Hub International (HBG) 10-Q 2006 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended: March 31, 2006

Commission file number: 1-31310

HUB INTERNATIONAL LIMITED

(Exact name of registrant as specified in its Charter)

Canada (State or other jurisdiction of incorporation or organization)	36-4412416 (I.R.S. Employer Identification No.)
55 East Jackson Boulevard, Chicago, Illinois (Address of principal executive offices)	60604 (Zip Code)

(877) 402-6601

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ          No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o          Accelerated filer þ          Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes o          No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class
Common Shares Outstanding at May 1, 2006
31,941,636

HUB INTERNATIONAL LIMITED

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)		3
Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005		3
Consolidated Statements of Earnings for the three months ended March 31, 2006 and 2005		4
Consolidated Statements of Retained Earnings for the three months ended March 31, 2006 and 2005		5
Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005		6
Notes to Interim Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures about Market Risk		37
Item 4. Controls and Procedures		37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 5. Other Information		39
Item 6. Exhibits		40
SIGNATURE		41
EX-31.1
EX-31.2
EX-32.1
EX-32.2

  2   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Hub International Limited

Consolidated Balance Sheets

As of March 31, 2006 and December 31, 2005

(in thousands of U.S. dollars)

(unaudited)

	2006		2005
ASSETS
Current assets:
Cash and cash equivalents	$	166,500	$	70,118
Trust cash		64,668		113,349
Accounts and other receivables		175,652		230,654
Income taxes receivable		3,895		6,001
Future income taxes		4,516		4,971
Prepaid expenses		5,643		6,436
Total current assets		420,874		431,529
Goodwill		425,528		421,158
Other intangible assets		103,899		105,007
Property and equipment		28,737		28,160
Future income taxes		4,739		4,528
Other assets		10,013		10,971
Total assets	$	993,790	$	1,001,353
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank debt	$	75,000	$	—
Accounts payable and accrued liabilities		261,299		384,174
Income taxes payable		9,046		4,344
Future income taxes		353		359
Current portion long-term debt and capital leases		6,451		4,910
Total current liabilities		352,149		393,787
Long-term debt and capital leases		131,158		135,363
Subordinated convertible debentures		35,000		35,000
Future income taxes		17,922		17,277
Total liabilities		536,229		581,427
Commitments and contingencies
Shareholders’ equity
Share capital		291,914		270,199
Contributed surplus		18,675		16,989
Cumulative translation account		31,860		31,893
Retained earnings		115,112		100,845
Total shareholders’ equity		457,561		419,926
Total liabilities and shareholders’ equity	$	993,790	$	1,001,353

(the accompanying notes form an integral part of the interim financial statements)

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   3 

Hub International Limited

Consolidated Statements of Earnings

For the three months ended March 31, 2006 and 2005

(in thousands of U.S. dollars, except per share amounts)

(Unaudited)

		2006			2005
Revenue
	Commission income	$	99,892		$	86,914
	Contingent commissions and volume overrides		31,169			29,160
	Other		3,007			3,107
			134,068			119,181
Expenses
	Compensation (includes Talbot earnout compensation of $4,664 and $7,194, respectively, and other non-cash stock based compensation of $1,635 and $1,804, respectively)		74,666			71,466
	Selling, occupancy and administration		22,398			19,615
	Depreciation		2,142			2,064
	Interest expense		3,043			2,382
	Intangible asset amortization		3,276			1,833
	Gain on disposal of subsidiaries, property, equipment and other assets		(221	)		(2,412	)
	Gain on forgiveness of debt		—			(4,500	)
			105,304			90,448
Net earnings from continuing operations before income taxes			28,764			28,733
Provision for income tax expense (benefit)
	Current		11,758			13,604
	Future		261			(978	)
			12,019			12,626
Net earnings from continuing operations			16,745			16,107
Net earnings (loss) from discontinued operations			(279	)		373
Net earnings		$	16,466		$	16,480
Basic earnings (loss) per share
	Continuing operations	$	0.53		$	0.53
	Discontinued operations		(0.01	)		0.01
	Total operations	$	0.52		$	0.54
Diluted earnings (loss) per share
	Continuing operations	$	0.47		$	0.46
	Discontinued operations		(0.01	)		0.01
	Total operations	$	0.46		$	0.47
Weighted average shares outstanding — Basic (000’s)			31,756			30,368
Weighted average shares outstanding — Diluted (000’s)			36,981			36,397

(the accompanying notes form an integral part of the interim financial statements)

  4   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

Hub International Limited

Consolidated Statements of Retained Earnings

For the three months ended March 31, 2006 and 2005

(in thousands of U.S. dollars)

(Unaudited)

	2006			2005
Retained earnings — Beginning of period	$	100,845		$	82,502
Net earnings		16,466			16,480
Dividends		(2,199	)		(1,835	)
Retained earnings — End of period	$	115,112		$	97,147

(the accompanying notes form an integral part of the interim financial statements)

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   5 

Hub International Limited

Consolidated Statements of Cash Flows

For the three months ended March 31, 2006 and 2005

(in thousands of U.S. dollars)

(Unaudited)

		2006			2005
OPERATING ACTIVITIES
Net earnings		$	16,466		$	16,480
Items not affecting cash
	Amortization and depreciation		5,418			3,940
	Gain on disposal of subsidiaries, property, equipment and other assets		167			(2,412	)
	Compensation for Talbot earnout		4,664			7,194
	Other non-cash stock based compensation		1,635			1,804
	Gain on forgiveness of debt		—			(4,500	)
	Future income taxes		155			(972	)
Non-cash working capital items Trust cash			48,655			15,066
	Accounts and other receivables		53,495			33,113
	Prepaid expenses		741			769
	Accounts payable and accrued liabilities		(105,420	)		(65,817	)
	Other assets		135			129
	Income taxes		7,994			8,398
Net cash flows from operating activities			34,105			13,192
INVESTING ACTIVITIES
Property and equipment — purchases			(2,904	)		(936	)
Property and equipment — proceeds on sale			—			1
Purchase of subsidiaries, net of cash received			(8,448	)		(18	)
Sale of subsidiaries			1,174			3,876
Other assets			276			4,399
Net cash flows from (used for) investing activities			(9,902	)		7,322
FINANCING ACTIVITIES
Bank debt			75,000			—
Long-term debt and capital leases — repayments			(1,374	)		(4,263	)
Proceeds from exercise of stock options			704			504
Dividends paid			(2,199	)		(1,835	)
Windfall tax benefit			80			—
Net cash flows from (used for) financing activities			72,211			(5,594	)
Effect of exchange rate changes on cash and cash equivalents			(32	)		(232	)
Change in cash and cash equivalents			96,382			14,688
Cash and cash equivalents — Beginning of period			70,118			98,204
Cash and cash equivalents — End of period		$	166,500		$	112,892

(the accompanying notes form an integral part of the interim financial statements)

  6   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

Hub International Limited

Notes to Interim Consolidated Financial Statements

For the three months ended March 31, 2006 and 2005 (unaudited)

(in thousands of U.S. dollars, except per share amounts or as otherwise indicated)

1.  Nature of operations

Hub International Limited (the “Company”) is an international insurance brokerage that provides a variety of property and casualty, life and health, employee benefits, investment and risk management products and services. The Company’s shares are listed on both the New York Stock Exchange (NYSE: HBG) and the Toronto Stock Exchange (TSX: HBG).

2.  Summary of significant accounting policies

The interim consolidated financial statements do not include all disclosures required by Canadian generally accepted accounting principles (Canadian GAAP) for annual financial statements and accordingly, should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2005 as set out on pages 42 to 77 of the Company’s 2005 Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for a fair presentation of the accompanying financial statements have been reflected therein. Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. These interim consolidated financial statements of the Company are expressed in United States (U.S.) dollars and have been prepared in accordance with Canadian GAAP using the same accounting principles as were used for the Company’s consolidated financial statements for the year ended December 31, 2005. These principles differ in certain respects from United States generally accepted accounting principles (U.S. GAAP) and, to the extent that they affect the Company, the differences are described in note 17, “Reconciliation to U.S. GAAP.”

Effects of new pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued revised Statement of Financial Accounting Standards (SFAS) No. 123 (R), “Share-Based Payment,” which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” This revised statement, which requires that the cost of all share-based payment transactions be recognized in the financial statements, establishes fair value as the measurement objective and requires entities to apply a fair-value-based measurement method in accounting for share-based payment transactions. The Company previously recognized the fair value of stock based compensation as an expense over the period in which entitlement to the compensation vests. The Company has applied the provisions of SFAS No. 123 (R) effective January 1, 2006 using the modified prospective method and therefore has not restated prior quarters. The impact to the Company is immaterial with no effect on earnings per share and no separate income statement presentation is necessary. SFAS No. 123 (R) also requires the benefits of tax deductions in excess of compensation amounts recognized for book purposes to be reported as a financing cash flow rather than as an operating cash flow as required previously. This requirement reduced net operating cash flows by $80 and increased net financing cash flows by the same amount in the first quarter 2006. In March 2005, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS No. 123 (R) and the valuation of share-based payments for public companies. The Company has applied the provisions of SAB 107 in the first quarter 2006 and as a result all compensation expense is presented on one line on the Company’s Consolidated Statements of Earnings for all periods presented.

On January 27, 2005, the Accounting Standards Board issued Canadian Institute of Chartered Accountants (“CICA”) handbook section 1530 Comprehensive Income (“Section 1530”). Section 1530 introduced a new requirement to temporarily present certain gains and losses outside net income in a new component of shareholders’ equity entitled Comprehensive Income. This standard substantially harmonizes Canadian GAAP with U.S. GAAP and is effective for the Company beginning January 1, 2007. The Company is currently evaluating the impact of this standard on its consolidated financial position, results of operations and cash flows.

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   7 

3.  Commitments and contingencies

(a) On July 1, 2004, the Company purchased all of the common shares of Satellite Acquisition Corporation (Satellite) a corporation formed by senior management at Talbot Financial Corporation (Talbot). In turn, Satellite purchased 100% of Talbot from Safeco Corporation. The Company will purchase special shares of Satellite owned by the management of Talbot using a combination of both restricted and unrestricted Hub common shares or cash. The first payment of $16.4 million was made in cash on September 1, 2005, based upon Talbot’s earnings for the 12 months ending December 31, 2004. The second payment of $19.0 million was made in 746,000 of the Company’s common shares on March 31, 2006, based upon Talbot’s earnings for the 12 months ending December 31, 2005. The remaining payment will be made on March 31, 2007 based upon Talbot’s earnings for the 12 month period ending December 31, 2006. The contingent payment to Talbot management is recorded by the Company as a charge to earnings over the period in which the payments are earned because it is a compensation based arrangement and specifically a performance award. The management of Talbot was and is to be compensated for future services based on achieving certain performance target during each of the 12 months ending December 31, 2004, 2005 and 2006. The Company estimates that the aggregate value of compensation which will be recognized under this arrangement will be approximately $55 million, of which $4.7 million and $7.2 million were recognized in the three months ended March 31, 2006 and 2005, respectively. In total $47.8 million has been recognized from the date of acquisition through March 31, 2006 as an expense with an offsetting credit to accounts payable and accrued liabilities, and $12.4 million remained unpaid at March 31, 2006.

In connection with other various acquisitions completed through March 31, 2006, the Company may be obligated to pay contingent consideration up to a maximum sum of approximately $24.2 million in cash and $10.2 million in common shares based upon management’s best estimate of acquired brokerages achieving certain targets. The contingent payments are payable on various dates through April, 2010 according to the terms and conditions of each purchase agreement. Any additional consideration will be recorded as an adjustment to goodwill once the contingency is resolved. In connection with contingent consideration earned as at March 31, 2006, the financial statements reflect a liability to pay cash of $0.3 million.

