Transcript Document

Preliminary Results
Year ended 31 December 2006
Barbara Merry - Chief Executive
Jamie MacDiarmid - Finance Director
Adrian Walker - Active Underwriter S382
Patrick Gage - Active Underwriter S38Twenty
1
Agenda
2
Agenda

Introduction
Barbara Merry

Results Overview and Highlights
Barbara Merry

Financial Performance
Jamie MacDiarmid

Underwriting Review
Adrian Walker

Syndicate 38Twenty
Patrick Gage

Summary
Barbara Merry

Questions
3
Overview and Highlights
4
Results Overview
 Combined ratio of 76.9% (2005: 92.7%)
 Gross written premium of £106.1 million (2005: £111.3 million)
 Record profit before tax of £16.8 million (2005: £7.5 million)
 Basic earnings per share of 34.1p (2005: 15.3p)
 Post tax return on equity of 17.8% (2005: 8.3%)
 Net tangible assets of 173p per share (2005: 164p)
 Final dividend increased 21% to 10p per share (2005: 8.25p)
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Overview
 Focus on underwriting excellence
 Proven track record:
- three decades of underwriting profits
- never made an underwriting loss
 Niche specialisms within broad mix of aviation, marine and non-marine 90% of underwriting portfolio is short tail
 Exclusively Lloyd’s based
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Business Environment
 Competitive environment is challenging
 Surplus capital is a global issue
 Opportunities in selected lines of business remain
 Bermuda is single biggest challenge to London
 Lloyd’s undergoing a renaissance
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Strategic Developments

Launch of syndicate 38Twenty to underwrite more mainstream nonmarine lines

Buy out of 9% minority on syndicate 382

Improvements to systems and M.I. infrastructure

New dividend policy as part of capital management strategy

Issue of $30m subordinate debt

On-going consideration of a move overseas
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Financials
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Preliminary Highlights
Full Year
2006
£’000
Full Year
2005
£’000
106,066
111,276
Profit before tax
16,837
7,474
Claims ratio
37.8%
64.1%
Expense ratio
39.1%
28.6%
Combined ratio
76.9%
92.7%
Basic earnings per share
34.1p
15.3p
Post tax return on equity
17.8%
8.3%
Shareholders’ equity
76,797
67,592
Net assets per share
217p
191p
Net tangible assets per share
173p
164p
10p
8.25p
Gross written premium
Final dividend per share
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Group Performance
Full Year
2006
£’000
Full Year
2005
£’000
Underwriting year 2006 (2005)
1,047
(5,315)
Underwriting year 2005 (2004)
11,278
6,603
6,121
4,963
18,446
6,251
6,025
5,043
Other income
512
803
Total income
24,983
12,097
Other operating expenses
(7,506)
(4,308)
Finance charges
(640)
(315)
Profit before tax
16,837
7,474
Underwriting years 2004 (2003) & prior
Total
Investment return
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Foreign Exchange
Full Year
2006
£’000
Full Year
2005
£’000
Expenses incurred in insurance activities
31,301
24,419
Foreign exchange (losses) / gains
(3,501)
2,471
Expenses excluding foreign exchange
27,800
26,890
Expense Ratio
39.1%
28.6%
Expense ratio excluding foreign exchange
34.8%
31.4%
Other operating expenses
7,506
4,308
Foreign exchange (losses) / gains
(846)
1,005
Other expenses excluding foreign exchange
6,660
5,313
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Investment Analysis
As at
31 Dec 2006
£’000
As at
31 Dec 2005
£’000
3,048
-
Fixed interest
42,091
33,343
Deposits
29,919
35,230
Group share of syndicate assets
75,058
68,573
Equity based investments
6,321
-
Absolute return bond fund
2,074
-
Fixed interest
19,711
25,072
Deposits
30,151
12,763
Group assets supporting underwriting
58,257
37,835
Equity based investments
-
12,335
Foreign exchange contracts
-
67
Deposits
8,635
4,662
Group free investments
8,635
17,064
141,950
123,472
Absolute return bond fund
Total
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Underwriting Review
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Aviation
Key points
Net Premium & Ultimate Net Loss Ratios (UNLR)
25

100%
90%
20
80%
millions
70%
15
60%
50%
10
40%
30%
5



Airline income negligible as rates have
fallen to almost unprecedented levels
Focus on general aviation book
Made a significant contribution in 2006
For 2007, portfolio expected to mirror
2006
20%
10%
0
0%
1993
1995
1997
1999
Aviation Net Premium
2001
2003
2005
Aviation UNLR
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Marine: Hull
Key points
millions
Net Premium & Ultimate Net Loss Ratios
9
8
7

160%
140%
120%
6
5
4
3
100%



80%
60%
40%
2
1
0

Portfolio comprises fishing vessels,
loss of hire and harbour craft
Rating scale approach to underwriting
Margins satisfactory in 2006
For 2007, competition is emerging but
new opportunities also being exploited
Energy book expanded
20%
0%
1993
1995
1997
1999
Marine Net Premium
2001
2003
2005
Marine UNLR
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Marine: Cargo & Specie
Key points
Net Premium & Ultimate Net Loss Ratios

millions

20
120%
100%
15
80%
10

60%
40%
5
20%
0
0%
1993
1995
1997
1999
Cargo Net Premium
2001
2003
2005


Broad range of cargoes insured, also
jewellers block, fine art and collections
Core account expanded in recent
years
Team strengthened with appointment
of a specialist specie underwriter
2006 generated steady profits
Rating levels reducing in 2007 but
expect to be able to maintain income
Cargo UNLR
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Non-Marine: Catastrophe Excess of Loss
Key points
Net Premium & Ultimate Net Loss Ratios
millions
9
8
7


