Hiscox Ltd · LSE:HSX
Hiscox — H1 2021 Earnings Presentation
53 slides from Hiscox's earnings presentation, August 2021
Slide 1: Hiscox Ltd Interim results
Hiscox Ltd Interim results For the six months ended 30 June 2021
Slide 2: H1 2021 highlights
H1 2021 highlights Good performance and new leadership • Bronek Masojada, Group CEO, retires and a new chapter begins • Aki Hussain, currently Group CFO, is appointed Group CEO, effective 1 January 2022 • Good HY 2021 result of $133.4m profit • Dividend resumed; progressive dividend policy going for
Slide 3: Financial performance
MN HISCOX Financial performance
Slide 4: Group financial performance
Group financial performance Return to profitable growth 30 June 2021 30 June 2020 • Growth in all $m $m business segments Growth • Accelerated NWP growth in London Market and Gross premiums written 2,426.2 2,235.5 Re & ILS Net premiums written 1,565.4 1,414.1 • Positive rate momentum Net premiums ea
Slide 5: Hiscox Retail
Hiscox Retail Positive outlook with rate momentum in all markets 30 June 2021 30 June 2020* • GWP up 7.9% or 2.6% in $m $m CCY, driven by global DPD and Europe Growth • $45m GWP exited in US broker stand-alone GL Gross premiums written 1,216.4 1,127.3 and large cyber; Retail go-forward portfolio up
Slide 6: Hiscox London Market
Hiscox London Market Outstanding performance with excellent outlook 30 June 2021 30 June 2020* • GWP up 9.7% and NWP $m $m up 16.7%, retaining more in a hard market Growth • Underwriting discipline and portfolio actions bearing fruit Gross premiums written 609.9 555.9 • Rates up 12% in H1 2021; Net
Slide 7: Hiscox Re & ILS
Hiscox Re & ILS Positioned for profit with disciplined underwriting 30 June 2021 30 June 2020 • GWP up 8.6% and NWP $m $m up 39.7%, as we deployed own capital Growth • $190m of new inflows in Q2; ILS AUM at $1.5bn Gross premiums written 599.9 552.3 • Rates up 9% in H1 2021, compound rate increase Ne
Slide 8: Investment performance
Investment performance Cash and bond income net of fees ($m) Mark-to-market on bonds ($m) • Investment result $61.9m 48 (HY 2020: $84.6m), 40 annualised return of 1.7% (2020: 2.5%) • Mark-to-market losses 54 56 incurred in bonds as 48 43 yields increased • Current yield to maturity -33 -36 on the bo
Slide 9: Reserve resilience continues
Reserve resilience continues $79m positive reserve development Reserve release as % of opening net reserves • Reserve buffer at upper end of expectations at c.$348m, 11.3% above actuarial estimate (FY20: c.$362m, 9.6%) • Positive reserve development of $79m (2020: $63m) • Two LPTs significantly 5.3%
Slide 10: LPT impact
LPT impact Capital accretive and moderates P&L volatility Net reserve ceded and reinsurance cover against 1-in-200 reserve deterioration ($m) • Two LPTs significantly reduce uncertainty around PY loss development – Run-off Bermuda 899 895 healthcare book – Majority of Hiscox USA’s surplus lines brok
Slide 11: Strong capital base
Strong capital base Positioned to withstand stressed scenarios Bermuda solvency capital requirement (BSCR) • Estimated BSCR of 210%, 210% a 20-point improvement on December 2020 +4% +9% -3% 190% – Organic capital +10% -32% generation; and 178% – Two LPTs add ten points to BSCR • 10-15 points of BSCR
Slide 12: FY 2021 outlook
FY 2021 outlook FY 2021 guidance H1 2021 progress 1. London Market GWP growth in 2021 in In line with guidance in H1, on track for FY 2021 mid- to high-single digits at improving margins 2. Re & ILS NWP growth expected to outpace In line with guidance in H1, on track for FY 2021 top line 3. Retail G
Slide 13: Underwriting
MN HISCOX Underwriting
