Hiscox Ltd · LSE:HSX
Hiscox — FY2018 Earnings Presentation
48 slides from Hiscox's earnings presentation, February 2019
Slide 1: Hiscox Ltd Preliminary results
Hiscox Ltd Preliminary results For the year ended 31 December 2018
Slide 2: A good result
A good result • GWP up by 15% to $3.8bn • Double-digit growth in all segments • PBT up by 25% to $151m (ex-FX) • Combined ratio 94.4% (ex-FX) • Final dividend up by 5% to 28.60¢ 1
Slide 3: Financial performance
a) HISCOX Financial performance
Slide 4: Group financial performance
Group financial performance Robust performance at a challenging point in the cycle GWP ($m) PBT ex-FX ($m) 3,778 3,258 3,286 373 2,894 2,973 307 274 151 121 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Underwriting profit* ($m) COR ex-FX (%) 98.8 94.4 84.7 85.7 90.8 325 300 44.2 54.9 48.5 232 3
Slide 5: 2018 financials
2018 financials 2018 2017 Earnings per share (¢) 45.1 12.0 Ordinary dividend (¢) Interim 13.25 12.60 Final 28.60 27.20 Total 41.85 39.80 Net asset value ($m) 2,317.1 2,368.4 (£m) 1,819.2 1,754.4 NAV per share (¢) 819.1 835.1 (p) 642.8 618.6 Return on equity after tax (%) 5.6 1.5 4
Slide 6: Hiscox Retail: A good year of profits and growth
Hiscox Retail A good year of profits and growth 2018 2017 • GWP growth in constant $m $m currency of 11% – Hiscox UK & Ireland: 8% Growth – Hiscox Europe: 11% Gross premiums written 2,087.1 1,835.4 – Hiscox USA: 15% • Surpassed $2bn premium Net premiums written 1,874.5 1,674.2 and one million retail
Slide 7: Hiscox London Market: The standout performer
Hiscox London Market The standout performer 2018 2017 • GWP growth in constant $m $m currency of 16% • Growth where rates have Growth improved the most Gross premiums written 877.7 749.8 – Property – General liability Net premiums written 522.9 484.9 • Good underwriting performance in a heavy catast
Slide 8: Hiscox Re & ILS
Hiscox Re & ILS Hit by a second year of significant catastrophes 2018 2017 • GWP growth in constant $m $m currency of 15%; flat on a net basis Growth • Performance affected by losses from US and Gross premiums written 812.0 700.8 Japanese windstorms and California wildfires Net premiums written 241.
Slide 9: Investment performance
Investment performance Cause for optimism as underlying economics improve Cash and bond income net of fees ($m) Mark-to-market on bonds ($m) • 2018 investment return $38.1m (2017: $104.7m) 4 97 • Coupon income increasing, 75 offset in 2018 by 68 mark-to-market adjustments on bonds -23 • Risk assets
Slide 10: Consistent approach to reserving
Consistent approach to reserving Reserve releases $326m Loss development by accident year • $165m reserved for 2013 2014 2015 2016 2017 catastrophes in 2018 1.05 – Hurricanes Florence and Michael, Typhoons 1.00 Jebi and Trami, 0.95 California wildfires 0.90 • 11.4% of opening 0.85 net reserves – con
Slide 11: Well capitalised
Well capitalised 31 December 2018 • All capital bases satisfactorily capitalised $2.46bn available capital • Key constraint remains $2.38bn available capital (post-final dividend) rating agency capital Economic Regulatory • Bermuda solvency ratio estimated at 210% • BMA to introduce revised BSCR for
Slide 12: Financial flexibility
Financial flexibility Well capitalised and investing for the future Absorbing losses Investing in the business Responding to external challenges • Balance sheet remains strong • $70m invested in marketing • Brexit preparations complete – • $165m of catastrophe losses • $30m P&L cost in support of bu
Slide 13: Underwriting
a) HISCOX Underwriting
Slide 14: 2018 catastrophes
2018 catastrophes Another expensive year for insurers • 2018: $80bn* of insured catastrophe losses – Fourth most costly year for insurers in history and costliest two-year period ever • $165m net reserved for all catastrophes – Higher frequency of mid-sized events in 2018 impacted Group’s aggregate
Slide 15: Heading in the right direction
Heading in the right direction Core London Market All retail Catastrophe reinsurance • Hiscox London Market 120 – Overall rates up 7% – Household up 10% – Terrorism, cyber 100 remain competitive – Lloyd’s Decile 10 action improving rates as 80 capacity withdraws • Hiscox Re & ILS 60 – Overall rates
Slide 16: An actively managed business
An actively managed business Total Group controlled premium 31 December 2018: $4,224 million Period-on-period in constant currency +14% 2018 GWP $1,452m Professional liability Errors and omissions Private +13% directors and officers’ liability $894m Non-marine Cyber Commercial small Marine +51% pack
