Slide 1: Hiscox Ltd Preliminary results
Hiscox Ltd Preliminary results For the year ended 31 December 2019
Slide 2: Strategy of balance delivers
Strategy of balance delivers • Resilient financial performance in a tough year • GWP up 8% in constant currency, PBT $53m, total dividend up 3.6% • Robust balance sheet and well reserved • Opportunities ahead – Third year of rate rises in the London Market – Disciplined and ready to capture any upsi
Slide 3: Financial performance
he HISCOX Financial performance
Slide 4: Group financial performance
Group financial performance 31 December 2019 31 December 2018 • 2019 was a challenging $m $m year, but diversification Growth pays off Gross premiums written 4,030.7 3,778.3 • Changes to optimise Net premiums written 2,678.8 2,581.5 the portfolio Net premiums earned 2,635.6 2,573.6 • Strong investme
Slide 5: Hiscox Retail
Hiscox Retail Profits increase despite reserving caution 31 December 2019 31 December 2018 • GWP growth in $m $m constant currency of 7%, accelerating in second half Growth – Hiscox UK: 4% Gross premiums written 2,196.3 2,087.1 – Hiscox Europe: 16% – Hiscox USA: 7% Net premiums written 1,957.5 1,874
Slide 6: Hiscox London Market
Hiscox London Market An active period for claims with a bright outlook 31 December 2019 31 December 2018 • GWP growth in constant $m $m currency of 11%, accelerating to 16% Growth in the second half Gross premiums written 967.9 877.7 • Underwriting result impacted by Hurricane Dorian and less favour
Slide 7: Hiscox Re & ILS
Hiscox Re & ILS A challenging year 31 December 2019 31 December 2018 • GWP growth in constant $m $m currency of 7% Growth • $130m impact from Typhoons Faxai and Gross premiums written 866.5 812.0 Hagibis in Japan • $30m reserve Net premiums written 216.7 241.5 strengthening on healthcare (exited) Ne
Slide 8: Reserve resilience continues
Reserve resilience continues Reserve releases of $26m (2018: $327m) Loss development by accident year • Robust reserves 9.4% 2012 2013 2014 2015 2016 2017 2018 (2018: 11.0%) above actuarial estimate 1.05 • 2018 impacted by 1.00 deterioration on 0.95 catastrophes and 0.90 reserve caution 0.85 • 2016
Slide 9: Reduced reserve releases
Reduced reserve releases Continued positive development in Retail Prior year development ($m) • Retail 2018 2019 – $40m reserve caution 250 – US Retail reserve 226 strengthening • Catastrophes 200 HIM releases – No repeat of $50m HIM release from 2018 – $40m adverse 150 development on prior year cat
Slide 10: Robust capital position
Robust capital position 31 December 2019 • All capital bases satisfactorily capitalised $2.28bn available capital • BMA’s Bermuda Solvency Capital $2.19bn available capital (post-final dividend) Requirement (BSCR) is Economic Regulatory Solvency II equivalent • BSCR 205% (2018: 210%), equivalent to
Slide 11: Strong investment performance
Strong investment performance Investment return of $223m (2018: $38m) Cash and bond income net of fees ($m) Mark-to-market on bonds ($m) • Strong markets provide a tailwind for bonds and 116 risk assets 97 46 • Group invested 75 assets $6.6bn 68 (2018: $6.3bn) 4 • High credit quality maintained in f
Slide 12: Ongoing investment in the business
Ongoing investment in the business Building the brand Major projects Ambition to reduce expense ratio to low 40s • $89m invested in marketing • UK, USA and Europe underwriting • Increased operational efficiency in 2019 systems, Group-wide finance through automation and scale • Over $500m invested si
Slide 13: 2020 expectations
2020 expectations • Re & ILS to reduce gross bet due to inadequate pricing and less deployable third-party capital • London Market growth fuelled by improved pricing environment • Retail COR between 96-98% in line with guidance, with growth in middle of 5-15% target range 12
Slide 14: Underwriting
he HISCOX Underwriting
Slide 15: An improving market
An improving market Core London Market All retail Catastrophe reinsurance • Hiscox London Market – Third year of 120 rate increases – Overall rates up 11% 100 – Rates up in 14 of 15 lines – Double-digit rate 80 improvement in D&O, cargo, major property, GL and marine hull 60 • Hiscox Re & ILS – Over
Slide 16: An actively managed business
An actively managed business Good growth while exiting $200m of business Total Group controlled premium 31 December 2019: $4,530 million Period-on-period in constant currency +10% $1,568m 2019 GWP Professional liability Errors and omissions Private +11% directors and officers’ liability $982m Cyber
Slide 17: Hiscox Retail
