Slide 1: Hiscox Ltd Preliminary results
Hiscox Ltd Preliminary results For the year ended 31 December 2015
Slide 2: A good year
A good year • Premium growth of 10.7% (2014: 3.3%) – Hiscox Retail now 50% of Group GWP • Profit before tax £216.1m (2014: £231.1m) • Combined ratio 85.0% (2014: 83.9%) • Return on equity 16.0% (2014: 17.1%) • Total dividend for year 40.0p: second interim 32.0p (special 16.0p, final equivalent 16.0p
Slide 3: Strategy of balance working
Strategy of balance working 2
Slide 4: Financial performance
he HISCOX Financial performance
Slide 5: A strong result
A strong result Full year Full year 2015 2014 £m £m Gross premiums written 1,944.2 1,756.3 Net premiums written 1,571.8 1,343.4 Net premiums earned 1,435.0 1,316.3 Investment return on financial assets 33.7 56.4 Foreign exchange gains 15.2 5.0 Profit before tax 216.1 231.1 Profit after tax 209.9 216
Slide 6: Segmental analysis
Segmental analysis 31 December 2015 31 December 2014 Hiscox Hiscox Hiscox London Hiscox Corporate Hiscox London Hiscox Corporate Retail Market Re Centre Total Retail Market Re Centre Total £m £m £m £m £m £m £m £m £m £m Gross premiums written 975.6 585.2 383.4 ‒ 1,944.2 891.1 510.9 354.3 – 1,756.3 Ne
Slide 7: Solid investment performance
Solid investment performance 31 December 2015 31 December 2014 Asset Annualised Asset Annualised allocation return Return allocation return Return % % £000 % % £000 Bonds £ 12.3 1.1 15.1 2.1 US$ 51.2 0.9 52.6 1.2 Other 8.9 0.6 10.1 1.9 Bonds total 72.4 0.9 21,585 77.8 1.5 36,714 Equities 7.2 4.0 10,
Slide 8: Portfolio – asset mix
Portfolio – asset mix High-quality, conservative portfolio Investment portfolio £3,609m as at 31 December 2015 • Cash higher due to proceeds from subordinated debt Asset allocation Bond credit quality Bond currency split issuance Bonds Gvt. USD Cash AAA GBP • Risk assets at 7.2% Risk assets AA EUR A
Slide 9: Capital management
Capital management Supporting growth • Changing requirements: growth opportunities and business mix moving to longer-tail • Optimising balance sheet structure – Subordinated debt issue: £275m at 6.125% – Proceeds used to pay down shorter duration Letter of Credit by $458m – $500m bank facility will
Slide 10: Capital requirement
Capital requirement £1.80bn available capital £1.71bn available capital (post return) Economic Regulatory A.M. Best Standard & Poor's Fitch ratings Group capital Group capital Bermuda solvency (catastrophe model (economic) model (regulatory) capital requirement stressed) Rating agency assessments sh
Slide 11: Cautious reserving approach unchanged
Cautious reserving approach unchanged Reserve releases £206m (2014: £172m) Loss development by accident year 2007 2008 2009 2010 2011 2012 2013 2014 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Ultimate net claims 10
Slide 12: Focus remains on growing shareholder value
Focus remains on growing shareholder value Net asset value (£m) • Compound growth of 8% • Dividends and capital 1,800 returns since 2012: £750m • Total shareholder returns 1,600 1,529 over ten years: £1,068m 1,454 1,409 1,400 1,365 1,266 1,256 1,200 1,121 1,000 951 824 800 682 600 400 200 0 2006 200
Slide 13: Underwriting
he HISCOX Underwriting
Slide 14: Mixed rating environment
Mixed rating environment Core London Market UK local casualty and commercial Catastrophe reinsurance US Direct • Continued competition in core London Market and reinsurance business 140 • Growing where rates are flat e.g. UK commercial 120 and US Direct Rate on line indexed to January 2010 100 80 60
Slide 15: An actively managed business
An actively managed business Total Group controlled premium 2015: £2,165m Period-on-period in local currency 2015 GWP +14.0% £581m Professional liabilities Errors and +15.2% -2.5% omissions £434m £429m Kidnap and Directors and ransom officers’ liability Non-marine Contingency +5.2% Cyber Terrorism £
Slide 16: Hiscox London Market: Changing business mix
Hiscox London Market Changing business mix GWP £m 800 Total = £729m 71 700 600 176 Total = £456m 500 39 Casualty: D&O, PI, healthcare Contractors’ equipment FTC 11 145 400 Specialty: terrorism, political risks, personal accident, aerospace 137 300 Property: onshore energy, 226 US homeowners, commerc
Slide 17: Hiscox Re: Changing business mix
Hiscox Re Changing business mix GWP £m 600 Total = £534m 5 34 500 Total = £438m 12 27 Casualty 400 27 31 Specialty 51 300 Healthcare 495 Marine 200 Kiskadee 290 Property 100 0 2010 2015 16
Slide 18: 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 £75m-£300m could be suffered in the following extreme scenarios: Event Es
