Hiscox Ltd · LSE:HSX
Hiscox — FY2022 Earnings Presentation
55 slides from Hiscox's earnings presentation, March 2023
Slide 1: Hiscox Ltd Preliminary results
Hiscox Ltd Preliminary results For the year ended 31 December 2022
Slide 2: Strong underwriting result
Strong underwriting result • Evolved strategy and new executive team embedded • Strong underwriting result in all business segments • Making the most of the opportunities • Final dividend of 24.0 cents per share 1
Slide 3: Strategy update
MN HISCOX Strategy update
Slide 4: 2022 highlights
2022 highlights • Retail COR target achieved a year early • London Market and Re & ILS deliver strong underwriting profits • Excellent group underwriting result with a Group COR of 90.6% • Deploying capital into hard market • Strong balance sheet and financial flexibility • Established leadership te
Slide 5: Well positioned for high quality growth and earnings
Strategy Well positioned for high quality growth and earnings Balanced portfolio of large and complex risks SME and personal lines • Global risks through Lloyd’s platform • Small and micro businesses • Heritage of deep technical expertise • Digitally traded, with • Leading the market in applying low
Slide 6: Hiscox Retail: Poised to accelerate growth
Hiscox Retail Poised to accelerate growth 5.6%* 897.9 850.3 2.8%** 605.3 624.1 13.6%* 507.4 446.3 2021 GWP ($) 2022 GWP ($) 2021 GWP (£) 2022 GWP (£) 2021 GWP (€) 2022 GWP (€) Go-forward Remediating • Retail COR of 94.8%, within target range a year ahead of schedule • Technology transformation subst
Slide 7: US DPD technology transition substantially complete
US DPD technology transition substantially complete Direct delivering, partnerships being embedded US Direct GWP YoY growth by quarter Direct • Direct-to-customer portal went live June 2022 Live in BAU and • Pace of growth accelerating 2021 Prepare and migrate Embed and optimise as new systems embed
Slide 8: Hiscox Europe: Passed €500m premium milestone in 2022
Hiscox Europe Passed €500m premium milestone in 2022 Europe GWP growth in €m • FY2022 Europe GWP up 13.6% with all five markets Commercial lines growing double digit Personal and other lines*** 507 • Market share remains small. Significant opportunity for further growth • Well positioned to capture
Slide 9: Hiscox UK: Strong commercial growth
Hiscox UK Strong commercial growth UK GWP growth in £m • Commercial growth driven by expertise in specialist Commercial lines classes, service and brand Personal and other lines*** 624 – FY2022 commercial GWP up 8.5%† • HNW†† remains the 514* bedrock of personal lines • Well positioned to capture th
Slide 10: Hiscox London Market
Hiscox London Market Underwriting expertise and discipline is driving profitability Hiscox London Market gross written premiums (% of portfolio) GWP change since FY2021 ($m) GWP change since FY2021 ($m) Major property* Terrorism Flood Personal accident Commercial lines Kidnap and ransom** Crisis Hou
Slide 11: Hiscox ESG syndicate
Hiscox ESG syndicate Innovating into growth sectors • New discreet sub-syndicate focused on ESG-positive risks* • Will leverage the Hiscox existing relationships expert complemented by underwriting developing deep in-house expertise in renewables and power, such as electric vehicles and infrastructu
Slide 12: Hiscox Re & ILS
Hiscox Re & ILS Making the most of the opportunities • COR in low 80s despite Property cat specialist Short-tail specialist Hurricane Ian net loss, testament to underwriting excellence Hybrid reinsurer Matching risk and capital • Market conditions are the for the benefit of best in over a decade rei
Slide 13: Financial performance
MN HISCOX Financial performance
Slide 14: Group financial performance
Group financial performance Reduced earnings volatility in another active loss year 31 December 2022 31 December 2021 • GWP up 7.1% in CCY $m $m • Strong underwriting profit, Growth despite active year of Gross premiums written 4,424.9 4,269.2 large natural catastrophe and man-made losses, Net premi
