Slide 1: Hiscox Ltd Preliminary results for the year ended 31 December 2014
Hiscox Ltd Preliminary results for the year ended 31 December 2014
Slide 2: A strong result
A strong result • Premium growth of 3.3% (2013: 8.5%) – Insurance up by 8.8% – Reinsurance down by 13.9% • Profit before tax £231.1m (2013: £244.5m) • Combined ratio 83.9% (2013: 83.0%) • Return on equity 17.1% (2013: 19.3%) • Capital return of 60p including final dividend equivalent 1
Slide 3: Strategy gives us options
Strategy gives us options Retail now a major contributor 2
Slide 4: Financial performance
he HISCOX Financial performance
Slide 5: A strong result
A strong result Full year Full year 2014 2013 £000 £000 Gross premiums written 1,756,260 1,699,478 Net premiums written 1,343,410 1,371,114 Net premiums earned 1,316,259 1,283,311 • Investment return of 1.8% Investment return on financial assets 56,355 58,924 Foreign exchange gains/(losses) 4,974 (9
Slide 6: Segmental analysis
Segmental analysis 31 December 2014 31 December 2013 Hiscox Hiscox Hiscox London Hiscox Corporate Hiscox London Hiscox Corporate Retail Market Re Centre Total Retail Market Re Centre Total £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Gross premiums written 891,115 510,825 354,320 – 1,756,260 81
Slide 7: Strategy working
Strategy working a Total Group controlled net premiums written for 2014 100% =£1,494m 14.4% Hiscox Re HiscoxUK 28.5% 29.1% Hiscox London Market Hiscox Europe 9.8% Hiscox USA 13.7% DirectAsia 0.4% Hiscox Guemsey 4.1%
Slide 8: Diverse capital creates options
Diverse capital creates options 7
Slide 9: Solid investment performance
Solid investment performance 31 December 2014 31 December 2013 Asset Annualised Asset Annualised allocation return Return allocation return Return % % £000 % % £000 Bonds £ 15.1 2.1 16.3 0.7 US$ 52.6 1.2 48.5 0.7 Other 10.1 1.9 9.9 0.6 Bonds total 77.8 1.5 36,714 74.7 0.7 17,105 Equities 7.8 7.6 17,
Slide 10: High quality, conservative portfolio
High quality, conservative portfolio Investment portfolio £3,245m* as at 31 December 2014 • Short duration • High credit quality Asset allocation Bond credit quality Bond currency split maintained Bonds Gvt. USD Cash AAA GBP • Risk assets at 7.8% Risk assets AA EUR A CAD • Not stretching for yield B
Slide 11: Portfolios – USD bond portfolios
Portfolios – USD bond portfolios as at 31 December 2014 Portfolios: $2.6bn BB and AAA AA A BBB below Total Duration • Favour corporates % % % % % % months • Credit provides positive Government issued 19.5 0.3 19.8 15.7 carry Government supported* 1.5 8.4 0.9 0.5 11.3 13.9 • Still cautious on duratio
Slide 12: Portfolios – GBP, EUR and CAD bond portfolios
Portfolios – GBP, EUR and CAD bond portfolios as at 31 December 2014 GBP portfolios: BB and AAA AA A BBB below Total Duration • Governments favoured for £449m duration management % % % % % % months Government issued 54.8 54.8 21.8 • No exposure to Greece Government supported* 10.2 0.9 0.2 11.3 12.3
Slide 13: 2014 capital requirements
2014 capital requirements £1.45bn available capital £1.26bn available capital (post return) Economic Regulatory A.M. Best Standard & Poor's Fitch ratings Group capital Group capital Bermuda solvency (catastrophe model (economic) model (regulatory) capital requirement stressed) Rating agency assessme
Slide 14: Returning 60p per share of capital
Returning 60p per share of capital • 15p per share final dividend equivalent • Additional return of 45p per share with share consolidation • Issue of E or F shares (similar to last year’s C or D share) • Share consolidation: 88 new ordinary shares for 100 existing ordinary shares • Maintains TNAV pe