Slide 17: Hiscox Retail: Continuing to capture the growth opportunity
Hiscox Retail Continuing to capture the growth opportunity Gross premiums written ($m) Hiscox UK Hiscox Special Risks Hiscox Asia • Strong track record of Hiscox Europe Hiscox USA growth and small market shares in all retail markets 2,500 • Continually optimising the retail portfolio – Addressing US
Slide 18: Hiscox Re & ILS: Evolving third-party capital proposition
Hiscox Re & ILS Evolving our third-party capital proposition • ILS AUM exceeds $1.5bn following 2018 losses • Performance in line with expectations • Strategy of alignment with investors paying off, driving continued investor interest • New ILS fund launched January 2019 – Diversified portfolio of s
Slide 19: Hiscox London Market: Proactive portfolio management
Hiscox London Market Proactive portfolio management paying off Grow Hold Reduce • Taking action ahead of the market 100% – $400m of under- performing GWP 90% exited since 2016 – Disciplined growth 80% where we see good margin (property, 70% general liability, cyber, terrorism) 60% • Over $100m turna
Slide 20: Microsoft Azure partnership
Microsoft Azure partnership Driving value through data and analytics The problem • Run one billion data points to better understand our US flood models • Would take eight months using existing internal systems The solution • Use Microsoft Azure’s cloud computing framework to run 1,000 machines and c
Slide 21: Hiscox Retail
a) HISCOX Hiscox Retail
Slide 22: Hiscox Retail portfolio
Hiscox Retail portfolio Different strategies for different segments Retail policies segmented by premium ($/£/€) • 80% of customers pay less than $/£/€1,000 • Underwriting appetite: – broadest at SME level XL (1-10 employees) 250k+ – narrows as we move L 10% of policies up the value chain 50k – 250k
Slide 23: Digitising Retail
Digitising Retail Developing leverage through automation Hiscox Retail electronically traded policies • Rapid growth of automatically underwritten 600,000 new business (i.e. no human intervention) • Automation creates 500,000 financial leverage as we continue to grow • Omni-channel approach 400,000
Slide 24: Investment in brand driving growth
Investment in brand driving growth Now more than one million retail customers • $70m invested in marketing in 2018 • UK & Ireland – Award-winning CyberLive campaign – The Hack simulates a real world cyber attack* - ten million views • Europe – Broker extranet and new cyber teams • USA – I’mpossible
Slide 25: Hiscox Retail: Opportunity for long-term structural growth
Hiscox Retail Opportunity for long-term structural growth • Segmentation underlies strategy – Specialist expertise for larger risks – Operational scale for smaller risks • Growing digital capabilities • Continued brand investment, especially in the US • Becoming a world leader in small business insu
Slide 26: Business performance and outlook
Business performance and outlook
Slide 27: Group performance
Group performance Good growth with all areas contributing Year to 31 December 2018 Constant currency GWP GWP change GWP change $m % % Hiscox Retail* 2,087.1 13.7 11.3 Hiscox UK & Ireland 799.5 11.5 7.8 Hiscox USA 809.6 15.4 15.4 Hiscox Europe 322.3 17.2 11.4 Hiscox Special Risks 136.2 7.0 5.5 Hiscox
Slide 28: Outlook
Outlook Well positioned • Positive outlook – Stable and slightly improving rating environment – Improved investment conditions • Continued investment in business infrastructure • Growing our brand, especially in the US • Positive momentum for Hiscox and the market 27
Slide 29: 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 30: 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 31: Geographical reach
Geographical reach 34 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 Las Vegas Miami Lisbon Asia L
Slide 32: Strategic focus
a Strategic focus HISCOX Total Group controlled income for 2018 $100% = $4,224 million Big-ticket business Retail business 21% Reinsurance Small commercial 29% 8% Large property Tech andmedia 5% casualty 5% Casualty 5% Specialty — terrorism, product recall Art and private client 11% 5% Marine and en
Slide 33: A symbiotic relationship
A symbiotic relationship Big-ticket business a HISCOX Retail business ¢ Larger premium, globally traded, catastrophe-exposed business written mainly through Hiscox London Market and Hiscox Re & ILS ¢ Shrinks and expands according to pricing environment ¢ Excess profits allow further investment in re
Slide 34: Long-term growth
