Hiscox Ltd Interim results For the six months ended 30 June 2015 - - PowerPoint PPT Presentation

Hiscox Ltd Interim results

For the six months ended 30 June 2015

An excellent six months

• Premium growth of 12.0% (2014: -3.8%)
• Profit before tax £135.1m (2014: £124.6m)
• Combined ratio 82.5% (2014: 82.0%)
• Return on equity 19.9% (2014: 18.9%)
• Interim dividend of 8.0p (2014: 7.5p)

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Financial performance

An excellent six months

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• Euro movement
• 18.8% growth in NAV

per share June 2015 £000 June 2014 £000 Dec 2014 £000 Gross premiums written 1,096,299 978,932 1,756,260 Net premiums written Net premiums earned 860,084 709,823 732,592 643,471 1,343,410 1,316,259 Investment return on financial assets Foreign exchange (losses)/gains 27,857 (15,678) 30,115 (16,415) 56,355 4,974 Profit before tax Profit after tax 135,075 129,380 124,620 119,846 231,075 216,152 Basic earnings per share (p) Interim/final equivalent dividend (p) Additional capital return (p) Net asset value £m p per share 43.7 8.0 – 1,414.7 505.5 36.4 7.5 – 1,332.5 425.6 67.4 22.5 45.0 1,454.2 462.5 Return on equity after tax* 19.9% 18.9% 17.1%

*Annualised.

30 June 2015 30 June 2014

Hiscox Retail £000 Hiscox London Market £000 Hiscox Re £000 Corporate Centre £000 Total £000 Hiscox Retail £000 Hiscox London Market £000 Hiscox Re £000 Corporate Centre £000 Total £000 Gross premiums written 502,140 306,408 287,751 ‒ 1,096,299 455,775 251,700 271,457 − 978,932 Net premiums written 472,474 217,122 170,488 ‒ 860,084 418,029 189,463 125,100 − 732,592 Net premiums earned 424,547 179,107 106,169 ‒ 709,823 373,352 163,078 107,041 − 643,471 Investment result – Financial assets 11,352 5,310 5,102 6,093 27,857 8,325 6,456 11,723 3,611 30,115 Foreign exchange (losses)/gains (11,262) (4,352) 243 (307) (15,678) (2,981) (6,556) (3,597) (3,281) (16,415) Profit/(loss) before tax 59,320 23,447 59,622 (7,314) 135,075 37,375 24,783 75,566 (13,104) 124,620 Combined ratio 89.1% 89.8% 45.5% ‒ 82.5% 92.7% 87.2% 41.8% − 82.0% Combined ratio excluding monetary FX 86.4% 87.3% 45.2% ‒ 80.3% 91.9% 82.9% 38.2% − 79.7%

Segmental analysis

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Hiscox Retail Hiscox Retail brings together the results of the UK and Europe, and Hiscox International being the US, Guernsey and Asia retail business divisions. Hiscox UK and Europe underwrite European personal and commercial lines business through Hiscox Insurance Company Limited, together with the fine art and non-US household insurance business written through Syndicate 33. In addition, Hiscox UK includes elements of specialty and international employees and officers’ insurance written by Syndicate 3624. Hiscox International comprises the specialty and fine art lines written through Hiscox Insurance Company (Guernsey) Limited, and the motor business written via DirectAsia, together with US commercial, property and specialty business written by Syndicate 3624 and Hiscox Insurance Company Inc. via the Hiscox USA business division. Hiscox London Market Hiscox London Market comprises the internationally traded insurance business written by the Group’s London based underwriters via Syndicate 33, including lines in property, marine and energy, casualty and other specialty insurance lines. In addition the segment includes elements of business written by Syndicate 3624 being auto physical damage, auto extended warranty and aviation business. Hiscox Re Hiscox Re is the reinsurance division of the Group, combining the underwriting platforms in Bermuda, London and Paris. The segment comprises the performance of Hiscox Insurance Company (Bermuda) Limited, excluding the internal quota share arrangements, with the reinsurance contracts written by Syndicate 33. In addition, the healthcare and casualty reinsurance contracts written in the Bermuda hub on Syndicate capacity are also included. The segment also captures the performance of Kiskadee, the Group’s Insurance Linked Securities business. Corporate Centre Corporate Centre comprises the investment return, finance costs and administrative costs associated with Group management activities. Corporate Centre also includes the majority of foreign currency items on economic hedges and intragroup borrowings, further details of which can be found at note 13 of the Group’s Report and Accounts for the year ended 31 December 2014. Corporate Centre forms a reportable segment due to its investment activities which earn significant external returns.

