Hiscox Ltd · LSE:HSX
Hiscox — FY2020 Earnings Presentation
52 slides from Hiscox's earnings presentation, February 2021
Slide 1: Hiscox Ltd Preliminary results
Hiscox Ltd Preliminary results For the year ended 31 December 2020
Slide 2: 2020 highlights
2020 highlights A challenge for all of us • Top line steady at $4.0bn; loss of $268.5m • Covid-19 losses unchanged at $475m – UK industry test case complete – Claims settlement progressing • Resilient performance across the Group – Hiscox London Market the standout performer, delivering profit of $9
Slide 3: Balanced business creates options
Balanced business creates options • Priorities switch from resilience to opportunity – Drive profits from big-ticket business – Accelerate digital distribution in Retail, with focus on USA – Evolve business model; grow where there is opportunity • Dividend a priority in 2021 2
Slide 4: 2021 business priorities
2021 business priorities Capitalising on strengths Evolving our model Building sustainably • London Market to continue • Focus Hiscox USA on more • Dividend a priority in 2021 to capitalise on scale and profitable smaller commercial strong market positions segment, reducing top line • Strengthen bra
Slide 5: Financial performance
MN HISCOX Financial performance
Slide 6: Group financial performance
Group financial performance Resilient in a challenging year 31 December 2020 31 December 2019 • Growth in Retail and $m $m London Market; planned Growth reduction in Re & ILS Gross premiums written 4,033.1 4,030.7 • Positive rate movement Net premiums written 2,750.4 2,678.8 in all segments Net prem
Slide 7: Hiscox Retail
Hiscox Retail Benefitting from digital trends in a tough year 31 December 2020 31 December 2019 • GWP up 3% despite $m $m challenging conditions, with growth in four of its Growth five divisions Gross premiums written 2,266.3 2,196.3 • 15% growth in direct and partnerships Net premiums written 1,986
Slide 8: Hiscox London Market
Hiscox London Market Outstanding performance with excellent outlook 31 December 2020 31 December 2019 • 13% growth in NWP $m $m as conditions improve • Underwriting discipline Growth and portfolio action bearing fruit Gross premiums written 1,023.4 967.9 – Strong underwriting result Net premiums wri
Slide 9: Hiscox Re & ILS
Hiscox Re & ILS Positioned for growth as conditions improve 31 December 2020 31 December 2019 • GWP reduced by 14% due $m $m to underwriting discipline Growth • Broadened appetite as rates improved through the year Gross premiums written 743.4 866.5 • ILS AUM at $1.4bn Net premiums written 192.7 216
Slide 10: Investment performance
Investment performance Maintaining a cautious stance Cash and bond income net of fees ($m) Mark-to-market on bonds ($m) • Investment result $198m 46 (2019: $223m), return of 38 2.8% (2019: 3.6%) 116 97 102 • Cautious risk positioning insulates portfolio from 75 worst of market volatility • High allo
Slide 11: Reserve resilience continues
Reserve resilience continues $32m positive reserve development Loss development by accident year • Robust reserves 9.8% 2011 2012 2013 2014 2015 2016 2017 2018 2019 (2019: 9.4%) above actuarial estimate 1.05 • Positive reserve development of $32m 1.00 (2019: $26m) • 2019 catastrophes 0.95 reducing i
Slide 12: Robust capital strength
Robust capital strength Positioned to withstand stressed scenarios Bermuda solvency capital requirement (BSCR) • Regulatory and ratings capital position robust; +15% -14% post-scenario position, -8% consistent with S&P +35% A rating 208% -37% • Significant loss absorption -9% 190% capacity and abili
Slide 13: 2021 outlook
2021 outlook Big-ticket Retail Efficiency savings • Profit over volume • One-off $200m GWP • 2020 two-point reduction adjustment due to in expense ratio is • London Market gross reclassification of Special mostly temporary premium growth in 2021 in Risks and repositioning mid- to high-single digits
Slide 14: Underwriting
MN HISCOX Underwriting
Slide 15: An actively managed business
An actively managed business Continuing to benefit from strategy of balance Total Group controlled premium 31 December 2020: $4,532m Period-on-period in constant currency +3% $1,627m 2020 GWP Professional liability Errors and omissions Private directors and officers’ liability -14% Cyber $845m Comme
Slide 16: Global market hardening
Global market hardening Improving rates in all segments Core London Market All retail Catastrophe reinsurance • London Market rates up 20% in 2020, c.43% compound rate growth 140 since 2017 • Re & ILS double-digit rate 120 growth at 12% in 2020 with c.25% compound 100 rate growth since 2017 • Hiscox