Long-term growth Total Group controlled income ($) Hiscox Re & ILS Hiscox UK Hiscox Special Risks Hiscox Asia Hiscox London Market Hiscox Europe Hiscox USA 4,500 4,000 Hiscox London Market Gross written premiums ($m) Hiscox Re & ILS 3,500 3,000 2,500 2,000 Hiscox Retail* 1,500 1,000 500 -0 *Hiscox R
Slide 35: An actively managed business
An actively managed business Total Group controlled premium 31 December 2018: $4,224 million Period-on-period in constant currency +14% 2018 GWP $1,452m Professional liability Errors and omissions Private +13% directors and officers’ liability $894m Non-marine Cyber Commercial small Marine +51% pack
Slide 36: Segmental analysis
Segmental analysis 31 December 2018 31 December 2017 Hiscox Hiscox Hiscox London Hiscox Corporate Hiscox London Hiscox Corporate Retail Market Re & ILS Centre Total Retail Market Re & ILS Centre Total $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 Gross premiums written 2,087.1 877.7 812.0 1.5 3,
Slide 37: Hiscox Ltd results
Hiscox Ltd results $m 2018 2017 2016 2015 2014 2013 Gross premiums written 3,778.3 3,286.0 3,257.9 2,972.7 2,894.3 2,656.3 Net premiums written 2,581.5 2,403.0 2,424.5 2,403.3 2,213.9 2,143.0 Net premiums earned 2,573.6 2,416.2 2,271.3 2,194.1 2,169.2 2,005.8 Investment return* 38.1 104.8 95.8 47.6
Slide 38: Boxplot and whisker diagram of modelled Hiscox Ltd net loss
Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) January 2019 Lower 5%- upper Northridge Quake - $24bn market loss Hurricane Katrina - $50bn market loss 2011 Tohoku Quake - $25bn market 95% range 800 Superstorm Sandy - $20bn market Loma Prieta Quake - $6bn market Hurricane Andrew - $
Slide 39: Realistic disaster scenarios
Realistic disaster scenarios Hiscox Group – losses shown as percentage of 2018 gross and net written premium Gross loss Net loss Industry loss return period Japanese windstorm 4% $15bn 1 in 100 year 13% Japanese earthquake 6% 26% $50bn 1 in 240 year Gulf of Mexico windstorm 7% 47% $107bn 1 in 80 yea
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 $80m-$750m could be suffered in the following extreme scenarios: Event Es
Slide 41: GWP geographical and currency split
GWP geographical and currency split 2018 geographical split – controlled income 2018 currency split – controlled income North America GBP Other USD Western Europe (excl. UK) CAD and other Worldwide EUR UK 11.9% 18.2% 22.2% 4.2% 11.4% 51.6% 12.2% 61.7% 6.6% 40
Slide 42: Group reinsurance security
Group reinsurance security Receivables at 31 December 2018 of $2,455 million 2018 reinsurance protections* First loss exposure by rating A A AA AA AAA and collateralised Hiscox ILS Other Collateralised 0.9% 4% 21% 34.5% 43% 50.3% 32% 14.3% *Reinsurance placements in force at 12 February 2019. 41
Slide 43: Reinsurance
Reinsurance Ceded as a percentage of GWP Reinsurance receivables as a percentage of total assets 35 25 30 31.7 22.6 20 26.9 25 18.8 25.6 23.5 15 20 21.7 21.0 19.4 19.3 19.2 19.0 19.0 13.4 18.7 12.3 12.1 15 11.7 11.6 10 11.0 10.6 10.3 10.2 10.0 13.4 10 7.7 5 5 0 0 42
Slide 44: Investment result
Investment result Return of $38.1m 31 December 2018 31 December 2017 • Yield to maturity of bond portfolio 2.35% Asset Annualised Asset Annualised at 31 December 2018 allocation return Return allocation return Return (2.1% at 30 June 2018) % % $000 % % $000 • Coupon income increasing, offset by effe
Slide 45: Portfolio – asset mix
Portfolio – asset mix High quality, conservative portfolio Investment portfolio $6,319 million as at 31 December 2018 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 1.1 2.1 6.4 9.2 16.8 20.6 33.0 19.6 23.0 69.1
Slide 46: Portfolio – USD bond portfolios
Portfolio – USD bond portfolios as at 31 December 2018 Portfolios: $3.2 billion BB and AAA AA A BBB below Unrated Total Duration % % % % % % % years Government issued 37.9 37.9 1.4 Government supported* 0.7 2.0 0.9 0.1 3.7 1.3 Asset backed 2.0 2.0 0.6 Mortgage backed agency 3.9 3.9 3.4 Non agency 0.
Slide 47: Portfolio – GBP, EUR and CAD bond portfolios
Portfolio – GBP, EUR and CAD bond portfolios as at 31 December 2018 GBP portfolios: BB and $831 million AAA AA A BBB below Unrated Total Duration % % % % % % % years Government issued 27.0 27.0 1.4 Government supported* 17.4 3.9 2.4 23.7 1.3 Asset backed 3.2 0.4 3.6 1.9 Corporates 13.3 3.8 11.7 16.9
Slide 48: Business segments
Business segments Hiscox Retail Hiscox Re & ILS Hiscox Retail brings together the results of Hiscox UK Hiscox Re & ILS is the reinsurance division of the Group, & Europe, and Hiscox International being the US, Special combining the underwriting platforms in Bermuda and Risks and Asia retail business