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Hiscox Announces Details Of Bermuda Move,
by Robert Lee, for LawAndTax-News.com, London
Monday, October 30, 2006
London insurer Hiscox plc, which announced in September that it would re-locate
to Bermuda, last week sent shareholders a circular describing progress in its
reorganization plan to establish a Bermuda-based holding company.
Main features of the corporate reorganization plan are as follows:
A new Bermudian holding company for the Group, Hiscox Ltd., has been established;
Shareholders of Hiscox will receive one share in Hiscox Ltd. for each share
held in Hiscox;
Application will be made for Hiscox Ltd. to be listed on the London Stock
Exchange and it is expected to replace Hiscox as a member of the FTSE 250
Index;
Shares in Hiscox Ltd. will be tradable in CREST through depository interests;
It is not expected that Hiscox's existing dividend policy will be affected
and shareholders will have the right to elect to receive UK sourced dividends;
The corporate reorganization is expected to be neutral in tax terms for
UK resident shareholders.
Hiscox Ltd. will report consolidated results under IFRS in sterling.
In 2005, Hiscox formed Hiscox Bermuda as a reinsurer in the Bermudian market
and also established Hiscox USA in New York as the base through which the Group
underwrites and distributes specialist products in the USA. The company says
that these developments were in response to a recognition that Hiscox needed
to have operations on the ground in the US where the non-life markets are considered
to be the largest in the world and in Bermuda which had become one of the major
reinsurance centres.
In addition, a significant proportion of the business that is written in Hiscox
Global Markets, the Group's international market business unit substantially
based in Lloyd's, emanates from the USA. US business accounted for 36.3% of
the Group’s gross earned premiums in 2005. With the formation of Hiscox
Bermuda and Hiscox USA and the strong growth of these divisions anticipated
by the directors, the amount of US and Bermudian originated business is expected
to increase significantly.
Hiscox says that it is appropriate to move the domicile of the Group to Bermuda
for the following reasons:
As the major issues and risks are expected increasingly to arise in Hiscox’s
Bermudian and US businesses, the Board believes that the centre for decision
making needs to be in close proximity to the originating markets for those
risks;
It is anticipated that such a move will demonstrate Hiscox’s commitment
to the Bermudian and US markets and consequently lead to an increased flow
of business from insurance brokers active in those markets. Indeed, since
the opening of Hiscox Bermuda and Hiscox USA a number of new brokers have
begun to show new business to the Group; and
Many of the Group’s principal competitors already enjoy the substantial
potential tax benefits that would become available to Hiscox Ltd and that
this scheme should improve the prospects for the Group’s share price.
The company intends that the Scheme be neutral in tax terms for UK-resident
shareholders. In particular, a UK-resident Hiscox shareholder who receives Hiscox
Ltd shares under the Scheme should not be charged for capital gains tax or corporation
tax on chargeable gains as a result of the exchange of his Hiscox shares for
Hiscox Ltd shares.
Hiscox Ltd will, shortly after the Scheme becomes effective, put in place
a dividend access mechanism which is designed to preserve the current UK tax
treatment of UK-resident Hiscox shareholders in relation to dividends to be
paid by Hiscox Ltd. Under this dividend access mechanism, holders of Hiscox
Ltd shares may elect to be paid dividends from Hiscox via a trustee rather than
from Hiscox Ltd. Hiscox Ltd will send further details of the plan to shareholders
and an explanation of how holders of Hiscox Ltd shares may elect to receive
dividends from Hiscox shortly after the Scheme becomes effective.
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