30 June 2015 30 June 2014 Asset allocation % Annualised return % Return £000 Asset allocation % Annualised return % Return £000 Bonds £ 15.4 0.9 16.2 1.1 US$ 53.2 1.6 50.0 2.0 Other 9.1 0.4 11.0 2.4 Bonds total 77.7 1.3 15,038 77.2 1.8 21,211 Equities 8.7 9.3 11,910 7.4 7.2 7,914 Deposits/cash/ bonds <3m 13.6 0.4 909 15.4 0.4 990 Actual return 1.8 27,857 2.0 30,115 Group invested assets £3,032m £2,965m

Solid investment performance

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Before fees, derivative positions, investments in insurance linked funds and third-party assets managed by Kiskadee Investment Managers.

68.5 19.8 10.6 1.1 USD GBP EUR CAD

High quality, conservative portfolio

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Investment portfolio £3,032m* as at 30 June 2015

• AUM reduced by

capital distribution

• Risk assets up to 8.7%
• High credit quality

maintained

29.3 22.1 14.7 20.8 11.4 1.7 Gvt. AAA AA A BBB BB and below 77.7 13.6 8.7 Bonds Cash Risk assets Asset allocation Bond credit quality Bond currency split

*Excludes third-party assets managed by Kiskadee Investment Managers.

Portfolios – USD bond portfolios as at 30 June 2015

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*Includes agency debt, Canadian provincial debt and government guaranteed bonds.

• Favour corporates
• Credit provides positive

carry

• Still cautious on duration
• Governments for liquidity

Portfolios: $2.5bn

AAA % AA % A % BBB % BB and below % Total % Duration months Government issued 22.4 1.5 23.9 18.0 Government supported* 1.7 7.8 0.8 0.2 10.5 12.0 Asset backed 11.5 0.3 0.1 11.9 10.2 Mortgage backed agency 4.6 4.6 20.3 Non agency 0.7 0.1 0.1 2.3 3.2 10.9 Commercial MBS 6.9 0.4 0.2 7.5 21.7 Corporates 1.3 4.2 20.9 11.7 0.3 38.4 18.7 Total 22.1 39.8 23.6 11.9 2.6 100.0 16.9

Portfolios – GBP, EUR and CAD bond portfolios as at 30 June 2015

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*Includes supranational and government guaranteed bonds.

• Governments favoured

for duration management

• Corporates added

for carry

• No exposure to Sovereign

debt of Greece, Ireland, Italy, Portugal or Spain GBP portfolios: £439m

AAA % AA % A % BBB % BB and below % Total % Duration months Government issued 44.0 44.0 26.2 Government supported* 16.8 1.4 0.2 18.4 11.2 Asset backed 4.5 4.5 10.1 Corporates 3.5 5.5 13.6 10.5 33.1 15.3 Total 24.8 50.9 13.6 10.7 0.0 100.0 19.8

EUR and CAD portfolios: £289m

AAA % AA % A % BBB % BB and below % Total % Duration months Government issued 39.8 0.4 40.2 47.0 Government supported* 11.9 8.3 0.4 20.6 12.9 Asset backed 1.6 1.6 10.8 Corporates 4.5 7.9 17.5 7.0 0.7 37.6 13.1 Total 57.8 16.6 17.9 7.0 0.7 100.0 26.6

