Hiscox Ltd Preliminary results For the six months ended 30 June 2016
A good first half flattered by FX Excluding FX June June 2016 2016 Premium growth 17.5% 13.0% (2015: 12.0%) (2015: 7.2%) Profit before tax £206.0m £118.7m (2015: £135.1m) (2015: £150.8m) Combined ratio 80.7% 88.4% (2015: 82.5%) (2015: 80.3%) • Higher catastrophe losses £19.0m (2015: £nil) and continued rate pressure • Investment income up • Interim dividend of 8.5p (2015: 8.0p) 1
Financial performance
A good performance June June Dec 2016 2015 † 2015 £m £m £m Gross premiums written 1,288.5 1,096.3 1,944.2 Net premiums written 889.1 860.1 1,571.8 Investment return on financial assets 42.0 27.9 33.7 87.3 (15.7) 15.2 Foreign exchange gains/(losses) • Reflects FX volatility Profit before tax 206.0 135.1 216.1 Profit after tax 197.6 129.4 209.9 Basic earnings per share (p) 70.4 43.7 72.8 24.0 Interim/final equivalent dividend (p) 8.5 8.0 ‒ 16.0 Additional return (p) – • 8.6% increase since year end Net asset value 1,667.7 £m 1,414.7 1,528.8 591.7 p per share 505.5 545.0 • Annualised return on equity excluding FX Return on equity after tax* 28.3% 19.9% 16.0% 15.8% (2015: 22.1%) † Includes consolidation of Kiskadee. 3 *Annualised.
Segmental analysis 30 June 2016 30 June 2015* Hiscox Hiscox Hiscox London Hiscox Corporate Hiscox London Hiscox Corporate Retail Market Re Centre Total Retail Market Re Centre Total £m £m £m £m £m £m £m £m £m £m Gross premiums written 581.1 342.7 364.7 ‒ 1,288.5 510.5 298.1 287.8 ‒ 1,096.3 Net premiums written 528.2 216.2 144.7 ‒ 889.1 481.8 207.8 170.5 ‒ 860.1 Net premiums earned 470.4 198.1 99.0 ‒ 767.5 433.8 169.8 106.2 ‒ 709.8 Investment result – Financial assets 15.2 10.6 9.4 6.8 42.0 11.4 5.3 5.1 6.1 27.9 Foreign exchange gains/(losses) 24.0 17.2 12.8 33.3 87.3 (11.9) (3.7) 0.2 (0.3) (15.7) Profit/(loss) before tax 92.3 37.1 54.6 22.0 206.0 61.6 21.2 59.6 (7.3) 135.1 Combined ratio 84.1% 85.3% 56.0% ‒ 80.7% 88.7% 90.6% 45.5% ‒ 82.5% Combined ratio excluding monetary FX 89.4% 94.8% 69.8% ‒ 88.4% 85.9% 88.4% 45.2% ‒ 80.3% *Restated to bring global kidnap and ransom business in to Hiscox Retail (Hiscox Special Risks). 4 Business segments described in appendices.
Solid investment performance 30 June 2016 30 June 2015 Asset Annualised Asset Annualised allocation return Return allocation return Return % % £000 % % £000 Bonds £ 14.4 3.9 15.4 0.9 US$ 52.3 3.2 53.2 1.6 Other 8.8 2.2 9.1 0.4 Bonds total 75.5 3.2 43,581 77.7 1.3 15,038 Equities 6.9 (2.0) (2,737) 8.7 9.3 11,910 Deposits/cash/ bonds <3 months 17.6 0.3 1,114 13.6 0.4 909 Actual return 2.3 41,958 1.8 27,857 Group invested assets £3,946m £3,032m 5 Before fees, derivative positions and investments in insurance linked funds.
Portfolio – asset mix High-quality, conservative portfolio Investment portfolio £3,946m as at 30 June 2016 • AUM increased as a result of Sterling weakness Asset allocation Bond credit quality Bond currency split • Cash reduced following Bonds Gvt. USD investment of bond Cash AAA GBP proceeds in Q2 AA Risk assets EUR A • Risk assets at 6.9% CAD BBB BB and below • High credit quality maintained • Yield to maturity of bond 1.5 1.5 portfolio at 1.0% 6.9 10.7 • Average bond duration 16.2 22.2 months 26.8 17.6 18.5 20.8 16.2 69.3 75.5 18.5 6
Capital requirements £1.94bn available capital £1.92bn available capital (post interim dividend) Economic Regulatory A.M. Best Standard & Poor's Fitch ratings Group capital Group capital Bermuda solvency (catastrophe model (economic) model (regulatory) capital requirement stressed) Rating agency assessments shown are internal Hiscox projections of the agency capital requirements on the basis of projected 2016 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 7 to variations in the allowable capital in each assessment for comparison to a consistent available capital figure. The available capital figure comprises shareholders’ equity and subordinated debt as at 30 June 2016.