Slide 19: Business performance
he HISCOX Business performance
Slide 20: Managing the business
Managing the business Gross written premiums for the year to 31 December 2015 2015 2014 Change Growth in local £m £m % currency % Hiscox Retail Hiscox UK and Europe Hiscox UK and Ireland 443.3 435.0 1.9 2.2 Hiscox Europe 151.8 155.1 (2.1) 7.8 Hiscox International Hiscox Guernsey 67.8 64.5 5.1 (1.9)
Slide 21: A differentiated retail brand around the world
A differentiated retail brand around the world 20
Slide 22: The numbers behind the marketing
The numbers behind the marketing £150m invested over the last five years • 2015 investment in marketing across Total policy numbers (in force) Dec 31 2015 the Group: £45m (2014: £32m) Markets Direct Broker Total – UK and Europe £25m (2014: £19m) UK 138,000 152,000 290,000 – USA £12m (2014: £9m) USA
Slide 23: Hiscox UK and Hiscox Europe
Hiscox UK and Hiscox Europe Profitable whilst investing in brand and infrastructure Hiscox UK and Ireland Hiscox Europe • Combined ratio 90.0% • Combined ratio 92.2% in local currency • Storms Desmond, Eva, Frank: £10m impact • Benefited from single significant prior year reserve release • 86% polic
Slide 24: Hiscox USA: Stellar performance
Hiscox USA Stellar performance • Ten year anniversary – compound 2015 total GWP = $447m growth of 18% over five years • Core professional liability and small commercial products driving growth Media and entertainment • Product innovation in entertainment 9% and cyber Property 9% Professions • Direct
Slide 25: Hiscox Guernsey and DirectAsia
Hiscox Guernsey and DirectAsia Pursuing opportunities in new markets Hiscox Guernsey DirectAsia • New team driving growth in our Miami business, off-setting • Business benefiting from evolution of leadership with reductions due to competitive environment new Managing Director • Investment in new e-t
Slide 26: Hiscox London Market: Great performance in competitive markets
Hiscox London Market Great performance in competitive markets • Good growth of 8.5% in local currency – Extended warranty; fire, theft, collision (FTC): 5.0% – New products and teams: 4.2% – Core London Market lines: -0.7% • Strengthening existing classes and building new teams – Personal accident,
Slide 27: Hiscox Re: Good strategy and good fortune
Hiscox Re Good strategy and good fortune • Good risk selection mitigating industry losses • Growth in international, specialty and healthcare reinsurance • New products deliver US$70m of new business since 1 January 2015 • Continued quota share support from established partners • Kiskadee now signif
Slide 28: Hiscox Re: Deploying third-party capital
Hiscox Re Deploying third-party capital Reinsurance • Move from excess of loss to quota share reinsurance over time Premium retained Premium ceded to Kiskadee Premium ceded to other third parties • 17 quota share partners 100% • Kiskadee growing in importance 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2
Slide 29: Summary and outlook
he HISCOX Summary and outlook
Slide 30: Summary and outlook
Summary and outlook A good year • Hiscox Retail now 50% of GWP: Direct-to-consumer now 7% • Agile strategy in London Market and Hiscox Re • Fourth year returning additional capital • Retaining balance of earnings to fund growth • Challenging environment ahead but diversity creates opportunity 29
Slide 31: Appendices
Appendices • Geographical reach • Strategic focus • A symbiotic relationship • Long-term growth • An actively managed business • Hiscox Ltd results • Boxplot and whisker diagram of Hiscox Ltd • Realistic disaster scenarios • Casualty extreme loss scenarios • GWP geographical and currency split • Gro
Slide 32: Geographical reach
Geographical reach UK Guernsey Birmingham Europe Colchester St Peter Port Amsterdam Glasgow Bordeaux Leeds Brussels London USA Bermuda Cologne Maidenhead Atlanta Hamilton Dublin Manchester Chicago Latin American Hamburg York Los Angeles gateway Lisbon New York City Miami Lyon Asia San Francisco Madr
Slide 33: Strategic focus
a Strategic focus HISCOX Total Group controlled income for 2015 100% = £2,165m Internationally traded lines Local specialty lines 20% Reinsurance Local casualty 21% and commercial Tech and media 6% casualty T% Large property 4% Global casualty Art and private 13% client 13% Specialty — terrorism, co
Slide 34: A symbiotic relationship
