Hiscox Ltd · LSE:HSX
Hiscox — H1 2019 Earnings Presentation
46 slides from Hiscox's earnings presentation, July 2019
Slide 1: Hiscox Ltd Interim results
Hiscox Ltd Interim results For the six months ended 30 June 2019
Slide 2: A positive result in a changing market
A positive result in a changing market • GWP up 5% to $2.3bn • Combined ratio 98.8% • Investment return $148m • PBT up 3% to $168m • Interim dividend up 4% to 13.75¢ 1
Slide 3: Financial performance
he HISCOX Financial performance
Slide 4: Group financial performance
Group financial performance 30 June 2019 30 June 2018 • Robust revenue growth $m $m in all segments Growth • Strong investment result Gross premiums written 2,337.5 2,228.8 • Underwriting impacted by reserve strengthening Net premiums written 1,467.4 1,399.3 • $58m provision for potential tax liabil
Slide 5: Hiscox Retail: Growth in all major businesses
Hiscox Retail Growth in all major businesses 30 June 2019 30 June 2018 • GWP growth in constant $m $m currency of 6% – Hiscox UK: 4% Growth – Hiscox Europe: 17% Gross premiums written 1,154.6 1,113.0 – Hiscox USA: 3% • UK recovery on track as Net premiums written 1,020.9 982.2 business adapts to new
Slide 6: Hiscox London Market: Opportunities in an improving market
Hiscox London Market Opportunities in an improving market 30 June 2019 30 June 2018 • GWP growth in constant $m $m currency of 7% • Rate momentum continues Growth to build, up 5% across the portfolio Gross premiums written 484.6 458.7 • Benign catastrophe Net premiums written 246.9 277.0 experience
Slide 7: Hiscox Re & ILS: Adverse development masks improving results
Hiscox Re & ILS Adverse development masks improving results 30 June 2019 30 June 2018 • GWP growth in $m $m constant currency of 8% Growth • Rates up 6% across the portfolio Gross premiums written 698.3 655.6 • Capitalising on growth Net premiums written 199.6 197.5 opportunities in retrocession and
Slide 8: Investment performance
Investment performance Market movements provide a strong tailwind Cash and bond income net of fees ($m) Mark-to-market on bonds ($m) • Half-year investment result $148m 54 (2018: $20m), 48 48 return of 4.8% 39 29 (2018: 0.7%) 29 • Coupon income increasing, boosted by mark-to-market -4 adjustments on
Slide 9: Reserve releases lower than prior years
Reserve releases lower than prior years Reserve releases H1 2018–H1 2019 ($m) • Reserve releases of $26m (2018: $154m), 1% of opening net reserves -25 • Second half reserve releases expected to be less than $100m 154 -40 (2018: $168m) -10 • Key drivers of other prior-year losses include: London Mark
Slide 10: Well capitalised
Well capitalised 30 June 2019 • All capital bases satisfactorily capitalised $2.44bn available capital • Key constraint remains rating agency capital $2.40bn available capital (post-interim dividend) Economic Regulatory • Bermuda solvency ratio 205% • BMA have introduced revisions to standard formul
Slide 11: Building a robust business
Building a robust business Investing for the future Responding to Poised to react to external challenges opportunities • US IT system replacement • Brexit plans executed successfully • Strongly capitalised and well under way; UK implementation to – Luxembourg-based carrier positioned to take advanta
Slide 12: Underwriting
he HISCOX Underwriting
Slide 13: Deterioration of market catastrophe loss estimates
Deterioration of market catastrophe loss estimates • Market estimates for Typhoon Jebi Industry loss picks – multiple from initial estimate2 increased from $2bn to up to $16bn1 Average: 1.5x – Most powerful typhoon to hit Japan Jebi 4.6x – Impacted an area of high-value construction ahead of major g
Slide 14: Improving rates in big-ticket
Improving rates in big-ticket Core London Market All retail Catastrophe reinsurance • Hiscox London Market – Overall rates up 5% 120 – D&O up more than 50% – Cargo up 15% 100 – GL up 10% – Cyber remains competitive 80 • Hiscox Re & ILS – Overall rates up 6% 60 – North American catastrophe up 3% 40 –
Slide 15: An actively managed business
An actively managed business Total Group controlled premium 30 June 2019: $2,619 million Period-on-period in +11% constant currency $830m +11% 2019 GWP $789m Professional liability Property Errors and omissions Private Marine directors and officers’ liability Cyber Aviation Commercial small package
Slide 16: Cyber: Proactive risk management