(b)

As previously reported in the Company’s Annual Report on Form 10-K for the period ended December 31, 2005, the insurance brokerage industry in general and certain of the Company’s subsidiaries in particular are the subject of ongoing investigations by state attorneys general and insurance regulators regarding contingent commissions and other practices. As also previously reported, various class actions have been filed with respect to such matters. The Company has not recorded a liability at March 31, 2006 related to these matters. See note 4(a) of the Company’s consolidated financial statements for the year ended December 31, 2005 as set out on pages 56 to 57 of the Company’s Annual Report on Form 10-K.

(c)

In connection with the Company’s executive share purchase plan, under certain circumstances, the Company may be obligated to purchase loans for officers, directors and employees from a Canadian chartered bank totaling $3,908 and $3,912 as of March 31, 2006 and December 31, 2005, respectively, to assist in purchasing common shares of the Company. The Company no longer makes loans to its executive officers and directors. As collateral, the employees have pledged 383,000 common shares as of March 31, 2006 and December 31, 2005, respectively, which have a market value of $10,808 and $9,877 as of March 31, 2006 and December 31, 2005, respectively. The loans will mature during 2009 and 2010 and bear interest at a rate of Canadian prime plus 0.5%. The interest rate at March 31, 2006 was 6.0%. Interest on the loans in the amount of $57 and $49 for the three months ended March 31, 2006 and 2005, respectively, was paid by the Company and is included in compensation expense.

4.  Acquisitions

The Company’s strategic business plan includes the regular and systematic evaluation and acquisition of insurance brokerages in new and existing markets. Insurance brokerages, due to their nature, typically maintain a very low capital to earnings ratio. As a result, the Company records a substantial amount of goodwill and other intangible assets in connection with acquisitions.

  8   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

The Company typically pays a significant portion of the consideration for an acquired brokerage in cash. Consideration for the remainder of the purchase price is normally in the form of the Company’s common shares based on the fair market value of the Company’s common shares as traded on the NYSE or TSX, and is defined and calculated pursuant to the acquisition agreement. In addition, previous owners of certain entities acquired are entitled to contingent consideration if certain revenue or profitability targets are met. See note 3 “Commitments and contingencies.”

During the first quarter 2006, the Company acquired certain assets of five insurance brokerages. All of the acquisitions were accounted for using the purchase method of accounting. Accordingly, the results of operations and cash flows of the acquired companies have been included in the Company’s consolidated results from their respective acquisition dates.

The preliminary allocation of the purchase price, including goodwill and other identifiable intangible assets, and the cost of the acquired brokerages in the first quarter 2006 are summarized below, as well as adjustments to preliminary allocations and contingent consideration, relating to prior period acquisitions.

Current assets	$	(1,762	)
Current liabilities		162
Property, equipment and other assets		2,339
Net assets at fair value	$	739
Consideration
Cash	$	8,479
Payable		(511	)
Common shares (at market value)		1,566
	$	9,534
Goodwill	$	5,544
Customer relationships		2,491
Non-competition covenants		760
	$	8,795
Number of shares issued as consideration (000’s)		59

Of the goodwill acquired, $5,218 is deductible for tax purposes. Goodwill above reflects a reduction of $314 associated with adjustments to preliminary allocations net of contingent consideration relating to prior period acquisitions.

During the first quarter 2006, the Company sold assets of certain insurance brokerages, for $1,174, resulting in a net loss of $364, primarily from the sale of our U.S. financial services operations. See note 5 “Discontinued Operations”.

5.  Discontinued operations

During the first quarter 2006, the Company sold its U.S. financial services operation (the Discontinued Business). As a result of this disposal, the results of operations for the Discontinued Business have been reported as a net earnings (loss) from discontinued operations in our Consolidated Statements of Earnings for all periods presented.

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   9 

Summarized statement of earnings disclosure for the Discontinued Business are as follows:

	First three
	months
	2006			2005
Revenue	$	43		$	2,516
Net earnings (loss) before taxes	$	(466	)	$	630
Provision for income tax expense (benefit)	$	(187	)	$	257
Net earnings (loss) from discontinued operations	$	(279	)	$	373

Summarized balance sheet disclosure for the Discontinued Business are as follows:

	March 31,		December 31,
	2006		2005
Total current assets	$	—	$	2,265
Total assets	$	—	$	5,054
Total current liabilities	$	—	$	5,173
Total liabilities	$	—	$	6,057
Total shareholders’ equity (deficit)	$	—	$	(1,003	)

Summarized statement of cash flows disclosure for the Discontinued Business are as follows:

	First three
	months
	2006		2005
Net cash flows from (used for) operating activities	$	24	$	(209	)
Net cash flows from investing activities		—		230
Net cash flows (used for) financing activities		—		(84	)
Net cash flows from (used for) discontinued operations	$	24	$	(63	)

6.  Accounts and other receivables

Accounts and other receivables consist of the following:

	March 31,			December 31,
	2006			2005
Client premiums receivable	$	98,323		$	153,883
Commissions receivable		58,283			42,223
Claims receivable		17,690			27,513
Less: Allowance for doubtful accounts		(1,979	)		(1,931	)
Less: Allowance for policy cancellations		(1,796	)		(1,964	)
		170,521			219,724
Other receivables		5,131			10,930
	$	175,652		$	230,654

  10   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

7.  Intangible assets

As of March 31, 2006 and December 31, 2005, the gross carrying amount and accumulated amortization of intangible assets other than goodwill were as follows:

		As of March 31, 2006						As of December 31, 2005
		Gross						Gross
		Carrying		Accumulated				Carrying		Accumulated
		Amount		Amortization		Total		Amount		Amortization		Total
Definite life intangible assets:
	Customer relationships	$	118,129	$	21,687	$	96,442	$	116,878	$	19,109	$	97,769
	Non-competition covenants		4,820		1,220		3,600		1,397		679		718
			122,949		22,907		100,042		118,275		19,788		98,487
Indefinite life intangible assets:
	Non-competition covenants		3,857		—		3,857		6,520		—		6,520
Total		$	126,806	$	22,907	$	103,899	$	124,795	$	19,788	$	105,007

The Company is unable to estimate the useful life of certain non-competition covenants. These indefinite life intangible assets are reviewed annually for impairment. Once a non-competition covenant is triggered, following the departure of an employee from the Company, the Company’s policy is to amortize the related intangible asset over the period of the contractual obligation.

Additions, excluding dispositions, to intangible assets during the three months ended March 31, 2006 and 2005 were as follows:

		2006		2005
Definite life intangible assets:
	Customer relationships	$	2,491	$	—
	Non-competition covenants		110		—
			2,601		—
Indefinite life intangible assets:
	Non-competition covenants		650		—
Total		$	3,251	$	—

The changes in the carrying amount of goodwill for the three months ended March 31, 2006 and the year ended December 31, 2005, are as follows:

	Operations			Operations
	in Canada			in U.S.			Total
Balance as of December 31, 2004	$	95,322		$	281,354		$	376,676
Goodwill acquired during 2005		2,681			41,256			43,937
Goodwill disposed during 2005		(2,041	)		(497	)		(2,538	)
Cumulative translation adjustment		3,083			—			3,083
Balance as of December 31, 2005		99,045			322,113			421,158
Goodwill acquired during 2006		—			5,544			5,544
Goodwill disposed during 2006		—			(1,072	)		(1,072	)
Cumulative translation adjustment		(102	)		—			(102	)
Balance as of March 31, 2006	$	98,943		$	326,585		$	425,528

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   11 

Changes to goodwill and intangible assets during the first quarter 2006 relate to acquired brokerages in the first quarter 2006, adjustments to preliminary allocations and contingent consideration relating to prior period acquisitions, as well as the disposition of the financial services operation in the U.S.

For the three months ended March 31, 2006 and 2005, amortization has been comprised of the following:

	2006		2005
Customer relationships	$	2,735	$	1,778
Non-competition covenants		541		55
Total	$	3,276	$	1,833

The Company estimates the amortization charges for 2006 through 2010 for all acquisitions consummated through March 31, 2006 will be:

	2006		2007		2008		2009		2010
Year ended December 31,
Customer relationships	$	10,288	$	9,955	$	9,575	$	9,318	$	9,135
Non-competition covenants		2,112		1,283		661		182		96
Total	$	12,400	$	11,238	$	10,236	$	9,500	$	9,231

8.  Accounts payable and accrued liabilities

Accounts payable and accrued liabilities consist of the following:

	March 31,		December 31
	2006		2005
Insurance premiums payable	$	172,108	$	230,178
Commissions payable		17,446		35,705
Claims payable		19,262		33,694
Self insured liabilities		7,779		6,049
Other accounts payable and accrued liabilities		32,394		51,878
Compensation related to the Talbot earnout		12,310		26,670
	$	261,299	$	384,174

9.  Debt

Long-term debt and capital leases

	March 31,			December 31,
	2006			2005
Series A Senior Notes, with interest at 5.71% (1)	$	10,000		$	10,000
Series B Senior Notes, with interest at 6.16% (1)		55,000			55,000
Revolving U.S. Dollar LIBOR Loan (2)		65,000			65,000
Term loan, variable interest, due December 2007		2,000			2,300
Various other unsecured notes payable and debt (3)		5,484			7,788
Capital leases (3)		125			185
Long-term debt and capital leases		137,609			140,273
Less current portion		(6,451	)		(4,910	)
	$	131,158		$	135,363

  12   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

Future repayments of long-term debt and capital leases are as follows:

For the twelve months ended March 31,
2007	$	6,451
2008		2,226
2009		5,926
2010		69,672
2011		4,584
2012 and thereafter		48,750
	$	137,609

Notes:

(1) Senior Notes — as at March 31, 2006 the Company had outstanding $65 million aggregate principal amount of unsecured senior notes issued June 10, 2003. The senior notes were issued in two series. Series A represents $10 million aggregate principal amount of 5.71% senior notes with interest due semi-annually, and principal of $3,333 due annually, June 15, 2008 through June 15, 2010. Series B represents $55 million aggregate principal amount of 6.16% senior notes with interest due semi-annually, and principal of $11,000 due annually, June 15, 2009 through June 15, 2013. The senior notes were sold on a private basis in the United States to institutional accredited investors. The Company incurred approximately $0.7 million in fees and expenses related to the offering of these notes, which were capitalized and are being amortized to expense over the term of the notes. At March 31, 2006 the Company was in compliance with all financial covenants governing the senior notes.

On July 15, 2003, the Company entered into an interest rate swap agreement. The effect of the swap is to convert the fixed rate interest payments on the 5.71% senior notes and 6.16% senior notes in amounts of $10 million and $55 million, respectively, to a floating rate, resulting in an expense of approximately $0.2 million for the three months ended March 31, 2006 and a savings of approximately $0.2 million for the three months ended March 31, 2005. The total savings from July 18, 2003 to March 31, 2006 was $2.2 million. The Company accounts for the swap transaction using the synthetic instruments method under which the net interest expense on the swap and associated debt is reported in earnings as if it were a single, synthetic, financial instrument. As at March 31, 2006, the Company estimated the fair value of the swap to be $5.1 million, which is not recognized in these financial statements. Accordingly, $5.1 million is the estimated amount that the Company would need to pay to terminate the swap as of March 31, 2006.

(2) Revolving U.S. dollar LIBOR loan — The Company had an unsecured facility totaling $75 million, bearing interest at a floating rate of prime plus 1% or 112.5 basis points above LIBOR which was paid in full and terminated on April 4, 2006. LIBOR was 4.83% and 4.39% at March 31, 2006 and December 31, 2005, respectively. The facility was available on a revolving basis for one year. Borrowings under this facility totaled $65 million at March 31, 2006 and December 31, 2005. As of March 31, 2006, the Company was in compliance with all financial covenants governing this facility.

(3) Certain property and equipment have been pledged as collateral in amounts not less than the outstanding balance of these loans at March 31, 2006 and December 31, 2005, respectively.