A symbiotic relationship a HISCOX Internationally traded lines ¢ Larger premium, catastrophe exposed ¢ Shrinks and expands according to rates ¢ Excess profits allow investment in retail development Profit generator Value creator Local specialty lines Premium growth between 5-15% per annum Pays divid
Slide 35: Long-term growth: Gross written premiums
Long-term growth Hiscox Reinsurance Hiscox London Market - Retail Hiscox Europe Hiscox USA Hiscox London Market - Volatile Hiscox UK Hiscox Guernsey DirectAsia 2200 2000 1800 Gross written premiums (£m) Internationally traded lines 1600 1400 1200 1000 800 Local specialty 600 lines 400 200 0 34
Slide 36: An actively managed business
An actively managed business Total Group controlled premium 2015: £2,165m Period-on-period in local currency 2015 GWP +14.0% £581m Professional liabilities Errors and +15.2% -2.5% omissions £434m £429m Kidnap and Directors and ransom officers’ liability Non-marine Contingency +5.2% Cyber Terrorism £
Slide 37: Hiscox Ltd results
Hiscox Ltd results £m 2015 2014 2013 2012 2011 2010 Gross premiums written 1,944.2 1,756.3 1,699.5 1,565.8 1,449.2 1,432.7 Net premiums written 1,571.8 1,343.4 1,371.1 1,268.1 1,174.0 1,131.6 Net premiums earned 1,435.0 1,316.3 1,283.3 1,198.6 1,145.0 1,131.2 Investment return† 33.7 56.4 58.9 92.7 2
Slide 38: Boxplot and whisker diagram of modeled Hiscox Ltd net loss
Boxplot and whisker diagram of modeled Hiscox Ltd net loss ($m) January 2016 Lower 5%- upper Loma Prieta Quake $6bn market loss Northridge Quake $24bn market loss Hurricane Andrew $56bn market loss Hurricane Katrina $50bn market loss 95% range 2011 Tohoku Quake $25bn market Superstorm Sandy - $20bn
Slide 39: Realistic disaster scenarios
Realistic disaster scenarios Hiscox Group – losses shown as percentage of 2015 gross and net written premium Gross loss Industry loss Net loss return period Japanese earthquake 4% $50bn 1 in 240 year 21% Gulf of Mexico windstorm 8% $107bn 1 in 80 year 40% Florida windstorm 6% $125bn 1 in 100 year 24
Slide 40: 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 £75m-£300m could be suffered in the following extreme scenarios: Event Es
Slide 41: GWP geographical and currency split
GWP geographical and currency split 2015 geographical split – controlled income 2015 currency split – controlled income North America GBP Other USD Westerm Europe (excl. UK) CAD and other Worldwide EUR UK 11.6% 18.5% 4.0% 24.7% 41.3% 17.2% 8.4% 59.7% 14.6% 40
Slide 42: Group reinsurance security
Group reinsurance security Receivables at 31/12/15 of £538.8m 2016 reinsurance protections* First loss exposure by S&P rating A A AA AA AAA and collateralised AAA Other 4.5% 8% 21.6% 47.6% 35% 57% 26.3% *Reinsurance placements in force at 20/02/2016. 41
Slide 43: Reinsurance
Reinsurance Ceded as a percentage of GWP Reinsurance receivables as a percentage of total assets 25 25 23.5 21.7 20 20 21.0 20.9 19.4 19.3 19.2 19.0 19.0 18.7 17.0 15 15 13.4 13.4 12.3 11.7 11.6 10 10 11.0 10.6 10.3 10.2 10.0 7.7 5 5 0 0 42
Slide 44: Portfolio – USD bond portfolios
Portfolio – USD bond portfolios as at 31 December 2015 Portfolios: $2.7bn BB and AAA AA A BBB below Total Duration • Liquid portfolio % % % % % % months • Short duration Government issued 31.5 0.1 31.6 17.7 • Corporates still favoured Government supported* 0.7 6.2 0.6 0.3 7.8 16.2 Asset backed 10.1
Slide 45: Portfolio – GBP, EUR and CAD bond portfolios
Portfolio – GBP, EUR and CAD bond portfolios as at 31 December 2015 GBP portfolios: BB and AAA AA A BBB below Total Duration Governments favoured for £441m duration management % % % % % % months Government issued 41.7 41.7 20.3 Corporates for carry Government supported* 18.4 2.7 0.2 21.3 17.0 No exp
Slide 46: Business segments
Business segments Hiscox Retail Hiscox Re Hiscox Retail brings together the results of the UK and Hiscox Re is the reinsurance division of the Group, combining Europe, and Hiscox International being the US, Guernsey the underwriting platforms in Bermuda, London and Paris. and Asia retail business di
Slide 47: Glossary of terms
Glossary of terms Binding authority Group controlled An agreement between a Lloyd’s managing agent and a The total gross written premium controlled by the Group coverholder under which the managing agent delegates its including the 27.5% of the Syndicate capacity not owned by authority to enter into
Slide 48: Glossary of terms
Glossary of terms MGA Reinsurance to close – RITC Managing General Agency. An individual or business entity The reinsurance to close comprises a premium payable by appointed by an insurer to solicit applications from agents for the closing year to the members on the next open year of insurance contr