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Hiscox Syndicate3624Report and Accounts 2014
12567891011121314ContentsDirectors and administrationReport of the Directors of the managing agentStatement of managing agent’s responsibilitiesNotice regarding the Annual General MeetingIndependent auditors’ reportProfit and loss account: technical accountProfit and loss account: non-technical accountStatement of total recognised gains and lossesBalance sheet – assetsBalance sheet – liabilitiesStatement of cash flowsNotes to the financial statements
Directors and administrationHiscox Syndicate 3624Managing agent:Managing agentHiscox Syndicates Limited (HSL) is the managing agent of aligned Syndicate 3624, composite Syndicate 33, and Special PurposeSyndicate 6104. HSL is an indirectly wholly-owned subsidiary of Hiscox Ltd.DirectorsR S Childs (Non Executive Chairman)S J Bridges (Non Executive)C J Foulger (Non Executive)J S JonesH C V Keeling (Non Executive)M C S KreftaP A LawrenceI J MartinB E MasojadaJ PinchinN B TylerR C WatsonI T Webb-Wilson (Non Executive)Company secretaryJ K TaylorManaging agent’s registered office1 Great St Helen’sLondonEC3A 6HXManaging agent’s registered number02590623Syndicate:Active underwriterR C WatsonBankersLloyds Bank plcCitibankInvestment managerPayden and Rygel Global LtdRegistered auditorsKPMG Audit PlcDirectors and administration Hiscox Syndicate 36241
Report of the Directors of the managing agentHiscox Syndicate 3624 annual accountsThe Directors of the managing agent present their report for Syndicate 3624 for the year ended 31 December 2014.This Annual Report is prepared using the annual basis of accounting as required by Statutory Instrument No. 1950 of 2008, the InsuranceAccounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 (‘the 2008 Regulations’).ResultsThe result for Syndicate 3624 in calendar year 2014 is a loss of 7.0m (2013: loss of 0.2m). The Syndicate’s key financial performanceindicators during the year were as follows:2014 m2013 m%changeGross premiums written 324.4Gross premiums earned 279.8Net premiums earned 227.5Total recognised loss for the year (7.0)305.6245.6212.9(0.2)6%14%7%2,849%Claims ratio 60%Commission ratio 38%Expense ratio 5%Combined ratio103%61%34%6%101%-1%4%-1%2%In calculating the claims and expense ratios, foreign exchange gains and losses are allocated to the claims ratio.Principal activityThe principal activity of Syndicate 3624 is the transaction of general insurance and reinsurance business in the United Kingdom at Lloyd’sof London. Syndicate 3624 trades through the Lloyd’s worldwide licences and rating. It also benefits from the Lloyd’s brand. Lloyd’s has anA (Excellent) rating from A.M. Best, A (Strong) rating from Standard & Poor’s and AA- (Very strong) rating from Fitch. The geographical andcurrency split of its business is shown below:2014 geographical split of gross premiums written (%)2014 gross premiums written settlement currency (%)UKEuropeNorth AmericaAsiaRest of the worldGBP 12%EUR 6%USD 80%CAD 2%22%12%34%6%46%Report of the Directors of the managing agent Hiscox Syndicate 3624 annual accounts
Report of the Directors of the managing agent continuedHiscox Syndicate 3624 annual accountsReview of the businessSyndicate 3624 was established as analigned corporate syndicate for the 2009year of account. In its first year all of theSyndicate’s business was generated throughHiscox owned distribution channels, inparticular Hiscox Inc., the Group’s servicecompany in the US. In subsequent yearsa number of additional lines of businesswere added to the portfolio, some of whichwere sourced through Hiscox owned servicecompanies and some through normalLondon Market broking channels. Fromthe period 2009 to 2014 inclusive grosspremiums written increased from 76mto 324m.The principal classes of business writtenby the Syndicate include:Auto fire, theft and collision ( 79m grosspremiums written in 2014)This account focuses on FTC (fire, theft andcollision) business sourced through the WhiteOak Underwriting Agency Limited in whichHiscox has a 10% shareholding and theActive Underwriter of the Syndicate, RichardWatson, is a Director. The account has afocus on agricultural and forestry equipment.Hiscox US property classes ( 25m in 2014)This account, sourced through Hiscox Inc.,includes commercial property businesswritten through wholesale brokers in theUS and a construction account.Healthcare ( 21m in 2014)This account provides a range of insuranceand reinsurance products for hospitals,allied health organisations and physiciangroups and is written by a team in Bermudathrough Hiscox Agency Ltd (HAL), Hiscox’sBermudan service company.Further growth is