3 Management of risk continued
3.2 Financial risk continued
(e) Liquidity risk continued
The available headroom of working capital is monitored through the use of a detailed Group cash flow forecast which is reviewed
by management monthly or more frequently as required.
Average contractual maturity analysed by
2012 2011
denominational currency of investments as at 31 December Years Years
Pound Sterling 1.58 2.26
US Dollar 5.97 5.64
Euro 2.08 1.45
Canadian Dollar 2.13 4.01
The following is an analysis by liability type of the estimated timing of net cash flows based on the net claims liabilities held. The Group does
not discount claims liabilities. The estimated phasing of settlement is based on current estimates and historical trends and the actual timing
of future settlement cash flows may differ materially from that disclosure below.
Liquidity requirements to settle estimated Within Between one Between two Over 2012
one year and two years and five years five years Total
profile of net claim liabilities on balance sheet £000 £000 £000 £000 £000
Reinsurance inwards 194,812 98,970 67,604 32,860 394,246
Property – marine and major assets 86,882 41,829 34,942 5,242 168,895
Property – other assets 99,599 26,896 18,414 1,052 145,961
Casualty – professional indemnity 160,302 124,411 256,700 17,838 559,251
Casualty – other risks 59,053 30,705 34,988 2,365 127,111
Other* 50,443 14,129 14,906 4,523 84,001
Total 651,091 336,940 427,554 63,880 1,479,465
Liquidity requirements to settle estimated Within Between one Between two Over 2011
one year and two years and five years five years Total
profile of net claim liabilities on balance sheet £000 £000 £000 £000 £000
Reinsurance inwards 230,546 110,980 73,170 37,288 451,984
Property – marine and major assets 80,386 38,146 32,185 5,040 155,757
Property – other assets 98,334 25,568 16,954 819 141,675
Casualty – professional indemnity 150,017 124,183 230,161 17,353 521,714
Casualty – other risks 60,093 32,768 37,042 5,350 135,253
Other* 51,250 13,536 14,241 4,333 83,360
Total 670,626 345,181 403,753 70,183 1,489,743
*Includes a diverse mix of certain specialty lines such as kidnap and ransom, terrorism, bloodstock and other risks which contain a mix of property and casualty exposures.
Details of the payment profile of the Group’s borrowings, derivative instruments and other liabilities are given in notes 19 and 27.
(f) Currency risk
The Group operates internationally and its exposures to foreign exchange risk arise primarily with respect to the US Dollar, Pound Sterling
and the Euro. These exposures may be classified in two main categories:
1) Structural foreign exchange risk through consolidation of net investments in subsidiaries with different functional currencies within
the Group results; and
2) Operational foreign exchange risk through routinely entering into insurance, investment and operational contracts, as a Group
of international insurance entities serving international communities, where rights and obligations are denominated in currencies
other than each respective entity’s functional currency.
The Group’s exposure to structural foreign exchange risk primarily relates to the US Dollar net investments made in its domestic operation
in Bermuda and its overseas operation in Guernsey and the US. Other structural exposures also arise on a smaller scale in relation to net
investments made in European operations. The Group’s risk appetite permits the acceptance of structural foreign exchange movements
within defined aggregate limits and exchange rate parameters which are monitored centrally. Exchange rate derivatives are used when
appropriate to shield the Group against significant movements outside of a defined range.
Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2012 71