Hiscox Retail Over 90% of the portfolio in grow or hold Grow Hold Course correct • Double-digit growth over time, while exiting over $100m of business $1.5bn $1.6bn $1.8bn $2.1bn $2.2bn 100% since 2016 • Profit generator, delivering 90% $800m profit since 2015 Opportunities to grow 80% • Small comme
Slide 18: Hiscox London Market
Hiscox London Market Positioned to capture the opportunity Grow Hold Course correct • Syndicate 33 stamp capacity increased by $873m $985m $750m $878m $968m 19% to $2.1bn for 2020 100% (2019: $1.8bn) 90% • Track record of strong underwriting, with $200m profits over five years 80% Rates: +35% • $400
Slide 19: Hiscox Re & ILS
Hiscox Re & ILS Focus on disciplined underwriting Grow Hold Course correct • Long-term profitable business delivering almost $586m $671m $701m $812m $867m $700m profit since 2010 100% • Appetite to grow subject to finding adequately priced 90% Cat XL, retro and cyber 80% • Hold or reduce in Rates: +
Slide 20: 2019 catastrophes
2019 catastrophes Long-standing relationships in Japan • Typhoons Faxai and Hagibis were the most costly natural catastrophe events globally in 2019* – Two of the largest Japanese windstorm losses in history – Losses within our modelled range – Back-to-back years of heavy typhoon losses follow seven
Slide 21: Climate change
Climate change Risk management, underwriting and innovation Long history of climate Understanding our Helping our customers research and modelling underwriting exposures to adapt • Changing frequency and severity • Embedded programme of internal • Improving access to flood cover: of nat cats reflect
Slide 22: Hiscox Retail
he HISCOX Hiscox Retail
Slide 23: Retail now a $2.2 billion business
Retail now a $2.2 billion business Gross written premiums ($m) Customer numbers (000s) Hiscox UK Hiscox Special Risks Hiscox Asia Broker Direct and partnerships Hiscox Europe Hiscox USA 2,500 1,400 1,200 2,000 1,000 1,500 800 600 1,000 400 500 200 -0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 20
Slide 24: Retail at a glance
Retail at a glance Total Hiscox Retail premium 31 December 2019: $2,196 million 23
Slide 25: Retail commercial portfolio
Retail commercial portfolio Laser focus on small risks Retail policies segmented by premium ($/£/€) • 80% of customers pay less than $/£/€1,000 • Underwriting appetite – Broadest at SME level XL (one to ten employees) 250k+ – Narrows as we move L 10% of policies up the value chain 50k – 250k in spec
Slide 26: Investing for scale in Retail
Investing for scale in Retail Distribution spend in direct and partnerships (DPD) • Over $340m invested DPD marketing and commissions ($m) Spend as % DPD GWP in marketing and distribution in the 120 30% last five years • Focused marketing investment 100 25% – Acquisition (pay-per-click) – Multimedia
Slide 27: Leveraging automation
Leveraging automation More than one million transactions automated Hiscox UK Hiscox USA Hiscox Europe • Robots automating • Using APIs with 30 • Robotic process more than 250,000 partners to process automation of more than low-value tasks, materially thousands of risks per 115,000 transactions impro
Slide 28: Retail growth opportunities
Retail growth opportunities Small market shares in large markets • Over $80bn GWP to play for, with 50m SMEs and growing • We have one million small business customers Fast growth in our sweet spot • Micro-SME insurance the largest and fastest growing segment – US expected to grow to $100bn by 20221
Slide 29: Business performance and outlook
Business performance and outlook
Slide 30: Group performance
Group performance Year to 31 December 2019 Constant currency GWP GWP change GWP change $m % % Hiscox Retail* 2,196 5.2 7.1 Broker channel 1,695 0.4 Direct and partnerships channel 501 25.7 Hiscox London Market 968 10.3 11.2 Hiscox Re & ILS 867 6.7 7.4 Total 4,031 6.7 8.1 *Hiscox Retail splits above
Slide 31: Summary and outlook
Summary and outlook • Diversification pays – Resilient financial performance – Robust balance sheet • Disciplined underwriting remains core • Opportunities ahead – London Market pricing attractive – Capture any upside in reinsurance – $2.2bn Retail business with plenty of room to grow 30
Slide 32: Appendices
Appendices • Big-ticket and retail business • Geographical reach • Strategic focus • A symbiotic relationship • Long-term growth • An actively managed business • Hiscox ESG framework • Group performance • Segmental analysis • Hiscox Ltd results • Boxplot and whisker diagram of Hiscox Ltd • Realistic
Slide 33: 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 34: 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 35: Strategic focus