anticipated for 2015including the transfer of a small casualtytreaty account written by Syndicate 33through HAL. The international E&O andD&O account written through Dual will bereduced in 2015.CapitalOne of the main advantages of tradingTechnology, media and telecomsthrough Lloyd’s is the considerably lower( 28m in 2014)capital ratios that are available due tothe diversification of business written inThis account provides liability insuranceSyndicate 3624 and in Lloyd’s as a whole.for clients from the technology and mediaThe size of the Syndicate is increased orindustries and is sourced the Hiscox ownedreduced according to the strength of theservice companies in the UK, Europe and US. insurance environment in its main classes.Other smaller accounts ( 11m in 2014)This includes insurance for event cancellationand pilot’s loss of licence.Year of accountAuto extended warranty ( 49m in 2014)2009This account is also sourced through theWhite Oak Underwriting Agency Limited.The account is written on a worldwide basiswith significant exposure from exclusivearrangements with manufacturers sellinginto China.201020112012201320142015Aviation ( 22m in 2014)The 2012 year of account closed with again of 6.4m on the Syndicate’s 250mof capacity. The result was driven by reservereleases across most classes of businesswith particularly strong releases comingfrom the US business.Capacity m80150250250250300350In 2014 gross premiums written increasedfrom 306m to 324m driven by the WhiteA London Market aviation account includingOak Underwriting Agency Limited businessexposure to airlines, products, airports andand the professional indemnity businessgeneral aviation.written through Hiscox’s network of officesin the US. This was partially offset by theInternational errors and omissions andtransfer of some of the event cancellationdirectors and officers' ( 25m in 2014)business to another Group company andThis account focuses on smaller premiuma small reduction in the Dual premium.E&O and D&O policies written through theNet premium written reduced from 271mlocal offices of the Dual managingto 233m following the purchase of a 50%general agency.quota share reinsurance for the White OakUnderwriting Agency Limited business. TheHiscox US liability classes ( 64m in 2014)Syndicate made a loss of 7m in the year.The main drivers of the loss are a large filmThis account is written through Hiscox Inc.,Hiscox US’s service company. The Syndicate production claim on the media account,a large claim on the construction accountpays a commission to Hiscox Inc. to sourcesmaller premium E&O and D&O business from and some reserve strengthening on thethe Hiscox offices on the ground in the US.international E&O account.Lloyd’s are utilising models developed forSolvency II to meet obligations under ICAS,which will provide equivalent protection topolicyholders. Syndicate capital is determinedthrough the submission and agreementby Lloyd’s of an ultimate Solvency CapitalRequirement (‘SCR’) which is subject to anuplift determined by the Franchise Board tocalibrate the capital required by Lloyd’s. HSLuses an internal capital model to measureits SCR, based on a rigorous process of riskidentification and quantification assessed ata 1:200 confidence level which draws uponthe skills of the Hiscox organisation and isreflected in Hiscox Syndicates Limited's ownrisk and solvency assessment. The model isbased on regulatory requirements and hasbeen approved by Lloyd’s.Lloyd’s unique capital structure providesexcellent financial security to policyholdersand capital efficiency for members. Thischain of security provides the financialstrength that ultimately backs insurancepolicies written at Lloyd’s and has three links:1. all premiums received by syndicatesare held in trust as the first resource forpaying policyholders’ claims;2. every member is required to hold capitalat Lloyd’s which is held in trust andknown as Funds at Lloyd’s (FAL). Thesefunds are intended primarily to covercircumstances where syndicate assetsprove insufficient to meet participatingReport of the Directors of the managing agent Hiscox Syndicate 3624 annual accounts3