Slide 15: Hiscox Retail: Delivered Retail COR target a year early
Hiscox Retail Delivered Retail COR target a year early 31 December 2022 31 December 2021 • GWP up 5.1% in CCY, $m $m underpinned by growth in commercial lines in the UK Growth and Europe and US DPD Gross premiums written 2,272.1 2,290.0 • Hiscox Retail growth expected to trend towards Net premiums w
Slide 16: Hiscox London Market
Hiscox London Market Selective growth to capitalise on attractive market opportunities 31 December 2022 31 December 2021 • GWP growth impacted $m $m by property binder portfolio reduction and Growth Russian sanctions Gross premiums written 1,114.9 1,171.4 • NWP increased 3.3%, as strong rate momentu
Slide 17: Hiscox Re & ILS: Robust underwriting result
Hiscox Re & ILS Robust underwriting result 31 December 2022 31 December 2021 • GWP up 28.5% passing $m $m the $1bn milestone for the first time Growth • ILS AUM at $1.9bn at Gross premiums written 1,037.9 807.8 31 December 2022 ($1.4bn at 31 December Net premiums written 268.1 274.2 2021); net outfl
Slide 18: Investment performance impacted by mark-to-market movements
Investment performance impacted by mark-to-market movements Cash and bond income net of fees ($m) Gains/(losses)* on debt and fixed • Investment result loss of income holdings ($m) $187.3m (2021: gain of $51.2m), return of -2.6% 48 51 (2021: 0.7%) 116 117 102 • Majority of mark-to-market 82 losses o
Slide 19: Reserve resilience continues
Reserve resilience continues $239m positive reserve development Loss development* by accident year • Conservative reserving philosophy 2013 2014 2015 2016 2017 2018 2019 2020 2021 • Precautionary net 1.05 inflationary load of $55m to best estimate 1.00 in H1 2022 0.95 • Two additional LPTs completed
Slide 20: Strong capital base deployed for profitable growth
Strong capital base deployed for profitable growth Bermuda solvency capital requirement (BSCR) • Regulatory and ratings capital position robust • Strong underwriting 202% performance leads to 197% robust capital generation • Extreme post-loss scenario consistent with the S&P ‘A’ rating, despite a hi
Slide 21: IFRS 17 reporting roadmap
IFRS 17 reporting roadmap IFRS 17** Q1 2023 FY and HY 2022 HY 2023 results – Q3 2023 FY 2023 results – trading statement results restated first IFRS 17 trading statement IFRS 17 reporting under IFRS 17 on IFRS 17 reporting under IFRS 17 (4 May 2023) (8 June 2023) *There will be no comparable IFRS 4
Slide 22: Underwriting
MN HISCOX Underwriting
Slide 23: An actively managed portfolio
An actively managed portfolio Delivering strong underwriting profits Total Group controlled premium 31 December 2022: $4,935.4m Period-on-period in • Active portfolio constant currency management and +5% discipline delivering $1,705m 2022 GWP strong underwriting profits – Planned US broker portfolio
Slide 24: Global market hardening continues
Global market hardening continues Rate momentum accelerates in reinsurance Core London Market Catastrophe reinsurance London Market • Rates up 6% in 2022 • 70% cumulative rise 210 since 2017 • Rate growth remained positive for all classes, 190 except D&O which was already attractively priced – Conti
Slide 25: Retail market hardening
Retail market hardening Positive rate momentum in all business units USA UK EU Retail • Rates up 7% with 125 accelerated momentum during 2022 • More nuanced by segment 120 – USA up 7%, 22% cumulative since 2018 115 – UK up 5%, 15% cumulative since 2018 – Europe up 8%, 14% 110 cumulative since 2018 •
Slide 26: Inflationary pressures continue to be mitigated
Inflationary pressures continue to be mitigated through increased rate and premium indexation London Market and Re & ILS • Premium from rate and indexation, keeping pace with inflation and view of risk assumptions – Assumed claim inflation a multiple of long-term historic average – Anticipated loads
Slide 27: Reinsurance outwards market
