Hiscox Ltd · LSE:HSX
Hiscox — H1 2020 Earnings Presentation
52 slides from Hiscox's earnings presentation, July 2020
Slide 1: Hiscox Ltd Interim results
Hiscox Ltd Interim results For the six months ended 30 June 2020
Slide 2: Responding to COVID-19
Responding to COVID-19 Employees Customers Society • Operationally resilient, with • Extending credit terms, • Over $7m donated to support over 95% of our 3,400 providing payment those impacted by COVID-19 employees working remotely hibernation, premium rebates and discounts to • Hiscox Foundations
Slide 3: Strategy provides opportunities for profitable growth in every segment
Strategy provides opportunities for profitable growth in every segment Business split based on 2019 Group controlled premium. 2
Slide 4: Financial performance
ae HISCOX Financial performance
Slide 5: Group financial performance
Group financial performance A resilient business 30 June 2020 30 June 2019 • Growth in Retail and $m $m London Market offset by Growth discipline in Re & ILS Gross premiums written 2,235.5 2,337.5 • Rates improving in every segment Net premiums written 1,414.1 1,467.4 Net premiums earned 1,328.2 1,3
Slide 6: Hiscox Retail: Robust performance in challenging conditions
Hiscox Retail Robust performance in challenging conditions 30 June 2020 30 June 2019 • GWP growth in constant $m $m currency of 4% – Growth in four of five Growth Retail business units – Global economic Gross premiums written 1,175.2 1,154.6 lockdown impacted growth in April/May Net premiums written
Slide 7: Hiscox London Market: An active half for large losses
Hiscox London Market An active half for large losses 30 June 2020 30 June 2019 • GWP growth in constant $m $m currency of 5% • Excluding COVID-19 Growth impact, COR of 103.4% materially impacted Gross premiums written 508.0 484.6 by above-average large losses Net premiums written 266.0 246.9 • Highe
Slide 8: Hiscox Re & ILS: Targeting growth as conditions improve
Hiscox Re & ILS Targeting growth as conditions improve 30 June 2020 30 June 2019 • GWP reduced by 21% $m $m due to underwriting discipline and less Growth available third-party capital • Good growth at mid-year Gross premiums written 552.3 698.3 renewals as rates increased materially; Net premiums w
Slide 9: Investment performance
Investment performance Cash and bond income net of fees ($m) Mark-to-market on bonds ($m) • Half-year investment 48 result $85m (2019: $148m), 40 annualised return of 2.5% 54 56 (2019: 4.8%) 48 39 • Cautious risk positioning insulates portfolio from worst of market volatility -4 • High allocation to
Slide 10: Conservative reserving approach
Conservative reserving approach Reserve releases of $63m (2019: $26m) Reserve release as % of opening net reserves • Reserve buffer at upper end of expectations at c.$350m, 10.7% above actuarial estimate (FY19: c.$300m, 9.4%) 8% • 2019 catastrophe reserves performing well • US casualty experience 6%
Slide 11: Strong capital position
Strong capital position 30 June 2020 • Strongly capitalised above all regulatory, economic, and management bases $2.49bn available capital • £375m raised in May via share placing to respond Economic Regulatory to growth opportunities and further strengthen capital buffers • BMA’s Bermuda Solvency Ca
Slide 12: Capital strength
Capital strength Resilient, strong organic capital generation Bermuda solvency capital requirement (BSCR) • Regulatory and ratings capital position robust 230% • Significant loss absorption capacity and ability to support growth +35% -51% • Strong liquidity 202% • Key changes in -16% +9% 179% second
Slide 13: Managing our expenses
