Proposed Return of Capital to Shareholders and a 89 for 100 Share Capital Consolidation

25th February 2014

Hamilton, Bermuda (25 February 2014)

Highlights

  • Hiscox today posting a circular regarding proposed Return of Capital
  • Special distribution of 36p per ordinary share, plus 14p per ordinary share instead of a final dividend
  • Shares issued through C and/or D share structure
  • Shareholders can choose between:
    • C shares - taxed as income (default option)
    • D shares - taxed as capital (subject to applicable overseas laws)
  • 89 for 100 share consolidation which preserves NTA per ordinary share
  • Benefits include:
    • Efficient way to return capital
    • Treats all shareholders equally
    • Reduces capital levels to approximately that of the balance sheet post 2013 return of capital resulting in improved capital gearing and return on capital
    • Maintains prudent position on internal and external capital constraints
    • Variation on the structure used by the Company for the 2013 return of capital
  • Conditional on shareholder approval at EGM to be held on 18 March 2014

The deadline for shareholders to apply and return election forms for the capital alternative for the whole or any element of the Return of Capital is 1.00 p.m. on 18 March 2014. Shareholders who wish to receive the income alternative need take no further action as the default option in respect of the Return of Capital is the payment of a dividend. If the Return of Capital is approved it is expected that payments in respect of the Return of Capital will be made to shareholders on 9 April 2014. Further details are set out in the circular to shareholders (the "Circular") being posted today.

Return of Capital

Further to the announcement made on 24 February 2014, Hiscox Ltd ("Hiscox" or the "Company") is today posting the Circular regarding its proposed return of capital by way of a C/D share scheme and associated share capital consolidation. This will comprise of a special distribution to Shareholders of 36 pence per ordinary share (totalling approximately £128 million) and a further amount of 14 pence per ordinary share, instead of the payment of a final dividend for the financial year ended 31 December 2013 (the "Return of Capital"). The Circular provides further details of the Return of Capital and associated share capital consolidation as well as the notice of extraordinary general meeting (the "EGM") to approve them. Terms used in this announcement but which are otherwise undefined shall have the same meanings as set out in the Circular.

Background

The Board has reviewed the forthcoming capital requirements of the Group considering, inter alia, the current rating environment and potential future growth opportunities and has concluded that a special distribution of 36 pence per ordinary share, in addition to the final dividend equivalent of 14 pence per ordinary share, should be made. Following the distribution, the Group's capital levels will be similar to those of the opening balance sheet, post the 2013 capital return which will have a favourable impact on both the Group premium to capital gearing ratio and return on capital, whilst still providing sufficient headroom above existing internal and external capital constraints. This will be the second year in a row the Company has made such a return, however it is not expected this will become the norm.

Final Dividend

The amount equal to 14 pence per existing ordinary share payable to shareholders as part of the Return of Capital in place of a final dividend, together with the interim dividend of 7 pence per share paid in September 2013, represents a total dividend for 2013 equal to 21 pence per share, an increase of 16.7 per cent over the 2012 dividend, in line with our policy of progressive dividend growth. As the final dividend equivalent is being paid as part of the C/D share scheme, a scrip dividend alternative will not be offered to Shareholders.

Details of Return of Capital

The Board has decided to effect the Return of Capital through a structure involving the issue to Shareholders of either one C Share or one D Share for each Existing Ordinary Share held. Shareholders (other than Restricted Shareholders who will automatically receive C Shares) may elect to receive:

  • one C share (the "C Share") for every Existing Ordinary Share held in the capital of the Company, such C Share to receive a dividend of 50 pence per C Share on 9 April 2014 (the "C Share Dividend"); or
  • one D share (the "D Share") for every Existing Ordinary Share held in the capital of the Company, such D Share is expected to be purchased pursuant to the Purchase Offer by UBS Limited, ("UBS") acting as principal for 50 pence per D Share (the "Purchase Offer").

Subject to the satisfaction or waiver of certain conditions by UBS, the Purchase Offer is expected to be announced by the Company on 7 April 2014. Under the Purchase Offer UBS will purchase (as principal, and not as agent, nominee or trustee) all of the D Shares for 50 pence per D Share free and clear from all expenses and commissions.

Following any purchases of D Shares by UBS from Shareholders under the Purchase Offer, and should UBS exercise its put option (which is expected to happen shortly after the making of the Purchase Offer by UBS), the Company will be required to purchase such D Shares from UBS pursuant to the Option Agreement and the Company intends to subsequently cancel the D Shares.