Slide 15: Fascinating financial facts
Fascinating financial facts • Good claims experience – Low level catastrophe losses – Hiscox net £25.6m aggregate industry losses £4.8bn (Hurricane Odile, European and UK storms and floods, Japanese snow storms) – Small impact from aviation and marine losses – Hiscox net £8.7m aggregate industry los
Slide 16: Underwriting
he HISCOX Underwriting
Slide 17: An actively managed business
An actively managed business Total Group controlled premium 2014: £1,983m Period-on-period in local currency 2014 GWP +16.9% £503m Professional -6.3% liabilities £419m Errors and +3.2% omissions Non-marine £358m Kidnap and +8.2% Directors and ransom officers’ liability £285m Marine Contingency +13.0
Slide 18: Rates under pressure
Rates under pressure Insurance Catastrophe reinsurance Risk XS reinsurance* • Catastrophe reinsurance rates continue to decline • Insurance rates stable 140% or softening • Some big ticket lines 120% under pressure – Upstream energy, 100% terrorism, US commercial property Index level % 80% 60% 40% 2
Slide 19: Adapting to new distribution environment
Adapting to new distribution environment 18
Slide 20: Underwriting update: Greater focus on where we can win
Underwriting update Greater focus on where we can win Hiscox Retail Hiscox London Market Hiscox Re • Investment in IT to drive underwriting • New underwriting teams • Diversifying the portfolio insight and efficiencies growing well • Product innovation through creative • Greater customer choice • Di
Slide 21: Product innovation
Product innovation Relevant Front of mind Solving problems 20
Slide 22: Kiskadee ILS attracting good support
Kiskadee ILS attracting good support • Two open-ended ILS funds – AUM growing with committed capital of circa $500m by mid year • Draws on expert underwriting and analytical capability of Hiscox Re • Long history of managing third-party capital – First side car at Lloyd’s – Currently managing $4bn c
Slide 23: Business performance
he HISCOX Business performance
Slide 24: Managing the business
Managing the business Gross written premiums for the year to 31 December 2014 2014 2013 Change Growth in local £000 £000 % currency % Hiscox Retail Hiscox UK and Europe Hiscox UK 434,963 412,388 5.5 6.3 Hiscox Europe 155,068 146,701 5.7 8.5 Hiscox International Hiscox Guernsey 64,475 70,780 (8.9) (4
Slide 25: Growth of Hiscox Retail
Growth of Hiscox Retail 1,000 Gross written premium Profit before tax 100 900 90 800 80 700 70 PBT (£m) GWP (£m) 600 60 500 50 400 40 300 30 200 20 100 10 - - 2012 2013 2014 24
Slide 26: Building the business
Building the business Local casualty and commercial – GWP £m Build a UK brand Products for specific Launch 600 professions – tech, Europe Launch specialty media, consultants commercial in USA direct 500 Plain UK direct-to- English Product consumer and Launch 400 wordings extensions partnerships US d
Slide 27: Hiscox UK and Europe: Record profits
Hiscox UK and Europe Record profits • Gross written premium £590.0m (2013: £559.1m) • Profit before tax £73.3m (2013: £56.4m) • Combined ratio 90.5% (2013: 92.6%) – UK 88.6% in local currency – Europe 94.1% in local currency • Marketing expenditure £18.5m (2013: £15.6m) • Small bolt-on acquisitions
Slide 28: Hiscox International: Pursuing good opportunities
Hiscox International Pursuing good opportunities • Gross written premium £301.1m (2013: £260.3m) • Profit before tax £4.7m (2013: £4.8m) • Combined ratio 100.1% (2013: 98.5%) • Marketing expenditure £13.3m (2013: £15.0m) • Good profits in Guernsey • Strong US growth • DirectAsia purchased 27