Reinsurance outwards market Successfully navigating a complex environment Terrorism • Russia/Ukraine driving a hard reinsurance market • Balance of proportional, aggregate and event cover adjusted • Coverage tightened through RUB* and SRCC** wording Casualty • LM casualty unchanged, due to a two-yea
Slide 28: Natural catastrophe risk
Natural catastrophe risk Expanding and contracting through the cycle US windstorm Hiscox Ltd mean net modelled loss ($m)* • We believe this is an attractive part of the cycle 5-10yr adjusted for inflation 25-50yr adjusted for inflation 100-250yr adjusted for inflation to take additional net catastro
Slide 29: Building out the underwriting ecosystem
Building out the underwriting ecosystem Digitised and data driven risk selection and underwriting • Digital underwriting is progressing well, with increasing development and adoption across the business • Allow underwriters to be the best they can be: – Human intellect and judgement – Deep technical
Slide 30: Underwriting 2023 outlook
Underwriting 2023 outlook Markets attractive for each of our segments Underwriting portfolio Technical excellence Exploring in a great position at our core attractive opportunities • Portfolios across all segments • Technical expertise, digital • Sustainable underwriting in great shape with planned
Slide 31: Closing remarks
MN HISCOX Closing remarks
Slide 32: 2023 outlook
2023 outlook Positive outlook in all segments • Big-ticket is strongly positioned to capture growth opportunities in attractive markets – London Market is expected to grow top line against a favourable market backdrop – Re & ILS is growing exposure into the hard market (NWP +49% in January); net gro
Slide 33: Appendices
Appendices • Geographical reach • Hiscox investment case • Strategic focus • Long-term growth • An actively managed business • Hiscox ESG framework • Embedding sustainability in how we do business • Demonstrating capital resilience • Group performance • Segmental analysis • Hiscox Ltd results • Boxp
Slide 34: Geographical reach
Geographical reach 35 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 35: 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-light fee income generation and growth Attrac
Slide 36: Strategic focus
a Strategic focus HISCOX Total Group controlled premium for 2022 100% = $4,935.4 million Big-ticket business Retail business Larger premium, globally traded, catastrophe-exposed business Smaller premium, locally traded, relatively less volatile written mainly through Hiscox London Market and Hiscox
Slide 37: Long-term growth
Long-term growth Total Group controlled income ($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 Gross written premiums ($m) Hiscox Re & ILS 4,000 3,500 3,000 2,500 2,000 Hiscox Retail 1,500 1,000 500 -0 200
Slide 38: An actively managed business
An actively managed business Continuing to benefit from strategy of balance Total Group controlled premium 31 December 2022: $4,935.4m Period-on-period in constant currency +5% $1,705m 2022 GWP Professional liability Errors and omissions +25% Private $1,145m directors and officers’ liability Cyber P
Slide 39: Hiscox ESG framework
Hiscox ESG framework A pragmatic approach 38
Slide 40: Embedding sustainability in how we do business
Embedding sustainability in how we do business Investments Underwriting Operations • Embedded processes: net-zero wording • Reducing exposures in line with • Embedding SBTi-aligned net-zero in segregated investment manager Group-wide ESG exclusions policy – GHG targets and improving GHG mandates; em
Slide 41: Demonstrating capital resilience
Demonstrating capital resilience Strongly capitalised across all bases As at 31 December 2022 • Strongly capitalised above all regulatory, economic, $2.43bn available capital and management bases $2.34bn available capital (post-final dividend) • BMA’s Bermuda Solvency Capital Economic Regulatory Req
Slide 42: Group performance