In the event that UBS does not purchase any D Shares by 7 April 2014, for example because any of the conditions in the Purchase Offer Deed are not satisfied or waived by UBS, a default dividend of 50 pence per D Share will be made to Shareholders on 10 April 2014 in respect of each D Share.

The Company expects cheques to be despatched or CREST accounts to be credited (as appropriate), in respect of the C Share Dividend and the Purchase Offer by 9 April 2014.

If the Return of Capital is approved, Shareholders (other than Restricted Shareholders) will be able to elect to receive (i) all C Shares, (ii) all D Shares or (iii) a combination of C Shares and D Shares in respect of their Existing Ordinary Shares. Restricted Shareholders will be deemed to have elected to receive C Shares in respect of each Existing Ordinary Share held in the capital of the Company.

The Directors believe the Return of Capital represents an efficient and effective way to return cash to shareholders which treats all shareholders equally, relative to the size of their existing shareholdings in the Company.

The amounts received under the C Share Dividend should generally be taxed as income for UK tax purposes in respect of the 2014/15 tax year. The amounts received in respect of the D Shares pursuant to the Purchase Offer should generally be taxed as capital for UK tax purposes in respect of the 2014/15 tax year. Shareholders who do not make a valid election will be deemed to have elected to receive C Shares and will receive the C Share Dividend in respect of all of their share entitlement.

Details of Share Capital Consolidation

The Return of Capital will be combined with a consolidation and subdivisions of the Existing Ordinary Shares ("Share Capital Consolidation"). The Directors believe that the Existing Ordinary Shares, like those of other non-life insurers, are generally valued in the market by reference to the net tangible assets ("NTA") value of the Company. Accordingly, the Share Capital Consolidation is being calculated by reference to the Company's last published NTA value, being 31 December 2013. This is with the intention that the NTA value per new ordinary share after the Share Capital Consolidation is approximately equal to the NTA value per Existing Ordinary Share, disregarding any effect that the amount comprising the equivalent of the final dividend per share within the amount of the Return of Capital may have on the NTA value of the Company. The NTA value per ordinary share as at 31 December 2013 was 381.4 pence per ordinary share.

Pursuant to the Share Capital Consolidation, for every 100 Existing Ordinary Shares held at 4.30 p.m. on 18 March 2014 (including any Existing Ordinary Shares held as treasury shares), Shareholders will receive 89 New Ordinary Shares of par value 6 pence each (the "New Ordinary Shares").

The effect of the Share Capital Consolidation will be to reduce the number of issued ordinary shares to reflect the reduction in the Company's overall NTA value (save in respect of the amount comprising the equivalent of the final dividend per share within the amount of the Return of Capital), but Shareholders will own the same proportion of shares in the Company as they did previously, subject to fractional entitlements.

The New Ordinary Shares are expected to be admitted to trading on the Official List and to trading on the London Stock Exchange's main market for listed securities on 19 March 2014 in the same way as the Existing Ordinary Shares and will be equivalent in all material respects to the Existing Ordinary Shares with the exception of their par value, including as to their dividend, voting and other rights.

Expected timetable of principal events

Event Time and/or Date
General  
Announcement of the Return of Capital 24 February 2014
Posting of the Circular to Shareholders 25 February 2014
Latest time and date for receipt of Form of Direction or CREST Proxy Instruction for the EGM for Depositary Interest Holders 2.00 p.m. on 13 March 2014
Latest time and date for receipt of Form of Proxy for the Extraordinary General Meeting for Shareholders 2.00 p.m. on 16 March 2014
Election Deadline: latest time and date for receipt of TTE Instructions from Depositary Interest Holders in relation to the Share Alternatives 1.00 p.m. on 18 March 2014
Election Deadline: latest time and date for receipt of Election Forms in relation to the Share Alternatives for Certificated Holders 1.00 p.m. on 18 March 2014
Extraordinary General Meeting 2.00 p.m. on 18 March 2014
Record Time for the Share Capital Consolidation and entitlement to C Shares and/or D Shares 4.30 p.m. on 18 March 2014
Latest time and date for dealings in Existing Ordinary Shares. Existing Ordinary Shares register closed and Depositary Interests in respect of Existing Ordinary Shares disabled in CREST 4.30 p.m. on 18 March 2014
Cancellation of trading of Existing Ordinary Shares. New Ordinary Shares admitted to the Official List and to trading on the London Stock Exchange's main market for listed securities. Dealings commence in New Ordinary Shares 8.00 a.m. on 19 March 2014
CREST Accounts for Depositary Interests in respect of New Ordinary Shares credited 8.00 a.m. on 19 March 2014
Despatch of share certificates in respect of New Ordinary Shares By 28 March 2014
Alternative 1: C Share Dividend – the default option  
C Shares issued 19 March 2014
C Share Dividend becomes payable 9 April 2014
Despatch of cheques, or if Depositary Interests held in CREST, CREST accounts credited in respect of the C Share Dividend 9 April 2014
Alternative 2: Capital Alternative  
D Shares issued 19 March 2014
Purchase Offer made 7 April 2014
Despatch of cheques, or if Depositary Interests held in CREST, CREST accounts credited in respect of the Purchase Offer 9 April 2014

