Slide 1: Hiscox Ltd Preliminary results
Hiscox Ltd Preliminary results For the year ended 31 December 2016
Slide 2: A record result
A record result Flattered by FX • Gross written premiums up by 23.6% to £2,402.6m • Profit before tax up by 64% to £354.5m • Full year dividend step up by 15% to 27.5p • Net asset value up by over £1 per share to 649.9p • Return on equity up by 7.0% to 23.0% 1
Slide 3: Retail comes of age
Retail comes of age Big-ticket 2010 split 2015 split 2016 split Hiscox London Market Hiscox Re and ILS GWP Retail Hiscox Retail 54% 46% 49% 51% 51% 49% NWP 47% 40% 39% 53% 60% 61% PBT excl. FX 13% 39% 46% 61% 54% 87% PBT excludes Corporate Centre. 2
Slide 4: Financial performance
he HISCOX Financial performance
Slide 5: Group performance
Group performance Strength in diversity 2016 2015 Change • Top line growth of 23.6%, £m £m % 14.1% in local currency Growth • Net growth dominated Gross premiums written 2,402.6 1,944.2 23.6 by Retail Net premiums written 1,787.9 1,571.8 13.7 • Good underwriting profit Net premiums earned 1,675.0 1,
Slide 6: Hiscox Retail
Hiscox Retail Strategy paying off 2016 2015 • Hiscox USA – outstanding £m £m performance, premium growth of over 30% Gross premiums written 1,181.4 989.8 • Hiscox UK and Ireland and Hiscox Europe – good Net premiums written 1,092.0 936.6 profitability and growth Net premiums earned 1,020.5 888.0 • H
Slide 7: Hiscox London Market
Hiscox London Market A good result in a challenging market 2016 2015 • Top line growth of 14.2% £m £m in local currency – significantly moderated Gross premiums written 726.0 571.0 at net level • Bottom line flattered by Net premiums written 469.1 410.3 foreign exchange Net premiums earned 443.1 366
Slide 8: Hiscox Re and ILS
Hiscox Re and ILS Good underwriting and good growth 2016 2015 • Local currency growth £m £m of 16.1% Gross premiums written 495.2 383.4 • Continued disciplined underwriting Net premiums written 226.8 225.0 • Growth in specialty and casualty lines, with new Net premiums earned 211.4 180.7 products an
Slide 9: A good claims experience
A good claims experience • Net catastrophe and market loss claims impact for Hiscox Ltd – Catastrophe: £65.4m (2015: £17.9m) – includes Hurricane Matthew, Alberta wildfires, Louisiana and Houston floods, Texas hailstorm, Japan and Ecuador earthquakes, UK and European storms – Market losses: £12.4m (
Slide 10: A consistent approach to reserving
A consistent approach to reserving Reserve releases £213m (2015: £206m) Loss development by accident year • 12.7% of opening net reserves broadly 2011 2012 2013 2014 2015 consistent with prior years 1.05 • No adverse development 1.00 • Maintaining a cautious 0.95 approach 0.90 0.85 0.80 0.75 0.70 Ye
Slide 11: Portfolio – asset mix
Portfolio – asset mix High-quality, conservative portfolio Investment portfolio £4,410m as at 31 December 2016 • AUM increased as a result of growing balance sheet and USD strength Asset allocation Bond credit quality Bond currency split Bonds Gvt. USD • Risk assets at 6.9% Cash AAA GBP Risk assets
Slide 12: Strong investment performance
Strong investment performance 31 December 2016 31 December 2015 Asset Annualised Asset Annualised allocation return Return allocation return Return % % £000 % % £000 Bonds £ 14.1 2.7 12.3 1.1 US$ 54.6 1.7 51.2 0.9 Other 8.7 1.1 8.9 0.6 Bonds total 77.4 1.9 55,709 72.4 0.9 21,585 Equities 6.9 6.2 17,
Slide 13: Solvency capital vs. regulatory requirements
Solvency capital vs. regulatory requirements $2.6bn $1.4bn surplus Solvency ratio estimate 214% $1.2bn Available statutory economic capital and surplus Bermuda enhanced solvency capital requirement 12
Slide 14: Capital requirement
Capital requirement £1.97bn available capital £1.92bn available capital (post final dividend) Economic Regulatory A.M. Best S&P Fitch Group capital model Group capital model Bermuda enhanced (catastrophe (economic) (regulatory) solvency capital stressed) requirement Rating agency assessments shown a
