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Hiscox plc

Preliminary results for the year ended 31 December 2004

Robert Hiscox, ChairmanBronek Masojada, Chief ExecutiveStuart Bridges, Finance DirectorRobert Childs, Director of Underwriting

March 2005

Strong Results

2003 2004

Combined Ratio (%)

93.0

Profit before Tax (£m)

2003 2004

77.083.4

2

Operating Profit* (£m)

2003 2004

86.377.1 87.2

*Based on longer term investment return

3

0

100

200

300

400

500

600

700

800

900

2001 2002 2003 2004

548.9

676.7

797.4 778.9

Gross Written Premium (£m) Net Premium Earned (£m)

0

100

200

300

400

500

600

700

2001 2002 2003 2004

344.2385.1

547.5

642.4

Strong Results

31 Dec 2003 31 Dec 2004

Strong Results

Net Asset Value per Share (p)*

119.1 132.8

(*before equalisation provision)

EPS (p)(on operating profit after tax)

2003 2004

21.019.3

4

EPS (p)(on profit after tax)

2003 2004

18.720.9

Highlights

Strong underwriting result

Dividend growth

Net tangible asset growth

Strategy continues to deliver

– Balance and focus

5

Financial Performance

Stuart Bridges Group Finance Director

6

Hiscox plc ResultsFull Year 2004

£000Full Year 2003

£000

Gross Written Premium 778,893 797,380

Operating profit based on longer term investment return 86,337 77,122

Short term fluctuations in investment return (7,800) 8,792

Movement in equalisation provision (1,503) (2,506)

Profit on ordinary activities before tax 77,034 83,408

Profit on ordinary activities after tax 54,574 60,491

Earnings per share (p)

• Operating profit after tax

• Profit after tax

21.0p

18.7p

19.3p

20.9p

Final Dividend (p) 3.5p 2.9p

Full Year Dividend (p) 5.0p 4.2p

Net Asset Value (before equalisation provision)

• £m 390 346

• p per share 132.8 119.1

Return on Equity (PAT/NAV) 16.5% 21.7%

7

Segmental AnalysisFor the year ended 31 December 2004

8

2004

London Market/Group£000

UK Retail£000

InternationalRetail £000

Group Total£000

Gross Premiums Written

Net Premiums Earned

Operating Profit

Profit before tax

511,874

444,407

778,893

642,429

86,337

91,320

60,090

3,990

175,699

137,932

Combined Ratio 92.9% 93.0%97.9%89.8%

63,561 18,786

London Market/Group: Hiscox plc share of Syndicate 33, Managing Agent, Hiscox Investment Management and central Group costs. UK Retail: UK retail within Hiscox Insurance Company and Hiscox ConnectInternational Retail: Guernsey Insurance Company and European retail business within Hiscox Insurance Company.

77,0343,17053,356 20,508

Net Premiums Written 462,325 681,56667,892151,349

541,442

366,810

797,380

547,451

77,122

81,387

48,452

562

174,551

132,189

85.8% 87.2%98.2%90.3%

61,545 15,015

83,40842764,458 18,523

458,463 660,96656,777145,726

2003

LondonMarket/Group£000

UK Retail£000

InternationalRetail £000

Group Total£000

31 December 2004 31 December 2003

Asset Allocation

%

Return%

Return£000

Asset Allocation

%

Return%

Return£000

Bonds 72.5 2.6 18,072 70.2 3.8 17,417

Equities 7.9 10.2 8,448 13.6 18.1 16,932

Deposits/Cash 19.6 2.9 5,479 16.2 3.2 5,026

Actual Return 31,999 39,375

Longer Term Rate of Return

(39,799) (30,583)

