32 Dividends paid to owners of the Company continued
The final and interim dividends were either paid in cash or issued as a scrip dividend at the option of the shareholder. The final dividend
for the year ended 31 December 2011 was paid in cash of £44,301,000 (2010: £31,803,000) and 562,194 shares for the scrip dividend
(2010: 3,227,459).
The interim dividend for the year ended 31 December 2012 was paid in cash of £18,206,000 (2011: £18,709,000) and 1,196,214 shares
for the scrip dividend (2011: 276,006).
Subject to shareholder approval at the forthcoming Extraordinary General Meeting on 28 March 2013, the Board proposes to pay 12p per
ordinary share instead of a final dividend for the year ended 31 December 2012. Together with the interim dividend of 6p per ordinary share,
this represents a total dividend for 2012 of 18p per ordinary share. In addition, the Board proposes to pay a special distribution of 38p
per ordinary share. Such amounts will be paid by way of a B share scheme. A scrip dividend alternative will not be offered to shareholders.
33 Acquisitions
On 6 August 2012, the Group acquired a 25% holding in Lark (2012) Ltd, ‘Lark’, for total consideration of £3,104,000. Lark is a specialist
UK insurance broker. The company is treated as an associate of the Group from this date. No goodwill arose on acquisition.
There were no acquisitions in the prior year.
34 Disposals
The Group disposed of its holding in InsuranceBee, Inc. for no consideration.
During 2011, the Group sold its holding in Plexstar Insurance Services Ltd.
35 Contingencies and guarantees
The Group’s subsidiaries are, like most other insurers, continuously involved in legal proceedings, claims and litigation in the normal course
of business.
The Group is subject to insurance solvency regulations in all the territories in which it issues insurance contracts. There are no contingencies
associated with the Group’s compliance or lack of compliance with these regulations.
The following guarantees have also been issued:
(a) Hiscox Ltd and Hiscox Capital Ltd have entered into deeds of covenant in respect of a subsidiary, Hiscox Dedicated Corporate Member
Limited, to meet the subsidiary’s obligations at Lloyd’s. The total guarantee given under these deeds of covenant (subject to limitations)
amounts to £15 million (2011: £15 million) in respect of Hiscox Ltd and $350 million (2011: $350 million) in respect of Hiscox Capital Ltd.
The obligations in respect of this deed of covenant are secured by a fixed and floating charge over certain of the investments and other
assets of the company in favour of Lloyd’s. Lloyd’s has a right to retain the income on the charged investments in circumstances where
it considers there to be a risk that the covenant might need to be called.
(b) During 2012, Hiscox plc entered into a new Letter of Credit and revolving credit facility with Lloyds TSB Bank, for a total $875 million
which may be drawn in cash (under a revolving credit facility), Letter of Credit or a combination thereof, providing that the cash portion
does not exceed $400 million. In addition, the terms also provide that upon request the facility may be drawn in a currency other than
US Dollar. At 31 December 2012 $308 million (2011: $340 million) was drawn by way of Letter of Credit to support the Funds at Lloyd’s
requirement and no cash drawings were outstanding (2011: £nil).
(c) Hiscox Insurance Company Limited has arranged a Letter of Credit of £50,000 (2011: £50,000) with NatWest Bank plc to support
its consortium activities with Lloyd’s.
(d) The managed syndicates are subject to the New Central Fund annual contribution, which is an annual fee calculated on gross
premiums written. This fee was 0.5% for 2013 and 2012. In addition to this fee, the Council of Lloyd’s has the discretion to call a further
contribution of up to 3% of capacity if required.
(e) As Hiscox Insurance Company (Bermuda) Limited is not an admitted insurer or reinsurer in the US, the terms of certain US insurance
and reinsurance contracts require Hiscox to provide Letters of Credit or other terms of collateral to clients. In 2012, Hiscox renegotiated
its Letter of Credit Reimbursement and Pledge Agreement with Citibank for the provision of a Letter of Credit facility in favour of US
ceding companies and other jurisdictions. In addition, Hiscox entered into new Letter of Credit facility agreements with the Royal Bank
of Scotland and Commerzbank AG during 2012. The agreements combined are a three-year secured facility that allowed Hiscox to
request the issuance of up to US$400 million in Letters of Credit. Letters of Credit issued under these facilities are collateralised by US
Government and Corporate Securities of Hiscox Insurance Company (Bermuda) Limited. Letters of Credit under this facility totaling
US$126,579,000 were issued with an effective date of 31 December 2012 (2011: US$68,759,000 on a US$450 million facility).
Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2012 101