Hiscox Ltd · LSE:HSX
Hiscox — H1 2013 Earnings Presentation
44 slides from Hiscox's earnings presentation, Jul 29, 2013
Slide 1: Hiscox Ltd Interim results
Hiscox Ltd Interim results for the six months ended 30 June 2013
Slide 2: An excellent start
An excellent start • Profit before tax £180.7m (2012: £125.8m) • Premium growth of 12.3% (2012: 7.0%) driven by strong growth in insurance lines • Combined ratio 74.7% (2012: 81.7%) - good luck meets good underwriting • Annualised return on equity 25.8% (2012: 21.1%) • Dividend up 16.7% to 7.0p (201
Slide 3: Financial performance
Financial performance Stuart Bridges
Slide 4: An excellent first half
An excellent first half June 2012 Dec 2012 June 2013 restated* restated* £000 £000 £000 Gross premiums written 1,017,944 906,443 1,565,819 Net premiums written 770,235 701,509 1,268,140 Net premiums earned 628,714 567,773 1,198,621 Investment return on financial assets 23,309 44,497 92,690 Foreign e
Slide 5: Segmental analysis
Segmental analysis 30 June 2013 30 June 2012 restated* London UK and Inter- Corporate London UK and Inter- Corporate Market Europe national Centre Total Market Europe national Centre Total £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Gross premiums written 432,490 295,134 290,320 - 1,017,944 37
Slide 6: Good equity return
Good equity return 30 June 2013 30 June 2012 Asset Annualised Return Asset Annualised Return allocation return allocation return % % £000 % % £000 Bonds £ 16.9 1.2 13.1 2.7 US$ 49.2 (0.2) 49.8 3.2 Other 9.2 (0.1) 7.9 2.0 Bonds total 75.3 0.1 1,603 70.8 3.0 33,230 Equities 6.7 20.4 20,304 6.1 10.9 9,
Slide 7: High quality, conservative portfolio
High quality, conservative portfolio Investment portfolio: £3.153bn Asset allocation • Dollar strength Risk assets boosts portfolio 6.7 • Focus on credit Cash 18.0 quality maintained % 75.3 Bonds • Risk assets trimmed at market highs Bond credit quality Bond currency split • No exposure to PIIGS sov
Slide 8: Portfolios - USD bond portfolios
Portfolios - USD bond portfolios as at 30 June 2013 Portfolios: $2.4bn AAA AA A BBB Other Total Duration % % % % % months Government issued 0.3 30.1 30.4 20.0 • Still cautious on duration Government 0.3 6.5 1.2 8.0 20.2 supported* • Corporates maintained Asset backed 14.1 0.3 14.4 7.7 Mortgage backe
Slide 9: Portfolios - GBP, EUR and CAD bond portfolios
Portfolios - GBP, EUR and CAD bond portfolios as at 30 June 2013 GBP portfolios: £533m AAA AA A BBB Other Total Duration % % % % % % months Government issued 1.0 56.8 57.8 16.0 • Very little change Government supported* 12.0 0.5 0.1 12.6 5.2 • Focus on quality Asset backed 2.3 0.4 2.7 4.0 and capita
Slide 10: Government and bank exposure analysis
Government and bank exposure analysis Bank debt Government Government Country issued supported Senior Subordinated Total £000 £000 £000 £000 £000 Australia 10,462 12,542 12,542 Belgium 6,616 - • Safety first for Canada 5,499 45,704 31,182 748 31,930 banks and Denmark 1,214 1,214 sovereigns United Ki
Slide 11: Fascinating financial facts
Fascinating financial facts • Good claims experience – Aggregate industry catastrophe losses (Oklahoma tornadoes, European floods, Calgary floods) US$11.5bn – Hiscox net reserves US$22.0m • Costa Concordia reduced to net US$19m (2012: US$20m) • Reserve releases £74m (2012: £116m) • Total Group marke
Slide 12: Underwriting
Underwriting Richard Watson
Slide 13: Growing in insurance lines
Growing in insurance lines +1.8% £412m Year-on-year growth Total Group controlled premium 2013: £1,168m in local currency 2013 GWP Non-marine +17.4% Marine £228m Professional +22.5% liabilities £179m Aviation Kidnap and ransom Errors and +4.0% omissions Contingency £133m +39.2% £121m Terrorism Direc
Slide 14: Rates remain attractive
Rates remain attractive Insurance Reinsurance 140 • Reinsurance under competition 120 • Insurance rates 100 for smaller Index level % specialty risks 80 broadly flat to rising 60 • Larger insurance 40 risks including energy, large 20 property, aviation are softening 0 12 month rolling period ending
Slide 15: Reinsurance outperformance