Demand U.S. dollar base rate loan

The Company has an undrawn $10.3 million facility which bears interest at the bank’s U.S. rate, which was 8.25% and 7.75% at March 31, 2006 and December 31, 2005, respectively, plus 50 basis points. Borrowings on the facility are repayable on demand.

Bank debt

On March 30, 2006, the Company incurred bank debt of $75 million. This non-revolving unsecured credit facility was repaid in full and terminated on April 4, 2006. See note 18 “Subsequent events”.

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   13 

Subordinated convertible debentures

In June, 2001, the Company issued 8.5% convertible subordinated debentures (the “Fairfax notes”) in the amount of $35 million due June 28, 2007 to certain subsidiaries of Fairfax Financial Holdings Limited (Fairfax). The Fairfax notes are convertible by the holders at any time into the Company’s common shares at C$17.00 per share. Beginning June 28, 2006, the Company may require conversion of the Fairfax notes into common shares at C$17.00 per share if, at any time, the weighted average closing price of the Company’s common shares on the TSX for twenty consecutive trading days equals or exceeds C$19.00 per share. If converted, Fairfax would have owned approximately 30% of the Company’s total outstanding common shares as of March 31, 2006.

10. Shareholders’ equity

Share capital

At March 31, 2006 and December 31, 2005, there were an unlimited number of non-voting, preferred shares authorized, issuable in series on such terms and conditions as set by the Board of Directors, of which no shares were issued. At March 31, 2006 and December 31, 2005, there were an unlimited number of common shares authorized, of which 31,818,000 and 30,952,000 were issued and outstanding as at March 31, 2006 and December 31, 2005, respectively.

	Common Shares
	Outstanding
	(000’s)		Amount
Balance, December 31, 2005		30,952	$	270,199
Shares issued		59		1,566
Shares issued for contingent consideration		746		19,024
Stock options exercised		46		704
Restricted share units (RSUs) released		15		421
Balance, March 31, 2006		31,818	$	291,914

Contributed surplus

	Amount
Balance, December 31, 2005	$	16,989
Non-cash stock based compensation		1,480
RSUs released		(267	)
Windfall tax benefit		473
Balance, March 31, 2006	$	18,675

Cumulative translation account

	Amount
Balance December 31, 2005	$	31,893
Translation of self-sustaining foreign operations		(33	)
Translation of debt financing of self-sustaining foreign operations		—
Balance, March 31, 2006	$	31,860

  14   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

11. Equity incentive plan

Under the Company’s equity incentive plan, stock based compensation includes stock options and RSUs. The Company’s accounting policy is to recognize the fair value of stock based compensation as an expense over the period in which entitlement to the compensation vests. The number of common shares that may be issued under the Equity Incentive Plan is limited to 3,631,820 common shares.

The Company estimates fair value of stock options granted using the Black-Scholes valuation model, which requires assumptions to be made in relation to the expected term of the stock option, volatility in the price of the underlying common shares, interest rates and dividend yield. The fair value model is particularly sensitive to the changes in the price and price volatility of the Company’s common shares. The Company estimates the fair value of RSUs granted at the fair market value of the Company’s common shares on the date of grant.

Stock Options

No options were issued in the three months ended March 31, 2006. The maximum option term is seven years, and the options vest at one-third per year over three years of continuous employment. All stock options were fully vested as of March 31, 2006.

A summary of the stock option activity and related information for the three months ended March 31, 2006 consists of the following:

	Number			Weighted-Average
	(000’s)			Exercise Price
Balance, December 31, 2005		1,136		$	15.39
Exercised (Intrinsic value $587)		(46	)	$	15.31
Balance, March 31, 2006		1,090		$	15.40

The following table summarizes information about the stock options outstanding at:

	March 31, 2006										December 31, 2005
			Number		Weighted-Average		Number		Number				Number		Weighted-Average		Number		Number
Exercise	Intrinsic		Outstanding		Remaining		Exercisable		Vested		Intrinsic		Outstanding		Remaining		Exercisable		Vested
Price	Value		(000’s)		Contractual Life		(000’s)		(000’s)		Value		(000’s)		Contractual Life		(000’s)		(000’s)
$15.67	$	12.41		932		3.20 years		932		1,225	$	10.13		969		3.43 years		969		1,225
$13.79	$	14.29		158		3.75 years		158		266	$	12.01		167		4.00 years		102		200
				1,090		3.28 years		1,090		1,491				1,136		3.52 years		1,071		1,425

Restricted Share Units

In the first quarter ended March 31, 2006, 222,000 RSUs were granted as follows: 7,000 RSUs were granted to the members of the Company’s Board of Directors; 44,000 RSUs were granted to the members of the Company’s Executive Management Team (EMT), and 171,000 RSUs were granted to other non-EMT employees. Generally, the maximum vesting term is 95 months.

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   15 

A summary of the non-vested RSU activity and related information for the three months ended March 31, 2006 consists of the following:

				Weighted-Average
	Number			Grant Date
	(000’s)			Fair Value
Balance, December 31, 2005		1,745		$	17.12
Granted		222		$	27.92
Forfeited		(10	)	$	16.50
Vested		(15	)	$	16.50
Balance, March 31, 2006		1,942		$	18.36

The following table summarizes information about the RSUs outstanding at:

	March 31, 2006				December 31, 2005
			Weighted-Average				Weighted-Average
	Outstanding		Remaining		Outstanding		Remaining
	(000’s)		Contractual Life		(000’s)		Contractual Life
Fair Market Value at Grant Date
$16.50 – $19.30		1,707		2.89 – 5.25  years		1,732		3.13 – 5.50 years
$21.00 – $24.25		13		4.25 – 4.33  years		13		4.50 – 4.58 years
$26.07 – $28.45		222		2.75 – 4.98  years		—		— years
		1,942		3.88 years		1,745		4.11 years

Non-cash stock based compensation, including both compensation for the Talbot acquisition and other non-cash stock based compensation, of $6,299 and $8,998 for the three months ended March 31, 2006 and 2005, respectively, was expensed with offsetting credits to contributed surplus, and accounts payable and accrued liabilities. The Company recognized the fair value of non-cash stock based compensation as an expense over the period in which entitlement to the compensation vests.

Compensation for the Talbot earnout includes both cash and non-cash stock based compensation and is detailed below.

Other non-cash stock based compensation for the three months ended March 31, 2006 and 2005 is comprised of the following:

	2006		2005
Stock options granted June 2002	$	—	$	462
Stock options granted February 2003		—		100
RSUs granted for 2003 bonuses		852		734
Other RSUs		783		501
Common shares for acquisition		—		7
Total other non-cash stock based compensation	$	1,635	$	1,804

The related income tax benefit for other non-cash stock based compensation, for the three months ended March 31, 2006 and 2005 was $671 and $437, respectively.

  16   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

Compensation for the Talbot earnout, which is not deductible for tax purposes, for the three months ended March 31, 2006 and 2005 was comprised of the following:

	2006		2005
Cash compensation	$	—	$	3,317
Non-cash stock based compensation		4,664		3,877
Total compensation for the Talbot earnout	$	4,664	$	7,194

The Company estimates other non-cash stock based compensation expense in 2006 through 2011 will be:

Year ended December 31,	2006		2007		2008		2009		2010		2011
RSUs granted for 2003 bonuses	$	2,218	$	1,991	$	1,991	$	1,991	$	1,936	$	—
Other RSUs		4,174		4,150		3,986		1,706		998		140
Common shares for acquisitions		19		5		—		—		—		—
Total other non-cash stock based compensation	$	6,411	$	6,146	$	5,977	$	3,697	$	2,934	$	140

The Company estimates the compensation for the Talbot earnout for 2006 through 2011 will be:

Year ended December 31,	2006		2007		2008		2009		2010		2011
Cash compensation	$	—	$	—	$	—	$	—	$	—	$	—
Non-cash stock based compensation		9,940		1,759		—		—		—		—
Total compensation for the Talbot earnout	$	9,940	$	1,759	$	—	$	—	$	—	$	—

Total future compensation costs related to non-vested awards as of March 31, 2006 for other non-cash stock based compensation are $23,683 and for the Talbot earnout are $7,035.

12. Earnings per share

Basic earnings per share, excluding the dilutive effect of common share equivalents, are calculated by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted earnings per share are calculated using the if-converted method for the subordinated convertible debentures and the treasury stock

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   17 

method for options and restricted share units and includes the effects of all potentially dilutive securities. Earnings per common share are calculated as follows:

		For the
		three months
		ended March 31,
		2006			2005
Net earnings from continuing operations		$	16,745		$	16,107
Net earnings (loss) from discontinued operations			(279	)		373
Net earnings (numerator)			16,466			16,480
Effect of dilutive securities:
	Interest on 8.5% subordinated convertible debentures (net of income tax)		475			475
	Payment in lieu of dividends on restricted share units (net of income tax)		29			28
Net earnings plus assumed conversions (numerator)		$	16,970		$	16,983
Weighted average shares outstanding — Basic (denominator)			31,756			30,368
Effect of dilutive securities:
	8.5% subordinated convertible debentures		2,390			2,518
	Stock options		1,090			1,340
	Restricted share units		1,263			889
	Talbot earnout shares		482			1,213
	Retractable shares		—			69
Weighted average shares outstanding — Diluted (denominator)			36,981			36,397
Basic earnings (loss) per share
	Continuing operations	$	0.53		$	0.53
	Discontinued operations		(0.01	)		0.01
	Total operations	$	0.52		$	0.54
Diluted earnings (loss) per share
	Continuing operations	$	0.47		$	0.46
	Discontinued operations		(0.01	)		0.01
	Total operations	$	0.46		$	0.47

13. Income taxes

Income taxes for the three months ended March 31, 2006 and 2005 amounted to $12,019 and $12,626 respectively, resulting in an effective tax rate of 41.8% and 43.9% in the first quarter 2006 and 2005, respectively. This decrease in the effective tax rate is due primarily to decreased compensation related to the Talbot acquisition which is not deductible for tax purposes. Excluding this compensation, the effective tax rate for the three months ended March 31, 2006 and 2005 was 36.0% and 35.1%, respectively. The lower effective tax rate in 2005 was primarily attributable to nontaxable gains on the disposition of certain Canadian insurance brokerages in 2005.

  18   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

14. Interest and income taxes paid

Interest and income taxes paid for the three months ended March 31, 2006 and 2005 were:

	For the
	three months
	ended March 31,
	2006		2005
Interest paid	$	794	$	820
Income taxes paid	$	3,945	$	5,576

15. Segmented information

The Company is an international insurance brokerage, which provides a variety of property, casualty, life and health, employee benefits, investment and risk management products and services. In addition to its Corporate Operations, the Company has identified two operating segments within its insurance brokerage business: Canadian Operations and U.S. Operations. Corporate Operations consist primarily of investment income, compensation for the Talbot earnout, other non-cash stock based compensation, unallocated administrative costs, interest expense and the income tax expense or benefit which is not allocated to the Company’s operating segments. The elimination of intra-segment revenue relates to intra-company interest charges, management fees and dividends.