Growing demand for capital

• Significant capital return over the last three years has allowed

us to grow into the capital base

• Catastrophe exposure remaining steady
• Good growth and business mix moving to longer-tail
• Solvency II has increased capital requirements
• Continuing to invest in growing the businesses

– IT/marketing/ILS/new teams – Acquisitions: DirectAsia/RH Classics/R&Q Marine Services

• Capital return reviewed at year end based on results and

business plan

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Growing demand for capital

10 £1.41bn available capital (at 30/6/15) £1.26bn available capital (post return)

Rating agency assessments shown are internal Hiscox projections of the agency capital requirements on the basis of 2014 year end results. Hiscox uses the internally developed Group capital model to assess its own capital needs on both a trading (economic) and purely regulatory basis. All capital requirements have been normalised, with respect to variations in the allowable capital in each assessment for comparison to a consistent available capital figure.

A.M. Best (catastrophe stressed) Standard & Poor's Fitch ratings Group capital model (economic) Group capital model (regulatory) Bermuda solvency capital requirement Economic Regulatory

2014 capital requirements

Fascinating financial facts

• Good overall claims experience.

Moderate losses in London Market – Marine and energy (PEMEX and Chevron) net £12m – Reserves for Ukraine political risks net £20m

• Reserve releases £123m (2014: £90m)
• $875m Letter of Credit and bank facility –

$529.5m drawn down (2014: $338m)

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Underwriting

An actively managed business

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Total Group controlled premium 2015: £1,230m

Reinsurance Local casualty and commercial Specialty Art and private client Property Marine and energy Global casualty Period-on-period in local currency 2015 GWP

Non-marine Marine Aviation Casualty Specialty Professional liabilities Errors and

• missions

Directors and

• fficers’ liability

Commercial small package Small technology and media Healthcare related Media and entertainment Kidnap and ransom Contingency Terrorism Specie Personal accident Political risks Aerospace Contractors’ equipment FTC Extended warranty Home and contents Fine art Classic car Luxury motor Asian motor Commercial property Onshore energy USA homeowners Managing general agents International property Marine hull Energy liability Offshore energy Marine liability D&O liability Healthcare Professional indemnity

• 5.3%

£329m +15.2% £295m +24.6% £214m +8.9% £152m

• 9.3%

£130m

• 6.3%

£78m +48.6% £32m

Mixed rating environment

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• Catastrophe reinsurance

rates finding their floor

• Retail rates broadly flat
• Some London Market lines

under pressure

Insurance Catastrophe reinsurance 0% 20% 40% 60% 80% 100% 120% 140% Index level 100% 12 month rolling period ending

Hiscox London Market rates

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Percentage of London Market premium by rate band

100% Jan-June 2015.

1.5% 10.9% 8.4% 14.2% 44.5% 5.7% 8.0% 5.1% 1.7% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% < -20

• 10 to -20
• 5 to -10

0 to -5 Flat 0 to 5 5 to 10 10 to 20 > 20 % of total premium Rate band

Business performance

Gross written premiums for the six months to 30 June 2015 2015 £000 2014 £000 Change % Growth in local currency % Hiscox Retail Hiscox UK and Europe Hiscox UK 223,639 212,593 5.2 5.8 Hiscox Europe 94,554 96,804 (2.3) 8.1 Hiscox International Hiscox Guernsey 36,262 33,976 6.7 1.5 Hiscox USA 138,159 107,795 28.2 16.9 DirectAsia* 9,526 4,607 106.7 104.3 Hiscox London Market 306,408 251,700 21.7 13.6 Hiscox Re 287,751 271,457 6.0 0.0 Total 1,096,299 978,932 12.0 7.2

Managing the business

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*Three months vs. six months.