Slide 17: Underwriting discipline
Underwriting discipline Maintain premium for less risk Change in exposure vs. gross written premium – controlled premium • Underwriting discipline has improved the portfolio in 2020, stable premium 2019 GWP 2020 GWP for less risk $4.5bn $4.5bn • 10% rate rise across the 100% 12% total portfolio (201
Slide 18: Managing our net exposure
Managing our net exposure Growing where there is opportunity 2020 Total Group gross/net written premium 100% = $4,532m Hiscox Retail Hiscox Re & ILS Hiscox London Market 2,500 GWP NWP GWP NWP GWP NWP + 3% Gross/net written premium ($m) 2,000 + 1% 1,500 + 5.7% 1,000 - 14.6% + 11.7% 500 - 11.7% 0 2019
Slide 19: Underwriting 2021 outlook
Underwriting 2021 outlook Opportunities across the portfolio *Retail, London Market and Re & ILS segments exclude 2021 course correction lines. 18
Slide 20: Hiscox Retail
MN HISCOX Hiscox Retail
Slide 21: Small business opportunity
Small business opportunity Large market opportunity Strong position Profitable segment • c.50 million businesses • ‘All roads lead to Hiscox’ • Robust data sets for pricing in our target segments omni-channel strategy • Rapidly achieving scale and rapidly growing • Industry-leading digital tools • L
Slide 22: Considerable room for growth
Considerable room for growth • Historically fragmented, underserved markets UK • Expertise and strong • c.6 million businesses addressable market* competitive position • 8.1% GWP CAGR (2016-2020)** in sectors that are • 6% market share*** expanding faster than the general economy • Head start in dig
Slide 23: Accelerating shift to digital
Accelerating shift to digital New company registrations have …and this has been reflected in direct increased significantly in 2020… and partnerships customer growth USA – new companies 1,531k Group direct and partnerships customers c. 810k 15% 1,340k 1,326k 1,280k c. 780k 2017 2018 2019 2020 c. 760
Slide 24: Digital platforms building toward scale
Digital platforms building toward scale Positioned to win in direct and partnerships Direct and • Digital platforms building partnerships toward scale across USA UK Europe Asia the world business • Strong brand presence in each market with room to grow Customers c. 430k c. 180k c. 80k c. 120k Five-y
Slide 25: The virtuous circle of scale
The virtuous circle of scale Continued investment will drive further scale benefits • 1.3 million customers • Using millions of customer sessions and growing to optimise the sales funnel • Enhanced pricing Increased • Claims segmentation drives better • Troves of data in data capture • Improved pric
Slide 26: Strategy of balance
MN HISCOX Strategy of balance
Slide 27: Build a sustainable balanced business
Build a sustainable balanced business 49% 51% Business split based on 2020 Group controlled premium. 26
Slide 28: Opportunity for profitable growth in every segment
Opportunity for profitable growth in every segment • Navigate economic uncertainty with constant course correction – underwriting and business model evolution • Seizing opportunities – Pricing momentum in all segments – Best market conditions in big-ticket for a decade – Building on our digital head
Slide 29: Appendices
Appendices • Big-ticket and retail business • Geographical reach • Strategic focus • A symbiotic relationship • Long-term growth • An actively managed business • Hiscox ESG framework • Responding to Covid-19 • Demonstrating capital resilience • Group performance • Segmental analysis • Hiscox Ltd res
Slide 30: 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 31: 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 32: Strategic focus
a Strategic focus HISCOX Total Group controlled income for 2020 100% = $4,532 million Big-ticket business 20% Reinsurance | | ap Retail business Small commercial 29% 11% Large property Tech and media 6% 7% Casualty casualty Art and private client 10% 5% Specialty — terrorism, product recall 6% Marin
Slide 33: A symbiotic relationship
A symbiotic relationship a HISCOX Big-ticket business Retail business ¢ Larger premium, globally traded, catastrophe-exposed business written mainly through Hiscox London Market and Hiscox Re & ILS ¢ Shrinks and expands according to pricing environment ¢ Excess profits allow further investment in re
Slide 34: Long-term growth
Long-term growth Total Group controlled income ($) 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 *Hi
Slide 35: An actively managed business
