Hiscox Ltd · LSE:HSX
Hiscox — Investor Presentation (December 2022)
38 slides from Hiscox's investor presentation, Dec 6, 2022
Slide 1: IFRS 17 education event
IFRS 17 education event 6 December 2022
Slide 2: Disclaimer
Disclaimer All numbers are illustrative or indicative, unaudited and subject to change. No forecasts, KPI numbers or new targets issued. 1
Slide 3: What we will cover today
What we will cover today • Key messages and overview • Core IFRS 17 changes relevant to our business • Impact on numbers and key performance indicators • Timeline of events 2
Slide 4: Key messages and overview
Key messages and overview Paul Cooper, Group CFO
Slide 5: Key messages: Fundamentals unchanged
Key messages Fundamentals unchanged Economics of the business No change in strategy. Strong business fundamentals. Robust solvency position and cash generation. Expect Capital position and cash generation no impact. No change in conservative reserving philosophy but more Reserves granular disclosure
Slide 6: Accounting policy choices: Simplicity, relevance and consistency
Accounting policy choices Simplicity, relevance and consistency APPROACH WHY IMPACT Presentation and disclosure Measurement Premium allocation approach Simpler and closer to more familiar and easier approach (PAA) G current accounting to understand Modest restatement of Transition Full retrospective
Slide 7: IFRS 17 impacts: No impact on regulatory capital, cash and dividends
IFRS 17 impacts No impact on regulatory capital, cash and dividends BSCR ratio at 30 June 2022 Fungible liquidity at 30 June 2022 Ability to pay dividends unaffected IFRS 4 IFRS 17 IFRS 4 IFRS 17 In excess of $1bn 200% 200% 6
Slide 8: IFRS 17 impacts: Financial metrics
IFRS 17 impacts Financial metrics Income statement metrics Balance sheet metrics Top-line ($bn) (Loss)/Profit** before tax Shareholders’ equity ($bn) Leverage*** 30 June 2022 30 June 2022 31 Dec 2021 30 June 2022 31 December 2021 IFRS 4 IFRS 17 IFRS 4 IFRS 17 IFRS 4 IFRS 17 IFRS 4 IFRS 17 IFRS 4 IFR
Slide 9: Core IFRS 17 changes relevant to our business
Core IFRS 17 changes relevant to our business Liz Breeze, CFO – Re & ILS and IFRS 17 Executive Sponsor
Slide 10: Core IFRS 17 changes relevant to our business
Core IFRS 17 changes relevant to our business Economic value Profit drivers Reinsurance presentation Timing of expected loss recognition Increased disclosures 9
Slide 11: Economic value: Discounting
Economic value Discounting • Claims now recorded at their present value reflecting the time value of money • Discounting effect makes equity more stable as both assets and liabilities are revalued at current discount rates • In a rising interest rate environment the balance sheet value of net insura
Slide 12: Profit drivers: Underwriting performance and net investment return
Profit drivers Underwriting performance and net investment return Insurance service result Income statement • Expected to be higher than IFRS 4 underwriting result Insurance revenue due to discounting of incurred claims and, to a lesser Insurance service expenses extent, fewer expenses Insurance ser
Slide 13: Reinsurance presentation: Geographical changes
Reinsurance presentation Geographical changes Key changes to Reinsurance contracts are recognised, measured and presented separately from presentation: insurance contracts • Reinstatement premiums Reinsurance contracts issued Reinsurance contracts held will be presented as claims (inwards) (outwards
Slide 14: Timing of expected loss recognition
Timing of expected loss recognition An onerous contract does not mean unprofitable business • Facts and circumstances based where the expected loss reserve is more than premium • Not a material number for Hiscox • Assessed at a group of contracts level by legal entity during planning phase • Reasses
Slide 15: Analysis of change: New disclosure
Analysis of change New disclosure G G The analysis of change will provide key insights as follows: • Movements in risk adjustment through the year • Prior year releases split between best estimate and risk adjustment • Current year reserves split between best estimate and risk adjustment • Movements
Slide 16: Impact on numbers and key performance indicators
Impact on numbers and key performance indicators Paul Cooper, Group CFO
Slide 17: Opening balance sheet: Restatement of equity minimal
Opening balance sheet Restatement of equity minimal Shareholders’ equity as at 1 January 2022 • Marginal increase in shareholders’ equity on transition • Discounting is the main driver of increase Note: unaudited, estimated and subject to change. *Includes FX, seasonal earnings, adjustment to reserv
Slide 18: Impact on net earned reserves
Impact on net earned reserves Remain conservatively reserved Earned reserves as at 1 January 2022 • Key impact on earned reserves is LPT reclass = Best estimate (including IBNR) from earned to unearned = Margin/risk adjustment reserves • Impact of other movements in earned reserves not material ENID
Slide 19: Impact on profit before tax
Impact on profit before tax Material at HY22 due to interest rate movements Illustrative bridge of (loss)/profit before tax from IFRS 4 to IFRS 17 – 30 June 2022 • Significant benefit in the period from a steep increase in interest rates related to discounting of claim reserves • Onerous contract be
Slide 20: Key performance indicators
Key performance indicators Limited impact under IFRS 17 post transition Current KPIs New KPIs Impact IFRS 4 IFRS 17 Growth Gross written premium Insurance contract written premium On a written basis (like GWP) but excludes (GWP) (ICWP)*– new definition reinstatement premiums Profitability Net combin