Geographic revenue is determined based upon the functional currency of the various subsidiaries. Financial information by operating and geographic segment is as follows:

	For the three months ended March 31,
	2006									2005
	Canada			U.S.			Consolidated			Canada			U.S.			Consolidated
Revenue
Brokerage	$	37,941		$	95,924		$	133,865		$	34,505		$	84,550		$	119,055
Corporate		2,802			5,431			8,233			6,487			3,889			10,376
Elimination of intra-segment revenue		(2,700	)		(5,330	)		(8,030	)		(6,419	)		(3,831	)		(10,250	)
	$	38,043		$	96,025		$	134,068		$	34,573		$	84,608		$	119,181
Net earnings (loss) from continuing operations before income taxes
Brokerage	$	11,806		$	23,950		$	35,756		$	8,424		$	23,361		$	31,785
Corporate		(7,563	)		571			(6,992	)		(5,641	)		2,589			(3,052	)
	$	4,243		$	24,521		$	28,764		$	2,783		$	25,950		$	28,733
Income tax expense (benefit) — current
Brokerage	$	4,129		$	8,796		$	12,925		$	2,654		$	10,119		$	12,773
Corporate		(402	)		(765	)		(1,167	)		1,002			(171	)		831
	$	3,727		$	8,031		$	11,758		$	3,656		$	9,948		$	13,604
Income tax expense (benefit) — future
Brokerage	$	(2	)	$	783		$	781		$	(113	)	$	(965	)	$	(1,078	)
Corporate		(485	)		(35	)		(520	)		(183	)		283			100
	$	(487	)	$	748		$	261		$	(296	)	$	(682	)	$	(978	)

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   19 

	For the three months ended March 31,
	2006									2005
	Canada			U.S.			Consolidated			Canada			U.S.		Consolidated
Net earnings (loss) from continuing operations
Brokerage	$	7,679		$	14,371		$	22,050		$	5,883		$	14,207	$	20,090
Corporate		(6,676	)		1,371			(5,305	)		(6,460	)		2,477		(3,983	)
	$	1,003		$	15,742		$	16,745		$	(577	)	$	16,684	$	16,107
Net earnings (loss) from discontinued operations
Brokerage	$	—		$	(279	)	$	(279	)	$	—		$	373	$	373
Corporate		—			—			—			—			—		—
	$	—		$	(279	)	$	(279	)	$	—		$	373	$	373
Net earnings (loss)
Brokerage	$	7,679		$	14,092		$	21,771		$	5,883		$	14,580	$	20,463
Corporate		(6,676	)		1,371			(5,305	)		(6,460	)		2,477		(3,983	)
	$	1,003		$	15,463		$	16,466		$	(577	)	$	17,057	$	16,480
Amortization of intangible assets	$	53		$	3,223		$	3,276		$	32		$	1,801	$	1,833
Additions to property and equipment	$	728		$	2,339		$	3,067		$	490		$	446	$	936
Depreciation	$	682		$	1,460		$	2,142		$	690		$	1,374	$	2,064
Interest income	$	396		$	697		$	1,093		$	306		$	475	$	781
Interest expense	$	2,856		$	187		$	3,043		$	2,182		$	200	$	2,382

	As of March 31, 2006 and December 31, 2005
	2006						2005
	Canada		U.S.		Consolidated		Canada		U.S.		Consolidated
Identifiable assets
Brokerage	$	170,701	$	692,759	$	863,460	$	177,900	$	773,094	$	950,994
Corporate		31,942		98,388		130,330		41,095		9,264		50,359
	$	202,643	$	791,147	$	993,790	$	218,995	$	782,358	$	1,001,353

  20   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

16. Related party transactions

In the three months ended March 31, 2006 and 2005, respectively, the Company had transactions with and recorded revenue from the following related parties:

	For the three
	months ended
	March 31,
	2006		2005
Northbridge Financial Corporation	$	4,941	$	4,515
Crum & Forster Holdings, Inc		173		178
Fairfax Inc		144		(253	)
		5,258		4,440
Old Lyme Insurance Company, Ltd. (OLIC)		1,233		1,490
	$	6,491	$	5,930

The Company had accounts receivable and accounts payable balances with the above related parties in the amounts of $8,242 and $12,228, respectively, at March 31, 2006 and $9,990 and $19,535, respectively, at December 31, 2005. All revenue and related accounts receivable and accounts payable are the result of transactions in the normal course of business. The companies above, except for OLIC, are related through common ownership by Fairfax, which owns approximately 25% of the Company’s common shares as of March 31, 2006. During the second quarter 2004, Fairfax sold OLIC to Old Lyme Insurance Group, Ltd, a company owned primarily by a group of Hub employees, including Bruce Guthart, Chief Operating Officer and a director of Hub. The Company continues to place insurance with OLIC. The compensation that the Company earns from the business placed with OLIC and the fees it earns from managing OLIC are substantially the same as if Fairfax continued to own OLIC.

As of March 31, 2006 and December 31, 2005, subsidiaries of Fairfax held the Fairfax notes in the amount of $35,000.

During the three months ended March 31, 2006 and 2005, the Company incurred expenses related to rental of premises from related parties in the amount of $786 and $599, respectively. At March 31, 2006 and December 31, 2005 the Company also had receivables due from related parties in the amount of $1,947 and $2,191, respectively, of which the majority were loans to employees to enable them to purchase the Company’s common shares. Of these receivables, as of March 31, 2006 and December 31, 2005, $1,495, respectively, were related to Company loans to employees to purchase shares under the executive share purchase plan. The loans will mature June, 2011 and bear interest at a rate of prime plus 0.5%. The interest rate at March 31, 2006 was 6.0%. As collateral, the employees have pledged 122,000 common shares as of March 31, 2006 and December 31, 2005, respectively, which have a market value of $3,456 and $3,156 as of March 31, 2006 and December 31, 2005, respectively.

17. Reconciliation to U.S. GAAP

The consolidated financial statements have been prepared in accordance with Canadian GAAP, which differs in certain respects from U.S. GAAP.

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   21 

Net earnings and comprehensive income

There were no differences between Canadian GAAP and U.S. GAAP affecting net earnings, basic earnings per share and diluted earnings per share. The table below presents comprehensive income under U.S. GAAP for the three months ending March 31, 2006 and 2005.

	For the three
	months ended
	March 31,
	2006			2005
Net earnings from continuing operations for the period on Canadian GAAP and U.S. GAAP (1)	$	16,745		$	16,107
Net earnings (loss) from discontinued operations for the period on Canadian GAAP and US GAAP (1)		(279	)		373
Net earnings for the period based on Canadian GAAP and U.S. GAAP (1)		16,466			16,480
Other comprehensive income: (2)Unrealized gain/(loss) net of tax of $16 — Q1/06, $(35) — Q1/05		(18	)		53
Foreign currency translation adjustment		(33	)		(472	)
Comprehensive income based on U.S. GAAP (2)	$	16,415		$	16,061

Shareholders’ equity

The table below sets out the differences between Canadian GAAP and U.S. GAAP that affect shareholders’ equity at March 31, 2006 and December 31, 2005:

		March 31,			December 31,
		2006			2005
Shareholders’ equity based on Canadian GAAP		$	457,561		$	419,926
Adjustment to investment held for sale (3)			(1,716	)		(1,716	)
Accumulated other comprehensive income:
	Unrealized gain net of tax of $11 — 2006, $(2) — 2005		(14	)		4
Shareholders’ equity based on U.S. GAAP (3)		$	455,831		$	418,214

Notes:

(1) The condensed consolidated statements of earnings and cash flows for the three months ended March 31, 2006 and 2005, were the same under Canadian and U.S. GAAP. The condensed consolidated balance sheets as at March 31, 2006 and December 31, 2005 under U.S. GAAP are as follows:

	March 31,		December 31,
	2006		2005
Condensed consolidated balance sheets:
Total current assets	$	420,874	$	431,529
Total assets (4)	$	987,023	$	995,753
Total current liabilities	$	352,149	$	393,787
Total liabilities (4)	$	531,192	$	577,539
Total shareholders’ equity	$	455,831	$	418,214

(2) Under U.S. GAAP, comprehensive income is measured in accordance with SFAS No. 130, Reporting Comprehensive Income. This standard defines comprehensive income as all changes in equity other than those resulting from investments by owners and distributions to owners and includes the change in unrealized gains (losses) on debt and equity securities and foreign currency translation adjustments. Under Canadian GAAP

  22   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

	unrealized gains and losses (arising from a temporary decline in value) on equity securities are not recorded and foreign currency translation adjustments are presented as movements in the cumulative translation account. Certain disclosures required by SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, have not been included as such disclosures related to the Company’s investments in debt and equity securities are immaterial to the overall financial statement presentation.
(3)	Under Canadian GAAP, investments held for sale are recorded at cost. No further adjustments are made to the carrying value of the investment until it is sold, at which time a gain or loss is recorded between the sales proceeds and its carrying value. Under U.S. GAAP investments held for sale are recorded at cost and adjusted to fair value until sold at which time the difference between the sales proceeds and its carrying value is recorded as an adjustment to goodwill. The adjustment of $1,716 reflects the difference in accounting for investments acquired through the purchase of an insurance brokerage in 2001 and held for sale and subsequently sold by the Company in 2002 under Canadian GAAP vs. U.S. GAAP.
(4)	Under Canadian GAAP, the Company accounts for the interest rate swap transaction which converted fixed rate interest payments of 5.71% and 6.16% on the Senior Notes of $10 million and $55 million, respectively, using the synthetic instruments method. Under this method, the Company reports in earnings the net interest expense on the swap and associated debt as if it were a single, synthetic, financial instrument. The fair value of the swap, estimated at $5.1 million, is not recognized in the Company’s Canadian GAAP financial statements. Under U.S. GAAP, the Company has designated the swap transaction of a hedge of changes in the fair value of its fixed rate debt caused by changes in interest rates. Under SFAS 133, Accounting for Derivative Instruments and Hedging Activities, the Company records the swap at its fair value. Changes in fair value of the swap are reported in earnings. Changes in the fair value of the debt being hedged which are attributable to changes in interest rates are recognized in earnings by adjustment of the carrying amount of the debt.

Effects of new accounting pronouncements

As mentioned in note 2, the Company has applied the provisions of both SFAS No. 123 (R) and SAB 107 in preparation of its financial statements and accordingly there are no differences between U.S. GAAP and Canadian GAAP related to non-cash stock based compensation.

18. Subsequent events

a.	On April 1, 2006 the Company purchased three large insurance brokerages, based in Massachusetts and Pennsylvania, from subsidiaries of Citizens Financial Group, Inc. (CFG) for approximately $80 million in cash as well as an earnout in cash and the Company’s common shares based on future performance.
b.	In November 2003, a universal “shelf” registration statement (2003 Shelf) that the Company filed with the Securities and Exchange Commission (SEC) on July 30, 2003 covering the public offering and sale, from time to time, of an aggregate of up to $100 million of debt and/or equity securities, was declared effective. As of March 31, 2006, the full amount of the $100 million of the 2003 Shelf remained available. On April 17, 2006, a universal “shelf’ registration statement (2006 Shelf) that the Company filed with the SEC on April 5, 2006 was declared effective. The 2006 Shelf covers the public offering and sale, from time to time, of (i) an aggregate of up to approximately $204 million of debt and/or equity securities by the Company and (ii) an aggregate of approximately $21 million of common shares by various selling shareholders named in the 2006 Shelf. The Company will not receive any proceeds from the sale of common shares by the selling shareholders. On April 19, 2006 the Company deregistered the full amount of the $100 million of the 2003 Shelf. As of May 10, 2006, the full amount of the $204 million of debt and/or equity securities remained available for sale by the Company. The net proceeds from the sale of these securities under the 2006 Shelf could be used to fund acquisitions and for general corporate purposes, including capital expenditures and working capital needs.
c.	As mentioned above, on March 31, 2006 the Company incurred bank debt of $75.0 million to fund, in part, the acquisition of the CFG brokerages. Subsequent to March 31, 2006, on April 4, 2006, the Company fully repaid the $75.0 million bank debt and terminated this facility. In addition on April 4, 2006 the Company completed the private sale of $75.0 million aggregate principal amount of 6.43% senior notes due April 4, 2016 (the

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   23 

“Notes”). Interest on the Notes accrues at a rate of 6.43% per annum and is payable in arrears quarterly on January 4, April 4, July 4, and October 4 of each year starting on July 4, 2006. The principal portion of the notes must be repaid in the amount of $12.5 million on April 4 of each year, beginning on April 4, 2011 and through and including April 4, 2015. The notes mature on April 4, 2016. Also, on April 4, 2006 the Company entered into a revolving unsecured credit facility. This facility provides for a one-year revolving credit facility of $75.0 million and bears interest at a floating rate of prime plus 1% or 112.5 basis points above LIBOR. Unless extended, on April 4, 2007 this facility will be converted into three-year non-revolving loans. Interest on such loans will be 0.25% higher than the interest rates discussed above. The aggregate proceeds of these borrowings, along with $9.0 million of cash on hand, were used to repay and terminate the bank debt mentioned above and to repay $65.0 million of indebtedness under and terminate our revolving U.S. dollar LIBOR loan that existed at March 31, 2006. As a result of the transactions described above, as of April 4, 2006, the Company reduced its indebtedness by $9.0 million compared to the amount reported as of March 31, 2006. See note 9 “Debt.”

