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Preliminary Results Year ended 31 December 2006
Barbara Merry - Chief ExecutiveJamie MacDiarmid - Finance Director
Adrian Walker - Active Underwriter S382Patrick Gage - Active Underwriter S38Twenty
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Agenda
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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
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Overview and Highlights
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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)
Results Overview
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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
Overview
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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
Business Environment
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Launch of syndicate 38Twenty to underwrite more mainstream non- marine 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
Strategic Developments
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Financials
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Preliminary Highlights
Full Year2006
£’000
Full Year2005£’000
Gross written premium 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
Final dividend per share 10p 8.25p
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Full Year2006
£’000
Full Year2005£’000
Underwriting year 2006 (2005) 1,047 (5,315)
Underwriting year 2005 (2004) 11,278 6,603
Underwriting years 2004 (2003) & prior 6,121 4,963
Total 18,446 6,251
Investment return 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
Group Performance
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Full Year2006
£’000
Full Year2005£’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
Foreign Exchange
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As at 31 Dec 2006
£’000
As at31 Dec 2005
£’000
Absolute return bond fund 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
Total 141,950 123,472
Investment Analysis
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Underwriting Review
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Key points 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
Aviation
0
5
10
15
20
25
1993 1995 1997 1999 2001 2003 2005
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Aviation Net Premium Aviation UNLR
mill
ion
s
Net Premium & Ultimate Net Loss Ratios (UNLR)
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Key points 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
0
1
2
3
4
5
6
7
8
9
1993 1995 1997 1999 2001 2003 2005
0%
20%
40%
60%
80%
100%
120%
140%
160%
Marine Net Premium Marine UNLR
Marine: Hull
Net Premium & Ultimate Net Loss Ratios
mill
ion
s
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Net Premium & Ultimate Net Loss RatiosKey points 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
Marine: Cargo & Specie
0
5
10
15
20
1993 1995 1997 1999 2001 2003 2005
0%
20%
40%
60%
80%
100%
120%
Cargo Net Premium Cargo UNLR
mill
ion
s
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Net Premium & Ultimate Net Loss RatiosKey points 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
Non-Marine: Catastrophe Excess of Loss
0
1
2
3
4
5
6
7
8
9
1993 1995 1997 1999 2001 2003 2005
0%
20%
40%
60%
80%
100%
120%
140%
160%
Cat XL Net Premium Cat XL UNLR
mill
ion
s
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Key points 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
Non-Marine: All Other
0
5
10
15
20
25
30
1993 1995 1997 1999 2001 2003 2005
0%
20%
40%
60%
80%
100%
120%
140%
Non Marine Net Premium Non Marine UNLR
mill
ion
s
Net Premium & Ultimate Net Loss Ratios
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Syndicate 38Twenty
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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
38Twenty
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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
38Twenty
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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
HUG PLC
HUAPatrick Gage/Adrian Walker HUL
382AJW
3820PG
Marine HullCargo/specieJewellers’ BlockAviationUS & International CatDirect Property (UK & Europe)Int’l direct & facultative propertyFinancial InstitutionsPolitical RisksConveyancing
Int’l & US cat Int’l & US direct & facultative propertySpeciality lines
100% 100%
management 100% capital
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Performance
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000
2001
2002
2003
2004
2005
2006
Pre-Tax Profit (£m)
Full year
Atrium gain
NB2004, 2005 and 2006 values are reported under IFRS. 2000 to 2003 are reported under UK GAAP.
0
20000
40000
60000
80000
100000
120000
2000
2001
2002
2003
2004
2005
2006
Gross Written Premiums (£m)
0
5
10
15
20
25
30
35
2000
2001
2002
2003
2004
2005
2006
Dividend
Final Special
70
75
80
85
90
95
100
2000
2001
2002
2003
2004
2005
2006
Combined Ratio %
0
5
10
15
20
25
30
35
2000
2001
2002
2003
2004
2005
2006
EPS (p)
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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)
Executive Directors
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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
Non-Executive Directors
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