Strategic focus a HISCOX Total Group controlled income for 2019 100% = $4,530 million Big-ticket business Retail business Small commercial 27% Tech and media T% casualty 22% Reinsurance 8% Large property 6% Casualty 5% Specialty — terrorism, product recall 5% Marine and energy Art and private client
Slide 36: A symbiotic relationship
A symbiotic relationship a HISCOX Big-ticket business Retail business ¢ Larger premium, globally traded, catastrophe-exposed business written mainly through Hiscox London Market and Hiscox Re & ILS ¢ Shrinks and expands according to pricing environment ¢ Excess profits allow further investment in re
Slide 37: Long-term growth
Long-term growth Total Group controlled income ($) 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 38: An actively managed business
An actively managed business Total Group controlled premium 31 December 2019: $4,530 million Period-on-period in constant currency +10% $1,568m 2019 GWP Professional liability Errors and omissions Private +11% directors and officers’ liability $982m Cyber Property Commercial small package Marine +4%
Slide 39: Hiscox ESG framework
Hiscox ESG framework A pragmatic approach 38
Slide 40: Group performance
Group performance Year to 31 December 2019 Constant currency GWP GWP change GWP change $m % % Hiscox Retail* 2,196.3 5.2 7.1 Hiscox UK 746.4 (0.4) 3.9 Hiscox USA 865.0 6.8 6.8 Hiscox Europe 408.4 9.7 15.6 Hiscox Special Risks 129.9 (4.6) (3.1) Hiscox Asia 46.6 37.8* 36.6* Hiscox London Market 967.9
Slide 41: Segmental analysis
Segmental analysis 31 December 2019 31 December 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 2,196.3 967.9 866.5 ‒ 4,030.7 2,087.1 877.7 81
Slide 42: Hiscox Ltd results
Hiscox Ltd results $m 2019 2018 2017 2016 2015 2014 Gross premiums written 4,030.7 3,778.3 3,286.0 3,257.9 2,972.7 2,894.3 Net premiums written 2,678.8 2,581.5 2,403.0 2,424.5 2,403.3 2,213.9 Net premiums earned 2,635.6 2,573.6 2,416.2 2,271.3 2,194.1 2,169.2 Investment return 223.0 38.1 104.8 95.8
Slide 43: Boxplot and whisker diagram of modelled Hiscox Ltd net loss
Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) January 2020 Lower 5%- upper 2011 Tohoku Quake – $25bn market 95% range 700 Superstorm Sandy – $20bn market Loma Prieta Quake – $6bn market Hurricane Andrew – $56bn market Northridge Quake – $24bn market Hurricane Katrina – $50bn marke
Slide 44: 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 9% Japanese earthquake 5% $50bn 1 in 240 year 24% Gulf of Mexico windstorm 7% $107bn 1 in 80 year 42%
Slide 45: 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-$750m could be suffered in the following extreme scenarios: Event Es
Slide 46: 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 10.1% 17.7% 20.1% 6.0% 11.9% 50.7% 11.6% 63.8% 8.1% 45
Slide 47: Group reinsurance security
Group reinsurance security Receivables at 31 December 2019 of $3,386.9 million 2020 reinsurance protections* First loss exposure by rating A A AA AA AAA and collateralised ILS Other Collateralised 0.6% 5% 18% 36.5% 45.0% 49% 28% 17.9% *Reinsurance placements in force at 7 February 2020. 46
Slide 48: Reinsurance
Reinsurance Ceded as a percentage of GWP Reinsurance receivables as a percentage of total assets 40 30 35 27.0 25 33.5 30 31.7 22.6 20 25 26.9 25.6 18.8 23.5 20 15 21.7 21.0 19.4 19.3 19.2 19.0 19.0 18.7 13.4 15 12.3 12.1 11.7 11.6 10 11.0 10.6 10.3 10.2 13.4 10.0 10 7.7 5 5 0 0 47
Slide 49: Investment result
Investment result Return of $223m (2018: $38m) 31 December 2019 31 December 2018 Asset Annualised Asset Annualised allocation return Return allocation return Return % % $m % % $m Bonds £ 15.6 14.3 $ 52.6 50.5 Other 7.5 8.3 Bonds total 75.7 3.4 161.8 73.1 1.3 57.5 Equities 7.4 13.3 61.4 6.4 (6.2) (27
Slide 50: Portfolio – asset mix
Portfolio – asset mix High quality, conservative portfolio Investment portfolio $6,592 million as at 31 December 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 0.9 3.8 8.2 7.5 19.5 27.9 16.8 19.3 25.3 11.7
Slide 51: Portfolio – USD bond portfolios
Portfolio – USD bond portfolios as at 31 December 2019 Portfolios: $3.5 billion BB and AAA AA A BBB below Total Duration % % % % % % years Government issued 35.1 35.1 1.0 Government supported* 0.6 0.7 0.3 1.6 1.4 Asset backed 1.1 1.1 1.5 Mortgage backed agency 7.4 7.4 2.8 Non agency 0.1 0.5 0.6 3.2
Slide 52: Portfolio – GBP, EUR and CAD bond portfolios
Portfolio – GBP, EUR and CAD bond portfolios as at 31 December 2019 GBP portfolios: BB and $962 million AAA AA A BBB below Total Duration % % % % % % years Government issued 15.6 15.6 1.7 Government supported* 7.8 4.6 2.6 15.0 1.7 Asset backed 3.4 3.4 2.5 Commercial MBS 0.3 0.3 2.8 Corporates 20.4 6
Slide 53: 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