160%
140%
120%
6
5
4
3
100%
80%

Boom or bust account
2006 likely to produce an excellent
result
For 2007, opportunities remain and
account is being expanded to include
a more international account
60%
40%
2
1
0
20%
0%
1993
1995
1997
1999
Cat XL Net Premium
2001
2003
2005
Cat XL UNLR
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Non-Marine: All Other
Key points
millions
Net Premium & Ultimate Net Loss Ratios

30
140%
25
120%
100%
20
80%
15
60%
10
40%
5
20%
0
0%
1993
1995
1997
1999
Non Marine Net Premium
2001
2003
2005
Non Marine UNLR


Very well diversified portfolio includes:
– Direct Property (UK / Europe)
– Accident & Health
– Financial Institutions
– Political Risk & Trade Credit
– Conveyancing
– International Direct / Facultative
Property
All made a positive contribution to
2006 underwriting results
2007 market conditions are weakening
but margins are still acceptable
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Syndicate 38Twenty
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38Twenty

Need for Hardy to grow into more mainstream non-marine lines of
business, specifically direct and facultative property and property treaty

Opportunities to access business exist

Rating at good levels in those classes

Separate syndicate approach allows for structural differences
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38Twenty

Underwriting commenced with effect from 1 January 2007

£65m capacity for 2007 – going well so far

Team now largely in place: Patrick Gage, Tony Hepburn, David Carson
and Henry Glasse

Some business being underwritten across both syndicates

Focus on risk selection, pricing and margins is key

Larger line size requires different approach to reinsurance
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Summary
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Summary

Existing business is performing very well – combined ratio confirms this

Major step forward for Hardy business following capacity buy-out,
and more importantly, establishment of syndicate 38Twenty

75% increase in 2007 underwriting capability on same capital base

Balance sheet is being managed to support further growth and new
dividend policy

Business infrastructure and management information investment will
mean Hardy is primed to do more

Market conditions will dictate pace of growth

The future looks very exciting
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Appendices
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Structure
100%
HUG PLC
100%
HUA
Patrick Gage/Adrian Walker
management
382
AJW
Marine Hull
Cargo/specie
Jewellers’ Block
Aviation
US & International Cat
Direct Property (UK & Europe)
Int’l direct & facultative property
Financial Institutions
Political Risks
Conveyancing
HUL
100% capital
3820
PG
Int’l & US cat
Int’l & US direct & facultative
property
Speciality lines
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Performance
Pre-Tax Profit (£m)
Gross Written Premiums (£m)
18000
120000
Dividend
100000
35
80000
30
16000
14000
12000
10000
60000
25
8000
20
6000
40000
4000
15
2000
20000
10
2003
2004
2005
2006
2003
2004
2005
2006
2002
Special
2001
2006
2005
2004
Final
35
2003
2002
2001
0
2000
EPS (p)
0
5
2000
2006
2005
2004
2003
2002
2001
2000
0
Combined Ratio %
100
95
30
90
25
Full
year
20
15
Atrium
gain
10
80
75
5
2002
70
2001
NB
2004, 2005 and 2006 values are reported under IFRS.
2000 to 2003 are reported under UK GAAP.
2000
2006
2005
2004
2003
2002
2001
2000
0
85
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Executive Directors
Barbara Merry – Chief Executive





Director of the other Hardy group companies
Member of Council of Lloyd’s
On Board of Lloyd’s Market Association
Corporation of Lloyd's - 14 years. General Manager in the
regulatory division
1984: chartered accountant
Jamie MacDiarmid – Finance Director
 Joined Board in 1 October 2003
 Previously with KPMG: manager in insurance sector
Adrian Walker – Active Underwriter


Non-executive director on Board prior to becoming active underwriter
(2001)
Formerly underwriter for syndicate 902 (AJ Walker & Others)
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Non-Executive Directors
David Mann – non-executive chairman
 A Board member of Hardy’s subsidiary company, Hardy (Underwriting Agencies) Ltd
since November 2004
 Formerly the active underwriter of non-marine syndicate 435, which was managed by D
P Mann Ltd (“DPL”). DPL was acquired by General Re in 1998 and changed its name to
Faraday Underwriting Ltd in 2001
Ian Ivory - non-executive director
 Founded two investment management companies (Ivory & Sime, Stewart Ivory)
 Member of Lloyd’s for 18 years
Barbara Thomas - non-executive director
 Appointed 17 March 2004
 Currently deputy Chairman of Friends’ Provident plc and of Financial Reporting Council
 Previously a commissioner of US Securities & Exchange Commission
Rick Abbott – non-executive director
 Rick has worked in banking with Bank of America, Samuel Montagu,
Deutsche Bank, Morgan Grenfell and ABN Amro.
 Specialist in financial institutions and particularly insurance business.
 Directorships include Deputy Chairman of Knight Frank Corporate Finance Limited
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