Cyber Proactive risk management Investing in expertise • External review of our models • External investigation into points of aggregation • Appointed ex-CIO to lead Education and prevention • Underwriter, broker and customer • Developed in-house centre of excellence • Cyber university for our under
Slide 17: Data labs: Capturing value from better insights
Data labs Capturing value from better insights Meeting customer needs Automating insight UK Direct Commercial Hiscox Re & ILS Use sophisticated analytics Connect large, diverse to identify under-insurance data sets to deliver deeper and help our customers insights for ourselves and buy the right cov
Slide 18: Hiscox Retail
he HISCOX Hiscox Retail
Slide 19: Growth opportunities: Small market shares in largest SME markets
Growth opportunities Small market shares in largest SME markets United Kingdom United States France Germany • 5.4 million micro-SMEs • 29 million micro-SMEs • Economy as large as • World’s fourth largest • 75% of UK businesses • More than 80% of US the UK economy are sole traders SMEs are sole trade
Slide 20: Product innovation
Product innovation Constantly evolving our SME portfolio Small commercial – GWP ($m) Launched influencer Launched health and public figure and beauty in US protection in UK 1,600 Expanded UK Launched Launched Launched product suite: entertainment financial cyber in Spain Launched products office, PA
Slide 21: A multi-channel approach
A multi-channel approach Hiscox Retail customers • All roads lead to Hiscox Broker Direct Partnerships • Diverse income streams 100% with no over-reliance on one channel or partner 90% • Rapid digitalisation of new and traditional channels 80% • Halo effect amplifies the brand across the 70% whole m
Slide 22: Investing in our core capabilities
Investing in our core capabilities Service model Technology Brand infrastructure • Reputation for responsiveness • UK system bedding in • 2019 marketing spend up 30% and quality • US delivers next year – key to $90m • Rigorous management of capability upgrades • New US campaign and Major key metrics
Slide 23: Business performance and outlook
Business performance and outlook
Slide 24: Group performance
Group performance Year to 30 June 2019 Constant currency GWP GWP change GWP change $m % % Hiscox Retail* 1,146.3 2.6 6.4 Hiscox UK 378.5 (1.7) 4.3 Hiscox USA 437.1 3.1 3.1 Hiscox Europe 245.1 9.0 17.0 Hiscox Special Risks 67.0 (4.0) (2.3) Hiscox Asia 18.6 38.8 40.0 Hiscox London Market 484.6 5.6 6.6
Slide 25: Our evolution continues
Our evolution continues Investing in brand Maintaining discipline Adapting to changing and infrastructure and innovating leadership • UK/US/EU IT change programmes • Actively managing D&O • Grace Hanson new Head of Claims to support growth in US market and risk • Bob Thaker CEO of Hiscox UK • Financ
Slide 26: Summary and outlook
Summary and outlook Positive momentum • A mixed first half – Working through operational and portfolio evolution – Top-line growth for all segments – Great investment performance • Evolution of senior team continues • Breadth of business creating opportunities – Return to stronger growth in retail –
Slide 27: 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 28: 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 mainly through Hiscox Re & ILS and Hiscox London Market. We expand and shrink these lines according to market conditions. • Retail is smaller premium, relatively le
Slide 29: Geographical reach
Geographical reach 34 offices in 14 countries 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 Frankfurt Dallas gateway Hamburg Las Vegas Miami Lisbon Asia L
Slide 30: Strategic focus
Strategic focus a HISCOX Total Group controlled income for 2018 $100% = $4,224 million Big-ticket business Retail business Small commercial 29% Tech and media 5% casualty 21% Reinsurance 8% Large property 5% Casualty 5% Specialty — terrorism, product recall 5% Marine and energy Art and private clien
Slide 31: A symbiotic relationship
A symbiotic relationship Big-ticket business a HISCOX Retail business ¢ Larger premium, globally traded, catastrophe-exposed business written mainly through Hiscox London Market and Hiscox Re & ILS ¢ Shrinks and expands according to pricing environment ¢ Excess profits allow further investment in re
Slide 32: Long-term growth
Long-term growth Total Group controlled income ($) Hiscox Re & ILS Hiscox UK Hiscox Special Risks Hiscox Asia Hiscox London Market Hiscox Europe Hiscox USA 4,500 4,000 Hiscox London Market Gross written premiums ($m) Hiscox Re & ILS 3,500 3,000 2,500 2,000 Hiscox Retail* 1,500 1,000 500 -0 *Hiscox R
