Slide 1: Hiscox Ltd Preliminary results
Hiscox Ltd Preliminary results For the year ended 31 December 2017
Slide 2: Weathering the storms
Weathering the storms An historic year for natural catastrophes 1
Slide 3: Strategy of balance builds resilience
Strategy of balance builds resilience • GWP up by 6% to £2.5bn • Hiscox Retail GWP up 21% • COR excluding FX 98.8% • PBT excluding FX £94m • Full-year dividend 29.0p 2
Slide 4: Financial performance
he HISCOX Financial performance
Slide 5: Group performance
Group performance A good result in a challenging year 2017 2016 Change • GWP growth in constant £m £m % currency of 2% Growth • Hiscox Retail key driver Gross premiums written 2,549.3 2,402.6 6 of top line, up 21% Net premiums written 1,864.2 1,787.9 4 • Solid investment return Net premiums earned 1
Slide 6: Hiscox Retail
Hiscox Retail Good growth and profits 2017 2016 • Strong GWP growth £m £m in constant currency of 16% Gross premiums written 1,423.9 1,181.4 – Hiscox UK & Ireland: 11% Net premiums written 1,298.9 1,092.0 – Hiscox Europe: 12% Net premiums earned 1,229.9 1,020.5 – Hiscox USA: 29% • Growth driven by s
Slide 7: Hiscox Retail
Hiscox Retail Consistent growth and profitability Retail GWP (£m) Retail policies in force (‘000) Retail NEP (£m) Retail COR (ex-FX) 1,600 1,600 100% 840 95% 1,400 1,400 696 90% 1,200 1,200 584 85% 1,000 1,000 452 80% 800 800 75% 379 70% 600 600 65% 400 400 60% 200 200 55% 0 0 50% 2013 2014 2015 201
Slide 8: Hiscox London Market
Hiscox London Market A testing year with a brighter outlook 2017 2016 • Top line reduced by £m £m 23% in constant currency as planned Gross premiums written 581.7 726.0 • Impacted by hurricanes Harvey and Irma Net premiums written 376.2 469.1 • Capitalising on rate Net premiums earned 435.7 443.1 im
Slide 9: Hiscox Re & ILS
Hiscox Re & ILS Profitable in a costly year for reinsurers 2017 2016 • Growth of 5% £m £m in constant currency, driven by ILS Gross premiums written 543.7 495.2 • Capitalising on rate improvements Net premiums written 189.2 226.8 • Growing contribution Net premiums earned 209.0 211.4 from fees and p
Slide 10: Solid investment performance
Solid investment performance Investment return of £81.3m 31 December 2017 31 December 2016 Asset Annualised Asset Annualised allocation return Return allocation return Return % % £000 % % £000 Bonds £ 13.4 1.2 14.1 2.7 US$ 54.2 1.5 54.6 1.7 Other 10.2 (0.1) 8.7 1.1 Bonds total 77.8 1.2 42,079 77.4 1
Slide 11: Portfolio – asset mix
Portfolio – asset mix High quality, conservative portfolio Investment portfolio £4,413 million as at 31 December 2017 • Risk assets at 7.6% • High credit quality Asset allocation Bond credit quality Bond currency split maintained Bonds Gvt. USD Cash AAA GBP • Yield to maturity of Risk assets AA EUR
Slide 12: Prudent approach to reserving continues
Prudent approach to reserving continues Reserve releases £252m Loss development by accident year 2013 2014 2015 2016 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 Reserve release as % of opening net reserves 15.0% 13.2% 12.7% 12.4% 11.5% 10.2% 9.5% 2011 2012 2013 2014 20
Slide 13: Capital requirement
Capital requirement 31 December 2017 • All capital bases satisfactorily capitalised £1.89bn available capital • Bermuda solvency £1.83bn available capital (post-final dividend) ratio above 225% Pre-S&P risk re-classification Economic Regulatory • Key constraint remains Post-risk re-classification ra
Slide 14: Financial flexibility
Financial flexibility Capital strength and business mix diversification Absorbing losses Investing for growth Building operational Managing regulatory resilience change • Net $225m of • £54m invested • Group-wide finance • US tax reform – catastrophe losses in marketing transformation project – mode
Slide 15: Underwriting
he HISCOX Underwriting
Slide 16: 2017 catastrophes
2017 catastrophes $140bn* of insured catastrophe losses • Net reserves $225 million for all catastrophes • No adverse deterioration of reserves expected • Losses within modeled range • Alternative capital partners re-committed following losses • Comfortably capitalised for events of this size *Sourc
Slide 17: Market reacts to losses
Market reacts to losses Core London Market All retail Catastrophe reinsurance • Hiscox London Market 120 – 14 out of 16 lines saw rates rise at 1 January renewals 100 – Overall rates up 8% – Property rates up 5-30% – Other lines up 0-5% 80 – Terrorism remains competitive 60 • Hiscox Re & ILS – US tr
