Preliminary Results

Year ending 31 December 2005

David Mann – ChairmanBarbara Merry - Chief Executive

Jamie MacDiarmid - Finance DirectorAdrian Walker - Active Underwriter

March 2006

Agenda

Introduction David Mann

Key Points Barbara Merry

Overview of Business Barbara Merry

Financial Performance Jamie MacDiarmid

Catastrophe Impact Adrian Walker

Underwriting Review Adrian Walker

Summary Barbara Merry

Questions

2

Key Points

A challenging year for Hardy on a number of fronts

Peter Hardy retired as Chairman; David Mann appointed

Distraction and cost of the Omega approach

Profit before tax of £7.474m (2004: £8.937m)

Overall underwriting portfolio performed well

Result marred by hurricane losses in second half

Combined ratio of 92.7% (2004: 94.3%) and excluding hurricane Katrina 82.2%

Cash flow strong: dividend of 8.25p proposed

29 years of unbroken profitability in Lloyd’s 3

Overview of Business

4

Syndicate 382 characteristics

a profitable and secure long-term investment 5

Diversification of the portfolio - a balanced book: tested in 2005

Focus on profit, not volume

Management of underwriting risk:- Leading risks so as to influence price- Underwriting a predominantly short tail account- Control of exposures- Underwriting without the purchase of high levels of reinsurance

Management of reserving risk - prudence and consistency of reserving approach

66first class security

Business Mix

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Aviation Cargo & Specie

Catastrophe XoL MarineNon Marine incl all other War & Political risks

Performance

0

2000

4000

6000

8000

10000

12000

14000

16000

2000

2001

2002

2003

2004

2005

Pre-Tax Profit (£m)

Full year

Atrium gain

NB. 2004 and 2005 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

Gross Written Premiums (£m)

0

5

10

15

20

25

30

35

20

00

20

01

20

02

20

03

20

04

20

05

Dividend

Final Special

70

75

80

85

90

95

100

2000

2001

2002

2003

2004

2005

Com bined Ratio %

0

5

10

15

20

25

30

2000

2001

2002

2003

2004

2005

EPS (p)

where others see risk, Hardy sees opportunity 7

Financial Performance

8

Preliminary Highlights

Full Year

2005

£’000

Full year

2004

£’000

Gross written premium 111,276 87,281

Profit before tax 7,474 8,937

Claims ratio 64.1% 57.7%

Expense ratio 28.6% 36.6%

Combined ratio 92.7% 94.3%

Basic earnings per share 15.3p 27.9p

Post tax return on equity 8.3% 14.7%

Shareholders’ funds 67,592 64,847

Net assets per share 191p 184p

Net tangible assets per share 164p 157p

Final dividend per share 8.25p 8.25p

Special dividend - 25p

9

Full Year 2005

£’000

Full Year2004£’000

Underwriting year 2005 (2004) (5,315) (5,688)

Underwriting year 2004 (2003) 6,603 5,798

Underwriting years 2003 (2002) & prior 4,963 3,777

Total 6,251 3,887

Investment return 5,043 3,618

Return on Atrium investment - 4,358

Other income 803 947

Total income 12,097 12,810

Other charges (4,623) (3,873)

Profit before tax 7,474 8,937

Group Performance

10

31 December 2005

£’000

31 December 2004

£’000

Group Share Of Syndicate Assets

Fixed interest 33,343 21,616

Deposits 35,230 29,031

TOTAL 68,573 50,647

Group Assets Supporting Underwriting

Fixed interest 25,072 16,391

Deposits 12,763 12,701

TOTAL 37,835 29,092

Group Free Investments

Equity based investments 12,335 8,936

Foreign exchange contracts 67 217

Deposits 4,662 8,513

TOTAL 17,064 17,666

TOTAL 123,472 97,405

Investments and Cash Equivalents

11

2005 Catastrophe Impact

12

2005 Catastrophe Impact

Hardy has a policy of robust reserving 13

Gross

£’000

Net

£’000

Katrina

- Marine 1,585 491

- Cat XL 10,279 6,210

- Direct property 2,930 2,281

Total 14,794 8,982

Rita 2,101 1,779

Wilma 3,903 1,105

All catastrophes 20,798 11,866

Underwriting cycle – Relative Performance

market leader where pricing can be influenced 14

(25.0%)

(20.0%)

(15.0%)

(10.0%)

