Hiscox Ltd Interim results For the six months ended 30 June 2019
A positive result in a changing market • GWP up 5% to $2.3bn • Combined ratio 98.8% • Investment return $148m • PBT up 3% to $168m • Interim dividend up 4% to 13.75¢ 1
Financial performance
Group financial performance 30 June 2019 30 June 2018 • Robust revenue growth $m $m in all segments Growth • Strong investment result • Underwriting impacted by Gross premiums written 2,337.5 2,228.8 reserve strengthening Net premiums written 1,467.4 1,399.3 • $58m provision for potential tax liabilities from re-classification Earnings of historic marketing Underwriting profit 32.6 181.9 expenses – will not affect current year results Investment result 147.5 19.8 • Capital position Profit before tax 168.0 162.7 remains strong Combined ratio 98.8% 87.9% • Interim dividend up 4% to 13.75¢ Capital Ordinary dividend (¢) 13.75 13.25 Net asset value $m 2,321.8 2,364.8 ¢ per share 817.0 833.7 £m 1,824.3 1,797.2 p per share 641.9 633.6 Return on equity 13.3% 13.3% 3
Hiscox Retail Growth in all major businesses • GWP growth in constant 30 June 2019 30 June 2018 currency of 6% $m $m – Hiscox UK: 4% Growth – Hiscox Europe: 17% – Hiscox USA: 3% Gross premiums written 1,154.6 1,113.0 • UK recovery on track as Net premiums written 1,020.9 982.2 business adapts to new systems and processes • Portfolio action on US D&O impacts top-line growth Earnings • Higher attritional losses on Underwriting profit 54.7 91.8 US D&O; UK and Europe remain benign Investment result 81.4 10.2 • 90,000 retail customers added in first half Profit before tax 137.7 100.0 • Retail to deliver full-year Combined ratio 95.0% 90.7% COR at upper-end of 90-95% target range 4
Hiscox London Market Opportunities in an improving market • GWP growth in constant 30 June 2019 30 June 2018 currency of 7% $m $m • Rate momentum continues Growth to build, up 5% across the portfolio Gross premiums written 484.6 458.7 • Benign catastrophe experience offset by Net premiums written 246.9 277.0 attritional property losses • Adverse development on Hurricane Michael impacts Earnings underwriting result Underwriting profit (8.6) 38.0 Investment result 41.5 5.7 Profit before tax 34.4 42.7 Combined ratio 103.3% 88.6% 5
Hiscox Re & ILS Adverse development masks improving results • GWP growth in 30 June 2019 30 June 2018 constant currency $m $m of 8% Growth • Rates up 6% across the portfolio Gross premiums written 698.3 655.6 • Capitalising on growth opportunities in Net premiums written 199.6 197.5 retrocession and specialty as rates begin to firm Earnings • Results impacted by adverse development Underwriting profit (13.5) 52.1 on Typhoon Jebi and risk excess portfolio Investment result 24.6 3.9 • Reserve strengthening on some exited lines Profit before tax 14.0 57.8 • ILS AUM remains in Combined ratio 111.3% 71.5% excess of $1.6bn 6
Investment performance Market movements provide a strong tailwind Cash and bond income net of fees ($m) • Half-year investment Mark-to-market on bonds ($m) result $148m 54 (2018: $20m), 48 48 return of 4.8% 29 (2018: 0.7%) 39 • Coupon income 29 increasing, boosted by mark-to-market -4 adjustments on bonds as US rates have fallen -33 • Risk assets perform H1 2016 H1 2017 H1 2018 H1 2019 H1 2016 H1 2017 H1 2018 H1 2019 strongly in buoyant equity markets Risk asset performance Bond portfolio yield to maturity (%) • High credit quality ($m and as % of risk assets) maintained in fixed 46 income portfolio 2.4% 2.2% 31 • Average bond duration: 1.8% 1.4 years (2018: 1.5 years) 1.3% 1.1% 5 • Group invested assets -4 $6.4bn at 30 June 2019 1.1% 11.3% -1.0% 7.9% H1 2016 H1 2017 H1 2018 H1 2019 H1 2016 H1 2017 H1 2018 FY 2018 H1 2019 7
Reserve releases lower than prior years • Reserve releases of Reserve releases H1 2018–H1 2019 ($m) $26m (2018: $154m), 1% of opening net reserves -25 • Second half reserve releases expected to be less than $100m 154 -40 (2018: $168m) -10 • Key drivers of other prior-year losses include: London Market large and -53 attritional property losses 26 and US retail D&O H1 2018 Non-recurring Deterioration on Reserve Other prior-year H1 2019 HIM releases 2018 cats and strengthening on attritional and risk excess exited lines large losses Reserve release as % of opening net reserves 8% 6% 6% 5% 5% 1% HY 2014 HY 2015 HY 2016 HY 2017 HY 2018 HY 2019 8
Well capitalised • All capital bases 30 June 2019 satisfactorily capitalised • Key constraint remains $2.44bn available capital rating agency capital $2.40bn available capital (post-interim dividend) • Bermuda solvency Economic Regulatory ratio 205% • BMA have introduced revisions to standard formula which will reduce coverage ratio by After Phase 3 of 15-20% after three-year new BSCR formula transition period Phase 1 of new BSCR formula A.M. Best S&P Fitch Hiscox Hiscox Bermuda integrated integrated enhanced capital model capital model solvency (economic) (regulatory) capital requirement Rating agency assessments shown are internal Hiscox assessments of the agency capital requirements on the basis of projected year-end 2019. Hiscox uses the internally developed Hiscox integrated capital model to assess its own capital needs on both a trading (economic) and 9 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. The available capital figure comprises net tangible assets and subordinated debt.