An actively managed business Strategy of balance continues Total Group controlled premium 31 December 2020: $4,532m Period-on-period in constant currency +3% $1,627m 2020 GWP Professional liability Errors and omissions Private directors and officers’ liability -14% Cyber $845m Commercial Property sm
Slide 36: Hiscox ESG framework
Hiscox ESG framework A pragmatic approach 35
Slide 37: Responding to Covid-19
Responding to Covid-19 Employees Customers Society • Successful transition of 95% • Expect to pay $475m in • Over $9m donated to of our 3,000 employees to Covid-19-related claims charities around the world to remote working support those most affected • Provided a range of financial • Supported thro
Slide 38: Demonstrating capital resilience
Demonstrating capital resilience 31 December 2020 • Strongly capitalised above all regulatory, economic, and management bases $2.43bn available capital • £375m raised in May via share placing to respond Economic Regulatory to growth opportunities and further strengthen capital buffers • BMA’s Bermud
Slide 39: Group performance
Group performance Year to 31 December 2020 Constant currency GWP GWP change GWP change $m % % Hiscox Retail* 2,266.3 3.2 2.6 Hiscox UK 756.1 1.3 0.8 Hiscox Europe 447.1 9.5 8.0 Hiscox Special Risks 127.8 (1.6) (2.0) Hiscox USA 887.1 2.6 2.6 Hiscox Asia 48.2 25.7* 21.8* Hiscox London Market 1,023.4 5
Slide 40: Segmental analysis
Segmental analysis 31 December 2020 31 December 2019 Hiscox Hiscox Hiscox London Hiscox Corporate Group Hiscox London Hiscox Corporate Group Retail Market Re & ILS Centre Total Retail Market Re & ILS Centre Total $m $m $m $m $m $000 $000 $000 $000 $000 Gross premiums written 2,266.3 1,023.4 743.4 ‒
Slide 41: Hiscox Ltd results
Hiscox Ltd results $m 2020 2019 2018 2017 2016 Gross premiums written 4,033.1 4,030.7 3,778.3 3,286.0 3,257.9 Net premiums written 2,750.4 2,678.8 2,581.5 2,403.0 2,424.5 Net premiums earned 2,752.2 2,635.6 2,573.6 2,416.2 2,271.3 Investment return 197.5 223.0 38.1 104.8 95.8 (Loss)/profit before ta
Slide 42: Boxplot and whisker diagram of modelled Hiscox Ltd net loss
Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) January 2021 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 43: Realistic disaster scenarios
Realistic disaster scenarios Hiscox Group – losses shown as percentage of 2020 gross and net written premium Gross loss Net loss Industry loss return period Japanese windstorm 2% $15bn 1 in 100 year 8% Japanese earthquake 6% $50bn 1 in 240 year 23% Gulf of Mexico windstorm 6% $111bn 1 in 80 year 36%
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 $100m – $870m could be suffered in the following extreme scenarios Event
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 13.0% 17.8% 21.0% 5.0% 6.9% 53.6% 12.5% 9.2% 61.0% 44
Slide 46: Group reinsurance security
Group reinsurance security Receivables at 31 December 2020 of $3,644.6m 2020 reinsurance protections* First loss exposure by rating A A AA AA AAA and collateralised BBB ILS Other Collateralised 1% 6.1% 15% 5% 38.3% 42% 29.6% 37% 26.0% *Reinsurance placements in force at 9 February 2021. 45
Slide 47: Reinsurance
Reinsurance Ceded as a percentage of GWP Reinsurance receivables as a percentage of total assets 40 30 35 27.0 25 26.3 33.5 30 31.8 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 46
Slide 48: Investment result
Investment result Return of $198m (2019: $223m) 31 December 2020 31 December 2019 Asset Annualised Asset Annualised allocation return Return allocation return Return % % $m % % $m Bonds £ 13.0 15.6 $ 49.4 52.6 Other 9.3 7.5 Bonds total 71.7 2.8 141.3 75.7 3.4 161.8 Equities 7.6 10.8 58.4 7.4 13.3 61
Slide 49: Portfolio – asset mix
Portfolio – asset mix High quality, conservative portfolio Investment portfolio $7,630m as at 31 December 2020 Asset allocation Bond credit quality Bond currency split Bonds Gvt. USD Cash and cash equivalents AAA GBP AA Risk assets EUR A BBB CAD and other BB and below 1.9 4.2 7.6 8.8 19.9 26.0 20.7
Slide 50: Portfolio – USD bond portfolios
Portfolio – USD bond portfolios as at 31 December 2020 Portfolios: $3.8bn BB and AAA AA A BBB below Total Duration % % % % % % years Government issued 0.1 23.2 23.3 0.8 Government supported* 0.1 1.8 0.3 2.2 1.6 Asset backed 0.2 0.2 3.1 Agency mortgage backed 8.2 8.2 2.2 Non agency mortgage backed 0.
Slide 51: Portfolio – GBP, EUR and CAD bond portfolios
Portfolio – GBP, EUR and CAD bond portfolios as at 31 December 2020 GBP portfolios: BB and $990m AAA AA A BBB below Total Duration % % % % % % years Government issued 21.5 21.5 1.2 Government supported* 3.2 2.2 1.5 6.9 1.7 Asset backed 1.3 1.3 2.8 Commercial mortgage backed 0.2 0.2 1.9 Corporates 17
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