Managing our expenses Cost efficiencies beginning to emerge 2020 savings on track Retail expense ambition Investing for growth • On target to achieve $60-90m • Target Retail expense ratio • Continued investment in brand expense savings against 2020 remains low 40s in the and IT to drive digital plat
Slide 14: Underwriting
ae HISCOX Underwriting
Slide 15: 2020 expectations
2020 expectations Our progress so far Hiscox Re & ILS to reduce gross bet due to inadequate pricing and less deployable third-party capital • GWP reduced by 21% in first half due to re-underwriting of non-cat lines and discipline in January • Strong mid-year rate improvement; Japan up 20%, Florida u
Slide 16: COVID-19 underwriting portfolio impacts
COVID-19 underwriting portfolio impacts $232m COVID-19 losses UK business interruption Balance of portfolio booked to date • Includes previously disclosed • Core UK policies do not cover • Risk of increased losses $150m net claims from business interruption (BI) as a from third-party liability event
Slide 17: An actively managed business
An actively managed business Total Group controlled premium 30 June 2020: $2,499 million Period-on-period in constant currency +3% 2020 GWP $841m Professional liability Errors and omissions -22% $618m Private directors and officers’ liability Property Cyber Commercial Marine small package -2% Small
Slide 18: Rates improving in every segment
Rates improving in every segment Core London Market All retail Catastrophe reinsurance • Hiscox London Market – Overall rates up 13% 120 • Hiscox Re & ILS – Overall rates up 11%, 100 well ahead of budget • Hiscox Retail 80 – USA up 5% in aggregate, excess and surplus lines up 9% 60 – UK and Europe b
Slide 19: Strong rate momentum in big-ticket
Strong rate momentum in big-ticket Conditions expected to continue to improve Hiscox London Market • Overall rates up 13% • 45% compound rate growth since 2017 13% • Rates up in 15 of 16 lines 11% • Rates up double-digits in nine lines, including: 8% 7% – US public D&O up 81% – General liability up
Slide 20: Proactive underwriting management
Proactive underwriting management Losses, exposure, opportunity and flexibility Actively managing our losses and risks • COVID-19 claims settling in line with expectations • Ex-COVID-19 claims frequency lower than plan • Disclosed UK BI risk scenario remains robust Proactively managing future exposu
Slide 21: Hiscox Retail
le HISCOX Hiscox Retail
Slide 22: Hiscox Retail: Delivering what we said we would
Hiscox Retail Delivering what we said we would • Exercising discipline where margins are thinner – Over $80m cut from US D&O and media – Commission pressure in UK private client • Delivering growth where it matters – Commercial direct and partnerships business to exceed $500m in 2020 with a three-ye
Slide 23: Long-term growth in direct and partnerships
Long-term growth in direct and partnerships Now more than $500m globally Gross written premiums ($m) • Direct and partnerships Hiscox UK Hiscox USA Hiscox Europe Hiscox Asia division (DPD) GWP up 14% in first half to $289m, 600 now contributing 24% of total Retail premiums • Ten-year DPD CAGR 19% 50
Slide 24: Digital investment delivering efficiencies
Digital investment delivering efficiencies Focusing on four key technologies APIs Machine learning Robotics Self-service • 39 partners in the • UK natural language • 230,000 transactions • Broker portals and USA using our APIs processing (NLP) fully automated electronic pre-priced to digitally place
Slide 25: More on the way in 2021 and beyond
More on the way in 2021 and beyond Doing more with what we already have Exploring new technologies • Rolling out NLP across the Group • B2C video calling capabilities to enable remote loss adjustment • Claims digital payments platform to be launched in the USA • Omni-channel customer service using t