Slide 14: 2021 expectations: Our progress so far
2021 expectations Our progress so far Growth where there Active portfolio Pricing momentum is opportunity management • GWP up 8.5%, growth in • Cyber remediation; • Positive rate momentum all segments underwriting actions across continues all portfolios and 20% • London Market and Re & ILS average r
Slide 15: An actively managed business
An actively managed business Continuing to benefit from strategy of balance Total Group controlled premium 30 June 2021: $2,722m Period-on-period in constant currency +5% 2021 GWP $928m Professional liability Errors and omissions +9% $679m Private directors and officers’ liability Property Cyber Mar
Slide 16: Global market hardening
Global market hardening Improving rates in all segments Core London Market All retail Catastrophe reinsurance • London Market rates up 12% in 2021, 60% 160 compound rate growth since 2017 140 • Re & ILS growth at 9% in 2021 with 36% compound 120 rate growth since 2017 • Hiscox Retail rates 100 accel
Slide 17: Portfolio quality continues to improve
Portfolio quality continues to improve More premium, less exposure Year-on-year premium growth and exposure change (100% basis) • Quality improved, growing premium whilst reducing overall exposure 2021 GWP $2.7bn • On track for repositioning 2020 GWP US portfolio, exiting $2.5bn $100m by full year 1
Slide 18: Cyber product, pricing and proposition evolution
Cyber product, pricing and proposition evolution Reacting to the changing landscape Global known ransomware attacks Hiscox Underwriting actions • In line with the rest of the industry, we have experienced an 2019 2020 2021 • Revised cyber increase in frequency and • Line sizes • Re-priced products r
Slide 19: Enabling the future of underwriting
Enabling the future of underwriting Utilising technology Risk Customer Underwriting selection experience Distribution efficiency 18
Slide 20: Hiscox Retail: Spotlight on US digital and partnerships opportunity
Hiscox Retail Spotlight on US digital and partnerships opportunity
Slide 21: Significant structural growth opportunity
Significant structural growth opportunity US DPD taking share and expanding target market 2021 market size Total small commercial insurance market • Huge market with low insurance penetration • Expected to grow as requirement to buy $130bn insurance expands Total market* +3.5% CAGR since 2016 • Comp
Slide 22: Our DPD journey
Our DPD journey A decade head start Core system upgrade completion* Cyber launched Opened second Brand campaign: service centre on new I’mpossible technology in Las Vegas External data used in UW Brand Started Brand campaign: First campaign: Self serve core Barcode $30m+ Dreams USA Direct First smal
Slide 23: All roads lead to Hiscox
All roads lead to Hiscox a) HISCOX Direct to consumer Retail agents Personal lines powerhouses Captive agent networks Insurtech aggregators Affinity groups and other SME-focused brands Websites Portals HISCOX Service centres 22
Slide 24: DPD make up
DPD make up Focus on nano and micro businesses Customer Industry* Product* Typical customer size*† BOP** Customer industry • Hiscox DPD appetite covers over 800 Services Small industry classes Professional – Emerging: consultants, marketing, IT liability – Traditional: architects, engineers, legal s
Slide 25: In summary
In summary • Decade head start in digital small commercial • Strong position due to brand, scale, structural profitability and mature capabilities • Investing to drive growth, enhance unit economics and widen the competitive moat • Continue leveraging Hiscox brand, capital and expertise 24
Slide 26: Setting the context