Group performance Year to 31 December 2022 Constant currency GWP GWP change GWP change $m % % Hiscox Retail 2,272.1 (0.8) 5.1 Hiscox UK 778.0 (6.4) 2.8 Hiscox Europe 543.7 2.2 13.6 Hiscox USA 897.9 2.1 2.1 Hiscox Asia 52.5 10.1 12.0 Hiscox London Market 1,114.9 (4.8) (4.6) Hiscox Re & ILS 1,037.9 28
Slide 43: Segmental analysis
Segmental analysis 31 December 2022 31 December 2021 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 Gross premiums written 2,272.1 1,114.9 1,037.9 ‒ 4,424.9
Slide 44: Hiscox Ltd results
Hiscox Ltd results $m 2022 2021 2020 2019 2018 Gross premiums written 4,424.9 4,269.2 4,033.1 4,030.7 3,778.3 Net premiums written 2,980.0 2,955.0 2,750.4 2,678.8 2,581.5 Net premiums earned 2,928.2 2,919.9 2,752.2 2,635.6 2,573.6 Investment return (187.3) 51.2 197.5 223.0 38.1 Profit/(loss) before
Slide 45: Boxplot and whisker diagram of modelled Hiscox Ltd net loss
Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) January 2023 Lower 5%- upper 2011 Tohoku Quake – $25bn market 95% range 900 Superstorm Sandy – $20bn market Loma Prieta Quake – $6bn market Hurricane Andrew – $56bn market Northridge Quake – $24bn market Hurricane Katrina – $50bn marke
Slide 46: Realistic disaster scenarios
Realistic disaster scenarios January 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 7% Japanese earthquake 6% 22% $50bn 1 in 240 year Gulf of Mexico windstorm 13% 44% $111bn 1 i
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: GWP geographical and currency split
GWP geographical and currency split 2022 geographical split – controlled income 2022 currency split – controlled income UK GBP North America USD Worldwide EUR Western Europe (excl. UK) CAD and other Other 4.0% 9.6% 17.9% 14.4% 21.2% 14.4% 7.7% 50.4% 60.4% 47
Slide 49: Group reinsurance security
Group reinsurance security Reinsurance assets at 31 December 2022 of $3,899.8m 2022 reinsurance protections* First loss exposure by rating Collateralised Collateralised AA AA range A A range** Other ILS 0.3% 0.7% 25.2% 28.6% 34.0% 36.8% 45.8% 28.5% *Reinsurance placements in force at 31 December 202
Slide 50: Reinsurance
10 15 20 25 30 35 40 0 5 13.4 18.7 21.7 19.4 21.0 19.0 Reinsurance 19.0 19.3 23.5 Ceded as a percentage of GWP 19.2 25.6 26.9 31.7 33.5 31.8 30.8 32.7 0 5 10 15 20 25 30 10.0 7.7 total assets 13.4 11.0 11.6 11.7 12.3 10.3 10.6 10.2 12.1 Reinsurance assets as a percentage of 18.8 22.6 27.0 26.3 28.2
Slide 51: Investment result
Investment result $187.3m loss (2021: $51.2m profit) 31 December 2022 31 December 2021 Asset Asset allocation Return Return allocation Return Return % % $m % % $m Debt and fixed income holdings £ 11.6 13.1 $ 55.2 53.6 Other 9.5 9.2 Total 76.3 (3.2) (169.1) 75.9 (0.2) (11.4) Equity and investment fun
Slide 52: Portfolio – asset mix
Portfolio – asset mix Short duration high quality portfolio Investment portfolio $7.1bn as at 31 December 2022 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
Slide 53: Portfolio – USD debt and fixed income holdings
Portfolio – USD debt and fixed income holdings as at 31 December 2022 Portfolios: $3.9 billion BB and AAA AA A BBB below and Total Duration % % % % unrated % years % Government issued 20.9 0.1 0.1 1.0 22.1 1.5 Government supported* 0.5 0.3 0.3 0.3 1.4 2.1 Asset backed 5.1 0.2 5.3 1.7 Mortgage backed
Slide 54: Portfolio – GBP and other currencies debt and fixed income holdings
Portfolio – GBP and other currencies debt and fixed income holdings as at 31 December 2022 GBP portfolios: BB and $822 million AAA AA A BBB below and Total Duration % % % % unrated % years % Government issued 13.7 13.7 0.4 Government supported* 3.7 0.5 0.5 4.7 2.3 Corporates 6.8 2.4 32.8 38.4 1.2 81
Slide 55: Business segments
Business segments Hiscox Retail Hiscox Re & ILS Hiscox Retail brings together the results of the Group’s retail Hiscox Re & ILS is the reinsurance division of the Hiscox business divisions in the UK, Europe, USA and Asia. Hiscox Group, combining the underwriting platforms in Bermuda UK and Hiscox Eu