Slide 18: An actively managed business
An actively managed business Total Group controlled premium 31 December 2017: £2,833 million Period-on-period in constant currency +23% 2017 GWP £972m Professional liabilities Errors and omissions Private +9% directors and £609m officers’ liability Cyber Non-marine Commercial small package Marine -3
Slide 19: Underwriting strategy in practice
Underwriting strategy in practice Opportunities across the portfolio 2017 total Group controlled premium 100% = £2,833 million Hiscox Re & ILS Hiscox Retail Growing as rates increase using Stable rates and healthy our own and others’ capital. margins. Continuing to grow by 5-15% per annum. 22% Hisco
Slide 20: Hiscox Retail: investment in technology, data and people
Hiscox Retail Continued investment in technology, data and people Segmented underwriting model Hiscox UK & Ireland Automated Non-automated 100% • Efficient underwriting of less complex risks using our own and third-party data and advanced analytics 80% • Targeted data labs to deliver insight and dri
Slide 21: Hiscox London Market: Disciplined growth in 2018
Hiscox London Market Disciplined growth in 2018 Grow Hold Reduce • Opportunities to grow 100% – Core catastrophe lines: household, commercial lines, 90% major property – New teams: 80% cyber, general liability, product recall 70% – New products e.g. FloodPlus 60% – Third-party capital NWP (%) strate
Slide 22: Hiscox Re & ILS: Growth of the hybrid reinsurer
Hiscox Re & ILS Growth of the hybrid reinsurer 21
Slide 23: Business performance and outlook
Business performance and outlook
Slide 24: Managing the business
Managing the business Year to 31 December 2017 Constant currency GWP GWP change GWP change £m % % Hiscox Retail 1,423.9 21 16 Hiscox UK & Ireland 556.3 12 11 Hiscox USA 544.2 36 29 Hiscox Europe 213.3 22 12 Hiscox Special Risks 98.7 4 (1) DirectAsia 11.4 (5)* (10)* Hiscox London Market 581.7 (20) (2
Slide 25: Retail investment driving growth in key markets
Retail investment driving growth in key markets • More than £200m invested in marketing over the last five years, £54m in 2017 • Retail customer numbers now exceed 840,000 • UK & Ireland – ‘Ever onwards’ brand campaign launched • Europe – Continued roll-out of new broker extranet • USA – ‘I’mpossibl
Slide 26: Building our small business cathedral
Building our small business cathedral Long-term investment and patience Small commercial – GWP (£m) Increased investment Launched US Innovations in UK brand partnerships in cyber Expanded UK 1000 Launched products product suite: Launched specialty Added new targeting specific office, PA, commercial
Slide 27: Broadening distribution and access to capital
Broadening distribution and access to capital Broadening distribution Flexible deployment of own and others’ capital • Hiscox Re & ILS FloodXtra product • Hiscox-led London Market flood supporting US primary carriers consortium deploying significant capacity • Hiscox USA writing property binders • M
Slide 28: Evolution of structure and leadership
Evolution of structure and leadership Putting the right people behind the right opportunities Building on Ben Walter, CEO Hiscox Global Retail – new role momentum in Steve Langan, CEO Hiscox USA Hiscox Retail Joanne Musselle, CUO Hiscox Global Retail – new role Evolving to meet challenges Kate Markh
Slide 29: Summary and outlook
Summary and outlook Strategy of balance to continue • 2017 was a challenging year – Profitable in an historic year for catastrophes – Responding to ongoing regulatory and political expectations – Considerable investment to support growth • 2018 has a positive outlook – Evolving our leadership around
Slide 30: Appendices
Appendices • Big-ticket and retail business • Geographical reach • Strategic focus • A symbiotic relationship • Long-term growth • An actively managed business • Segmental analysis • Hiscox Ltd results • Boxplot and whisker diagram of Hiscox Ltd • Realistic disaster scenarios • Casualty extreme loss
Slide 31: 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, less volatile
Slide 32: Geographical reach
Geographical reach 32 offices in 14 countries UK Guernsey Birmingham Europe Colchester St Peter Port Amsterdam Glasgow Bordeaux London Brussels Maidenhead USA Bermuda Cologne Manchester Atlanta Hamilton Dublin York Chicago Latin American Frankfurt Dallas gateway Hamburg Los Angeles Miami Lisbon Asia
