Hiscox Ltd · LSE:HSX
Hiscox — Hiscox Ltd Ord New — H1 2023 Earnings Presentation
55 slides from Hiscox's earnings presentation, Aug 9, 2023
Slide 1: Hiscox Ltd Interim results
Hiscox Ltd Interim results For the six months ended 30 June 2023
Slide 2: Strategy update
Strategy update Aki Hussain Group Chief Executive Officer
Slide 3: H1 2023 highlights
H1 2023 highlights • Disciplined underwriting delivering high quality growth and earnings in all segments • Big-ticket benefitting from a hard market in reinsurance and specialty • Continued growth momentum in Retail • Annualised ROE of 19.9% • Strong capital generation and well-funded balance sheet
Slide 4: Maximising the strength of our portfolio of businesses
Maximising the strength of our portfolio of businesses Balanced portfolio of large and complex risks SME and personal lines Market trends Market trends • Hardening in property, more than offsetting • Growing trend towards digitalisation softening in D&O and cyber of businesses and consumers Our spec
Slide 5: Strong underlying growth momentum in Retail
Strong underlying growth momentum in Retail Disciplined underwriting driving quality growth and earnings Growth • DPD growth of 7.8%* • Growth momentum building • Excellent growth of 11.2%* continues to build momentum • 4.0%* headline growth • All markets growing • Broker growth tempered by tempered
Slide 6: US DPD technology transition complete
US DPD technology transition complete On track, no change to guidance US DPD ICWP YoY growth by quarter US DPD • H1 growth of 7.8%, up from 6.8% at Q1 • Expect growth to trend 8.9% towards the middle of the 5% to 15% range in 2023, as guided +2.1 ppts Direct 6.8% • Positive and accelerating growth t
Slide 7: US DPD: Building out SME insurance marketplace
US DPD: Building out SME insurance marketplace New workers compensation partnership launched SME addressable market* Share of market by products accessible to Hiscox customers • Greater share of wallet of existing customers • Access to new customers ’ ** • Increasing power of brand • Comprehensive p
Slide 8: Hiscox London Market
Hiscox London Market Strong growth of 10.6% and consistent profitability ICWP (% of portfolio) Change since H1 2022 (%) Change since H1 2022 (%) Major property Kidnap and ransom Household Terrorism Flood Crisis Personal accident management Commercial lines 16% Product recall Alternative risk** Prope
Slide 9: Hiscox Re
Hiscox Re Excellent net growth of 17.9% in best market conditions in a decade Re (excluding ILS) net ICWP (% of portfolio) Change since H1 2022 (%) Change since H1 2022 (%) Specialty Property North America Marine Property Specialty, risk Risk North America and marine 38% 31% COR* 81.2% Change since
Slide 10: Building for the future
Building for the future Sustained growth • Increasing technical • ESG sub-syndicate expertise through has written first risks Underwriting Academy • Retail SME • Continue to enrich insurance marketplace talent pool through • Whistleblower senior hires assistance product launched in Germany to meet c
Slide 11: Financial performance
Financial performance Paul Cooper Group Chief Financial Officer
Slide 12: Group financial performance
Group financial performance Continued growth momentum delivering high quality earnings 30 June 2022 • Net growth of 11.4% 30 June 2023 (restated) in CCY $m $m • Claims in line with Premiums expectations, quality Insurance contract written premium 2,723.3 2,617.2 underwriting driving Net insurance co
Slide 13: Hiscox Retail
Hiscox Retail Disciplined underwriting delivering profitable growth 30 June 2022 • Strong and improving 30 June 2023 (restated) profitability $m $m • Positive rates across all Premiums markets with average increase of 6% Insurance contract written premium 1,271.0 1,237.7 • ICWP up 5.5% in CCY despit
Slide 14: Hiscox London Market
Hiscox London Market Effective cycle management drives strong profit 30 June 2022 • Net ICWP up 14.2% 30 June 2023 (restated) driven by strong rate $m $m in property and new Premiums business growth in upstream energy Insurance contract written premium 654.4 591.8 and renewables Net insurance contra
Slide 15: Hiscox Re & ILS
Hiscox Re & ILS Excellent profitability in an active first half loss environment 30 June 2022 • Net ICWP up 17.9% 30 June 2023 (restated) with strong growth in $m $m North American natural Premiums catastrophe, retrocession and marine Insurance contract written premium 797.9 787.7 – deployed increme
Slide 16: Investment performance
Investment performance Benefitting from tailwinds in H1 2023 Cash and bond income net of fees ($m) Gains/(losses) on debt and fixed • Investment result $121.8m income holdings ($m) (2022: -$214.1m), return of 1.7% YTD (2022: -3.0%) 46 102 7 – coupon income and cash returns -33 increased significantl
Slide 17: Reserves
Reserves Reserve conservatism continues $m • Prudent reserving Best estimate philosophy remains Risk adjustment unchanged • Confidence level at 77th confidence 77th percentile level percentile 78th confidence – within target range of level percentile 75th-85th percentile 211 – demonstrates continued
Slide 18: Reserve releases
Reserve releases $62m positive reserve development Reserve releases as % of opening net reserves • Reserve releases 1.7% of the undiscounted IFRS 4 IFRS 17* opening balance – broadly consistent with prior year releases on 2.2% a like-for-like basis – inflation assumptions 1.9% 1.9% in pricing and 1.