Short Term Fluctuations

(7,800) 8,792

Investment Performance

9Longer term rate of return: 4% Bonds & Cash, 6% Equities

Total Average Funds for Group

£957m £712m

IFRS: Adoption

Opening balance sheet for IFRS is January 2004

2004 results restated for IFRS announced summer 2005

Results for the half year 2005 will be under IFRS

Comparatives will also be restated in the half year and annual report for 2005

10

IFRS:Estimated impact on the balance sheet

2004£m

2003£m

Net assets at 31 December under UK GAAP 371.6 329.8

Significant changes in accounting policies :

Share-based payments (IFRS 2) (2.0) (0.8)

Pensions (IAS 19) (41.6) (38.6)

Dividends (IAS 10) 10.3 8.4

Deferred tax (IAS 12) 12.6 11.3

Equalisation provision (IFRS 4) 17.9 16.4

Other (1.1) (2.6)

Net assets at 31 December under IFRS 367.7 323.9

Net Asset Value

• UK GAAP 126.7p 113.5p

• IFRS 125.4p 111.5p

11

IFRS:Estimated impact on profit

2004£m

Profit before tax reported under UK GAAP 77.0

Significant changes in accounting policies :

Share based payments (IFRS 2) (1.2)

Pensions (IAS 19) (0.8)

Equalisation provision (IFRS 4) 1.5

Goodwill and capacity amortisation (IAS 38) 1.5

Other 0.1

Profit before tax under IFRS 78.1

Adjusted basic earnings per share (based on profit after tax)

• UK GAAP 18.7p

• IFRS 19.5p

12

Hiscox Syndicate 33

Robert Childs Director of Underwriting

13

Rates Holding

1999 2000 2001 2002 2003

100 9578

69

100 104126

193

241

Exposure Premium

Rolling 12 Month Index to December

14

244

2004

6761

Syndicate 33 v Competitors: Incurred Loss Ratio

15

Syndicate 33

Moody’s Composite

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1 2 3 4 5 6 7 8 9 10 11

NIL

R

2002 YOA Net Comparison

Quarters from Inception

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1 2 3 4 5 6 7 8 9 10 11

2002 YOA Gross Comparison

Quarters from Inception

-20%

-10%

0%

10%

20%

30%

40%

50%

1 2 3 4 5 6 7

NIL

R

2003 YOA Net Comparison

Quarters from Inception

0%

5%

10%

15%

20%

25%

30%

35%

40%

1 2 3 4 5 6 7

2003 YOA Gross Comparison

Quarters from Inception

Rating

16

Syndicate 33 Rating IndexJa

n9

8 to

De

c98

Jan

99

to D

ec9

9

Jan

00

to D

ec0

0

Jan

01

to D

ec0

1

Jan

02

to D

ec0

2

Jan

03

to D

ec0

3

Jan

04

to D

ec0

4

500

300

200

100

0

%

400

London MarketReinsuranceSpecialty

D&O - Relationship between Income and Rates

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

Year of Account

GP

I (£

)

0

200

400

600

800

1,000

1,200

1,400

1,600

Ind

ex

GPI

Index

17

1998 1999 2000 2001 2002 2003 E 2004 E 2005 E

Property Insurance Business Mix

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Year of Account

GP

I (£

000'

s)

0

50

100

150

200

250

300

350

Ind

ex

Big Ticket GPI

Small Ticket GPI

Big Ticket Index

Small Ticket Index

18

Relationship Between Big Ticket and Small Ticket Business & Rates

1998 1999 2000 2001 2002 2003 E 2004 E 2005 E

Business Areas

Reinsurance and Major PropertyNon Marine Reinsurance; Marine & Aviation Reinsurance; Whole Account Reinsurance; Commercial Property; Onshore Energy

Reinsurance strongly profitable despite hurricanes in 2004.

Reinsurance rates still offer good margins.

Avoided other substantial losses through selective underwriting.

Rates declined in 2004; particular pressure on big ticket property.

London Market Insurance

Marine Hull & Liability; Offshore Energy; Terrorism; Professional Indemnity; D&O; Political Risks; Financial Institutions

Marine hull and liability rates stable. Profitable results.

Marine benefited from Marlborough renewal rights.