Slide 15: Retail providing bottom line stability
Retail providing bottom line stability Balance of insurance profits Total Group controlled income Underwriting profits Hiscox Retail Hiscox London Market Hiscox Re and ILS Hiscox Retail Big-ticket (Hiscox London Market, Hiscox Re and ILS) 100% 90% ILS Quota 80% share UK and 44% Ireland 70% 64% Reins
Slide 16: Focus remains on growing shareholder value
Focus remains on growing shareholder value NAV up, dividend up Net asset value per share (p) • Compound growth of 13.4% 700 • Dividends and capital 650 returns over five years: £825m 600 545 • Total shareholder returns over five years: £881m 500 463 • Final dividend up 19%, full year dividend up 15%
Slide 17: Underwriting
he HISCOX Underwriting
Slide 18: Rates stable in retail, continued pressure in big-ticket lines
Rates stable in retail, continued pressure in big-ticket lines All Retail Core London Market Catastrophe reinsurance • Retail stable 120 • Small reductions in catastrophe reinsurance • Greatest pressure in 100 Rate on line indexed to January 2010 London Market, driven by – Marine and energy 80 – Avi
Slide 19: An actively managed business
An actively managed business Total Group controlled premium 2016: £2,673m Period-on-period in local currency 2016 GWP +22.5% £762m Professional liabilities Errors and omissions +11.8% +10.5% £533m £530m Private directors and officers’ liability Non-marine Kidnap and ransom Cyber Contingency Marine T
Slide 20: Hiscox London Market business mix
Hiscox London Market business mix Reducing where rates are under most pressure Reduce Hold Grow • Grow new teams where we see opportunities – e.g. Cyber, flood, 100% product recall, general liability 90% +145% £83m • Hold areas of strength 80% and margin 70% – e.g. household and commercial property
Slide 21: Managing our net exposure
Managing our net exposure Big-ticket discipline and Retail growth Gross/net written premiums in local currency Hiscox London Market Hiscox Re and ILS Hiscox Retail GWP NWP GWP NWP GWP NWP* 1,200 +4% 1,000 +11% Gross/net written premiums (£m) 800 600 +39% 400 +4% +18% 200 +14% 0 2015 2016 2015 2016 2
Slide 22: Hiscox USA
Hiscox USA Achieving scale and profitable • Appetite broadened to Broker Direct and partnerships extend SME footprint 600 – Direct Workers’ comp 500 Health and beauty Small contractors Real estate Gross written premiums ($m) 400 – Broker Cyber (accelerating) Financial services 300 Crim
Slide 23: Twenty-first century underwriting
Twenty-first century underwriting Investing in technology and data Portfolio underwriting brings together: Direct UK Portfolio underwritten (automated) Direct home Direct commercial 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 31 Dec 2014 1 Jan 2015 1 Jan 2017 Pre-system Pre Merlin Day 1 Implementati
Slide 24: Evolving our core specialties
Evolving our core specialties Seizing cyber opportunity as the market grows • Hiscox Retail focus on SME – Multi-channel approach (broker and direct) • Broader appetite and innovative solutions for big-ticket markets Launching new products to remain relevant in a dynamic retail environment • Special
Slide 25: Business performance and outlook
Business performance and outlook
Slide 26: Managing the business
Managing the business Net written premiums for the year to 31 December 2016 Growth in local 2016 2015 Change currency £m £m % % Hiscox Retail Hiscox UK and Europe Hiscox UK and Ireland 459.3* 423.7 8.4 7.1 Hiscox Europe 167.7 141.4 18.6 8.8 Hiscox International Hiscox Special Risks 88.3 94.0 (6.1) (
Slide 27: Strategy consistent
Strategy consistent Disciplined and opportunistic • Exercise discipline in areas under pressure – Reduce net exposure, but remain relevant and ready for opportunities – Shrink where margin is evaporating; e.g. aviation and White Oak – Exit if necessary Closure of political risks Transfer of heal
Slide 28: Investing for growth