Slide 21: Growth KPIs: Written premium
Growth KPIs Written premium IFRS 4 IFRS 17 Insurance contract Gross written premium (GWP) written premium (ICWP) Net written premium Management commentary GWP vs ICWP • ICWP growth broadly in line with GWP growth • NWP no longer reported but we will continue to provide management commentary explaini
Slide 22: Profitability KPIs: Combined ratio
Profitability KPIs Combined ratio IFRS 4 IFRS 17 Combined ratio (net) – 100% basis Combined ratio – own share v Insurance Result from Net claims + Expenses service + reinsurance expenses* contracts Net combined = ratio = Combined ratio Insurance Net earned service premium revenue = Gross = Net • New
Slide 23: Claims KPIs: Loss ratio
Claims KPIs Loss ratio IFRS 4 IFRS 17 Loss ratio (net) – 100% basis Loss ratio – own share basis v Gross Result from Net claims incurred + reinsurance claims contracts = Net loss ratio = Loss ratio Insurance Net earned premium service revenue = Gross = Net • Consistent with the IFRS 17 CoR definitio
Slide 24: Non-claims expenses
Non-claims expenses Presentational changes with minimal impact on income statement • Insurance service expenses IFRS 4 include gross claims and IFRS 17 non-claims expenses • Non-claims expenses are Excluded from split between attributable Included in underwriting result underwriting result and non-a
Slide 25: Operating efficiency KPIs: Expense ratio
Operating efficiency KPIs Expense ratio IFRS 4 IFRS 17 Expense ratio (net) – 100% basis Expense ratio – own share basis v Attributable Expenses* expenses** = Net expense ratio = Expense ratio Insurance service Net earned premium revenue = Gross = Net • New definition to be consistent with the new Co
Slide 26: IFRS 17 roadmap: High level view of external reporting
IFRS 17 roadmap High level view of external reporting 1 3 5 7* FY 2022 results – FY 2022 results FY 2023 results – Deloitte’s market IFRS 4 reporting restated on IFRS 17 IFRS 17 and teach in sponsored supplemented and IFRS 9 IFRS 9 reporting by Hiscox, by IFRS 17 Lancashire, Beazley transition impac
Slide 27: Conclusion
Conclusion • No change to strategy, reserving philosophy, solvency and ability to pay dividend • Minimal impact on transition mainly due to discounting; current interest rate environment is driving larger P&L movements • More granular disclosures will provide greater transparency, allowing for bette
Slide 28: Questions?
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Slide 29: Appendices
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Slide 30: Income statement presentation (1/3)
Presentation and disclosure Income statement presentation (1/3) Income statement – IFRS 4 Income statement – IFRS 17 Gross written premium Insurance revenue Outwards reinsurance premium Insurance service expenses Net written premiums Insurance service result before reinsurance Gross premiums earned
Slide 31: Income statement presentation (2/3)
Presentation and disclosure Income statement presentation (2/3) Income statement – IFRS 4 Income statement – IFRS 17 Gross written premium Insurance revenue Outwards reinsurance premium Insurance service expenses Net written premiums Insurance service result before reinsurance Gross premiums earned
Slide 32: Income statement presentation (3/3)
Presentation and disclosure Income statement presentation (3/3) Income statement – IFRS 4 Income statement – IFRS 17 Gross written premium Insurance revenue Outwards reinsurance premium Insurance service expenses Net written premiums Insurance service result before reinsurance Gross premiums earned
Slide 33: Balance sheet presentation
Presentation and disclosure Balance sheet presentation Balance sheet – IFRS 4 Balance sheet – IFRS 17 Goodwill and intangible assets Goodwill and intangible assets Property, plant and equipment Property, plant and equipment Deferred acquisition costs Financial assets carried at fair value Financial
Slide 34: Profitability KPIs: Combined ratio
Profitability KPIs Combined ratio IFRS 4 IFRS 17 Combined ratio (net) = B / A = 93% Combined ratio = ( B + C ) / = A 94% 100% basis Own share P&L view v view P&L Gross earned Earned Net earned A Insurance Allocation of Net insurance premiums premiums, premium A service reinsurance service - ceded =
Slide 35: Claims KPI: Loss ratio
Claims KPI Loss ratio IFRS 4 IFRS 17 / = Loss ratio (net) = B / A = 49% Loss ratio = ( B + C ) / A = 58% 100% basis Own share v Gross earned Earned Net earned A Insurance Allocation of Net insurance premiums premiums, premium A service reinsurance service - ceded = revenue - premiums = revenue 100 3
Slide 36: Operating efficiency KPIs: Expense ratio
Operating efficiency KPIs Expense ratio IFRS 4 IFRS 17 Expense ratio (net) = B / A = 44% Expense ratio = B / A = 36% 100% basis Own share Gross earned Earned Net earned Insurance Allocation of Net insurance premiums premiums, premium A service reinsurance service - ceded = revenue - premiums = reven
Slide 37: Glossary of IFRS 17 terms
Glossary of IFRS 17 terms Terminology Descriptions Expenses that are attributable to fulfilling obligations towards the policyholders i.e., underwriting and claims Attributable expenses handling activities. A degree of conservatism in reserving. The actual percentage shows the probability that the c
Slide 38: Disclaimer: IFRS 17 market education
Disclaimer IFRS 17 market education IMPORTANT NOTICE: You must read the following important notice before reading, accessing or making any other use of the contents of this presentation or attending the presentation associated with it. By accessing this presentation and/or attending the presentation