Reinsurance outperformance Hiscox Syndicate 33 reinsurance and Lloyd’s average loss ratio as at Q1 2013 250% 250 Loss ratio – calculated net of brokerage 200% 200 Signed premium (£m) 150% 150 100% 100 50% 50 0% 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Underwriting Year Lloyd's (
Slide 16: Modelled reinsurance gross loss ratios
Modelled reinsurance gross loss ratios Source: Hiscox analysis based on 2013 in force portfolio 15
Slide 17: Hiscox London Market profitability
Hiscox London Market profitability Insurance Reinsurance International Hurricane cat losses/ Sandy/ PI losses Arab Spring Costa Chile/ Concordia New Zealand Hurricane Financial quake Profit Katrina crisis/ Four Hurricane Ike hurricanes Note: 100% share, fixed exchange rate 16
Slide 18: Business performance
Business performance Bronek Masojada
Slide 19: Managing the business
Managing the business Gross written premiums for the six months to 30 June 2013 2013 2012 Change Growth £000 £000 % in local currency % Hiscox London Market - Insurance 248,110 196,967 26.0 23.3 - Reinsurance 184,380 174,283 5.8 3.7 Hiscox International - Hiscox Bermuda 161,949 159,411 1.6 (0.6) - H
Slide 20: Building the organisation around the opportunity
Building the organisation around the opportunity Background Principal changes • Market opportunities in • Separation of the London London Market Market insurance and insurance will benefit reinsurance businesses from more focused leadership • Immediate creation of Hiscox London Market • Market devel
Slide 21: Hiscox London Market: Healthy profit
Hiscox London Market Healthy profit • Low exposure to catastrophes, discipline and favourable FX drive profit of £78.0m (2012: £69.5m) • Insurance lines growing selectively where rates are strong or improving: property, casualty • Reinsurance up slightly, but likely to contract at the full year as c
Slide 22: Hiscox Re
Hiscox Re • Combined reinsurance functions in London, Paris and Bermuda • Better service, faster underwriting decisions and bigger line sizes (up to US$200m) to key clients • New CEO Jeremy Pinchin, providing strong strategic leadership 21
Slide 23: ILS capacity here to stay
ILS capacity here to stay • Non traditional reinsurance currently 15% or US$44bn of global property catastrophe business • Leveraging our own expertise and capital – over US$1bn of premium ceded since 2007 – Kiskadee Re - special purpose vehicle writing collateralised reinsurance – Third Point - inv
Slide 24: Hiscox UK: Excellent growth and profit
Hiscox UK Excellent growth and profit Half year Half year 2013 2012 £m £m • Record profit driven by low losses Gross premiums written 205.5 184.0 and direct Marketing expenditure (6.4) (6.7) • Retention rate of 92% Underwriting result 31.6 17.7 • Good performance in commercial Investment result 9.1
Slide 25: Hiscox Europe: Record profit
Hiscox Europe Record profit Half year Half year 2013 2012 €m €m Gross premiums written 108.5 99.9 • Growth in commercial lines and art and private client Marketing expenditure (2.6) (1.2) Underwriting result 8.0 0.4 • Excellent loss ratios Investment result 4.0 2.1 • Get Fit program delivering benef
Slide 26: Hiscox International: Good growth and profit
Hiscox International Good growth and profit • Hiscox USA – Profitable at the half year – Investing in people and brand – additional US$8m marketing spend in H2 – Direct to small businesses developing well – 33,000 live policies • Hiscox Guernsey – Healthy profit and stable top line in a competitive
Slide 27: Summary and outlook
Summary and outlook Bronek Masojada
Slide 28: Strategy working
Strategy working • A good start to the year • Opportunities taken in insurance – London Market growth – UK, Europe and USA developing well • Navigating changing reinsurance market 27
Slide 29: Outlook
Outlook • Growth and development in insurance • Evolution in reinsurance • Investing in people and brand • Challenging investment environment • Capital – Industry awash with capital – Hiscox position considered at year end 28
Slide 30: Q&A
A HISCOX O&A
Slide 31: Appendices
Appendices • Geographic reach • Strategic focus • A symbiotic relationship • Long-term growth • Hiscox Ltd results • Boxplot and whisker diagram of Hiscox Ltd • Realistic disaster scenarios • GWP geographical and currency split • Group reinsurance security • Reinsurance • 2013 capital requirement pr