Setting the context Retail performance underpinned by digital Hiscox Retail GWP ($m) Hiscox Retail profit before tax, excluding Covid-19 and FX Retail GWP Retail DPD GWP 4% 8% CAGR CAGR 169 164 163 2,266 2,196 2,087 142 133 135 1,835 1,602 1,513 22% CAGR 2015 2016 2017 2018 2019 2020 2015 2016 2017
Slide 27: Outlook
MN HISCOX Outlook
Slide 28: Strategic optionality supports growth
Strategic optionality supports growth Symbiotic relationship working 2020 total Group controlled income of $4,532 million (100% basis). 27
Slide 29: Significant opportunities ahead
Significant opportunities ahead • Portfolio course correction, rating action and expense discipline are driving return to profitable growth • Seizing opportunities – Pricing momentum in all segments – Best market conditions in London Market and Re & ILS for a decade – Building on our digital head st
Slide 30: Appendices
Appendices • Big-ticket and retail business • Geographical reach • Strategic focus • A symbiotic relationship • Long-term growth • An actively managed business • Hiscox ESG framework • Responding to Covid-19 • Demonstrating capital resilience • Group performance • Segmental analysis • Hiscox Ltd res
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, relatively le
Slide 32: 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 Chicago Latin American Dublin Dallas gateway Frankfurt Las Vegas Miami Hamburg Asia L
Slide 33: Strategic focus
a Strategic focus HISCOX Total Group controlled income for 2020 100% = $4,532 million Big-ticket business 20% Reinsurance | | ap Retail business Small commercial 29% 11% Large property Tech and media 6% 7% Casualty casualty Art and private client 10% 5% Specialty — terrorism, product recall 6% Marin
Slide 34: A symbiotic relationship
A symbiotic relationship 2020 total Group controlled income of $4,532 million (100% basis). 33
Slide 35: Long-term growth
Long-term growth Total Group controlled income ($) Hiscox Re & ILS Hiscox UK Hiscox Special Risks Hiscox Asia Hiscox London Market Hiscox Europe Hiscox USA 5,000 4,500 Gross written premiums ($m) Hiscox London Market 4,000 Hiscox Re & ILS 3,500 3,000 2,500 2,000 Hiscox Retail* 1,500 1,000 500 -0 *Hi
Slide 36: An actively managed business
An actively managed business Continuing to benefit from strategy of balance Total Group controlled premium 30 June 2021: $2,722m Period-on-period in constant currency +5% 2021 GWP $928m Professional liability Errors and omissions +9% $679m Private directors and officers’ liability Property Cyber Mar
Slide 37: Hiscox ESG framework
Hiscox ESG framework A pragmatic approach 36
Slide 38: Responding to Covid-19
Responding to Covid-19 Employees Customers Society • Successful transition of 95% • Estimated earned Covid-19 • Over $9m donated to of our 3,000 employees to claims cost of $492m charities around the world to remote working support those most affected • Provided a range of financial • Supported thro
Slide 39: Demonstrating capital resilience
Demonstrating capital resilience 30 June 2021 • Strongly capitalised above all regulatory, economic, $2.61bn available capital and management bases $2.57bn available capital (post-interim dividend) • BMA’s Bermuda Solvency Capital Economic Regulatory Requirement (BSCR) is Solvency II equivalent • BS
Slide 40: Group performance
Group performance Six months to 30 June 2021 Constant currency GWP GWP change GWP change $m % % Hiscox Retail* 1,216.4 7.9 2.6 Hiscox UK 411.2 13.2 3.8 Hiscox Europe 322.8 18.2 8.3 Hiscox USA 459.3 (1.6) (1.6) Hiscox Asia 23.1 (4.4) (5.4) Hiscox London Market 609.9 9.7 8.9 Hiscox Re & ILS 599.9 8.6
Slide 41: Segmental analysis