Report of the Directors of the managing agent continuedHiscox Syndicate 3624 annual accountsmembers’ underwriting liabilities. Theyare set with reference to the SCRtogether with the Lloyd’s uplift. Since FALis not under the control of the managingagent, no amount has been shown inthe financial statements. However, themanaging agent is able to make a callon the members’ FAL to meet liquidityrequirements or to settle losses;3. the central assets are available at thediscretion of the Council of Lloyd’s tomeet any valid claim that cannot bemet from the resources of any memberfurther up the chain.Lloyd’s also retains the right to request acallable contribution equal to 3% of capacityfrom the syndicate.Lloyd’s works in co-operation with insuranceregulators in the United States and otherparts of the world to strengthen further thesecurity of a Lloyd’s policy. This has resultedin significant amounts of the Syndicate’sfunds being held in various trust fundswhere they cannot be used as ‘workingcapital’ to pay claims, reinsurance premiumsor expenses. This places a strain on theSyndicate’s working capital. Consequentlywe may need to make a cash call, at sometime in the future, to improve the Syndicate’sworking capital position.Investment reportThe Syndicate’s investments produced anincome of 2.1m before expenses in 2014,a rate of return of 0.8%. This was up from 1.2m, also equivalent to 0.5%, during 2013.US bonds achieved an income of 1.28m,while the Sterling bonds added 0.13m. Theremainder was derived from cash balances,money market funds and deposits with theCorporation of Lloyd’s.This unexpectedly supportive policyenvironment bolstered bond prices,particularly longer maturity governmentissues, pushing their implied yields someway back towards their 2012 trough inthe US and to record lows in the Euro-area.Syndicate investment assets totaled 320mon 31 December 2014, up from 234m atthe end of 2013. Investment policy remainsto invest predominantly in high-qualityshort-dated bonds and cash, with a maturityprofile that reflects the short tail nature ofunderwriting commitments. The currencymix is matched to that of the net liabilities.As in previous years, there have been noinvestments in equities. US Dollar bondsaccounted for 64% of assets as at the 31December 2014. Sterling bonds amountedto 3%, with the balance held either incash and equivalents or deposits withthe Corporation of Lloyd’s.In the US bond portfolio, average creditquality is high and the holdings are welldiversified. Tactical allocation did not changesignificantly last year. The portfolio wasconsistently positioned close to the strategicnorm on interest rates with substantialexposure to the credit markets, particularlycorporate bonds, where yields exceed thesovereign alternative. The Sterling and Euroassets remain insufficient to justify the costsof dedicated portfolios of segregatedinvestments, and are instead investedin unitised funds.Whilst it is pleasing to report unexpectedbond price gains in 2014, the consequenceis to depress prospective returns for 2015.Whilst profiles vary between countries andregions, the core global features remainas they have been for several years now;muted economic expansion, low inflation,ultra easy monetary policy and, as a result,elevated asset prices. The US 2015 outlookis positive, and the Federal Reserve is2014 was a year that confounded bothexpected to begin to raise interest rates,economic and financial market expectations. but with core inflation muted, it is likely toThe year began with high hopes that recovery move slowly. The UK is growing moderately,and with low inflation in prospect, basewas gaining traction in the US and UK andrates are expected to be on hold ahead ofthat the worst was over in Europe, JapanMay’s general election. Economic conditionsand several emerging markets. However,appear weak and unlikely to improvedeflationary forces proved more powerfulmaterially in the Euro-area. The Europeanthan expected, especially in the Eurozone.Central Bank is under pressure to do more.The global economy also had to absorbseveral geo-political shocks; notably war inIn summary, investment prospects forUkraine and sharply lower oil prices. Both2015 are challenging. Due to expansionarygrowth and inflation turned out weaker than monetary policy, bond markets are highanticipated. Interest rate normalisation in the and overall rates of return look set to beUS and UK has therefore been delayed,meagre. Economic conditions are sufficientlywhilst more stimulus was introduced in thesoft that policy stimulus and elevated assetprices may persist. However, there is a riskEuro-area, including negative policy rates.4Report of the Directors of the managing agent Hiscox Syndicate 3624 annual accountsthat economic growth surprises positively,potentially driven by lower energy prices.The prospect of less supportive monetarypolicy that would follow is likely to causevolatility in the financial markets.Principal risks and uncertaintiesAn analysis of the principal risks anduncertainties facing the Syndicate is setout in the notes to the financial statements(risk review).Directors’ interestsNone of the Directors of the managingagent who served during the year ended31 December 