  24   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included elsewhere in this report. Certain information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements because of various factors, including those discussed below and elsewhere in this Form 10-Q. Reference to “Hub,” the “Company,” “we,” “us,” “our” and the “registrant” refer to Hub International Limited and its subsidiaries, unless otherwise expressly stated. Unless otherwise indicated, all dollar amounts are expressed in, and the term “dollars” and the symbol “$” refer to, U.S. dollars. The term “Canadian dollars” and the symbol “C$” refer to Canadian dollars. Our financial statements are prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). These principles differ in certain respects from United States generally accepted accounting principles (U.S. GAAP) and to the extent that they affect us are described in note 17 to our unaudited consolidated financial statements.

Overview

Hub International is one of the leading insurance brokers in North America, providing a broad array of property and casualty, life and health, employee benefits and risk management product and services. We focus on both commercial and personal accounts in the United States and Canada, which we serve through our approximately 3,400 employees in nearly 200 offices, using a variety of retail and wholesale distributing channels. Since our company was formed in 1998 through the merger of 11 Canadian insurance brokerages, we have acquired an additional 121 brokerages and have established a strong presence in the northeastern, midwestern and western United States and in the Canadian provinces of Ontario, Quebec and British Columbia. All of our large acquisitions over the past five years were in the United States. Accordingly, U.S. revenue has grown to 72% of our total in the first quarter 2006 from 22% in the first quarter 2000, reflecting primarily acquisition growth but also organic growth. Organic growth, a non-GAAP measure, is similar to thesame-store-sales calculation used by retailers. It includes revenue growth from units included in our financial statements for at least 12 months. Because we apply the purchase method of accounting for acquisitions, acquired brokerages’ financial results are included only from the date of acquisition.

On April 1, 2006 we purchased three large insurance brokerages, based in Massachusetts and Pennsylvania, from subsidiaries of Citizens Financial Group, Inc. (CFG), for approximately $80 million in cash as well as an earnout in cash and our common shares based on future performance. The earnout will be at least $3 million.

As of January 1, 2006, we sold our U.S. financial services operation. Net earnings for these operations are included in our Consolidated Statements of Earnings under “Net earnings (loss) from discontinued operations”. See note 5 “Discontinued Operations”.

We have a diverse mix of products, services, insurer relationships and distribution channels, and as a result, our revenue and profitability levels are not usually highly susceptible to major changes related to a single product or service. However, general economic trends may influence overall insurance rates, commissions and availability or costs of individual types of coverage, which in turn may affect our revenue and profitability levels. Our ability to achieve organic revenue growth is not solely dependent on rising or declining rates, but results from a more complex mixture of general economic growth and demand, access to coverage from insurers and our marketing and sales performance.

Commission income, which usually ranges from 5% to 20% of the premium charged by insurers, provides approximately 88% of our annual revenue base. Commission income for the first quarter 2006 provided approximately 75% of our revenue base compared to 73% in the first quarter 2005. This percentage is lower in the first quarter than in other quarters as we earn the majority of our contingent commissions and volume overrides

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   25 

early in the year as they are based on prior year performance. In addition to these “core” commissions, the company derives revenue from:

• Volume overrides — additional compensation based on the overall volume of business a brokerage places with the insurance company (See “Contractual Obligations — Other” for information regarding our legal proceedings);

• Contingent commissions — additional compensation based on the profit the insurance company makes on the book of business a brokerage places with the insurance company (See “Contractual Obligations — Other” for information regarding our legal proceedings); and

• Other income — comprised primarily of premium finance fees, fees charged to clients in lieu of commissions and interest income, including income earned while we hold client premiums on behalf of insurance companies.

We operate through an organizational structure comprised of our head office, larger regional or specialty brokerages that we call “hub” brokerages and smaller brokerages managed by the regional hubs. Our head office implements the acquisition of hub brokerages and oversees the acquisition of smaller, “fold-in” brokerages by the hubs. Our head office also coordinates selling and marketing efforts, identifies cross-selling opportunities among our brokerages and handles certain general administrative functions. At March 31, 2006, we had 14 “hub” brokerages — nine in the United States and five in Canada.

Each hub addresses a specific regional or specialty market, operating with its own management team and structure, business plan and operating benchmarks. Regional hubs are generally larger than $10 million in annual revenue, while a hub that focuses on a specialty product line or market might have a smaller revenue base. Each hub brokerage is responsible for not only the development of its own business, but also the identification, acquisition and integration of smaller,fold-in brokerages. Fold-in acquisitions allow each hub brokerage an opportunity to strengthen its market position by acquiring new or complementary products and services and management talent.Fold-in acquisitions also provide the opportunity for improved profit margins through the reduction or elimination of redundant administrative functions, facilities and systems.

Our structure enables our hub brokerages to more effectively and quickly meet the changing needs of our clients in various markets, while benefiting from the operating efficiencies and leverage of a large brokerage. We seek to operate largely on a decentralized basis, believing that the best operating decisions are made close to the customer. At the same time, we recognize that our growth has created demand for increased coordination by our head office. In 2005 and 2004, we invested more in the coordination of additional functions from our head office to enhance cross-selling, international collaboration, marketing efficiencies, total expense management and financial control initiatives. As a general operating guideline, we work to centralize those activities that do not touch the customer directly, while adopting a more decentralized approach for functions that connect directly with customers.

During the two years after September 11, 2001, premium rates remained firm for most types of coverage, rising 10% to 15% per year in many cases. During the latter part of 2003, the Canadian market remained firm, but the U.S. market experienced some softening of premium rates for property and casualty coverage. During 2004, insurance rates in both Canada and in the U.S., for many types of coverage, declined. In 2005, in both Canada and the U.S. we saw average declines in premiums in the range of three to five percent. As a result of the 2005 hurricane season, property rates for coastal areas in the first quarter 2006 have increased. However, all other areas of North America continue to see decreases in rates. We do not have a significant client base in the coastal areas.

For us, as for other brokers, falling rates can present both positive and negative effects. Falling premiums usually yield reduced commissions, if the insurance buyer maintains its coverage levels. However, many insurance buyers will respond to falling rates by increasing total coverage, often by lowering deductibles, increasing limits of coverage, or by adding new risks to those already insured. During 2005, we started to see more evidence of insurance buyers increasing coverage levels as a result of the softening of insurance rates. For the remainder of 2006 we expect continued declines in premium levels. In addition, the economic environment could lead to higher or lower sales and employee headcounts at client companies, leading in turn to increased or reduced demand for employee benefits, liability and other types of coverage tied to business activity levels.

  26   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

Results of Operations

Three months ended March 31, 2006 compared with three months ended March 31, 2005

Revenue

As a result of acquisitions and 3% organic growth, which includes the strengthening of the Canadian dollar as compared to the U.S. dollar in 2006, we reported a 12% increase in revenue to $134.1 million in 2006.

The table below shows a breakdown of our revenue by segment and type for the three months ended March 31, 2006 and 2005 including organic growth for 2006:

		Revenue									Adjustment
											for
(in thousands of U.S. dollars,						Total Net			Total Net		(Acquisitions)			Organic		Organic
except percentages)		2006		2005		Change($)			Growth(%)		and Disposals			Growth($)		Growth(%)
Total
Commission Income		$	99,892	$	86,914	$	12,978			15%	$	(10,407	)	$	2,571		3%
Contingent
	Commissions and Volume Overrides		31,169		29,160		2,009			7%		(983	)		1,026		4%
Other Income			3,007		3,107		(100	)		(3)%		266			166		5%
Total		$	134,068	$	119,181	$	14,887			12%	$	(11,124	)	$	3,763		3%
U.S.
Commission Income		$	71,201	$	61,098	$	10,103			17%	$	(10,034	)	$	69		—%
Contingent
	Commissions and Volume Overrides		22,533		20,957		1,576			8%		(983	)		593		3%
Other Income			2,291		2,553		(262	)		(10)%		268			6		—%
Total		$	96,025	$	84,608	$	11,417			13%	$	(10,749	)	$	668		1%
Canada
Commission Income		$	28,691	$	25,816	$	2,875			11%	$	(373	)	$	2,502		10%
Contingent
	Commissions and Volume Overrides		8,636		8,203		433			5%		—			433		5%
Other Income			716		554		162			29%		(2	)		160		29%
Total		$	38,043	$	34,573	$	3,470			10%	$	(375	)	$	3,095		9%

Of the $14.9 million in new revenue we reported, $3.8 million, or 25%, resulted from organic growth, while $11.1 million or 75% reflected growth through acquisition, net of dispositions. Organic growth figures include the impact of foreign exchange rate changes between the U.S. and Canadian dollars. In the first quarter 2006, the rise of the Canadian dollar versus the U.S. dollar contributed two percentage points of our 3% organic growth in total revenue.

In addition to the variations that can result from changes in organic growth rates, acquisitions and other variables related to operations, both the first quarters of 2006 and 2005 results included a number of factors that can complicate any efforts at direct comparisons. To increase investor understanding the following chart shows the impact that specific items would have had if they had not occurred on net earnings and diluted earnings per-share.

		For the three months ended March 31,
		2006						2005
(in thousands of U.S. dollars,
except per share amounts)		Net Earnings			Diluted EPS			Net Earnings			Diluted EPS
Impact of compensation for Talbot earnout		$	4,664		$	0.13		$	7,194		$	0.20
	Impact of foreign exchange	$	(389	)	$	(0.01	)	$	(668	)	$	(0.02	)
	Impact of gain on forgiveness of debt	$	—		$	—		$	(2,925	)	$	(0.08	)
	Impact of gain on disposition of assets of certain brokerages	$	(133	)	$	—		$	(1,913	)	$	(0.05	)

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   27 

As shown above, the compensation related to the Talbot acquisition decreased $2.5 million to $4.7 million in the first quarter 2006 from $7.2 million in the first quarter 2005, which reflects a greater weighting of this expense in earlier periods under applicable expensing methods in accordance with generally accepted accounting principles. The contingent payment to Talbot management is recorded by us as a charge to earnings over the period in which the payments are earned because it is a compensation based arrangement and specifically a performance award. The management of Talbot was and is to be compensated for future services based on achieving certain performance targets during each of the 12 months ending December 31, 2004, 2005 and 2006. See “Contractual Obligations — Acquisitions”. We estimate that the aggregate value of compensation which will be recognized under this arrangement will be approximately $55 million, of which $4.7 million and $7.2 million were recognized in the three months ended March 31, 2006 and 2005, respectively. In total, $47.8 million has been recognized from the date of acquisition through March 31, 2006 as an expense with an offsetting credit to accounts payable and accrued liabilities, and $12.4 million remains unpaid at March 31, 2006. In addition, in 2006 we benefited from the gain on disposition of assets of certain brokerages of $0.1 million, after tax, as compared to a gain of $1.9 million in 2005.