Slide 33: An actively managed business
An actively managed business Total Group controlled premium 30 June 2019: $2,619 million Period-on-period in +11% constant currency $830m +11% 2019 GWP $789m Professional liability Property Errors and omissions Private Marine directors and officers’ liability Cyber Aviation Commercial small package
Slide 34: Segmental analysis
Segmental analysis 30 June 2019 30 June 2018 Hiscox Hiscox Hiscox London Hiscox Corporate Hiscox London Hiscox Corporate Retail Market Re & ILS Centre Total Retail Market Re & ILS Centre Total $m $m $m $m $m $m $m $m $m $m Gross premiums written 1,154.6 484.6 698.3 ‒ 2,337.5 1,113.0 458.7 655.6 1.5
Slide 35: Hiscox Ltd results
Hiscox Ltd results $m 2018 2017 2016 2015 2014 2013 Gross premiums written 3,778.3 3,286.0 3,257.9 2,972.7 2,894.3 2,656.3 Net premiums written 2,581.5 2,403.0 2,424.5 2,403.3 2,213.9 2,143.0 Net premiums earned 2,573.6 2,416.2 2,271.3 2,194.1 2,169.2 2,005.8 Investment return 38.1 104.8 95.8 47.6 8
Slide 36: Boxplot and whisker diagram of modelled Hiscox Ltd net loss
Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) April 2019 Lower 5%- upper 700 2011 Tohoku Quake – $25bn market 95% range Superstorm Sandy – $20bn market Loma Prieta Quake – $6bn market Hurricane Andrew – $56bn market Northridge Quake – $24bn market Hurricane Katrina – $50bn market
Slide 37: Realistic disaster scenarios
Realistic disaster scenarios Hiscox Group – losses shown as percentage of 2018 gross and net written premium Gross loss Net loss Industry loss return period Japanese windstorm 3% $15bn 1 in 100 year 12% Japanese earthquake 6% 26% $50bn 1 in 240 year Gulf of Mexico windstorm 9% 48% $107bn 1 in 80 yea
Slide 38: 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 $80m-$700m could be suffered in the following extreme scenarios: Event Es
Slide 39: GWP geographical and currency split
GWP geographical and currency split 2019 geographical split – controlled income 2019 currency split – controlled income North America GBP Other USD Western Europe (excl. UK) CAD and other Worldwide EUR UK 11.8% 15.8% 18.5% 7.2% 13.4% 51.1% 9.1% 65.2% 7.9% 38
Slide 40: Group reinsurance security
Group reinsurance security Receivables at 30 June 2019 of $2,846 million 2019 reinsurance protections* First loss exposure by rating A A AA AA AAA and collateralised ILS Other Collateralised 1.4% 3% 23% 38.0% 42.9% 45% 29% 17.7% *Reinsurance placements in force at 16 July 2019. 39
Slide 41: Reinsurance
Reinsurance Ceded as a percentage of GWP Reinsurance receivables as a percentage of total assets 40 25 23.8 37.2 35 22.6 34.7 20 30 31.7 19.5 18.8 25 26.9 15 25.6 23.5 20 21.7 13.4 21.0 12.3 19.4 12.1 19.3 19.2 19.0 19.0 11.7 18.7 11.6 10 11.0 15 10.6 10.3 10.2 10.0 13.4 7.7 10 5 5 0 0 40
Slide 42: Investment result
Investment result Return of $147.5m 30 June 2019 30 June 2018 • Yield to maturity of bond portfolio 1.8% Asset Annualised Asset Annualised at 30 June 2019 (2.4% allocation return Return allocation return Return at 30 December 2018) % % $m % % $m • Coupon income increasing, boosted Bonds £ 14.5 3.1 1
Slide 43: Portfolio – asset mix
Portfolio – asset mix High quality, conservative portfolio Investment portfolio $6,367 million as at 30 June 2019 Asset allocation Bond credit quality Bond currency split Bonds Gvt. USD Cash AAA GBP AA Risk assets EUR A BBB CAD and other BB and below 0.6 2.0 7.5 7.5 19.3 29.4 17.2 19.3 24.4 75.3 12.
Slide 44: Portfolio – USD bond portfolios
Portfolio – USD bond portfolios as at 30 June 2019 Portfolios: $3.3 billion BB and AAA AA A BBB below Total Duration % % % % % % years Government issued 37.3 37.3 1.2 Government supported* 0.5 0.6 0.1 1.2 1.4 Asset backed 1.5 1.5 0.3 Mortgage backed agency 5.7 5.7 3.1 Non agency 0.3 0.1 0.6 1.0 2.2
Slide 45: Portfolio – GBP, EUR and CAD bond portfolios
Portfolio – GBP, EUR and CAD bond portfolios as at 30 June 2019 GBP portfolios: BB and $946 million AAA AA A BBB below Total Duration % % % % % % years Government issued 14.8 14.8 1.3 Government supported* 9.9 6.9 2.7 19.5 1.9 Asset backed 3.6 0.4 4.0 1.4 Corporates 18.4 5.7 17.6 20.0 61.7 1.9 Total
Slide 46: Business segments
Business segments Hiscox Retail Hiscox Re & ILS Hiscox Retail brings together the results of the Group’s Hiscox Re & ILS is the reinsurance division of the Group, retail business divisions: Hiscox UK, Hiscox Europe, Hiscox combining the underwriting platforms in Bermuda and USA, Hiscox Special Risks