Building a robust business Investing for the future Responding to Poised to react to opportunities external challenges • US IT system replacement • Brexit plans executed successfully • Strongly capitalised and well under way; UK implementation to – Luxembourg-based carrier positioned to take advantage be fully embedded by year-end up and running since January of improving conditions • Modernising our finance function • Effective tax rate to trend towards with Group-wide transformation 10-12% • Continued investment in brand – $90m in 2019 10
Underwriting
Deterioration of market catastrophe loss estimates • Market estimates for Typhoon Jebi Industry loss picks – multiple from initial estimate 2 increased from $2bn to up to $16bn 1 Average: 1.5x – Most powerful typhoon to hit Japan Jebi 4.6x – Impacted an area of high-value construction ahead of major global Michael 2.0x sporting events 2018 Trami 1.8x – Unusually large number of claims Cal. Wildfires 1.6x and higher repair costs caused by Florence 1.8x demand surge Harvey 1.2x – Hiscox market share in line 2017 with expectations Irma 1.7x Maria 1.2x • Market estimates for Hurricane Michael impacted by social claims inflation in Florida Sandy 1.7x – Assignment of benefits; where insureds Pre-2017 Katrina 1.2x pass on claims recovery rights to more Wilma 1.7x aggressive third parties Rita 1.2x 1. Source: AIR (Sep 2018, Dec 2018), JMP Securities (May 2019) 12 2. Source: PCS (2005, 2007, 2012, 2013, 2017, 2018 and 2019)
Improving rates in big-ticket • Hiscox London Market Core London Market All retail Catastrophe reinsurance – Overall rates up 5% 120 – D&O up more than 50% – Cargo up 15% 100 – GL up 10% – Cyber remains competitive 80 • Hiscox Re & ILS – Overall rates up 6% 60 – North American catastrophe up 3% – International 40 catastrophe up 3% – Opportunities in Japan wind, Florida wind, 20 retrocession, wildfire • Hiscox Retail 0 – Rates broadly flat 12-month rolling period ending 13
An actively managed business Total Group controlled premium 30 June 2019: $2,619 million Period-on-period in +11% constant currency $830m +11% 2019 GWP $789m Professional liability Property Errors and omissions Private Marine directors and officers’ liability Cyber Aviation Commercial small 0% package $289m 0% -5% Small technology Commercial $229m Casualty $227m and media property Onshore energy Home and Kidnap and +20% +18% contents ransom USA homeowners Healthcare $137m related $118m Fine art Flood programmes Contingency Cargo Terrorism Managing general Specialty Classic car Marine hull Public D&O, PI agents Media and Product recall Energy liability Luxury motor Large cyber International entertainment Offshore energy Personal accident property Asian motor Marine liability General liability Small commercial Reinsurance Property Art and private client Specialty Marine and energy Global casualty 14
Cyber Proactive risk management Investing in expertise • External review of our models • External investigation into points of aggregation • Appointed ex-CIO to lead Education and prevention • Underwriter, broker and customer • Developed in-house centre of excellence • Cyber university for our underwriters • More than 6,500 customers trained to date Mitigating balance sheet impact • Consortia, reinsurance, sub-limits, third-party provider • BitSight risk analysis • Cyber exposure calculator Managing the event • Cyber large loss dry run 15
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