Slide 26: Long-term growth opportunity
Long-term growth opportunity COVID-19 accelerating Global presence, Well positioned for secular shift to digital global opportunity the recovery • Everything beyond advice or IP is • >$2.2bn Retail GWP from 33 • Accelerated growth of going digital offices in 13 countries SMEs expected as global • Wh
Slide 27: Business performance and outlook
Business performance and outlook
Slide 28: UK BI – FCA test case timetable
UK BI – FCA test case timetable An expedited process to deliver clarity for all • Hearing concluded 30 July • Judgment expected in the autumn • Potential for ‘leapfrog’ appeal process to Supreme Court – anticipated any appeal would be heard in 2020 • If cover is found, individual customer fact patte
Slide 29: A reminder of our strategy
A reminder of our strategy A symbiotic relationship Business split based on 2019 Group controlled premium. 28
Slide 30: Summary and outlook
Summary and outlook • Business shows its resilience in a challenging half – Commitment and adaptability from our people – Robust Retail performance – Investment in digital and technology paying off – Well capitalised and strongly reserved • Growth opportunities across the business – Rate improvement
Slide 31: Appendices
Appendices • Big-ticket and retail business • Geographical reach • Strategic focus • A symbiotic relationship • Long-term growth • Hiscox ESG framework • An actively managed business • Group performance • Segmental analysis • Hiscox Ltd results • Boxplot and whisker diagram of Hiscox Ltd • Realistic
Slide 32: 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 33: Geographical reach
Geographical reach 35 offices in 14 countries UK Guernsey Birmingham Europe Colchester St Peter Port Amsterdam Glasgow Berlin London Bordeaux Maidenhead USA Bermuda Brussels Manchester Atlanta Hamilton Cologne York Chicago Latin American Dublin Dallas gateway Frankfurt Las Vegas Miami Hamburg Asia L
Slide 34: Strategic focus
Strategic focus a HISCOX Total Group controlled income for 2019 100% = $4,530 million Big-ticket business Retail business Small commercial 27% Tech and media 7% casualty 22% Reinsurance 8% Large property 6% Casualty 5% Specialty — terrorism, product recall 5% Marine and energy Art and private client
Slide 35: A symbiotic relationship
A symbiotic relationship Business split based on 2019 Group controlled premium. 34
Slide 36: Long-term growth
Long-term growth Total Group controlled income ($) Hiscox Re & ILS Hiscox UK Hiscox Special Risks Hiscox Asia Hiscox London Market Hiscox Europe Hiscox USA 5,000 4,500 Gross written premiums ($m) Hiscox London Market 4,000 Hiscox Re & ILS 3,500 3,000 2,500 2,000 Hiscox Retail* 1,500 1,000 500 0 - *H
Slide 37: Hiscox ESG framework
Hiscox ESG framework A pragmatic approach 36
Slide 38: An actively managed business
An actively managed business Total Group controlled premium 30 June 2020: $2,499 million Period-on-period in constant currency +3% 2020 GWP $841m Professional liability Errors and omissions -22% $618m Private directors and officers’ liability Property Cyber Commercial Marine small package -2% Small
Slide 39: Group performance
Group performance Six months to 30 June 2020 Constant currency GWP GWP change GWP change $m % % Hiscox Retail* 1,175.2 3 4 Hiscox UK 363.3 (4) (2) Hiscox USA 452.0 3 3 Hiscox Europe 263.4 7 10 Hiscox Special Risks 72.3 8 8 Hiscox Asia 24.2 30 27 * Hiscox London Market 508.0 5 5 Hiscox Re & ILS 552.3
Slide 40: Segmental analysis