Slide 19: Remain strongly capitalised
Remain strongly capitalised Deployed capital into favourable market conditions Bermuda solvency capital requirement (BSCR) • Regulatory and ratings capital position remains strong • Organic capital 199%* 199% generation exceeds capital consumption • Post loss scenario position consistent with the S&
Slide 20: Underwriting
Underwriting Joanne Musselle Chief Underwriting Officer
Slide 21: Underwriting portfolio: Disciplined growth
Underwriting portfolio Disciplined growth H1 2023 Group written premium (constant currency) London Market ICWP $2,723.3m; NICWP $1,945.6m • Effective cycle management, delivering Hiscox London Market Hiscox Re & ILS Hiscox Retail selective growth and ICWP NICWP ICWP NICWP ICWP NICWP attractive retur
Slide 22: Power of an actively managed portfolio
Power of an actively managed portfolio Continuing to benefit from strategy of balance H1 2023 Group ICWP (year-on-year in constant currency) • Active portfolio management and +5% discipline delivering $959m strong underwriting profits – strong growth in +4% property and marine Professional liability
Slide 23: External market conditions
External market conditions Underwriting environment remains complex Social inflation, Technology advances customer behaviour and reliance Economic instability Emerging risk and and inflation legal trends Geopolitical tension Climate inflation and and regulation natural disasters 22
Slide 24: Rate momentum continues
Rate momentum continues Driven by same market conditions Core London Market Catastrophe reinsurance US UK EU 220 140 200 130 180 120 160 110 140 100 120 90 100 80 80 2018 2019 2020 2021 2022 HY 2023 2018 2019 2020 2021 2022 HY 2023 London Market rates up 9% Retail rates up 6% • 72% cumulative since
Slide 25: Pro-active underwriting
Pro-active underwriting So much more than rate Balanced exposure Capital deployment Risk selection Claims management Risk mitigation Reinsurance Pricing strategy Diversified risk View of risk 24
Slide 26: Effective big ticket cycle management
Effective big ticket cycle management Continuous evaluation and adaptation Property Casualty Specialty +33%* -8%* +16%* Attractive part of After five years of Market remains attractive the cycle, taking on hardening, rates have in many lines, looking to additional net natural now peaked and in some
Slide 27: Investing for the long-term
Investing for the long-term Creating retail customer lifetime value Customer Knowledge Digital Customer centricity; products Maximise knowledge; develop Technology investment; and propositions that our our underwriters and utilise driving value through customers value, backed by external intelligenc
Slide 28: Closing remarks
Closing remarks Aki Hussain Group Chief Executive Officer
Slide 29: Outlook
Outlook • Diversified portfolio well positioned to deliver high-quality growth and earnings • Strong underlying growth momentum in Retail – full-year Retail growth expected to be in line with half-year trend – US DPD on track to deliver, no change to guidance – long-term structural growth opportunit
Slide 30: Questions
Question f 5 ¢ d - J ~%
Slide 31: Appendices
Appendices • Geographical reach • Natural catastrophe risk • Hiscox investment case • Realistic disaster scenarios • Long-term growth • Casualty extreme loss scenarios • An actively managed business • ICWP geographical and currency split • Hiscox ESG framework • Group reinsurance security • Embeddin
Slide 32: Geographical reach