Hiscox UK and Europe Record profits

• Gross written premium £318.2m (2014: £309.4m)
• Profit before tax £45.4m (2014: £26.3m)
• Combined ratio 87.0% (2014: 92.9%)

– UK 84.0% – Europe 87.5% in local currency

• Commercial lines driving growth in UK and Europe
• Cyber and data risks product small but growing
• Staffing of customer experience centre in York complete
• Marking 20 years in France and Germany

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Hiscox International Good growth and profit

• Gross written premium £183.9m

(2014: £146.4m)

• Profit before tax £13.9m (2014: £11.1m)
• Combined ratio 92.9% (2014: 92.1%)
• Marketing expenditure £8.4m

(2014: £4.4m)

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Hiscox International Discipline and investment delivering

• Hiscox Guernsey

– Expansion of Latin American gateway in Miami

• Hiscox USA

– Excellent growth of 28.2% (16.9% in local currency) driven by professions business – Profitable in broker and direct-to-consumer businesses – 100,000 direct-to-consumer policies in force

• DirectAsia

– Progressing as planned – Evolution of leadership – new CEO – Thailand – promising start in key market

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Hiscox London Market Disruption creating opportunities

• Premium growth of 21.7% to £306.4m (2014: £251.7m)
• Profit before tax £23.4m (2014: £24.8m)
• Combined ratio 89.8% (2014: 87.2%)
• Growing

– Personal accident and casualty – Willis 360 facility – Auto physical damage and extended warranty

• Shrinking

– Big ticket property – Upstream energy

• Acquired R&Q Marine Services to build distribution

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Hiscox Re Good risk selection, low loss levels

• Gross written premium £287.8m (2014: £271.5m)
• Profit before tax £59.6m (2014: £75.6m)
• Combined ratio 45.5% (2014: 41.8%)
• Steady growth in healthcare and casualty reinsurance
• New products drive $50m new business in 18 months
• Continued quota share support
• Kiskadee attracts $540m of new capital

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Summary and outlook

Summary An excellent start

• A Goldilocks start for Retail

– Benign loss environment for UK and Europe – USA profitable in all channels

• London Market benefiting from past

recruitment and selective underwriting

• Innovation-led strategy in product and

capital working for Hiscox Re

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Outlook Strategy continues

• Interest rate increases getting closer
• Big ticket rates continue to be eroded
• Strategy will continue

– Investment in Retail – New talent available – Innovation in product and distribution for bigger ticket business

• Capital return vs. retaining capital

reviewed at the year end

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Appendices

• Geographical reach
• Strategic focus
• Strategy working
• A symbiotic relationship
• Diverse capital creates opportunities
• Long-term growth
• Business trends
• Gradual change of business mix
• Hiscox Ltd results
• Boxplot and whisker diagram of Hiscox Ltd
• Realistic disaster scenarios
• GWP geographical and currency split
• Group reinsurance security
• Reinsurance
• Glossary of terms

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Geographical reach

27 USA Atlanta Chicago Los Angeles New York City San Francisco White Plains Guernsey St Peter Port Latin American gateway Miami Bermuda Hamilton Europe Amsterdam Bordeaux Brussels Cologne Dublin Hamburg Lisbon Lyon Madrid Munich Paris UK Birmingham Colchester Glasgow Leeds London Maidenhead Manchester York Asia Bangkok Hong Kong Singapore

Strategic focus

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Strategy working

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A symbiotic relationship

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Diverse capital creates options

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Long-term growth

32 Hiscox Reinsurance Hiscox London Market - Retail

Gross written premiums (£m)

Hiscox London Market - Volatile Hiscox UK Hiscox Europe Hiscox Guernsey Hiscox USA Local specialty lines Internationally traded lines 200 400 600 800 1000 1200 1400 1600 1800 2000 DirectAsia

Business trends

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Total Group controlled premium 2015: £1,230m

Reinsurance Local casualty and commercial Specialty Art and private client Property Marine and energy Global casualty Period-on-period in local currency 2015 GWP

Non-marine Marine Aviation Casualty Specialty Professional liabilities Errors and