Slide 32: Geographic reach
Geographic reach Bermuda Hamilton Europe UK Amsterdam Birmingham Bordeaux Colchester Brussels Glasgow Cologne Leeds Dublin London Hamburg Maidenhead Lisbon Manchester Lyon York Madrid Munich USA Paris Atlanta Chicago Guernsey Los Angeles St Peter Port New York City San Francisco Latin American White
Slide 33: Strategic focus
Strategic focus Total Group controlled income for 2012 100% = £1,792m Local errors and omissions and commercial 18% Reinsurance 28% Tech and media errors 3% and omissions 14% Art and Large property 5% private client 2% Global errors and omissions 10% 7% 5% Specialty – kidnap and ransom, Specialty –
Slide 34: A symbiotic relationship
A symbiotic relationship Internationally Local specialty traded lines lines • Larger premium, • Premium growth catastrophe exposed between 5-15% per annum • Shrinks and expands according • Pays dividends to rates Profit Value generator creator • Brand builds • Excess profits allow strong market inve
Slide 35: Long-term growth
Long-term growth Bermuda Hiscox London Market - Specialty Hiscox London Market - Volatile Hiscox UK Hiscox Europe Hiscox Guernsey Hiscox USA Total Group controlled premium 2012: £1,792m 2000 1800 Gross written premiums (£000) 1600 1400 Internationally traded lines 1200 1000 800 600 Local 400 special
Slide 36: Hiscox Ltd results
Hiscox Ltd results £000 2012º 2011 2010 2009 2008 2007 Gross premiums written 1,565,819 1,449,219 1,432,674 1,435,401 1,147,364 1,198,949 Net premiums written 1,268,140 1,174,011 1,131,627 1,157,023 898,394 974,910 Net premiums earned 1,198,621 1,145,007 1,131,158 1,098,102 928,095 965,190 Investmen
Slide 37: Boxplot and whisker diagram of Hiscox Ltd
95% range period and peril Industry loss return Hiscox Ltd loss (US$m) Lower 5%- upper Modelled mean loss EU WS – European windstorm JP EQ – Japanese earthquake Mean industry loss US$bn US WS – United States windstorm US EQ – United States earthquake 01 02 05 5-10 year Superstorm Sandy - $20bn marke
Slide 38: Realistic disaster scenarios
Realistic disaster scenarios Hiscox Group - losses shown as percentage of 2013 gross and net written premium Industry loss return period Japanese earthquake US$50bn 1 in 240 year Gulf of Mexico windstorm US$107bn 1 in 80 year Florida US$125bn 1 in 100 year windstorm European US$30bn 1 in 200 year wi
Slide 39: GWP geographical and currency split
GWP geographical and currency split 2013 geographical split 2013 currency split CAD and other UK 4.5% EUR 17.6% 12.5% North 40.1% America Worldwide 21.3% USD 55.7% 27.3% GBP 13.4% 7.6% Western Other Europe (excl. UK) 38
Slide 40: Group reinsurance security
Group reinsurance security Receivables at 30/06/13 of £639.1m 2013 reinsurance protections* First loss exposure by rating AAA† Collateralised Other 5.4% 12.0% 7.2% AA 25.1% 62.3% A 50.1% A 37.9% AA *Reinsurance placements in force at 1 April 2013. † Includes collateralised. 39
Slide 41: Reinsurance
26.0 17.3 13.7 20.9 13.4 18.7 13.4 21.7 Reinsurance as a % of GWP 19.4 21.0 19.0 22.6 Reinsurance 19.0 24.3 15.4 11.8 10.8 of total assets 17.0 10.0 7.7 13.4 Reinsurance receivables as a % 11.0 11.6 11.7 11.7 12.3 13.3 40
Slide 42: 2013 capital requirement projections
2013 capital requirement projections £1.4bn available capital £1.2bn available capital (post return) Notes: 1.Rating agency requirements are an internal projection, by Hiscox, based upon the 2013 business plan 2.The Hiscox internal risk appetite reflects Hiscox’s goal of maximising its return on cap
Slide 43: Glossary of terms
Glossary of terms Annual venture The system used for running a Lloyd’s syndicate under which each ‘year of account’ is treated separately. Members own capacity on a syndicate for a ‘year of account’ and the results are declared when the year is closed by the RITC mechanism, usually after three years
Slide 44: Glossary of terms
Glossary of terms Net premiums earned Premiums received after the cost of reinsurance and adjustment for unearned premium. Unearned premium covers the future period of risk of an insurance policy. Net premiums written Premiums contracted for after deduction of reinsurance. Open year A year of accoun