Gains or losses on disposition of assets are not an unusual item, but they are included here to highlight the difference between the two reporting periods. Similarly, changes in currency exchange rates are not an unusual item. Because we derive our revenue from both the United States and Canada, foreign exchange fluctuations will continue to impact our results. We have highlighted the impact of these changes because currency translation effects can lead to reported results that are less meaningful than local currency results as an indicator of underlying operations. The strength of the Canadian dollar versus the U.S. dollar increased our net earnings and diluted earnings per share, as shown above for the first quarter 2006 and 2005. Any decline in the Canadian dollar versus the U.S. dollar would have a negative effect on our results See “Market Risk.”

U.S. Results

U.S. revenue grew 13% to $96.0 million, or 72% of revenue, in the first quarter 2006 as compared to 2005, due to both contributions of operations acquired in 2005 and 2006 and to organic growth. Net acquisitions and dispositions added $10.7 million to revenue, or 94% of the increase, while organic growth provided $0.7 million, or 6% of revenue growth. Our U.S. operations posted an organic growth rate of 1% in the first quarter 2006, a decrease from 5% in the first quarter 2005, primarily due to the decrease in growth in contingent commissions and volume overrides. Core commission income increased 17% in the first quarter 2006 and organic growth was 0% in the first quarter 2006 and 2005.

Canadian Results

Canadian revenue grew 10% to $38.0 million, or 28% of consolidated revenue, in the first quarter 2006 as compared to 2005, primarily as a result of organic growth as well as a strengthening of the Canadian dollar against the U.S. dollar. Canadian operations posted organic growth of 9%, of which six percentage points reflected a stronger Canadian dollar. Core commission income increased 11% in the first quarter 2006 and organic growth was 10% in the first quarter 2006 and 2005.

Compensation Expense

Employee cash compensation expense for the first quarter 2006 increased 9% to $68.4 million from $62.5 million and as a percentage of revenue, decreased to 51% from 52%. The decrease in the compensation for the Talbot earnout is due to a greater weighting of this expense in earlier periods. Compensation for the Talbot earnout includes a cash and a non-cash stock based component as set out in the table below. The first Talbot earnout payment in the amount of $16.4 million was paid in cash on September 1, 2005. The second payment of $19.0 million was paid in our common shares on March 31, 2006. Management expects future payments to be made in common shares although future payments with respect to the earnout may be made in cash or common shares as determined at the discretion of management.

  28   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

For the three months ended March 31, 2006 and 2005

(in thousands of U.S. dollars, except percentages)

								% of
								Revenue
		2006		2005		% Change		2006		2005
Employee cash compensation		$	68,367	$	62,468		9%		51%		52%
Compensation for Talbot earnout — cash			—		3,317		—%		—%		3%
Compensation for Talbot earnout — non-cash stock based			4,664		3,877		20%		4%		3%
Total compensation for Talbot earnout			4,664		7,194		(35)%		4%		6%
	Other non-cash stock based compensation		1,635		1,804		(9)%		1%		2%
Total		$	74,666	$	71,466		4%		56%		60%

Other non-cash stock based compensation includes stock options and restricted share units (RSUs). Our policy is to expense the fair value of non-cash stock based compensation over the period in which entitlement to the compensation vests.

Total other non-cash stock based compensation for the three months ended March 31, 2006 and 2005 is comprised of the following:

(in thousands of U.S. dollars)	2006		2005
RSUs granted for 2003 bonuses	$	852	$	734
Other RSUs		783		501
Stock options granted February 2003		—		100
Stock options granted June 2002		—		462
Common shares for acquisitions		—		7
Total other non-cash stock based compensation	$	1,635	$	1,804

Selling, Occupancy and Administration Expense

Selling, occupancy and administration expense increased 14% to $22.4 million in the first quarter 2006 as compared to 2005. As a percentage of revenue, selling, occupancy and administration expense increased to 17% versus 16% in the first quarter 2005.

Depreciation

Depreciation increased 4% to $2.1 million in 2006 but remained constant at 2% of revenue from the first quarter 2005.

Interest Expense

Interest expense increased 28% to $3.0 million from $2.4 million in 2005 primarily as a result of higher interest rates in 2006.

Intangible Asset Amortization

Intangible asset amortization increased 79% to $3.3 million in the first quarter 2006 as compared to the first quarter 2005 due to acquisitions made in 2005.

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   29 

Gain on Disposal of Subsidiaries, Property, Equipment and Other Assets

In the first quarter 2006 we sold assets of certain brokerages in the U.S. resulting in a gain of $0.2 million compared with a gain of $2.4 million in the first quarter 2005 from the sale of certain brokerages in Canada.

Gain on Forgiveness of Debt

During the first quarter 2005 an early payment settlement was negotiated in respect of our $7.5 million loan from an insurance carrier. The early settlement negotiations resulted in the $7.5 million principal amount of the term loan being reduced to $3.0 million resulting in a gain of $4.5 million.

Provision for Income Tax Expense

Our effective tax rate decreased in the first quarter 2006 to 41.8% from 43.9% in the first quarter 2005, due primarily to decreased compensation related to the Talbot acquisition in 2006 which is not deductible for tax purposes. Excluding this compensation, the effective tax rate for the first quarter 2006 and 2005 were 36.0% and 35.1%, respectively. The lower effective tax rate in 2005 was primarily attributable to non-taxable gains on the disposition of certain Canadian insurance brokerages in 2005.

Net Earnings and Earnings Per Share from Continuing Operations

Our net earnings from continuing operations increased 4% to $16.7 million in the first quarter 2006, primarily as a result of growth in revenue and a decrease in compensation related to the Talbot earnout. Diluted earnings per share from continuing operations increased 2% to $0.47.

As shown in the table on page 27, net earnings increased $0.4 million or $0.01 per diluted share, related to the strengthening Canadian dollar versus the U.S. dollar. Also, net earnings decreased $4.7 million or $0.13 per diluted share due to the impact of the Talbot earnout.

Net Earnings and Diluted Earnings per Share from Discontinued Operations

During 2005, we adopted a formal plan of disposition related to our U.S. financial services operation. The sale was completed January 1, 2006. See note 5 “Discontinued Operations”. Results for discontinued operations have been removed from continuing operations for 2005 and reflected on our Consolidated Statements of Earnings as “Net earnings (loss) from discontinued operations.” Net earnings (loss) from discontinued operations were $(0.3) million and $0.4 million for 2006 and 2005, respectively. Diluted earnings (loss) per share from discontinued operations were $(0.01) and $0.01 for the first quarter 2006 and the first quarter 2005, respectively.

Cash Flow, Liquidity and Capital Resources

We began 2006 with cash and cash equivalents of $70.1 million. Operating activities in the first quarter 2006 generated $34.1 million of cash. On March 30, 2006 we incurred bank debt of $75.0 million to fund, in part, the acquisition of three large insurance brokerages from CFG which was completed on April 1, 2006. This bank debt was repaid subsequent to March 31, 2006 (see discussion below). In the first quarter 2006 we paid $8.5 million for acquisitions. In addition, we repaid long-term debt of $1.4 million, made property and equipment purchases of $2.9 million and paid dividends of $2.2 million in 2006. The March 2006 funding for the CFG brokerage acquisitions was the primary reason, along with our operating cash flow, that cash increased by $96.4 million to $166.5 million in the first quarter 2006.

On March 31, 2006, our cash position of $166.5 million included approximately $100.0 million available for acquisitions of which $80.0 million was used to pay for the CFG brokerages in April 2006. This amount combined with available lines of credit provides us with a total amount of $120.3 million available for acquisitions ($40.3 million excluding the CFG brokerages) compared to the $39.5 million available at December 31, 2005. It is not possible to define exactly how many acquisitions or how much new revenue could be acquired through the use of this cash, additional cash flow from operations and application of credit facilities, as acquisition pricing and other factors vary during the course of the year. However, we intend to use our common shares as partial consideration for any hub

  30   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

acquisition, and generally have paid a multiple of 5-8 times earnings before interest, taxes, depreciation and amortization (frequently referred to as EBITDA, which is a non-GAAP measure) for acquired brokerages. We believe that our capital resources, including existing cash, funds generated from operations and borrowings available under credit facilities, will be sufficient to satisfy the company’s financial requirements, excluding some acquisitions, during the next twelve months. We may finance acquisitions with available cash or an existing credit facility, but may, depending on the number and size of future acquisitions, need to supplement our finance requirements with the proceeds from debt financing, the issuance of additional equity securities, or a combination of both.

In November 2003, a universal “shelf” registration statement (2003 Shelf) that we filed with the Securities and Exchange Commission (SEC) on July 30, 2003 covering the public offering and sale, from time to time, of an aggregate of up to $100 million of debt and/or equity securities, was declared effective. As of March 31, 2006, the full amount of the $100 million of the 2003 Shelf remained available. On April 17, 2006, a universal “shelf” registration statement (2006 Shelf) that we filed with the SEC on April 5, 2006 was declared effective. The 2006 Shelf covers the public offering and sale, from time to time, of (i) an aggregate of up to approximately $204 million of debt and/or equity securities by us and (ii) an aggregate of approximately $21 million of common shares by various selling shareholders named in the 2006 Shelf. We will not receive any proceeds from the sale of common shares by the selling shareholders. On April 19, 2006, we deregistered the full amount of the $100 million of the 2003 Shelf. As of May 10, 2006, the full amount of the $204 million of debt and/or equity securities remained available for sale by us. The net proceeds from the sale of these securities under the 2006 Shelf could be used to fund acquisitions and for general corporate purposes, including capital expenditures and working capital needs.

At March 31, 2006, we had three separate credit facilities:

(1)	Revolving U.S. dollar LIBOR loan — We had an unsecured facility totaling $75 million and bearing interest at a floating rate of prime plus 1% or 112.5 basis points above LIBOR which was paid in full and terminated on April 4, 2006. LIBOR was 4.83% and 4.39% at March 31, 2006 and December 31, 2005, respectively. The facility was available on a revolving basis for one year. Borrowings under this facility totaled $65 million at March 31, 2006 and December 31, 2005. As of March 31, 2006, we were in compliance with all financial covenants governing this facility.
(2)	Demand U.S. dollar base rate loan — We have an undrawn $10.3 million facility which bears interest at the bank’s U.S. base rate, which was 8.25% and 7.75% at March 31, 2006 and December 31, 2005, respectively, plus 50 basis points. Borrowings under this facility are repayable on demand.
(3)	Revolving U.S. dollar base rate loan — This unsecured facility totaled $75.0 million, with a maturity date of March 29, 2007. This facility was used to fund an acquisition (see footnote 18 “Subsequent events”). On April 4, 2006, this facility was fully repaid and terminated.

Additional debt at March 31, 2006, includes the following:

As of March 31, 2006 we had outstanding $65 million aggregate principal amount of unsecured senior notes issued June 10, 2003. The senior notes were issued in two series. Series A represents $10 million aggregate principal amount of 5.71% senior notes with interest due semi-annually, and principal of $3.3 million due annually, June 15, 2008 through June 15, 2010. Series B represents $55 million aggregate principal amount of 6.16% senior notes with interest due semi-annually, and principal of $11 million due annually, June 15, 2009 through June 15, 2013. The senior notes were sold on a private basis in the United States to institutional accredited investors. We incurred approximately $0.7 million in fees and expenses related to the offering of these notes which were capitalized and are being amortized to expense over the term of the notes. As of March 31, 2006 we were in compliance with all financial covenants governing the senior notes.

On July 15, 2003, we entered into an interest rate swap agreement. The effect of the swap is to convert the fixed rate interest payments on the 5.71% senior notes and 6.16% senior notes in amounts of $10 million and $55 million, respectively, to a floating rate resulting in an expense of approximately 1.0% for the three months ended March 31, 2006 and a savings of approximately 1.0% for the three months ended March 31, 2005, respectively. We account for the swap transaction using the synthetic instruments method under which the net interest expense on the swap and associated debt is reported in earnings as if it were a single, synthetic, financial instrument. As at March 31, 2006, we

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   31 

estimate the fair value of the swap to be $5.1 million, which is not recognized in our financial statements. Accordingly, $5.1 million is the estimated amount that we would need to pay to terminate the swap as of March 31, 2006.