Controlled PI growth in 2004 – focus on smaller risks in 2005.

Growing demand for terrorism product.

Opportunities in political and enterprise risks.

19

Business Areas

Specialty

K&R; Contingency; MGAs; Homeowners; SMEs; Bloodstock; Personal Accident

Rates stable.

MGAs/ homeowners impacted by hurricanes; rate increases expected.

Good rates in high value household in USA.

Opportunities from Insurex - events, conference and exhibitions insurance provider.

ATMT

Aerospace; Technology; Media; Telecoms

Firm trading environment.

Successful expansion outside London to rest of UK and France.

Increased business flow from North America.

Excellent risk management and claims service.

20

Adjusting to the market cycle

Analysis, agility, action

– discipline

– renewals v. new business

– selective underwriting

Specialty focus

– opportunities in smaller risks

Global business, local presence

– Europe

– US

21

Retail: UK and International

Bronek Masojada Chief Executive, Hiscox plcActing Managing Director - Retail

22

Hiscox Insurance Company

23

Gross Written Premium: £m Combined Ratio: %

0

20

40

60

80

100

120

1997 1998 1999 2000 2001 2002 2003 2004

93.697.897.7

102.6107.9

118.0

0

50

100

150

200

250

1997 1998 1999 2000 2001 2002 2003 2004

218.7

163.9

127.3

97.890.0

74.7

176.4

97.9

231.4

92.6

Core Non-Core

174.6 37.2

15.0 2.3

90.3% 90.6%

18.9132.2

44.2

(1.7)

107.4%

29.6

Retail Performance

2004 (£m) 2003 (£m)

UK Guernsey UK Europe

GWP 175.7 35.6

Operating Profit 18.8 2.8

Combined Ratio 89.8% 91.1%

17.6Net Premiums Earned 137.9

Europe

55.7

1.2

102.1%

42.5

Guernsey

24

50%

70%

90%

110%

130%

150%

170%

190%Ju

l-00

to J

un-0

1

Jan-

01 t

0 D

ec-0

1

Jul-0

1 to

Jun

-02

Jan-

02 t

o D

ec-0

2

Jul-0

2 to

Jun

-03

Jan-

03 t

o D

ec-0

3

Jul-0

3 to

Jun

-04

Jan-

04 t

o D

ec-0

4

Month

Ro

llin

g 1

2 M

on

th I

nd

ex o

f R

ates

Retail: Rates

25

UK Personal Lines UK PI France Germany

Business Areas

Art and Private Clients

High Value Household and Contents; Fine Art; Classic Cars; Specie; Executive Household

Relaunched Fine Art product across Europe.

HVH competitive in London, so targeting UK regions and Europe.

Successful completion of transfer of Chubb European HVH business.

Profitable growth in direct channel.

Signed up more distribution partners.

Supporting business with marketing spend.

Professions & Specialty CommercialProfessional Indemnity; Directors & Officers; Commercial Office; Internet & Email

Focus on the professional Professional.

Cross sell of full portfolio working.

Developing smaller emerging professions using Colchester.

Launched new product for smallest PI risks.

Forgoing traditional professions business due to pricing and new capacity.

Continued European expansion.