(5.0%)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

1 2 3 4 5 6 7 8

Cycle year

Ret

urn

on

cap

acit

y

Hardy cycle (1986 - 1993) Hardy cycle (1994 - 2001) Hardy average

Lloyd's cycle (1986 - 1993) Lloyd's cycle (1994 - 2001) Lloyd's average

Underwriting cycle – Settlement Ratios

market leader where pricing can be influenced 15

0%

20%

40%

60%

80%

100%1

97

5

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

to 3 years development to 5 years development

Cumulative development to 31/12/2005

Set

tlem

ent R

atio

as

% o

f Net

Pre

miu

m

Years of Account

Underwriting Overview

16

Key points

Senior Underwriter: Mervyn Sugden – 30 years’

experience at Hardy

Helicopters comprise 60% of the premium

income to the aviation account

Generating good profits in niches where we

have expertise

General aviation rates holding up better than

airline

Acceptable profit margins achieved in 2005

Similar approach for 2006

actively managing throughout the market’s cycles

Aviation

17

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)

Hull - Key points

Senior Underwriter: Adrian Walker

Market leader in fishing vessels, loss of hire

and harbour craft

Rating scale approach to underwriting

Bluewater hull – still competitive

Brownwater satisfactory

2006 looks promising

Energy book being expanded

specialist risks less prone to competitive pressures 18

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

Net Premium & Ultimate Net Loss Ratios

Cargo & Specie - Key points

Senior Underwriter: Edward Barker – 13 years

experience with Hardy

Core account for many years

Broad range of cargoes insured, also jewellers

block, fine art and collections

Stable market since 2002

Expect to maintain profit margins without

cutting back income

Team strengthened with appointment of Gary

Chick, a specialist specie underwriter

specialist risks less prone to competitive pressures 19

Marine: Cargo & Specie

0

5

10

15

20

25

1993 1995 1997 1999 2001 2003 2005

0%

20%

40%

60%

80%

100%

120%

Cargo Net Premium Cargo UNLR

mill

ion

s

Net Premium & Ultimate Net Loss Ratios Key points

Senior underwriter: Henry Glasse

Volatile market but positive returns across

the cycle

2004 and 2005 suffered from hurricane

experience

2006 under review and participation will

depend on cost and availability of

reinsurance

Non-Marine: Catastrophe Excess of Loss

20

0123456789

10

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

solutions for difficult and unusual risks

Key points

Influenced by hurricane activity in 2004/5

More diversification over the last 3 years

– Direct Property (UK / Europe) – Tim Bartleet

– Accident & Health – Henry Glasse

– Financial Institutions – Adrian Daws

– Political Risk & Trade Credit – George Doughty

– Conveyancing – Roy Partington

– Most recently, International Direct / Fac

Property – Richard Ikin

Non-Marine: All Other

21

0

5

10

15

20

25

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

solutions for difficult and unusual risks

Net Premium & Ultimate Net Loss Ratios

Summary

22

2006 underwriting capacity £110m: if market changes, we will write more

Operational review completed following appointment of new Chairman

Continue to seek new niche lines to strengthen business and diversify underwriting

portfolio - international direct and facultative property account recently added

Will now also work on improving the efficiency of the existing book of business

Line sizes will be increased where we have a strong market footprint

Market is competitive but not irrational in pricing terms so opportunities for

managed growth exist

Hardy’s balance sheet is strong and will support growth

Summary

experts in pricing risk with focus on profit not volume 23

Executive directors

Non-executive directors

Strong reserves

Business led by Hardy

Appendices

24

Barbara Merry – Chief Executive Director of the other Hardy group companies 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 KPMG: manager in insurance sector

Adrian Walker – Active UnderwriterNon-executive director on Board prior to becoming active underwriter

(2001) Formerly underwriter for syndicate 902 (AJ Walker & Others)

Executive Directors

25

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

Peter Hardy - non-executive director Formerly active underwriter of Hardy Worked in the Lloyd's market since 1959

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

26

Strong Reserves

27

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year 4 851 1,641 754 438 582 786 602 366 924 707

Year 5 590 113 212 487 865 1,196 280 880 346

Year 6 54 478 1,268 826 602 289 361 282

Year 7 197 404 247 360 204 313 412

Year 8 241 754 631 385 127 153

Year 9 302 99 503 271 179

Year 10 127 148 348 2

Year 11 61 180 174

Year 12 105 (37)

Year 13 (312)

Current underwriting results routinely supplemented by releases of back year reserves where proven to be unnecessary

Reserving approach relies on a variety of statistical methods, supplemented by underwriter judgement. In addition, the reserves which we establish are rigorously challenged by our professional actuarial advisers

Our reserves are accordingly robust, at high confidence levels

Class of business % Lead

Aviation 51

Cargo & specie 26

Marine hull 67

Non-marine 23

Financial institutions 25

Direct property 26

OVERALL

39

Business led by Hardy

28