Slide 1: Hiscox Ltd IFRS 17 supplementary presentation
Hiscox Ltd IFRS 17 supplementary presentation Interim results for the six months ended 30 June 2023 9 August 2023
Slide 2: Agenda
Agenda What I will cover • Discounting • Legacy portfolio transactions • Analysis of change What I aim to achieve • Explain accounting principles of discounting and LPTs • Highlight modelling challenges and limitations • Provide practical suggestions on how to separate noise • Suggest how to analyse
Slide 3: Claims discounting: increases profit by $32.4m in H1 2023
Claims discounting Increases profit by $32.4m in H1 2023 Methodology H1 2023 H2 2023 Step 1: • Net claims discounted at interest rate at $70.2m (H1 2022: $28.0m) Discount on the time of occurrence • Increase due to higher average weighted rate recognition • Calculated by reserving class and by • Wei
Slide 4: Bond movements: total income from bonds of $90.5m
Bond movements Total income from bonds of $90.5m Calculation H1 2023 H2 2023 Bond • Comprises coupon from bond portfolio $84.0m (H1 2022: $43.3m) income • Significant increase from bond coupon due to reinvestment of matured bonds at higher yields as interest rates continue to increase Income stateme
Slide 5: Income statement volatility reduced
Income statement volatility reduced Impact of discounting on PBT ($m) Assets - bond coupon Liabilities – unwind • Volatility reduced but and MTM movement and rate change not eliminated – bond portfolio of $5.8bn with duration 112 of 1.6 years 88 91 – liabilities of $3.3bn* with duration of 1.9 years
Slide 6: Legacy portfolio transactions: reminder of treatment in the financial statements
Legacy portfolio transactions Reminder of treatment in the financial statements LPT lifecycle within ARC – illustrative example* Asset for remaining coverage 100 (5) Day 1 loss 95 (50) Run-off (30) 45 Run-off Run-off (10) Loss experience change 2 (8) Year 2 15 Year 3 Year 1 7 Balance • At inception,
Slide 7: Legacy portfolio transactions: economic benefit unchanged but some lines distorted
Legacy portfolio transactions Economic benefit unchanged but some lines in income statement distorted LPT impact on loss ratio - illustrative example* • LPT treatment under IFRS 17 artificially Income inflates allocation of statement reinsurance premium and IFRS 17 LPT Experience IFRS 17 LPT view fo
Slide 8: Analysis of change
Analysis of change Analysis of change Tips for analysis Opening balance sheet position • Analyse movements in + – best estimate and risk adjustment, for current and prior years Income statement – onerous contracts + • Adjust your analysis for Cash flows – discounting (risk adjustment is not = discou
Slide 9: Analysis of change: additional disclosures to show underlying trend in PYD
Analysis of change Additional disclosures to show underlying trend in PYD H1 2023 Group prior year development ($m) • The AOC shows changes in assets and liabilities excluding LPTs • Prior year development (PYD) disclosures in the AOC therefore will include impact of discounting but not LPTs *Includ