Investing for growth Hiscox London Market, Re and ILS Retail – broker channel Retail – direct and partnerships • New teams • Analytics and product ‘reboots’ • Broadening US appetite to attract in US switchers e.g. workers’ comp – Cargo – D&O and cyber – Product recall • Improved IT infrastructure –
Slide 29: Continued investment in our brand
Continued investment in our brand 2016: £42 million 28
Slide 30: Responding to the changing environment
Responding to the changing environment • Brexit – Two candidates for NewCo location – Political deal will be required for run-off policies – Supportive of Lloyd’s plans – Temporary capital inefficiency • US tax and political uncertainty: implications of ‘border adjustments’ unclear • Currency volati
Slide 31: Our evolution
Our evolution Big-ticket vs. Retail business Big-ticket 2010 split 2015 split 2016 split Hiscox London Market Hiscox Re and ILS GWP Retail Hiscox Retail 54% 46% 49% 51% 51% 49% NWP 47% 40% 39% 53% 60% 61% PBT excl. FX 13% 39% 46% 61% 54% 87% PBT excludes Corporate Centre. 30
Slide 32: Summary and outlook
Summary and outlook Strategy of balance to continue • Hiscox London Market facing more pressure and will reduce • Hiscox Re and ILS to remain a material player • Hiscox Retail biggest contributor to 2016 profit and will continue to grow • Capital management remains a core focus – Step up in base div
Slide 33: Appendices
Appendices • Big-ticket and retail business • Geographical reach • Strategic focus • A symbiotic relationship • Long-term growth • An actively managed business • Segmental analysis • Hiscox Ltd results • Boxplot and whisker diagram of Hiscox Ltd • Realistic disaster scenarios • Casualty extreme loss
Slide 34: What do we mean by big-ticket and retail business?
What do we mean by big-ticket and retail business? • We characterise big-ticket as larger premium, catastrophe-exposed business written through Hiscox Re and ILS and Hiscox London Market. We expand and shrink these lines according to market conditions. • Retail is smaller premium, less volatile busi
Slide 35: Geographical reach
Geographical reach UK Guernsey Birmingham Europe Colchester St Peter Port Amsterdam Glasgow Bordeaux London Brussels Maidenhead USA Bermuda Cologne Manchester Atlanta Hamilton Dublin York Chicago Latin American Hamburg Dallas gateway Lisbon Los Angeles Miami Lyon Asia New York City Madrid Bangkok Sa
Slide 36: Strategic focus
a Strategic focus HISCOX Total Group controlled income for 2016 £100% = £2,673m Big-ticket business Retail business 20% Reinsurance Small commercial 22% Tech and media 6% 9, 7% Large property casualty 5% Casualty Art and private client 11% 14% Specialty — terrorism, contractors’ equipment FTC, polit
Slide 37: A symbiotic relationship
A symbiotic relationship a HISCOX Big-ticket business ¢ Larger premium, globally-traded, catastrophe-exposed ¢ Shrinks and expands according to rates * Excess profits allow investment in retail development Profit generator Value creator Retail business « Smaller premium, locally-traded, less volatil
Slide 38: Long-term growth
Long-term growth Hiscox Re and ILS Hiscox UK Hiscox Special Risks DirectAsia Hiscox London Market Hiscox Europe Hiscox USA 2,800 2,400 Hiscox London Market Hiscox Re and ILS Gross written premiums (£m) 2,000 1,600 1,200 Hiscox Retail 800 400 -0 37
Slide 39: An actively managed business
An actively managed business Total Group controlled premium 2016: £2,673m Period-on-period in local currency 2016 GWP +22.5% £762m Professional liabilities Errors and omissions +11.8% +10.5% £533m £530m Private directors and officers’ liability Non-marine Kidnap and ransom Cyber Contingency Marine T
Slide 40: Segmental analysis
Segmental analysis 31 December 2016 31 December 2015* Hiscox Hiscox Hiscox London Hiscox Re Corporate Hiscox London Hiscox Re Corporate Retail Market and ILS Centre Total Retail Market and ILS Centre Total £m £m £m £m £m £m £m £m £m £m Gross premiums written 1,181.4 726.0 495.2 – 2,402.6 989.8 571.0