Financial facts • Reserve releases of £96m (2015: £123m) • Net catastrophe and market loss claims impact for Hiscox Ltd – Catastrophe: £19.0m (2015: £nil) – includes Alberta wildfires, Houston floods, Japan and Ecuador earthquakes, UK and European storms – Market losses: £25.2m (2015: £25.8m) – includes Jubilee oil field, Prestige, Pemex, Brussels and Istanbul terrorist attacks • Hiscox UK reinsured out employers’ liability exposure for £13m 8
Underwriting
Rates under pressure • Rates weighted by Core London Market (excluding White Oak) All Retail Catastrophe reinsurance premium 120 • Continued reductions in core London Market lines – Marine and energy 100 Rate on line indexed to January 2010 – Aviation – Big ticket property 80 • Slowing decline in catastrophe reinsurance 60 • Retail more stable • Growing where rates 40 are improving and margins healthy 20 0 - 12 month rolling period ending 10
An actively managed business Total Group controlled premium 30 June 2016: £1,441m Period-on-period in local currency +16.1% 2016 GWP £400m +21.6% £372m Professional Non-marine liabilities Errors and omissions +8.1% Marine Private £242m directors and officers’ liability Kidnap and ransom Cyber Aviation Contingency +0.1% +6.1% Terrorism Commercial small £152m £147m package Product recall Home and Commercial Casualty Personal accident contents Small technology property and media -8.6% Political risks Onshore energy Fine art £75m +58.2% USA homeowners Aerospace Healthcare related Classic car Cargo £53m Managing general Contractors’ Marine hull Specialty agents Luxury motor Public D&O, PI Media and equipment FTC Energy liability International entertainment Healthcare Offshore energy Asian motor Extended warranty property Marine liability General liability Reinsurance Local casualty and Specialty Art and private client Property Marine and energy Global casualty commercial 11
Hiscox Re Managing net catastrophe exposure Hiscox Re GWP and NWP (US$ Group controlled) • Gross catastrophe premium increased to facilitate growth Gross catastrophe Gross other Net catastrophe Net other in Kiskadee 700 • Net catastrophe premium has reduced 600 as rates have reduced • Growing in diversifying 500 specialty and casualty lines which have higher GWP/NWP (US$) combined ratios 400 300 200 100 0 Gross Net Gross Net Gross Net H1 2014 H1 2015 H1 2016 Excludes Kiskadee. 12 Other: specialty, casualty, aviation, healthcare.
Business performance
Brexit Structural not strategic • FX impact translational: no impact on economic capital requirements • Impacts £260m of business – Hiscox Europe, overseas holiday homes, pan-European risks, political risks • Preparing for Brexit Lite and Brexit Heavy • Expect to create a new EU-based carrier • Well-established network of European offices • Opportunities to support smaller MGAs 14
Managing the business Six months to 30 June 2016 Local currency GWP NWP GWP change NWP change GWP change NWP change £m £m % % % % Hiscox Retail Hiscox UK and Europe Hiscox UK 244.4 211.7 9.3 (0.9) 8.7 (1.7) Hiscox Europe 101.2 98.0 9.2 9.8 7.5 7.7 Hiscox International Hiscox Special Risks 44.9 38.8 (16.4) (19.8) (21.8) (24.8) Hiscox USA 183.4 174.8 40.0 39.8 32.8 31.6 DirectAsia* 6.2 4.4 (11.7) 8.0 (16.7) 14.6 Hiscox London Market 342.7 216.2 15.0 4.0 9.7 0.2 Hiscox Re** 364.7 144.7 26.8 19.2 20.6 12.1 Total 1,287.5 888.6 17.7 9.8 13.3 5.9 *Excludes Hong Kong for both periods. 15 **Excludes consolidation of Kiskadee for H1 2015.
Hiscox London Market and Hiscox Re Disciplined in tough markets Hiscox London Market Hiscox Re • Growth of 9.7% in local currency • Good growth in casualty and specialty ‒ Core London Market 1.2% • Careful risk selection mitigating industry losses ‒ New classes of business 5.3% • Less aggressive rate reductions at the 1 June and ‒ Alternative distribution 3.2% 1 July renewals • Reducing in auto physical damage, marine and • Kiskadee Investment Managers’ AUM now over US$1bn energy, terrorism • Net claims impact: catastrophe losses £5.4m, • Hiscox MGA establishing presence in key large losses £7.0m Mediterranean yacht market • Net claims impact: catastrophe losses £9.1m, large losses £16.1m 16
Hiscox Special Risks and DirectAsia Navigating challenging markets Hiscox Special Risks DirectAsia • Good profit despite ongoing intense competition • Sale of Hong Kong awaiting regulatory approval • Contraction in oil and mining, and consolidation in other • Focus on brand-building in Thailand is driving growth markets affecting premiums • Marketing efforts helping to differentiate us in the • Exploring new markets, products and ways to distribute competitive Singapore market our valuable expertise 17
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