• missions

Directors and

• fficers’ liability

Commercial small package Small technology and media Healthcare related Media and entertainment Kidnap and ransom Contingency Terrorism Specie Personal accident Political risks Aerospace Contractors’ equipment FTC Extended warranty Home and contents Fine art Classic car Luxury motor Asian motor Commercial property Onshore energy USA homeowners Managing general agents International property Marine hull Energy liability Offshore energy Marine liability D&O liability Healthcare Professional indemnity

• 5.3%

£329m +15.2% £295m +24.6% £214m +8.9% £152m

• 9.3%

£130m

• 6.3%

£78m +48.6% £32m

Gradual change of business mix

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Hiscox Ltd casualty/property premium split

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2010 2011 2012 2013 2014 2015 B % of total premium casualty property

£000 2014 2013 2012 2011 2010 2009 Gross premiums written 1,756,260 1,699,478 1,565,819 1,449,219 1,432,674 1,435,401 Net premiums written 1,343,410 1,371,114 1,268,140 1,174,011 1,131,627 1,157,023 Net premiums earned 1,316,259 1,283,311 1,198,621 1,145,007 1,131,158 1,098,102 Investment return† 56,355 58,924 92,690 25,942 98,849 182,769 Profit before tax 231,075 244,538 217,454 17,271 211,366 320,618 Profit after tax 216,152 237,758 208,026 21,272 178,800 280,497 Basic earnings per share 67.4p 66.3p 53.1p 5.5p 47.2p 75.2p Dividend 22.5p 21.0p 18.0p 17.0p 16.5p 15.0p Invested assets (incl. cash) £m† 3,244.9 3,129.5 3,055.8 2,873.4 2,779.7 2,661.6 Net asset value £m 1,454.2 1,409.5 1,365.4 1,255.9 1,266.1 1,121.3 p per share 462.5 402.2 346.4 323.5 332.7 299.2 Combined ratio 83.9% 83.0% 85.5% 99.5% 89.3% 86.0% Return on equity after tax* 17.1% 19.3% 17.1% 1.7% 16.5% 30.1%

Hiscox Ltd results

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†Excluding derivatives, insurance linked funds and third-party assets managed by Kiskadee Investment Managers.

*Annualised post tax, based on adjusted opening shareholders’ funds.

• 100

200 300 400 500 600 700 JP EQ US EQ EU WS US WS JP EQ US EQ EU WS US WS JP EQ US EQ EU WS US WS JP EQ US EQ EU WS US WS JP EQ US EQ EU WS US WS 5- 10 5- 10 5- 10 5- 10 10- 25 10- 25 10- 25 10- 25 25- 50 25- 50 25- 50 25- 50 50- 100 50- 100 50- 100 50- 100 100- 250 100- 250 100- 250 100- 250

Boxplot and whisker diagram of modeled Hiscox Ltd net loss ($m) June 2015

36 5-10 year 10-25 year 25-50 year 50-100 year 100-250 year

02 02 06 19 08 06 10 38 22 17 16 69 34 33 21 106 46 54 28 158

Mean industry loss $bn Industry loss return period and peril

JP EQ – Japanese earthquake US EQ – United States earthquake EU WS – European windstorm US WS – United States windstorm

Hiscox Ltd loss ($m) Lower 5%- upper 95% range Modelled mean loss

Hurricane Katrina $50bn market loss 21 year return period Hurricane Andrew $56bn market loss 25 year return period Northridge Quake $24bn market loss 40 year return period Superstorm Sandy - $20bn market loss, 7 year return period 1987J $10bn market loss 15 year return period Loma Prieta Quake $6bn market loss 15 year return period 2011 Tohoku Quake $25bn market loss, 45 year return period

Realistic disaster scenarios

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Hiscox Group – losses shown as percentage of 2014 gross and net written premium

Estimates calculated in accordance with Lloyd’s guidelines using models provided by Risk Management Solutions, Inc and AIR Worldwide Corporation. Industry return periods estimated using Lloyd’s guideline industry loss figures.