2014 were underwritingNames at Lloyd’s for the 2012, 2013, 2014or 2015 years of account.S J Bridges (Non Executive)R S Childs (Non Executive Chairman)C J Foulger (Non Executive)J S JonesH C V Keeling (Non Executive)M C S Krefta (Appointed 28 November 2014)P A LawrenceI J MartinB E MasojadaJ PinchinN B TylerR C WatsonI T Webb-Wilson (Non Executive)S J Bridges, formerly an Executive Director,became a Non Executive Director on18 November 2014.Disclosure of information to the auditorsThe Directors of the managing agent whoheld office at the date of approval of thismanaging agent’s report confirm that, so faras they are each aware, there is no relevantaudit information of which the Syndicate’sauditors are unaware; and each Director hastaken all the steps that they ought to havetaken as a Director to make themselvesaware of any relevant audit information andto establish that the Syndicate’s auditors areaware of that information.AuditorsThe managing agent proposes there-appointment of KPMG Audit Plc asthe Syndicate auditors.By order of the BoardI J MartinDirector26 February 2015
Statement of managing agent’s responsibilitiesHiscox Syndicate 3624 annual accountsThe managing agent is responsible forpreparing the Syndicate Annual Report andAccounts in accordance with applicable lawand regulations.The Insurance Accounts Directive (Lloyd’sSyndicate and Aggregate Accounts)Regulations 2008 require the managingagent to prepare Syndicate annualaccounts at 31 December each year inaccordance with UK accounting standardsand applicable law (UK Generally AcceptedAccounting Practice). The Syndicate annualaccounts are required by law to give a trueand fair view of the state of affairs of theSyndicate as at that date and of its profitor loss for that year.to any material departures disclosedand explained in the Syndicate annualaccounts; and4. prepare the Syndicate annual accountson the basis that the Syndicate willcontinue to write future businessunless it is inappropriate to presumethe Syndicate will do so.The managing agent is responsible forkeeping proper accounting records thatdisclose with reasonable accuracy at anytime the financial position of the Syndicateand enable it to ensure that the Syndicateannual accounts comply with the 2008Regulations. It is also responsible forsafeguarding the assets of the SyndicateIn preparing those Syndicate annualand hence for taking reasonable steps foraccounts, the managing agent is required to:prevention and detection of fraud andother irregularities.1. select suitable accounting policies andthen apply them consistently, subject toThe managing agent is responsible for thechanges arising on the adoption of newmaintenance and integrity of the corporateaccounting standards in the year;and financial information included on the2. make judgements and estimates thatcompany’s website. Legislation in the UKare reasonable and prudent;governing the preparation and disseminationof the Syndicate annual accounts may differ3. state whether applicable accountingfrom legislation in other jurisdictions.standards have been followed, subjectStatement of managing agent’s responsibilities Hiscox Syndicate 3624 annual accounts5
Notice regarding the Annual General MeetingHiscox Syndicate 3624 annual accountsUsually the only formal business conductedat the Syndicate Annual General Meeting(AGM) is the appointment of the Syndicateauditors for the following year, and usuallythe attendance at the AGM, when it is held,is minimal.In accordance with the Insurance AccountsDirective (Lloyd’s Syndicate and AggregateAccounts) Regulations 2008 (‘the 2008Regulations’) a Syndicate AGM was heldin 2009 to appoint KPMG Audit Plc as theSyndicate’s registered auditor. The 2008Regulations allow managing agents todispense with the requirement to hold aSyndicate AGM and contain provisions forthe reappointment of the auditor providingcertain criteria are met.6This year, we therefore give notice that:If any objections are received, dependingon the level or nature of such objections,we shall then consider whether to:1. Hiscox Syndicates Limited does notpropose to hold an AGM of the membersof Syndicate 3624 in 2015;1. apply for Lloyd’s consent not to holdan AGM, stating the reasons why not.2. we propose that KPMG Audit Plc areLloyd’s may give its consent subject tore-appointed as the Syndicate’sany such conditions and requirementsregistered auditor for the periodas
I T Webb-Wilson (Non Executive) Company secretary J K Taylor Managing agent’s registered office 1 Great St Helen’s London EC3A 6HX Managing agent’s registered number . The principal activity of Syndicate 3624 is the transaction of general insurance and reinsurance business in th