Geographical reach 34 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 Chesapeake Latin American Dublin Chicago gateway Frankfurt Dallas Miami Hamburg Asia
Slide 33: Hiscox investment case
Hiscox investment case Balanced portfolio of large and complex risks SME and personal lines Delivers profits and capital Significant structural generation for reinvestment growth opportunity Delivers underwriting profit Delivers stable profit and capital-lite fee income generation and growth Attract
Slide 34: Long-term growth
Long-term growth Group income ($m) Hiscox Re & ILS Hiscox UK Hiscox Special Risks Hiscox Asia Hiscox London Market Hiscox Europe Hiscox USA 5,000 4,500 Hiscox London Market Insurance contract written premiums ($m)** Hiscox Re & ILS 4,000 3,500 3,000 2,500 2,000 Hiscox Retail 1,500 1,000 500 -0 2003
Slide 35: Power of an actively managed portfolio
Power of an actively managed portfolio Continuing to benefit from strategy of balance H1 2023 Group ICWP (year-on-year in constant currency) +5% $959m Professional +4% liability $811m Errors and omissions Private directors and Property officers’ liability Cyber Marine Commercial small package Techno
Slide 36: Hiscox ESG framework
Hiscox ESG framework A pragmatic approach 34
Slide 37: Embedding sustainability in our business
Embedding sustainability in our business Investments Underwriting Operations • Established processes: net-zero wording • A balanced approach to supporting the • Continued embedding of SBTi-aligned in segregated investment manager net-zero transition: net-zero GHG targets; improving GHG mandates; eme
Slide 38: Demonstrating capital resilience
Demonstrating capital resilience Strongly capitalised across all bases As at 30 June 2023 • Strongly capitalised above all regulatory, economic, $2.87bn available capital and management bases • BMA’s Bermuda Solvency Capital Economic Regulatory Requirement (BSCR) is Solvency II equivalent • BSCR est
Slide 39: Group performance
Group performance Six months to 30 June 2023 Constant currency ICWP ICWP change ICWP change $m % % Hiscox Retail 1,271.0 2.7 5.5 Hiscox UK 399.3 (1.7) 4.0 Hiscox Europe 365.6 7.8 11.2 Hiscox USA 475.8 2.0 2.0 Hiscox Asia 30.3 17.9 16.1 Hiscox London Market 654.4 10.6 12.0 Hiscox Re & ILS 797.9 1.3 3
Slide 40: Segmental analysis
Segmental analysis 30 June 2023 30 June 2022 (restated) 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 $m $m $m $m $m Insurance contract 1,271.0 654.4 797.9 ‒ 2,723.3 1,237
Slide 41: Retail combined ratio
Retail combined ratio Restated range 89%-94% (undiscounted) Undiscounted COR* • Restated range 94.4% – undiscounted 93.8% 94% – Removes impact of LPT reclassification; 89% protection of reserves through LPTs remains unchanged – incorporates benefit of expense reclassification partially offset by mov
Slide 42: Hiscox Ltd results
Hiscox Ltd results $m 30 June 2022 31 December 2022 30 June 2023 (restated) (restated) Insurance contract premiums written 2,723.3 2,617.2 4,355.4 Net insurance contract premiums written 1,945.6 1,784.5 3,225.5 Insurance service result 221.4 140.2 360.9 Investment return 121.8 (214.1) (187.3) Profit
Slide 43: Analysis of change
Analysis of change Net position at 30 June 2023 Net liabilities for remaining coverage Net liabilities for incurred claims $m Excluding loss Loss Estimates of Risk adjustment Total component component PV of future cash flows Net opening balance* 474.2 1.9 3,454.7 246.3 4,177.1 Insurance revenue, net
Slide 44: Boxplot and whisker diagram of modelled net loss
Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) July 2023 Lower 5%- upper 2011 Tohoku Quake – $25bn market Superstorm Sandy – $20bn market 95% range 1,000 Loma Prieta Quake – $6bn market Hurricane Andrew – $56bn market Northridge Quake – $24bn market Hurricane Katrina – $50bn market
Slide 45: Natural catastrophe risk
Natural catastrophe risk Expanding and contracting through the cycle US windstorm Hiscox Ltd mean net modelled loss ($m)* 5-10yr inflated 25-50yr inflated 100-250yr inflated 500 450 400 350 300 250 200 150 100 50 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Jan-23 Jul-2
Slide 46: Realistic disaster scenarios
Realistic disaster scenarios July 2023 Hiscox Group – losses shown as percentage of gross and net written premium Gross loss Net loss Industry loss return period Japanese windstorm 3% $15bn 1 in 100 year 8% Japanese earthquake 5% 20% $50bn 1 in 240 year Gulf of Mexico windstorm 16% 51% $111bn 1 in 8
Slide 47: Non-natural catastrophe extreme loss scenarios
Non-natural catastrophe 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 • We have included more loss scenarios to illustrate other non-natural catastrophe e
Slide 48: ICWP geographical and currency split
ICWP geographical and currency split H1 2023 geographical split H1 2023 currency split North America GBP Other USD Western Europe (excl. UK) CAD and other Worldwide EUR UK 17.2% 17.9% 19.4% 3.6% 9.3% 45.8% 17.0% 59.1% 10.7% 46
Slide 49: Group reinsurance security
Group reinsurance security Reinsurance assets at H1 2023 of $2.5bn H1 2023 reinsurance protections* (FY 2022: $2.5bn) First loss exposure by rating AAA and collateralised Collateralised AA AA range A A range** Other ILS 0.2% 0.6% 22.0% 25.6% 25.6% 43.1% 30.7% 52.2% *Reinsurance placements in force a
Slide 50: Reinsurance
Reinsurance Ceded as a percentage of ICWP/GWP Reinsurance receivables as a percentage of total assets 40 30 28.2 35 27.0 25 26.3 25.7 33.5 24.3 31.8 31.8 30 31.7 23.5 30.8 22.6 28.6 20 26.9 25 25.9 25.6 18.8 23.5 20 15 21.7 21.0 19.4 19.3 19.2 19.0 19.0 13.4 15 12.3 12.1 11.7 11.6 10 11.0 10.6 10.3
Slide 51: Investment result
Investment result Return of $121.8m (2022: -$214.1m) 30 June 2023 30 June 2022 (restated) Asset Asset allocation Return Return allocation Return Return % % $m % % $m Debt and fixed income holdings £ 11.7 12.0 $ 56.3 53.7 Other 10.4 8.7 Total 78.4 1.6 90.5 74.4 (3.2) (170.8) Equity and investment fun
Slide 52: Portfolio – asset mix
Portfolio – asset mix High quality, short duration portfolio Investment portfolio $7.4bn as at 30 June 2023 Asset allocation Debt and fixed income Debt and fixed income holdings credit quality holdings currency split Debt and fixed income holdings Gvt.* USD Cash and cash equivalents AAA GBP Equity a
Slide 53: Portfolio – USD Debt and fixed income holdings
Portfolio – USD Debt and fixed income holdings as at 30 June 2023 Portfolios: $4.2 billion BB and AAA AA A BBB below and Total Duration % % % % unrated % years % Government issued 21.2 0.1 0.2 1.1 22.6 1.7 Government supported* 0.9 0.5 0.3 0.3 2.0 1.8 Asset backed 9.3 0.2 9.5 1.2 Mortgage backed age
Slide 54: Portfolio – GBP and other currencies debt and fixed income holdings
Portfolio – GBP and other currencies debt and fixed income holdings as at 30 June 2023 GBP portfolios: BB and $866 million AAA AA A BBB below and Total Duration % % % % unrated % years % Government issued 14.5 14.5 2.2 Government supported* 5.2 3.2 1.0 9.4 2.1 Corporates 3.6 2.3 35.1 33.5 1.6 76.1 2
Slide 55: 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, the USA and Group, combining the underwriting platforms in Bermuda Asia. Hiscox UK and Hisco