Slide 29: Hiscox International: Focus on specialty lines and building brand
Hiscox International Focus on specialty lines and building brand • Hiscox Guernsey – Creation of new division, Hiscox Special Risks, boosts global collaboration – Market-leading expertise and service drives profit despite tough competition • Hiscox USA – Continued strong growth gives us material US
Slide 30: Hiscox USA: Continued good growth in direct
Hiscox USA Continued good growth in direct Policy sales per week 1800 1600 1400 1200 1000 800 600 400 200 0 Policy sales 29
Slide 31: Hiscox London Market: Good underwriting meets good luck
Hiscox London Market Good underwriting meets good luck • Premium growth of 9.0% to £510.8m (2013: £468.6m) • Profit before tax £62.6m (2013: £63.1m) • Combined ratio 84.2% (2013: 81.4%) • Finding opportunities – New casualty team delivering – Supporting alternative distribution: vehicle physical dam
Slide 32: Hiscox Re: An excellent year
Hiscox Re An excellent year • Gross written premium £354.3m (2013: £411.5m) • Profit before tax £105.6m (2013: £129.0m) • Combined ratio 49.8% (2013: 58.9%) • Good risk selection, low loss levels • Continued quota share support • Steady growth in healthcare and casualty reinsurance • Kiskadee ILS de
Slide 33: Summary and outlook
he HISCOX Summary and outlook
Slide 34: Summary: Balance and diversity delivering
Summary Balance and diversity delivering • Good growth and profits in insurance – Retail now over 50% of the business – Record profit in UK and Europe – London Market growing with consistent profitability • Reinsurance adapting to changing market and attracting new sources of capital • Third year of
Slide 35: Outlook: Opportunities for the prepared
Outlook Opportunities for the prepared • Financial repression will continue • Reinsurance will be challenging – product innovation and Kiskadee ILS create opportunities • Insurance lines benefit from multi-year investment in brand, product, geographic expansion and distribution – US growing to $500m
Slide 36: Appendices
Appendices • Geographic reach • Strategic focus • Strategy working • A symbiotic relationship • Long-term growth • Business trends • Hiscox Ltd results • Boxplot and whisker diagram of Hiscox Ltd • Realistic disaster scenarios • Segmental analysis for 2012 – new basis • GWP geographical and currency
Slide 37: Geographical reach
Geographical reach UK Guernsey Birmingham Europe Colchester St Peter Port Amsterdam Glasgow Bordeaux Leeds Brussels London USA Bermuda Cologne Maidenhead Atlanta Hamilton Dublin Manchester Chicago Latin American Hamburg York Los Angeles gateway Lisbon New York City Miami Lyon Asia San Francisco Madr
Slide 38: Strategic focus
Strategic focus a HISCOX Total Group controlled income for 2014 100% =£1,983m Internationally traded lines Local specialty lines 21% Reinsurance 8% Large property Local casualty 21% and commercial Tech and media 4% casualty 3% Global casualty 12% Specialty - terrorism, contractors’ equipment FTC, po
Slide 39: Strategy working
Strategy working a Total Group controlled net premiums written for 2014 100% =£1,494m 14.4% Hiscox Re HiscoxUK 28.5% 29.1% Hiscox London Market Hiscox Europe 9.8% Hiscox USA 13.7% DirectAsia 0.4% Hiscox Guemsey 4.1% 38
Slide 40: A symbiotic relationship
A symbiotic relationship a HISCOX Internationally traded lines * Larger premium, catastrophe exposed ¢ Shrinks and expands according to rates * Excess profits allow investment in retail development Profit generator Value creator Local specialty lines Premium growth between 5-15% per annum Pays divid