In addition to these primary credit sources, we ended March 31, 2006 with $7.3 million of subsidiary debt comprised of various notes payable, term loans and capital leases. We intend to repay these liabilities from internally generated cash flow, existing cash balances and/or borrowings under our credit facilities as the subsidiary debt becomes due during 2006 through 2011. Of the outstanding subsidiary debt, $3.6 million is secured by liens on certain assets of our subsidiaries.

Also at March 31, 2006, we had outstanding $35 million aggregate principal amount of 8.5% convertible subordinated notes due June 28, 2007 held by certain subsidiaries of Fairfax Financial Holdings Limited (the “Fairfax notes”). The Fairfax notes are convertible by the holders at any time into our common shares at C$17.00 per share. Beginning June 28, 2006, we may require conversion of the Fairfax notes into common shares at C$17.00 per share if, at any time, the weighted average closing price of our common shares on the TSX for twenty consecutive trading days equals or exceeds C$19.00 per share. If converted, Fairfax would have owned approximately 30% of our total outstanding common shares as of March 31, 2006, versus the 25% of outstanding shares which it held on that date. Based on the current price of our common shares, which exceeds C$17.00 per share, it is possible that the Fairfax notes will be converted into our common shares.

As mentioned above on April 1, 2006, we purchased three large insurance brokerages, based in Massachusetts and Pennsylvania, from subsidiaries of CFG for $80 million in cash as well as an earnout in cash and our common shares based on future performance. The earnout will be at least $3 million. On March 31, 2006, we incurred bank debt of $75.0 million to fund, in part, the acquisition of the CFG brokerages. Subsequent to March 31, 2006, on April 4, 2006, we fully repaid the $75.0 million bank debt and terminated this facility. In addition on April 4, 2006, we completed the private sale of $75.0 million aggregate principal amount of 6.43% senior notes due April 4, 2016 (the “Notes”). Interest on the Notes accrues at a rate of 6.43% per annum and is payable in arrears quarterly on January 4, April 4, July 4, and October 4 of each year starting on July 4, 2006. The Notes must be repaid in the amount of $12.5 million on April 4 of each year, beginning on April 4, 2011 and through and including April 4, 2015. The Notes mature on April 4, 2016. Also, on April 4, 2006 we entered into a revolving unsecured facility. This facility provides for a one-year revolving credit facility of $75.0 million and bears interest at a floating rate of prime plus 1% or 112.5 basis points above LIBOR. Unless extended, on April 4, 2007 this facility will be converted into three-year non-revolving loans. Interest on such loans will be 0.25% higher than the interest rates discussed above. The aggregate proceeds of these borrowings, along with $9.0 million of cash on hand, were used to repay and terminate the bank debt mentioned above and to repay $65.0 million of indebtedness under and terminate our revolving U.S. dollar LIBOR loan that existed at March 31, 2006. As a result of the transactions described above, as of April 4, 2006 we reduced our indebtedness by $9.0 million compared to the amount reported as of March 31, 2006.

Net debt, defined as bank debt ($75.0 million), long-term debt ($137.6 million) and subordinated convertible debentures ($35.0 million) less non-trust cash (cash and cash equivalents of $166.5 million) as of March 31, 2006, was $81.1 million compared with $105.2 million as of December 31, 2005. Our debt to capitalization ratio (debt as a percentage of debt and shareholders’ equity) increased to 35% at March 31, 2006, compared with 29% at December 31, 2005. If we had fully utilized all lines of credit and other loan facilities at March 31, 2006, our ratio of debt to capitalization would have been 37%, which is within the range of 35% to 38% that our management believes is suitably conservative for our business model. Under our loan covenants, our debt to capitalization ratio must be less than the 45%. As of March 31, 2006, we were in compliance with the financial covenants under all of our debt instruments.

Our principal source of liquidity is our operating cash flow and borrowings under our credit facilities. Operating cash flow is affected by net earnings, non-cash items such as amortization, depreciation, compensation for the Talbot earnout, and non-cash working capital items. For the first quarter 2006, operating cash flows were higher than for the first quarter 2005 by $20.9 million primarily due to timing of receivable collections.

As an insurance broker, we collect and hold premiums paid by clients, deduct commissions and other expenses from these payments, and hold the remainder in trust, which we remit to the insurers who provide coverage to clients.

  32   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

We earn interest on these funds during the time between receipt of the cash and the time the cash is paid to insurers. The cash held in trust is shown separately on our balance sheet under the caption “Trust Cash.” On the statement of cash flows, changes in trust cash are included as part of the change in non-cash working capital and the determination of cash provided from operating activities.

Contractual Obligations

The table below summarizes our contractual obligations and commercial commitments as of March 31, 2006:

Payments due by period		Less than		1-3		4-5		After
(in thousands of U.S. dollars)	Total	1 Year		Years		Years		5 Years
Contractual Obligations
Long-term debt	$137,159		$ 6,327	$	7,826	$	74,256		$48,750
Operating lease obligations	97,488		19,166		33,431		22,263		22,628
Bank debt	75,000		75,000		—		—		—
Subordinated convertible debentures	35,000		—		35,000		—		—
Interest on long-term debt	35,442		8,278		15,940		8,642		2,582
Capital lease obligations	125		124		1		—		—
Executive share purchase plan loans	325		—		325		—		—
Total	$380,539		$108,895	$	92,523	$	105,161		$73,960

Acquisitions

On July 1, 2004, we purchased all of the common shares of Satellite Acquisition Corporation (Satellite) a corporation formed by senior management at Talbot Financial Corporation (Talbot). In turn, Satellite purchased 100% of Talbot from Safeco Corporation. We will purchase special shares of Satellite owned by the management of Talbot using a combination of both restricted and unrestricted Hub common shares or cash. The first payment of $16.4 million was made in cash on September 1, 2005, based upon Talbot’s earnings for the 12 months ending December 31, 2004. The second payment of $19.0 million was made in 746,000 of our common shares on March 31, 2006, based upon Talbot’s earnings for the 12 months ending December 31, 2005. The remaining payment will be made on March 31, 2007 based upon Talbot’s earnings for the 12 month period ending December 31, 2006. The contingent payment to Talbot management is recorded by us as a charge to earnings over the period in which the payments are earned because it is a compensation based arrangement and specifically a performance award. The management of Talbot was and is to be compensated for future services based on achieving certain performance target during each of the 12 months ending December 31, 2004, 2005 and 2006. We estimate that the aggregate value of compensation which will be recognized under this arrangement will be approximately $55 million, of which $4.7 million and $7.2 million were recognized in the three months ended March 31, 2006 and 2005, respectively. In total $47.8 million has been recognized from the date of acquisition through March 31, 2006 as an expense with an offsetting credit to accounts payable and accrued liabilities and $12.4 million still remains unpaid at March 31, 2006.

In connection with other various acquisitions completed through March 31, 2006, we may be obligated to pay contingent consideration up to a maximum sum of approximately $24.2 million in cash and $10.2 million in common shares based upon management’s best estimate of acquired brokerages achieving certain targets. The contingent payments are payable on various dates through April, 2010 according to the terms and conditions of each purchase agreement. Any additional consideration will be recorded as an adjustment to goodwill once the contingency is resolved. In connection with contingent consideration earned as at March 31, 2006, the financial statements reflect a liability to pay cash of $0.3 million as of March 31, 2006.

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   33 

Other

As previously disclosed, the insurance brokerage industry in general and certain of our subsidiaries in particular have been the subject of ongoing investigations by state attorneys general and insurance regulators regarding contingent commissions and other practices. As also previously reported, various class actions have been filed with respect to such matters. We have not recorded a liability at March 31, 2006 related to these matters.

In connection with our executive share purchase plan, under certain circumstances, we may be obligated to purchase loans for certain employees from a Canadian chartered bank totaling $3.9 million as of March 31, 2006 and December 31, 2005, respectively, to assist in purchasing our common shares. As collateral, the employees have pledged 383,000 of Hub common shares as of March 31, 2006 and December 31, 2005, respectively, which have a market value of $10.8 million and $9.9 million as of March 31, 2006 and December 31, 2005, respectively. Interest on the loans in the amount of $57,000 and $49,000 for the period ended March 31, 2006, and 2005, respectively, was paid by us and is included in compensation expense.

In the normal course of business, we are subject to various claims and lawsuits consisting primarily of alleged errors and omissions in connection with the placement of insurance. In the opinion of our management, the ultimate resolution of all such asserted and potential claims and lawsuits will not have a material adverse effect on our consolidated financial position or results of operations.

Shareholders’ equity

Restricted share units.In the first quarter ended March 31, 2006, 222,000 restricted share units (RSUs) were granted as follows: 7,000 RSUs were granted to the members of our Board of Directors; 44,000 RSUs were granted to the members of the Executive Management Team (EMT) and 171,000 RSUs were granted to the other non-EMT employees.

Share repurchases.For the quarter ended March 31, 2006, no common shares were repurchased by us.

Shares reserved for issuance.As of March 31, 2006, 3.6 million common shares were reserved for issuance under our equity incentive plan. As of March 31, 2006, an aggregate of approximately 3.1 million stock options and RSU’s were outstanding which would reduce such shares reserved for issuance.

Shareholder’s equity as of March 31, 2006 is comprised of the following:

						Cumulative
	Share		Contributed			Translation			Retained
(in thousands of U.S. dollars)	Capital		Surplus			Account			Earnings			Total
Balance, December 31, 2005	$	270,199	$	16,989		$	31,893		$	100,845		$	419,926
Non-cash stock based compensation		—		1,480			—			—			1,480
Shares issued, net of cancellation		1,566		—			—			—			1,566
Shares issued for contingent consideration		19,024		—			—			—			19,024
Stock options exercised		704		—			—			—			704
Restricted share units released		421		(267	)		—			—			154
Windfall tax benefits		—		473			—			—			473
Translation of self-sustaining foreign operations		—		—			(33	)		—			(33	)
Net earnings		—		—			—			16,466			16,466
Dividends paid		—		—			—			(2,199	)		(2,199	)
		21,715		1,686			(33	)		14,267			37,635
Balance, March 31, 2006	$	291,914	$	18,675		$	31,860		$	115,112		$	457,561

  34   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

Market Risk

Interest rate risk

We are exposed to interest rate risk in connection with our $75 million bank debt, $75 million revolving U.S. dollar LIBOR loan and our $65 million senior notes due to the interest rate swap entered into in July 2003, which converted the fixed rate interest payments on the $65 million aggregate principal amount of senior notes into floating rate payments. As a result, each 100 basis point increase in interest rates charged on the balance of our outstanding floating rate debt as of March 31, 2006 will result in a decrease of approximately $0.3 million in our quarterly earnings.

Exchange rate sensitivity

We report our revenue in U.S. dollars. Our Canadian operations earn revenue and incur expenses in Canadian dollars. Given our significant Canadian dollar revenue, we are sensitive to the fluctuations in the value of the Canadian dollar and are therefore exposed to foreign currency exchange risk. Foreign currency exchange risk is the potential for loss in revenue and net income as a result of a decline in the U.S. dollar value of Canadian dollar revenue due to a decline in the value of the Canadian dollar compared to the U.S. dollar. Unrealized foreign currency translation gains and losses are recorded in the cumulative translation account (CTA), a balance sheet account, and do not currently impact net earnings.

The Canadian dollar is subject to volatility and experienced a significant decline in its value compared to the U.S. dollar during first three months 2006 as compared to 2005. At March 31, 2006 and 2005 one U.S. dollar equaled $0.86 and $0.83 Canadian dollars, respectively. The table below summarizes the effect that a $0.01 decline or increase in the value of the Canadian dollar would have had on our revenue, net earnings and CTA for the three months ended March 31, 2006, and 2005.