26

Europe

Further progress

Strong premium growth

Product expansion

– Large high net worth

– Professional insurances

– Distribution for TMT

27

Summary and Outlook

Bronek Masojada Chief Executive, Hiscox plc

28

Summary

Solid progress on strategy

– Syndicate 33, operating profit up to £63.5m, 92.9% combined ratio

– UK Retail, operating profit up to £18.8m, 89.8% combined ratio

– International operations, operating profit up to £4.0m, 97.9% combined ratio

Sustainable profits

Net asset growth

29

Strategy

30

100% = £1,051mTotal group controlled income for 2004

ATMT

London Market

Specialty

Professions & Specialty Commercial

Reinsurance & Major Property

Art & PrivateClients

34%

24%

17%9%

10%6%

London Market Retail

Syndicate 33Syndicate 33,

Hiscox Insurance Company & Hiscox Guernsey

Grow Retail to balance London Market volatility

Successful to date

– 25% to 42% of group in 10 years

– Larger than entire group GWP in 1994

Use all group locations and legal entities to reach customers

Focus for 2005 and beyond

Outlook

Competitive trading environment

Opportunities

– Selective underwriting in London market

– Increase ownership of Syndicate 33

– Continue Retail expansion: UK, Europe and globally via Lloyd’s

– Extend distribution

Good start to 2005

31

Q & A

32

Appendices

33

Realistic Disaster Scenarios

Geographical & Currency Split

Loss Ratios as a % of Syndicate Premiums

Syndicate 33 Capacity and Hiscox plc Ownership

Reinsurance

Company Background

Glossary of Terms

Realistic Disaster Scenarios

34

Syndicate 33 - Losses shown as a percentage of 2005 capacity

0

5

10

15

20

25

30

35

40

45

CaliforniaEarthquake

Florida Windstorm Specific EuropeanWindstorm

Specific JapaneseEarthquake

Specific NewMadrid Earthquake

Loss %

Gross Loss Net Loss

Geographical & Currency Split

35

CAD

USD

EUR

GBP

11.9%43.5%

42.8%

1.8%

2005 Geographical Split 2005 Currency Split

USA

39.2%

EUEurope (exc. UK)

11.4%

31.4%UK

3.4%Canada

1.5%Australia

2.0%Asia (exc. Japan

& China)

1.0%China &

Japan

1.4%Central &

South America

4.4%Other

0.3%Israel

0.4%Middle East (exc. Israel)

1.0%Africa

1.2%Caribbean

1.4%

Non-EU Europe

& Russia

Loss Ratios as a % of Syndicate Premiums

36

GILR NILR

YOA 2001 2002 2003 2004 2001 2002 2003 2004

12 mths 26.5% 13.4% 11.6% 30.0% 49.7% 20.0% 14.1% 30.8%

24 mths 43.6% 27.9% 30.0% 57.5% 36.6% 35.3%

36 mths 50.2% 37.2% 59.0% 45.3%

48 mths 57.6% 61.6%

Syndicate 33 incurred losses as a percentage of signed premium (excluding WTC)

Syndicate 33 Capacity & Hiscox plc Ownership

37

0

100

200

300

400

500

600

700

800

900

2000 2001 2002 2003 2004

Capacity Hiscox plc Ownership QQS

£ m

2005 E

360

191 53%

360

191 53%

504

277 55%

201

842

547 65%

48

846

55065%

25

55071%

775

Group Reinsurance Security

38

AAA1% AA

36%

A49%

Other 14%

Successful commutations

Bad debt provision: £7.5m

Reinsurance receivables 10.6% of total assets

2005 Programme

A

51%

AAA

AA38%

11%

25% self-insurance on large proportion of reinsurance bought

Receivables at 31/12/04 of £196m

Reinsurance

39

0

5

10

15

20

25

30

35

40

2000 2001 2002 2003 2004

35.3%

27.3% 26.0%

17.3%

13.7%

Reinsurance as a % of GWP (ex. QQS)

Reinsurance Receivables as a % of Total Assets

0

5

10

15

20

25

30

2000 2001 2002 2003 2004

18.2%

26.9%

15.4%

11.8%10.6%

%%

Established in 1901

Hiscox Syndicate 33 has been a leading underwriter at Lloyd’s for many years. Now a top 3 syndicate in the market. Rating; A from AM Best, A from Standard & Poor’s

Hiscox Insurance Company acquired in 1996. Rating: A- from A M Best, A- from Standard & Poor’s

We have built up a sound reputation in the US, UK and internationally

Involved at senior levels at Lloyd’s

– RRS Hiscox, Deputy Chairman, 1993-95

– B E Masojada, Currently Deputy Chairman

– R S Childs, Currently Chairman, Lloyd’s Market Association

Background - Hiscox Pedigree

40

Build a successful European based insurer known for its specialist policies, customer focus and financial performance