Segmental analysis 30 June 2020 30 June 2019 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 1,175.2 508.0 552.3 ‒ 2,235.5 1,154.6 484.6 698.3 ‒ 2,
Slide 41: Hiscox Ltd results
Hiscox Ltd results $m 2019 2018 2017 2016 2015 2014 Gross premiums written 4,030.7 3,778.3 3,286.0 3,257.9 2,972.7 2,894.3 Net premiums written 2,678.8 2,581.5 2,403.0 2,424.5 2,403.3 2,213.9 Net premiums earned 2,635.6 2,573.6 2,416.2 2,271.3 2,194.1 2,169.2 Investment return 223.0 38.1 104.8 95.8
Slide 42: Boxplot and whisker diagram of modelled Hiscox Ltd net loss
Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) April 2020 Lower 5%- upper 2011 Tohoku Quake – $25bn market 700 Superstorm Sandy – $20bn market 95% range Loma Prieta Quake – $6bn market Hurricane Andrew – $56bn market Northridge Quake – $24bn market Hurricane Katrina – $50bn market
Slide 43: Realistic disaster scenarios
Realistic disaster scenarios Hiscox Group – losses shown as percentage of 2019 gross and net written premium Gross loss Net loss Industry loss return period Japanese windstorm 3% $15bn 1 in 100 year 7% Japanese earthquake 4% $50bn 1 in 240 year 22% Gulf of Mexico windstorm 2% $107bn 1 in 80 year 41%
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 $80m-$700m could be suffered in the following extreme scenarios: Event Es
Slide 45: GWP geographical and currency split
GWP geographical and currency split 2020 geographical split – controlled income 2020 currency split – controlled income North America GBP Other USD Western Europe (excl. UK) CAD and other Worldwide EUR UK 13.2% 16.3% 20.4% 5.1% 10.4% 54.4% 12.5% 6.4% 61.3% 44
Slide 46: Group reinsurance security
Group reinsurance security Receivables at 30 June 2020 of $3,582.6 million 2020 reinsurance protections* First loss exposure by rating A A AA AA AAA and collateralised ILS Collateralised Other BBB 6.2% 1% 4% 15% 39.1% 43% 31.3% 37% 23.4% *Reinsurance placements in force at 15 July 2020. 45
Slide 47: Reinsurance
10 15 20 25 30 35 40 0 5 13.4 18.7 21.7 19.4 21.0 Reinsurance 19.0 19.0 19.3 Ceded as a percentage of GWP 23.5 19.2 25.6 26.9 31.7 33.5 37.2 36.7 10 15 20 25 30 0 5 10.0 7.7 13.4 of total assets 11.0 11.6 11.7 12.3 10.3 10.6 10.2 12.1 Reinsurance receivables as a percentage 18.8 22.6 27.0 23.8 25.5
Slide 48: Investment result
Investment result Return of $84.6m (HY 2019: $147.5m) 30 June 2020 30 June 2019 Asset Annualised Asset Annualised allocation return Return allocation return Return % % $m % % $m Bonds £ 10.7 0.4 14.5 3.1 $ 47.0 3.9 53.5 4.9 Other 7.3 (1.4) 7.1 1.9 Bonds total 65.0 3.8 93.1 75.1 4.4 100.9 Equities 7.
Slide 49: Portfolio – asset mix
Portfolio – asset mix High quality, conservative portfolio Investment portfolio $7,467.1 million as at 30 June 2020 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 1.7 3.6 8.8 7.8 22.3 24.8 16.7 26.9 7.4 64.3 71
Slide 50: Portfolio – USD bond portfolios
Portfolio – USD bond portfolios as at 30 June 2020 Portfolios: $3.5 billion BB and AAA AA A BBB below Total Duration % % % % % % years Government issued 0.1 27.6 27.7 0.9 Government supported* 0.4 1.5 0.5 2.4 1.6 Asset backed 0.5 0.5 2.2 Mortgage backed agency 7.7 7.7 2.4 Non agency 0.1 0.4 0.5 2.4
Slide 51: Portfolio – GBP, EUR and CAD bond portfolios
Portfolio – GBP, EUR and CAD bond portfolios as at 30 June 2020 GBP portfolios: BB and $810 million AAA AA A BBB below Total Duration % % % % % % years Government issued 9.4 9.4 1.1 Government supported* 2.7 0.6 0.5 3.8 2.3 Asset backed 3.6 0.1 0.2 3.9 1.2 Commercial MBS 0.2 0.2 2.2 Corporates 20.5
Slide 52: 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 Hiscox retail business divisions in the UK, Europe, USA and Asia, Group, combining the underwriting platforms in Bermuda as well as Hiscox Speci