Segmental analysis 30 June 2021 30 June 2020 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 $000 $000 $000 $000 $000 Gross premiums written 1,216.4 609.9 599.9 ‒ 2,426.2 1,
Slide 42: Hiscox Ltd results
Hiscox Ltd results $m 2020 2019 2018 2017 2016 Gross premiums written 4,033.1 4,030.7 3,778.3 3,286.0 3,257.9 Net premiums written 2,750.4 2,678.8 2,581.5 2,403.0 2,424.5 Net premiums earned 2,752.2 2,635.6 2,573.6 2,416.2 2,271.3 Investment return 197.5 223.0 38.1 104.8 95.8 (Loss)/profit before ta
Slide 43: Boxplot and whisker diagram of modelled Hiscox Ltd net loss
Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) April 2021 Lower 5%- upper 2011 Tohoku Quake – $25bn market 95% range 700 Superstorm Sandy – $20bn market Loma Prieta Quake – $6bn market Hurricane Andrew – $56bn market Northridge Quake – $24bn market Hurricane Katrina – $50bn market
Slide 44: Realistic disaster scenarios
Realistic disaster scenarios Hiscox Group – losses shown as percentage of 2020 gross and net written premium Gross loss Net loss Industry loss return period Japanese windstorm 2% 7% $15bn 1 in 100 year Japanese earthquake 6% 20% $50bn 1 in 240 year Gulf of Mexico windstorm 5% 36% $111bn 1 in 80 year
Slide 45: 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 46: GWP geographical and currency split
GWP geographical and currency split 2021 geographical split – controlled income 2021 currency split – controlled income North America GBP Other USD Western Europe (excl. UK) CAD and other Worldwide EUR UK 14.3% 17.8% 20.8% 4.2% 8.5% 49.5% 14.6% 60.7% 9.6% 45
Slide 47: Group reinsurance security
Group reinsurance security Receivables at 30 June 2021 of $4,439.9m 2021 reinsurance protections* First loss exposure by rating A A AA AA AAA and collateralised ILS Other Collateralised 1% 5.0% 14% 34.0% 36.4% 47% 38% 24.6% *Reinsurance placements in force at 14 July 2021. 46
Slide 48: 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 36.7 35.5 0 5 10 15 20 25 30 10.0 7.7 13.4 of total assets 11.0 11.6 11.7 12.3 10.3 10.6 10.2 12.1 18.8 Reinsurance receivables as a percentage 22.6 27.0 26.3
Slide 49: Investment result
Investment result Return of $61.9m (2020: $84.6m) 30 June 2021 30 June 2020 Asset Annualised Asset Annualised allocation return Return allocation return Return % % $m % % $m Bonds £ 13.4 10.7 0.4 $ 48.5 47.0 3.9 Other 9.9 7.3 (1.4) Bonds total 71.8 0.3 8.4 65.0 3.8 93.1 Equities 7.3 19.2 54.7 7.9 (4
Slide 50: Portfolio – asset mix
Portfolio – asset mix High quality, conservative portfolio Investment portfolio $7,438 million as at 30 June 2021 Asset allocation Bond credit quality Bond currency split Bonds Gvt. USD Cash AAA GBP AA Risk assets EUR A BBB CAD and other BB and below 1.2 4.1 7.3 15.3 9.7 30.9 20.9 8.7 18.7 13.3 67.5
Slide 51: Portfolio – USD bond portfolios
Portfolio – USD bond portfolios as at 30 June 2021 Portfolios: $3.6 billion BB and AAA AA A BBB below Total Duration % % % % % % years Government issued 18.3 18.3 0.8 Government supported* 1.7 0.1 1.8 1.3 Asset backed 1.4 1.4 1.7 Mortgage backed agency 7.0 7.0 2.3 Mortgage backed non agency 1.6 0.8
Slide 52: Portfolio – GBP, EUR and CAD bond portfolios
Portfolio – GBP, EUR and CAD bond portfolios as at 30 June 2021 GBP portfolios: BB and $1.0 billion AAA AA A BBB below Total Duration % % % % % % years Government issued 12.8 12.8 0.2 Government supported* 2.1 0.9 0.1 3.1 1.8 Corporates 20.3 4.6 27.8 31.4 84.1 2.1 Total 22.4 18.3 27.9 31.4 ‒ 100.0 1
Slide 53: 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, USA and Asia. Group, combining the underwriting platforms in Bermuda Hiscox UK and Hiscox Eu