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36 Contingencies and guarantees continued
The following guarantees have also been issued:
(a) On 18 November 2009, Hiscox Capital Ltd and Hiscox Ltd entered into a deed of covenant in respect of a fellow subsidiary, Hiscox
Dedicated Corporate Member Limited, in order to meet the subsidiary’s obligations to Lloyd’s. The total guarantee given under the deed
of covenant (subject to limited exceptions) amounts to US$350 million provided by Hiscox Capital Ltd and £15 million provided
by Hiscox Ltd. In the prior year, and up to 18 November 2009, a similar guarantee was provided by Hiscox Ltd and Hiscox Insurance
Company (Bermuda) Limited for £138,831,798. The obligations in respect of this deed of covenant are secured by a fixed and floating
charge over certain of the investments and other assets of the Company in favour of Lloyd’s. Lloyd’s has a right to retain the income on
the charged investments in circumstances where it considers there to be a risk that the covenant might need to be called and may be
met in full.
(b) In the prior year Hiscox plc negotiated a new Letter of Credit and revolving credit facility with Lloyds TSB Bank, for a total of £350 million
which may be drawn as cash (under a revolving credit facility), Letter of Credit or a combination thereof, providing that the cash portion
does not exceed £200 million. In addition, the terms also provide that upon request the facility may be drawn in foreign currency. At 31
December 2009 $225 million (2008: £137.5 million) was drawn by way of Letter of Credit to support the Funds at Lloyd’s requirement and
a further £138 million by way of cash (2008: US$130 million).
(c) Hiscox Insurance Company Limited has arranged a Letter of Credit of £50,000 (2008: £50,000) with NatWest Bank plc to support
its consortium activities with Lloyd’s.
(d) The managed syndicate is subject to the New Central Fund annual contribution, which is an annual fee calculated on gross premiums
written. This fee was 0.5% for 2009 and 2008. In addition to this fee, the Council of Lloyd’s has the discretion to call a further contribution
of up to 3% of capacity if required.
(e) As Hiscox Insurance Company (Bermuda) Limited is not an admitted insurer or reinsurer in the US, the terms of certain US insurance
and reinsurance contracts require Hiscox to provide Letters of Credit or other terms of collateral to clients. On 27 February 2009, Hiscox
replaced its previous US$300 million facility and entered into a Letter of Credit Reimbursement and Pledge Agreement with Citibank for
the provision of a Letter of Credit facility in favour of US ceding companies. The agreement was a three-year secured facility that allowed
Hiscox to request the issuance of up to US$450 million in Letters of Credit. Letters of Credit issued under these facilities are collateralised
by pledged cash and cash equivalents of Hiscox Bermuda. Letters of Credit under this facility totalling approximately US$109 million were
issued with an effective date of 31 December 2009 (2008: US$38 million).
37 Capital and lease commitments
Capital commitments
The Group’s capital expenditure contracted for at the balance sheet date but not yet incurred for property, plant and equipment was
£614,000 (2008: £225,000).
Operating lease commitments
The Group acts as both lessee and lessor in relation to various offices in the UK and overseas which are held under non-cancellable
operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The Group also has payment
obligations in respect of operating leases for certain items of office equipment. Operating lease rental expenses for the year totalled
£5,656,000 (2008: £5,499,000). Operating lease rental income for the year totalled £468,000 (2008: £468,000).
The aggregate minimum lease payments required by the Group under non-cancellable operating leases, over the expected lease terms,
are as follows:
2009 2008
£000 £000
No later than one year Land and buildings 5,683 5,621
Office equipment 177 144
Later than one year and no later than five years Land and buildings 15,730 17,913
Office equipment 457 99
Later than five years Land and buildings 14,501 17,497
36,548 41,274
The total future aggregate minimum lease rentals receivable by the Group as lessor under non-cancellable operating property leases are
as follows:
2009 2008
£000 £000
No later than one year 468 468
Later than one year and no later than five years 1,053 1,521
Later than five years – –
1,521 1,989
Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2009
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