Slide 33: Strategic focus
Strategic focus Total Group controlled income for 2017 £100% = £2,833m Big-ticket business a HISCOX Retail business G 22% Reinsurance 6% Large property 5% Casualty T% Specialty — terrorism, product recall 5% Marine and energy | Small commercial 29% | Tech and media 5% casualty Art and private client
Slide 34: A symbiotic relationship
A symbiotic relationship Big-ticket business a HISCOX 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 35: Long-term growth
Long-term growth Hiscox Re & ILS Hiscox UK Hiscox Special Risks DirectAsia Hiscox London Market Hiscox Europe Hiscox USA 3,000 Hiscox London Market 2,500 Hiscox Re & ILS Gross written premiums (£m) 2,000 1,500 1,000 Hiscox Retail 500 ‐0 34
Slide 36: An actively managed business
An actively managed business Total Group controlled premium 31 December 2017: £2,833 million Period-on-period in constant currency +23% 2017 GWP £972m Professional liabilities Errors and omissions Private +9% directors and £609m officers’ liability Cyber Non-marine Commercial small package Marine -3
Slide 37: Segmental analysis
Segmental analysis 31 December 2017 31 December 2016 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 1,423.9 581.7 543.7 – 2,549.3 1,181.4 726.0 49
Slide 38: Hiscox Ltd results
Hiscox Ltd results £m 2017 2016 2015 2014 2013 2012 Gross premiums written 2,549.3 2,402.6 1,944.2 1,756.3 1,699.5 1,565.8 Net premiums written 1,864.2 1,787.9 1,571.8 1,343.4 1,371.1 1,268.1 Net premiums earned 1,874.5 1,675.0 1,435.0 1,316.3 1,283.3 1,198.6 Investment return† 81.3 70.6 33.7 56.4 5
Slide 39: Boxplot and whisker diagram of modeled Hiscox Ltd net loss
Boxplot and whisker diagram of modeled Hiscox Ltd net loss (US$m) January 2018 Lower 5%- upper Superstorm Sandy - US$20bn market Northridge Quake US $24bn market Hurricane Andrew US $56bn market Loma Prieta Quake US$6bn market Hurricane Katrina \US$50bn market 95% range 800 market loss, 45 year retu
Slide 40: Realistic disaster scenarios
Realistic disaster scenarios Hiscox Group – losses shown as percentage of 2017 gross and net written premium Gross loss Industry loss Net loss return period Japanese earthquake 4% $50bn 1 in 240 year 26% Gulf of Mexico windstorm 8% $107bn 1 in 80 year 50% Florida windstorm 7% $125bn 1 in 100 year 39
Slide 41: 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 £105m-£405m could be suffered in the following extreme scenarios: Event E
Slide 42: GWP geographical and currency split
GWP geographical and currency split 2017 geographical split – controlled income 2017 currency split – controlled income North America GBP Other USD Westerm Europe (excl. UK) CAD and other Worldwide EUR UK 12.8% 18.6% 23.1% 3.8% 49.1% 14.2% 11.4% 60.3% 6.7% 41
Slide 43: Group reinsurance security
Group reinsurance security Receivables at 31 December 2017 of £1,358 million 2017 reinsurance protections* First loss exposure by rating A A AA AA AAA and collateralised AAA Other 0.2% 5% 26.9% 38% 57.1% 57% 15.8% *Reinsurance placements in force at 14 February 2018. 42
Slide 44: Reinsurance
Reinsurance Ceded as a percentage of GWP Reinsurance receivables as a percentage of total assets 30 25 26.9 25 25.6 20 23.5 18.8 21.7 20 21.0 20.9 17.0 19.4 19.3 15 19.2 19.0 19.0 18.7 15 13.4 12.3 12.1 11.7 11.6 13.4 10 11.0 10.6 10.3 10.2 10.0 10 7.7 5 5 0 0 43
Slide 45: Portfolio – USD bond portfolios
Portfolio – USD bond portfolios as at 31 December 2017 Portfolios: $3.2 billion BB and AAA AA A BBB below Total Duration % % % % % % months Government issued 38.0 0.3 38.3 22 Government supported* 1.0 4.5 1.2 0.1 6.8 18 Asset backed 3.4 3.4 9 Mortgage backed agency 6.0 6.0 17 Non agency 0.1 0.1 0.9
Slide 46: Portfolio – GBP, EUR and CAD bond portfolios
Portfolio – GBP, EUR and CAD bond portfolios as at 31 December 2017 GBP portfolios: BB and £588 million AAA AA A BBB below Total Duration % % % % % % months Government issued 30.2 30.2 16 Government supported* 19.1 4.7 2.2 26.0 18 Asset backed 4.9 0.3 0.5 0.4 6.1 6 Corporates 5.2 2.8 11.1 18.6 37.7
Slide 47: Business segments
Business segments Hiscox Retail Hiscox Re & ILS Hiscox Retail brings together the results of the UK and Hiscox Re & ILS is the reinsurance division of the Group, Europe, and Hiscox International being the US, Special Risks combining the underwriting platforms in Bermuda, London and Asia retail busin