30% 19% 24% 34% 21% 7% 5% 8% 6% 5% San Fransisco earthquake European windstorm Florida windstorm Gulf of Mexico windstorm Japanese earthquake Industry loss return period $50bn 1 in 240 year $107bn 1 in 80 year $125bn 1 in 100 year $30bn 1 in 200 year $50bn 1 in 110 year Gross loss Net loss

GWP geographical and currency split

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2014 geographical split – controlled income 2015 currency split – controlled income

40.6% 11.4% 11.7% 19.5% 16.8% North America Other Westerm Europe (excl. UK) Worldwide UK 25.1% 57.6% 5.1% 12.2% GBP USD CAD and other EUR

Group reinsurance security

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Receivables at 30/06/15 of £577.3m

14.6% 29.2% 50.8% 5.4% AAA and collateralised AA A Other 50% 37% 13% A AA AAA

*Reinsurance placements in force at 1 July 2015.

2015 reinsurance protections* First loss exposure by rating

20.9 13.4 18.7 21.7 19.4 21.0 19.0 19.0 19.3 23.5 25.2 21.5 5 10 15 20 25 30

Reinsurance

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Ceded as a percentage of GWP Reinsurance receivables as a percentage

• f total assets

17.0 10.0 7.7 13.4 11.0 11.6 11.7 12.3 10.3 10.6 11.4 11.3 5 10 15 20 25

Glossary of terms

Annual venture The system used for running a Lloyd’s syndicate under which each ‘year of account’ is treated separately. Members own capacity on a syndicate for a ‘year of account’ and the results are declared when the year is closed by the RITC mechanism, usually after three years. Claims ratio Net claims incurred, including IBNR, as a percentage of net earned premiums. Combined ratio The total of the claims, expenses and impact of foreign exchange ratios. Expenses ratio Expenses as a percentage of net earned premiums. Funds at Lloyd’s The amount of assets, which can be cash, investments or letters of credit, that a syndicate member has to deposit with Lloyd’s to support his share of the capacity on a syndicate. The minimum amount is 40% of the capacity owned by the member. Gross written premium Premiums contracted for before any deductions. Group controlled The total gross written premium controlled by the Group including the 27% of the Syndicate capacity not owned by Hiscox in 2015 (27% in 2014). IBNR Incurred but not reported. An estimate made at the end of each accounting period to cover the expected cost of losses that have occurred but have not yet been reported to the insurer or reinsurer. Incurred loss ratio Paid and outstanding losses as a percentage of premiums. Gross incurred loss ratio is before deducting any reinsurance and net is after deducting reinsurance. Long-tail A term used to describe an insurance risk that has the potential for claims development or new claims to be reported a number of years after expiry of the term of the policy. Member or Name The companies or individuals who own the capacity of a syndicate and who belong to the membership of the Society

• f Lloyd’s.

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Glossary of terms

Net premiums earned Premiums received after the cost of reinsurance and adjustment for unearned premium. Unearned premium covers the future period of risk of an insurance policy. Net premiums written Premiums contracted for after deduction of reinsurance. Open year A year of account of a syndicate which has not been closed by Reinsurance To Close (RITC). RITC usually occurs at the end of the third year. A year of account can be left open beyond the third year if the extent of the future liability cannot be accurately quantified. Qualifying quota share These are quota share reinsurance policies, which Lloyd’s allow in certain circumstances, that enable a syndicate to write gross premium in excess of its capacity. Reinsurance to close – RITC The reinsurance to close comprises a premium payable by the closing year to the members on the next open year of account and a contract which transfers the liability for all claims in respect of the closing year to the next open year. Run-off account At Lloyd’s, a year of account which is kept open after the date

• n which it would normally have been closed.

Subrogation The right of the underwriter to ‘stand in the shoes of the insured’ and take over the Insured's rights, following payment

• f a claim, to recover the payment of an incurred loss from a

third party responsible for the loss. It is limited to the amount

• f loss paid by the insurance policy.

Syndicate capacity Also referred to as the ‘stamp’. The maximum amount of business that a syndicate in Lloyd’s can write per year, aggregated from all its members.

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