Slide 41: Hiscox Ltd results
Hiscox Ltd results £m 2016 2015 2014 2013 2012 2011 Gross premiums written 2,402.6 1,944.2 1,756.3 1,699.5 1,565.8 1,449.2 Net premiums written 1,787.9 1,571.8 1,343.4 1,371.1 1,268.1 1,174.0 Net premiums earned 1,675.0 1,435.0 1,316.3 1,283.3 1,198.6 1,145.0 Investment return† 74.8 33.7 56.4 58.9 9
Slide 42: Boxplot and whisker diagram of modeled Hiscox Ltd net loss
Boxplot and whisker diagram of modeled Hiscox Ltd net loss ($m) January 2017 Lower 5%- upper Loma Prieta Quake $6bn market loss Northridge Quake $24bn market loss Hurricane Andrew $56bn market loss Hurricane Katrina $50bn market loss 95% range 2011 Tohoku Quake $25bn market Superstorm Sandy - $20bn
Slide 43: Realistic disaster scenarios
Realistic disaster scenarios Hiscox Group – losses shown as percentage of 2016 gross and net written premium Gross loss Industry loss Net loss return period Japanese earthquake 5% $50bn 1 in 240 year 26% Gulf of Mexico windstorm 8% $107bn 1 in 80 year 49% Florida windstorm 8% $125bn 1 in 100 year 35
Slide 44: Casualty extreme loss scenarios
Casualty extreme loss scenarios Changing portfolios, changing risk • As our casualty businesses continue to grow, we develop extreme loss scenarios to better understand and manage the associated risks • Losses in the region of £125m-£350m could be suffered in the following extreme scenarios: Event E
Slide 45: GWP geographical and currency split
GWP geographical and currency split 2016 geographical split – controlled income 2016 currency split – controlled income North America GBP Other USD Westerm Europe (excl. UK) CAD and other Worldwide EUR UK 11.7% 16.5% 3.9% 24.0% 14.5% 51.5% 9.2% 60.4% 8.3% 44
Slide 46: Group reinsurance security
Group reinsurance security Receivables at 31/12/16 of £805.6m 2017 reinsurance protections* First loss exposure by S&P A A AA AA AAA and collateralised AAA Other 2.9% 6% 24.4% 33% 52.1% 61% 20.6% *Reinsurance placements in force at 13 February 2017. 45
Slide 47: Reinsurance
Reinsurance Ceded as a percentage of GWP Reinsurance receivables as a percentage of total assets 30 25 25 25.6 20 23.5 21.7 20 21.0 20.9 17.0 15 19.4 19.3 19.2 19.0 19.0 18.7 15 13.4 12.3 12.1 11.7 11.6 10 13.4 11.0 10.6 10.3 10.2 10.0 10 7.7 5 5 0 0 46
Slide 48: Portfolio – USD bond portfolios
Portfolio – USD bond portfolios as at 31 December 2016 Portfolios: $3.0bn BB and AAA AA A BBB below Total Duration • Liquid portfolio % % % % % % months • Short duration Government issued 31.4 0.1 0.1 0.1 31.7 20.0 • Corporates still favoured Government supported* 0.7 5.5 0.4 6.6 21.4 Asset backed 6
Slide 49: Portfolio – GBP, EUR and CAD bond portfolios
Portfolio – GBP, EUR and CAD bond portfolios as at 31 December 2016 GBP portfolios: BB and AAA AA A BBB below Total Duration • Governments favoured for £586m duration management % % % % % % months Government issued 28.7 28.7 36.0 • No exposure to Greece, Ireland , Italy, Portugal Government supporte
Slide 50: Business segments
Business segments Hiscox Retail Hiscox Re and ILS Hiscox Retail brings together the results of the UK and Hiscox Re is the reinsurance division of the Group, combining Europe, and Hiscox International being the US, Special Risks the underwriting platforms in Bermuda, London and Paris. and Asia retai
Slide 51: Glossary of terms
Glossary of terms Binding authority Group controlled An agreement between a Lloyd’s managing agent and a The total gross written premium controlled by the Group coverholder under which the managing agent delegates including the 27.5% of the Syndicate capacity not owned its authority to enter into co
Slide 52: Glossary of terms
Glossary of terms MGA Reinsurance to close – RITC Managing General Agency. An individual or business entity The reinsurance to close comprises a premium payable by appointed by an insurer to solicit applications from agents the closing year to the members on the next open year of for insurance contr