Build a retail business to complement the Lloyd’s business

Allocate capital between Syndicate 33 and retail business according to prevailing market opportunities

Background - Group Strategy

41

• Hiscox Syndicates Ltd• 71% of Syndicate 33• Hiscox Corporate Names

• Colchester• Birmingham• Glasgow• Leeds• London• Maidenhead• Hiscox Direct

• Belgium• France• Germany• Guernsey• Ireland• Netherlands

Hiscox plc

Lloyd’sbusiness

UK Retail business

International business

42

Background - Hiscox Structure

Controlled Gross Written Premium £m

422

603

403 413

480514

Grow Lloyd’s

101132

190

244

370 379 378

Grow Insurance Company

Maintain Lloyd’s

Grow Lloyd’s

Develop Insurance Company

780

941

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Lloyd'sHiscox Insurance Company

1083

2003

43

Background - Building a Balanced Business

1051

2004

Glossary of Terms

44

Annual Venture The system used for running a Lloyd’s syndicate under which each “year of account” is treated separately. Members own capacity on a syndicate for a “year of account” and the results are declared when the year is closed by the RITC mechanism, usually after 3 years.

Claims ratio Net claims incurred, including IBNR, as a percentage of net earned premiums.

Combined ratio The total of the claims and expenses ratios.

Equalisation provision This a provision made to cover future catastrophe losses and is calculated in accordance with a set sector formula, which has the effect of smoothing the profit cycle.

Expenses ratio Expenses as a percentage of net written premiums.

Funds at Lloyd’s The amount of assets, which can be cash, investments or letters of credit, that a syndicate member has to deposit with Lloyd’s to support their share of the capacity on a syndicate. The minimum amount is 40% of the capacity owned by the member.

Gross written premium Premiums contracted for before any deductions.

Group controlled The total gross written premium controlled by the group including the 35% of the syndicate capacity not owned by Hiscox in 2004 (29% in 2005).

IBNR Incurred but not reported. An estimate made at the end of each accounting period to cover the expected cost of losses that have occurred but have not yet been reported to the insurer or reinsurer.

Incurred loss ratio Paid and outstanding losses as a percentage of premiums. Gross incurred loss ratio is before deducting any reinsurance and net is after deducting reinsurance.

gross written premium

Glossary of Terms

45

Long-tail A term used to describe an insurance risk that has the potential for claims development or new claims to be reported a number of years after expiry of the term of the policy.

Member or Name The companies or individuals who own the capacity of a syndicate and who belong to the membership of the Society of Lloyd’s.

Net premiums earned Premiums received after the cost of reinsurance and adjustment for unearned premium. Unearned premium covers the future period of risk of an insurance policy.

Net premiums written Premiums contracted for after deduction of reinsurance.

Open year A Year of Account of a syndicate which has not been closed by Reinsurance To Close (RITC). RITC usually occurs at the end of the third year. A Year of Account can be left open beyond the third year if the extent of the future liability cannot be accurately quantified.

Qualifying quota share These are quota share reinsurance policies, which Lloyd’s allow in certain circumstances, that enable a syndicate to write gross premium in excess of its capacity.

Reinsurance to close – RITC The reinsurance to close comprises a premium payable by the closing year to the members on the next open year of account and a contract which transfers the liability for all claims in respect of the closing year to the next open year.

Run-off account At Lloyd’s, a year of account which is kept open after the date on which it would normally have been closed.

Subrogation The right of the underwriter to “stand in the shoes of the insured” and take over the Insured's rights, following payment of a claim, to recover the payment of an incurred loss from a third party responsible for the loss. It is limited to the amount of loss paid by the insurance policy.

Syndicate Capacity Also referred to as the ‘stamp’. The maximum amount of business that a syndicate in Lloyd’s can write per year, aggregated from all its members.

reinsurance