All reference to times in this announcement are to London times unless otherwise stated.

Extraordinary General Meeting

The Return of Capital and the Share Capital Consolidation require the approval of shareholders, which will be sought at the EGM to be held at Hadsley House, Lefebvre Street, St Peter Port, Guernsey GY1 2JP at 2.00 p.m. on 18 March 2014 and for the convenience of the Company's Shareholders, they may attend the EGM via a video link at the Company's registered office 4th Floor, Wessex House, 45 Reid Street, Hamilton HM 12, Bermuda (11.00 a.m. Bermuda time) and at the Group's London office, 1 Great St Helen's, London EC3A 6HX.

Full details of the Return of Capital and Share Capital Consolidation together with the notice of EGM will be set out in the Circular despatched to Shareholders today.

The Board of Hiscox is being advised on the Return of Capital by UBS Limited.

For further information:

Hiscox Ltd

Jeremy Pinchin, Group Company Secretary +1 441 278 8300

Kylie O'Connor, Head of Group Communications, London +44 (0)20 7448 6656

Copies of the Circular will be available for inspection during normal business hours on any weekday (public holidays excepted) at the offices of Hiscox plc, 1 Great St Helen's, London EC3A 6HX later today up to and including the date of the EGM and will also be available for inspection for at least 15 minutes before as well as during the EGM. A copy of the Circular will also be available on the Company's website, www.hiscoxgroup.com, and will be submitted to the National Storage Mechanism, where it will be available for inspection.

This announcement does not constitute, or form part of, an offer to sell or the solicitation of an offer to subscribe for or buy any securities, nor the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issue or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law.

The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions.

No application will be made to the UK Listing Authority or to the London Stock Exchange for any of the C Shares, D Shares, C Deferred Shares or Deferred Shares to be admitted to the Official List or to trading on the London Stock Exchange's main market for listed securities, nor will the C Shares, D Shares, C Deferred Shares or Deferred Shares be admitted to trading on any other recognised investment exchange.

None of the C Shares, D Shares, C Deferred Shares, Deferred Shares or New Ordinary Shares have been or will be registered under the United States Securities Act of 1933 as amended (the "US Securities Act") or the state securities laws of the United States and none of them may be offered or sold in the United States unless pursuant to a transaction that has been registered under the US Securities Act and the relevant state securities laws or that is not subject to the registration requirements of the US Securities Act or such laws, either due to an exemption therefrom or otherwise.

None of the C Shares, D Shares, C Deferred Shares, Deferred Shares, New Ordinary Shares or this announcement or the Circular has been approved, disapproved or otherwise recommended by any US federal or state securities commission, including the U.S. Securities and Exchange Commission, or other regulatory authority or any non-US securities commission or regulatory authority, nor have such authorities confirmed the accuracy or determined the adequacy of this announcement or the Circular. Any representation to the contrary is a criminal offence in the United States.

UBS Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority in the United Kingdom and acting as financial adviser and corporate broker exclusively for the Company and for no one else in connection with the matters referred to in this announcement or the Circular and will not be responsible to anyone other than the Company (whether or not a recipient of this announcement or the Circular) for providing the protections afforded to clients of UBS Limited nor for providing advice in relation to the matters referred to in this announcement or the Circular or any other matter referred to in this announcement or the Circular. Persons other than the Company are recommended to seek their own financial and professional advice.

Apart from the responsibilities and liabilities, if any, which may be imposed on UBS Limited by the Financial Services and Markets Act 2000 (as amended) or the regulatory regime established thereunder, UBS Limited accepts no responsibility or liability whether arising in tort, contract or otherwise to Shareholders for the contents of this announcement or the Circular or for any other statement made in connection with the Company, the proposed Return of Capital or the Resolutions.

This announcement has been issued by, and is the sole responsibility of, the Company.


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