(in millions of U.S. dollars)	2006		2005
Revenue	+/- $	0.4	+/- $	0.4
Net earnings	+/- $	0.1	+/- $	0.1
CTA	+/- $	1.7	+/- $	1.7

The increasing proportion of our revenue derived from our U.S. operations and earned in U.S. dollars has, in part, offset the potential risk of a decline in the Canadian dollar. We expect that the proportion of revenue earned in U.S. dollars will continue to increase, further mitigating our foreign currency exchange sensitivity.

Goodwill and Other Intangible Assets

Intangible assets arising from acquisitions consist of the following:

	March 31,			December 31,
(in thousands of U.S. dollars)	2006			2005
Customer relationships	$	118,129		$	116,878
Non-competition covenants		8,677			7,917
Goodwill		443,281			438,926
Accumulated amortization		(40,660	)		(37,556	)
Total	$	529,427		$	526,165

We completed our impairment testing on the balance of goodwill and intangible assets as of January 1, 2006 and 2005. Based on the testing performed, no impairment losses were incurred.

The amounts allocated to customer relationships were determined by discounting the expected future net cash flows from commissions with consideration given to remaining economic lives, renewals, and associated expenses. The amounts allocated to non-competition covenants were determined using an income approach with

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   35 

consideration given to economic benefits associated with having the covenants in place versus damages that would ensue absent the agreements. The balance of the excess purchase price is allocated to goodwill.

Customer relationships are amortized on a straight-line basis over their estimated useful life, typically ten to fifteen years. Many factors outside our control determine the persistency of our customer relationships and we cannot be sure that the value we have allocated will ultimately be realized. Non-competition covenants are intangible assets that have an indefinite life and accordingly, are not amortized but are evaluated for impairment. When an employee leaves Hub, the non-competition covenant becomes effective and the value assigned is then amortized over the life of the covenant. For the three months ended March 31, 2006 and 2005, our amortization has been comprised of the following:

(in thousands of U.S. dollars)	2006		2005
Customer relationships	$	2,735	$	1,778
Non-competition covenants		541		55
Total	$	3,276	$	1,833

We estimate that our amortization charges for intangible assets for 2006 through 2010 for all acquisitions consummated through March 31, 2006 will be:

Year ended December 31,
(in thousands of U.S. dollars)	2006		2007		2008		2009		2010
Customer relationships	$	10,288	$	9,955	$	9,575	$	9,318	$	9,135
Non-competition covenants		2,112		1,283		661		182		96
Total	$	12,400	$	11,238	$	10,236	$	9,500	$	9,231

Related Party Transactions

We had transactions with, and recorded revenue from, the following related parties:

	For the three
	months ended
	March 31,
(in thousands of U.S. dollars)	2006		2005
Northbridge Financial Corporation	$	4,941	$	4,515
Crum & Forster Holdings, Inc.		173		178
Fairfax Inc.		144		(253	)
		5,258		4,440
Old Lyme Insurance Company, Ltd. (OLIC)		1,233		1,490
	$	6,491	$	5,930

We had accounts receivable and accounts payable balances with the above related parties in the amounts of $8.2 million and $12.2 million, respectively, at March 31, 2006 and $10.0 million and $19.5 million, respectively, at December 31, 2005. All revenue and related accounts receivable and accounts payable are the result of transactions in the normal course of business. The companies above, except for OLIC, are related through common ownership by Fairfax, which owns approximately 25% of our common shares as of March 31, 2006. During the second quarter 2004, Fairfax sold OLIC to Old Lyme Insurance Group, Ltd, a company owned primarily by a group of Hub employees, including Bruce Guthart, Chief Operating Officer and a director of Hub. We continue to place insurance with OLIC. The compensation that Hub earns from the business placed with OLIC and the fees it earns from managing OLIC are substantially the same as if Fairfax continued to own OLIC.

  36   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

As of March 31, 2006 and December 31, 2005, subordinated convertible debentures of $35.0 million were held by certain subsidiaries of Fairfax.

During the first quarter of 2006 and 2005, we incurred expenses related to rental of premises from related parties in the amount of $0.8 million and $0.6 million, respectively. At March 31, 2006 and December 31, 2005, we also had receivables due from related parties in the amount of $1.9 million and $2.2 million, respectively, of which the majority were loans to employees to enable them to purchase our common shares. Of these receivables, as of March 31, 2006 and December 31, 2005, $1.5 million, respectively, were related to company loans to employees to purchase shares under our executive share purchase plan. The loans will mature June, 2011 and bear interest at a rate of prime plus 0.5%. The interest rate at March 31, 2006 was 6.0%. As collateral, the employees have pledged 122,000 common shares as of March 31, 2006 and December 31, 2005, respectively, which have a market value of $3.5 million and $3.2 million as of March 31, 2006 and December 31, 2005.

Off-Balance Sheet Transactions

Under Canadian GAAP, we use the synthetic instruments method to account for the interest rate swap transaction, which converted fixed rate interest payments of 5.71% and 6.16% on the senior notes of $10 million and $55 million, respectively to a floating rate resulting in an expense of approximately $0.2 million for the first quarter 2006 and a savings of approximately $0.2 million for the first quarter 2005. Under this method, we report in earnings the net interest expense on the swap and associated debt as if it were a single, synthetic, financial instrument. The fair value of the swap, estimated at $5.1 million, is not recognized in our Canadian GAAP financial statements. We have no other material off-balance sheet arrangements that have or are reasonable likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk.”

Item 4. Controls and Procedures

Under SEC rules, we are required to maintain disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Our chief executive officer and chief financial officer conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of March 31, 2006 (the Evaluation Date). Based on that evaluation, our chief executive officer and chief financial officer concluded that as of the Evaluation Date, our disclosure controls and procedures were effective in timely alerting them to material information relating to us required to be disclosed in our reports filed or submitted under the Exchange Act. In addition, there have been no changes in our internal control over financial reporting during the first quarter 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Notwithstanding the foregoing, there can be no assurance that our disclosure controls and procedures will detect or uncover all failures within our company to disclose all material information otherwise required to be set forth in our periodic reports.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The insurance industry in general, and certain of our hubs, have been the subject of scrutiny by various regulatory bodies, including state attorneys general and the departments of insurance for various states, with respect to certain contingent commission arrangements between insurance companies and brokers.

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   37 

As previously reported, our subsidiary HUB Northeast (formerly known as Kaye Insurance Associates, Inc.), received three subpoenas from the Office of the Attorney General of the State of New York seeking information regarding certain contingent agreements and other business practices. Since August 2004, various other subsidiaries of Hub have received and responded to letters of inquiry and subpoenas from authorities in California, Connecticut, Texas, Illinois, Delaware, Pennsylvania, New Hampshire and Quebec. We retained external counsel to assist us in responding to the New York Attorney General’s and other inquiries and, among other things, requested that such external counsel conduct an investigation of HUB Northeast and of our other hubs to determine whether any current or former employee engaged in the practice of falsifying or inflating insurance quotes or other illegal practices. To date, management is unaware of any incidents of falsifying or inflating insurance quotes or other illegal practices. State attorneys general and insurance departments continue their investigations of various industry practices. We continue to review our practices in light of these investigations and resulting charges brought against other brokers.

We have fully cooperated with the attorney general and department of insurance inquiries. While it is not possible to predict the outcome of these investigations, if contingent compensation agreements were to be restricted or no longer permitted, our financial condition, results of operation and liquidity may be materially adversely affected.

We were first named as a defendant in a federal class action lawsuit in October, 2004. The lawsuit alleges that the defendants used the contingent commission structure to deprive policyholders of “independent and unbiased brokerage services, as well as free and open competition in the market for insurance.” A number of substantially similar federal class actions were filed against us and many other defendants. On February 17, 2005, the Federal Judicial Panel on Multidistrict Litigation transferred these and other class actions in which we were not named to the District of New Jersey. In August 2005 and February 2006, amended complaints were filed in the consolidated federal court proceedings pending in New Jersey and styled In re Insurance Brokerage Antitrust Litigation. The case has now been divided into two cases, one for employee benefits and the other for commercial insurance. Certain of our subsidiaries have been named as additional defendants. A small number of allegations specifically pertaining to Hub have been added, but remain vague. The judge in these actions has permitted limited discovery to take place, which is continuing. We dispute the allegations made in these lawsuits and intend to vigorously defend these cases.

In January, 2005 we and our affiliates were named as defendants in a class action filed in the Circuit Court of Cook County, Illinois. The named plaintiff is a Chicago law firm that obtained its professional liability insurance through the Chicago office of what is now HUB Midwest and claims that we received an undisclosed contingent commission with respect to its policy. We dispute the allegations of this lawsuit and are vigorously defending this case.

The cost of defending against the lawsuits, and diversion of management’s attention, may be significant and could have a material adverse effect on our results of operations. In addition, an adverse finding in a regulatory investigation or a class action or similar lawsuit could result in a significant judgment or imposition of liability against us that could have a material adverse effect on our financial condition, results of operation and liquidity. We have not recorded a liability at December 31, 2005 related to these matters. In the normal course of business, we are involved in various claims and legal proceedings relating to insurance placed by us and other contractual matters. Our management does not believe that any such pending or threatened proceedings will have a material adverse effect on our consolidated financial position or future results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On March 31, 2006, we issued 745,765 common shares to management of Talbot, in connection with the Talbot earnout. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations — Acquisitions” for a discussion of the Talbot acquisition and contingent payments.

All of the shares issued in the transaction described above were issued in transactions exempt from registration pursuant to section 4(2) of the Securities Act of 1933.

  38   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

Item 5. Other Information

Information Concerning Forward-Looking Statements

This Form 10-Q includes, and from time to time management may make, forward-looking statements which reflect our current views with respect to future events and financial performance. These forward-looking statements relate, among other things, to our plans and objectives for future operations. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other factors include, but are not limited to, risks associated with:

• implementing our business strategies;

• identifying and consummating acquisitions;

• successfully integrating acquired businesses;

• attaining greater market share;

• resolution of regulatory issues and litigation, including those related to compensation arrangements with insurance companies;

• the possibility that the receipt of contingent compensation from insurance companies could be prohibited;

• developing and implementing effective information technology systems;

• recruiting and retaining qualified employees;

• fluctuations in the demand for insurance products;

• fluctuations in the premiums charged by insurance companies (with corresponding fluctuations in our premium-based revenue);

• fluctuations in foreign currency exchange rates;

• any loss of services of key executive officers;

• industry consolidation;

• increased competition in the industry;

• the actual costs of resolution of contingent liabilities; and

• the passage of new federal, state or provincial legislation subjecting our business to increased regulation in the jurisdictions in which we operate.

Words that indicate outlook or expectations, such as “believe,” “anticipate,” “project,” “expect,” “intend,” “will likely result,” “will continue” and similar expressions indicate forward-looking statements. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates.

Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Dividends

On February 28, 2006 the Board of Directors declared a dividend of $0.07 on our common shares, payable March 31, 2006 for the first quarter 2006 to shareholders of record on March 15, 2006.

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   39 

Item 6. Exhibits

Exhibits

31.1	Certification of the Chief Executive Officer, Martin P. Hughes, pursuant to Rule 13a-14(a) or 15d-14(a), as enacted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer, Dennis J. Pauls, pursuant to Rule 13a-14(a) or 15d-14(a), as enacted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer, Martin P. Hughes, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer, Dennis J. Pauls, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Information under the caption “Risks related to our business” and “Risks related to our common shares” is incorporated by reference from the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2006.

  40   HUB INTERNATIONAL LIMITED QUARTERLY REPORT MARCH 31, 2006

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HUB INTERNATIONAL LIMITED

By:  /s/Dennis J. Pauls

Dennis J. Pauls

Vice President and Chief Financial Officer

(duly authorized officer and Principal Financial Officer)

DATE: May 9, 2006

QUARTERLY REPORT MARCH 31, 2006 HUB INTERNATIONAL LIMITED   41