Slide 41: Long-term growth: Gross written premiums
Long-term growth Hiscox Reinsurance Hiscox London Market - Retail Hiscox Europe Hiscox USA Hiscox London Market - Volatile Hiscox UK Hiscox Guernsey DirectAsia 2000 1800 Gross written premiums (£m) Internationally 1600 traded lines 1400 1200 1000 800 Local 600 specialty lines 400 200 0 40
Slide 42: Business trends
Business trends Total Group controlled premium 2014: £1,983m Period-on-period in local currency 2014 GWP +16.9% £503m Professional -6.3% liabilities £419m Errors and +3.2% omissions Non-marine £358m Kidnap and +8.2% Directors and ransom officers’ liability £285m Marine Contingency +13.0% Commercial
Slide 43: Hiscox Ltd results
Hiscox Ltd results £000 2014 2013 2012 2011 2010 2009 Gross premiums written 1,756,260 1,699,478 1,565,819 1,449,219 1,432,674 1,435,401 Net premiums written 1,343,410 1,371,114 1,268,140 1,174,011 1,131,627 1,157,023 Net premiums earned 1,316,259 1,283,311 1,198,621 1,145,007 1,131,158 1,098,102 In
Slide 44: Boxplot and whisker diagram of modeled Hiscox Ltd net loss
Boxplot and whisker diagram of modeled Hiscox Ltd net loss ($m) January 2015 Lower 5%- upper Loma Prieta Quake $6bn market loss Northridge Quake $24bn market loss Hurricane Andrew $56bn market loss Hurricane Katrina $50bn market loss 2011 Tohoku Quake $25bn market Superstorm Sandy - $20bn market 95%
Slide 45: Realistic disaster scenarios
Realistic disaster scenarios Hiscox Group – losses shown as percentage of 2014 gross and net written premium Gross loss Industry loss Net loss return period Japanese earthquake 5% $50bn 1 in 240 year 18% Gulf of Mexico windstorm 5% $107bn 1 in 80 year 34% Florida windstorm 5% $125bn 1 in 100 year 24
Slide 46: Segmental analysis for 2012 – new basis
Segmental analysis for 2012 – new basis 31 December 2012 Hiscox London Hiscox Corporate Hiscox Retail Market Re Centre Total £000 £000 £000 £000 £000 Gross premiums written 725,067 321,043 519,709 – 1,565,819 Net premiums written 667,627 257,316 343,197 – 1,268,140 Net premiums earned 648,222 288,13
Slide 47: GWP geographical and currency split
GWP geographical and currency split 2014 geographical split – controlled income 2014 currency split – controlled income North America GBP Other USD Westerm Europe (excl. UK) CAD and other Worldwide EUR UK 13.1 18.9 24.7 4.4 36.2 20.5 11.4 57.8 13.0 46
Slide 48: Group reinsurance security
Group reinsurance security Receivables at 31/12/14 of £525.3m 2014 reinsurance protections* First loss exposure by rating AAA and collateralised A AA AA A AAA Other 5.0% 10.3% 11% 34.7% 52% 50.0% 37% *Reinsurance placements in force at 1 January 2015. 47
Slide 49: Reinsurance
Reinsurance Ceded as a percentage of GWP Reinsurance receivables as a percentage of total assets 25 25 23.5 21.7 20 20.9 21.0 20 19.4 19.0 19.0 19.3 18.7 17.0 15 15 13.4 13.4 12.3 10 10 11.6 11.7 11.0 10.0 10.3 10.6 7.7 5 5 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 20
Slide 50: Glossary of terms
Glossary of terms Annual venture Group controlled The system used for running a Lloyd’s syndicate under which The total gross written premium controlled by the Group each ‘year of account’ is treated separately. Members own including the 27% of the Syndicate capacity not owned by capacity on a syndi
Slide 51: Glossary of terms
Glossary of terms Net premiums earned Run-off account Premiums received after the cost of reinsurance and At Lloyd’s, a year of account which is kept open after the date adjustment for unearned premium. Unearned premium on which it would normally have been closed. covers the future period of risk of