credit guarantees issued by financial institutions with Standard & Poor’s or equivalent credit or financial strength ratings of A or better. At 31 December 2009 the Group held no material debt and fixed income assets that were past due or impaired beyond their reported fair values, either for the current period under review or on a cumulative basis (2008: £nil). For the current period under review, the Group did not experience any defaults on debt securities (2008: one financial instrument). The available headroom of working capital is monitored through the use of a detailed Group cash flow forecast which is reviewed by management monthly or more frequently as required. (d) Liquidity risk The Group is exposed to daily calls on its available cash resources mainly from claims arising from insurance and reinsurance contracts. Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. The Board sets limits on the minimum level of cash and maturing funds available to meet such calls and on the minimum level of borrowing facilities that should be in place to cover unexpected levels of claims and other cash demands. A significant proportion of the Group’s investments are in highly liquid assets which could be converted to cash in a prompt fashion and at minimal expense. The deposits with credit institutions largely comprise short-dated certificates for which an active market exists and which the Group can easily access. The Group’s exposure to equities is concentrated on shares and funds that are traded on internationally recognised stock exchanges. 66 Notes to the consolidated financial statements <strong>Hiscox</strong> Ltd Report and Accounts 2009
3 Management of risk continued 3.2 Financial risk continued (d) Liquidity risk continued The main focus of the investment portfolio is on high quality short duration debt and fixed income securities, and cash. There are no significant holdings of investments with specific repricing dates. Notwithstanding the regular interest receipts and also the Group’s ability to liquidate these securities and the majority of its other financial instrument assets for cash in a prompt and reasonable manner, the contractual maturity profile of the fair value of these securities at 31 December was as follows: Fair values at balance sheet date analysed by contractual maturity Debt and Deposits Derivative Cash fixed income with credit Catastrophe financial and cash 2009 2008 securities institutions bonds assets equivalents Total Total £000 £000 £000 £000 £000 £000 £000 Less than one year 463,526 7,877 1,878 1,018 259,647 733,946 665,770 Between one and two years 710,347 3,517 5,836 – – 719,700 593,371 Between two and five years 668,602 – 3,596 – – 672,198 669,819 Over five years 359,094 – – – – 359,094 407,273 Sub-total 2,201,569 11,394 11,310 1,018 259,647 2,484,938 2,336,233 Other non-dated instruments 54,168 – – – – 54,168 61,297 Total 2,255,737 11,394 11,310 1,018 259,647 2,539,106 2,397,530 The Group’s equities and shares in unit trusts and other non-dated instruments have no contractual maturity terms but could also be liquidated for cash in a prompt and reasonable timeframe within one year of the balance sheet date. Average contractual maturity analysed by denominational currency of investments 2009 2008 Years Years Pound Sterling 1.52 4.85 US Dollar 4.89 6.95 Euro 3.21 5.10 Canadian Dollar 1.38 2.45 The following is an analysis by liability type of the estimated timing of net cash flows based on the net claims liabilities held. The Group does not discount claims liabilities. The estimated phasing of settlement is based on current estimates and historical trends and the actual timing of future settlement cash flows may differ materially from that disclosure below. Liquidity requirements to settle estimated profile of net claim liabilities on balance sheet Within Between one Between two Over 2009 one year and two years and five years five years Total £000 £000 £000 £000 £000 Reinsurance inwards 86,533 61,120 52,478 13,529 213,660 Property – marine and major assets 54,426 33,557 34,163 10,194 132,340 Property – other assets 115,406 42,065 32,477 5,234 195,182 Casualty – professional indemnity 99,372 101,486 183,597 36,193 420,648 Casualty – other risks 55,636 37,247 34,243 8,301 135,427 Other* 56,342 30,266 27,088 9,480 123,176 Total 467,715 305,741 364,046 82,931 1,220,433 Liquidity requirements to settle estimated profile of net claim liabilities on balance sheet Within Between one Between two Over 2008 one year and two years and five years five years Total £000 £000 £000 £000 £000 Reinsurance inwards 136,718 75,744 53,762 8,859 275,083 Property – marine and major assets 71,590 41,561 39,787 6,630 159,568 Property – other assets 143,891 44,696 30,918 3,826 223,331 Casualty – professional indemnity 109,421 109,516 185,154 41,266 445,357 Casualty – other risks 60,526 47,281 49,774 11,912 169,493 Other* 34,985 15,742 14,220 3,646 68,593 Total 557,131 334,540 373,615 76,139 1,341,425 *Includes a diverse mix of certain specialty lines such as kidnap and ransom, terrorism, bloodstock and other risks which contain a mix of property and casualty exposures. Details of the payment profile of the Group’s borrowings, derivative instruments and other liabilities is given in notes 20 and 28. Notes to the consolidated financial statements <strong>Hiscox</strong> Ltd Report and Accounts 2009 67
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Hiscox Ltd Report and Accounts 2009
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Corporate highlights Group key perf
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Chairman’s statement It is an eno
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Chief Executive’s report In 2009
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Hiscox London Market Hiscox London
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We have also worked hard to develop
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We have continued to invest in trai
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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
Page 63 and 64: 3 Management of risk continued 3.1
Page 67: 3 Management of risk continued 3.2
Page 75 and 76: 4 Operating segments continued (a)
Page 77 and 78: 5 Net asset value per share 2009 20
Page 79 and 80: 12 Auditors’ remuneration continu
Page 81 and 82: 15 Intangible assets continued Othe
Page 83 and 84: 19 Reinsurance assets 2009 2008 Not
Page 85 and 86: 22 Derivative financial instruments
Page 87 and 88: 23 Fair value measurements continue
Page 89 and 90: 25 Share capital continued Share op
Page 91 and 92: 27 Insurance liabilities and reinsu
Page 93 and 94: 27 Insurance liabilities and reinsu
Page 95 and 96: 30 Deferred tax continued (b) Group
Page 97 and 98: 31 Employee retirement benefit obli
Page 99 and 100: 36 Contingencies and guarantees con
Page 101 and 102: 38 Principal subsidiary companies o
Page 103 and 104: To request a copy of the 2009 Hisco
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