Hiscox Ltd Preliminary Results and Syndicate Results - 3.3.08

Hiscox Limited released its preliminary results and syndicate results this morning.

KEY POINTS

• Record pre-tax profits up 18% to £237.2m (2006: £201.1m)
• Gross written premiums up 6.5% to £1,198.9m (2006: £1,126.2m)
  
• Group combined ratio improves to 84.4% (2006: 89.1%)
• Earnings per share on profit after tax up 16.1% to 48.4p (2006: 41.7p)
• Final dividend 8p per share (2006: 7p) making 12p for the full year, an increase of 20% (2006: 10p)
• Return on equity 28.8% (2006: 28.9%)
• Active capital management
• Excellent year for Hiscox Global Markets - profits increased to £155.6m
  (2006: £90.7m)
• Hiscox UK and Hiscox Europe - good top line growth of 13.7% to £302.3m
  (2006: £265.8m) with profits of £21.8m (2006: £33.1m) despite the impact of Windstorm Kyrill and the UK floods
• Hiscox International - another successful year with profits up 33.2% to £69.1m
  (2006: £51.9m)
• Hiscox USA - acquired American Live Stock, a major milestone towards building a strong US domestic business
• Regional business relatively stable in the softening market with good growth
  prospects.

Robert Hiscox, Chairman, Hiscox Ltd, commented:
"This is another record result driven primarily by the excellent performance of our Global Markets and Bermuda businesses. We will continue to develop our UK and international network to distribute our specialist products which will provide further stability to the Group."
"The insurance cycle is alive and definitely kicking and it would appear that some insurers are, as usual, suffering from rapid and severe memory loss.  (How can they forget 2005 when years of premiums were wiped out?)

Rates are reducing rapidly in obvious areas where there are large premiums to be competed for and the lust for non-catastrophe exposed business is turning underwriting discipline to jelly.  I sometimes wonder whether underwriters who have made a 10% profit and then reduce rates by 10% think they are going to make 9%, instead of the obvious NIL. 

Any management, including the management of Lloyd's, who sees a rising income in an area of falling rates ought to ask serious questions.  It was disappointing to see the capacity of Lloyd's reducing only 2% for 2008 (an actual increase at constant exchange rates) when most of the seasoned underwriters like us were reducing by 20%".

Syndicate Result/Estimates
The result for 2005 and the estimates for 2006 and 2007, expressed as a percentage of capacity, are as follows:

2005             Result  2.7%   Previous Estimate   (-7.5% to 2.5%)        
 
Current estimate

2006     17.5% to 25.0%      Previous Estimate 15% to 22.5%      
2007      7.5% to 15.0%