Hiscox Ltd Preliminary results For the year ended 31 December 2019 - PowerPoint PPT Presentation

Hiscox Ltd Preliminary results For the year ended 31 December 2019

Strategy of balance delivers • Resilient financial performance in a tough year • GWP up 8% in constant currency, PBT $53m, total dividend up 3.6% • Robust balance sheet and well reserved • Opportunities ahead – Third year of rate rises in the London Market – Disciplined and ready to capture any upside in reinsurance – Investing for Retail growth 1

Financial performance

Group financial performance 31 December 2019 31 December 2018 • 2019 was a challenging $m $m year, but diversification pays off Growth Gross premiums written 4,030.7 3,778.3 • Changes to optimise the portfolio Net premiums written 2,678.8 2,581.5 • Strong investment result Net premiums earned 2,635.6 2,573.6 of 3.6% Earnings • Progressive dividend continues, up 3.6% Underwriting profit/(loss) (134.5) 170.5 to 43.35¢ Investment result 223.0 38.1 Profit before tax 53.1 135.6 Combined ratio 105.7% 94.9% Capital Final ordinary dividend (¢) 29.60 28.60 Net asset value $m 2,189.7 2,259.0 ¢ per share 768.2 798.6 £m 1,653.5 1,773.6 p per share 580.1 627.0 Return on equity 2.2% 5.3% 3

Hiscox Retail Profits increase despite reserving caution 31 December 2019 31 December 2018 • GWP growth in $m $m constant currency of 7%, accelerating in second half Growth – Hiscox UK: 4% – Hiscox Europe: 16% Gross premiums written 2,196.3 2,087.1 – Hiscox USA: 7% Net premiums written 1,957.5 1,874.5 • Return to good growth in UK commercial lines Net premiums earned 1,895.1 1,821.8 • Portfolio action in Hiscox USA delivering improved current year loss ratios Earnings • Profits up 22% and COR in line with Underwriting profit 36.5 125.5 market guidance Investment result 133.9 19.9 Profit before tax 178.4 146.3 Combined ratio 98.7% 93.6% 4

Hiscox London Market An active period for claims with a bright outlook 31 December 2019 31 December 2018 • GWP growth in constant $m $m currency of 11%, accelerating to 16% Growth in the second half • Underwriting result Gross premiums written 967.9 877.7 impacted by Hurricane Dorian and less favourable Net premiums written 504.6 522.9 reserve development Net premiums earned 527.9 551.8 • Higher attritional losses in property binders – further action underway to remediate Earnings • Positive pricing momentum continues for Underwriting (loss)/profit (26.3) 68.2 third consecutive year Investment result 50.6 10.8 • Current year loss ratios improving as pricing and portfolio action take effect Profit before tax 30.4 75.8 Combined ratio 104.4% 89.3% 5

Hiscox Re & ILS A challenging year 31 December 2019 31 December 2018 • GWP growth in constant $m $m currency of 7% • $130m impact from Growth Typhoons Faxai and Hagibis in Japan Gross premiums written 866.5 812.0 • $30m reserve Net premiums written 216.7 241.5 strengthening on healthcare (exited) Net premiums earned 212.6 257.4 • Deterioration on prior-year catastrophes and risk XS portfolio Earnings • ILS AUM remains at $1.5bn, with Underwriting loss (144.7) (23.2) $1.3bn deployable Investment result 38.5 7.4 Loss before tax (93.8) (28.7) Combined ratio 163.9% 116.9% 6

Reserve resilience continues Reserve releases of $26m (2018: $327m) Loss development by accident year • Robust reserves 9.4% (2018: 11.0%) above 2012 2013 2014 2015 2016 2017 2018 actuarial estimate 1.05 • 2018 impacted by 1.00 deterioration on 0.95 catastrophes and reserve caution 0.90 0.85 • 2016 and 2017 impacted 0.80 by strengthening on healthcare and 0.75 US casualty 0.70 0.65 • Tail length of casualty business 3-5 years 0.60 on average Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 • Reserve releases expected to be Reserve release as % of opening net reserves 3-5% of opening net reserves in 2020 13% 13% 13% 12% 11% 1% 2014 2015 2016 2017 2018 2019 7

Reduced reserve releases Continued positive development in Retail • Retail Prior year development ($m) – $40m reserve caution 2018 2019 250 – US Retail reserve strengthening 226 • Catastrophes 200 HIM releases – No repeat of $50m HIM release from 2018 – $40m adverse 150 development on prior year catastrophes and risk XS 100 100 • Exited lines – $35m deterioration in healthcare 46 50 • Current book – $20m strengthening in London Market D&O 0 – $60m less favourable development in (21) London Market property (50) Retail Big-ticket 8

Robust capital position • All capital bases 31 December 2019 satisfactorily capitalised • BMA’s Bermuda $2.28bn available capital Solvency Capital Requirement (BSCR) is $2.19bn available capital (post-final dividend) Solvency II equivalent Economic Regulatory • BSCR 205% (2018: 210%), equivalent to a regulatory capital surplus of $1.4bn • First year of three-year After phase 3 process to strengthen BSCR of new BSCR formula now complete formula • Based on current position, After phase 1 full strengthening would of new BSCR formula reduce BSCR by 20ppts, expected to be largely offset by capital generation and optimisation over next two years 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 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.

Strong investment performance Investment return of $223m (2018: $38m) Cash and bond income net of fees ($m) • Strong markets provide Mark-to-market on bonds ($m) a tailwind for bonds and 116 risk assets 97 • Group invested 46 75 assets $6.6bn 68 (2018: $6.3bn) 4 • High credit quality maintained in fixed income portfolio -23 -31 • Bond portfolio yield to 2016 2017 2018 2019 2016 2017 2018 2019 maturity now 1.6% • Average bond duration: Risk asset performance Bond portfolio yield to maturity (%) 1.6 years (2018: 1.5 years) ($m and as % of risk assets) 2.4 • Bond portfolio 61 53 currency split: 1.6 1.6 – $: 69% 23 1.3 – £: 19% (6.2%) – €: 8% 6.2% 12.9% 14.4% • 100% of investment -28 managers now signed up to UNPRI or equivalent 2016 2017 2018 2019 2016 2017 2018 2019 10

Ongoing investment in the business Building the brand Major projects Ambition to reduce expense ratio to low 40s • Increased operational efficiency • $89m invested in marketing • UK, USA and Europe underwriting through automation and scale in 2019 systems, Group-wide finance transformation programme • Over $500m invested since 2010 • Marketing and customer acquisition cost efficiency • $320m invested since 2013 • UK location strategy – moving 300 • Investment to peak in 2020 roles out of London • Medium-term Retail COR target range to remain 90-95% 11

2020 expectations • Re & ILS to reduce gross bet due to inadequate pricing and less deployable third-party capital • London Market growth fuelled by improved pricing environment • Retail COR between 96-98% in line with guidance, with growth in middle of 5-15% target range 12

Underwriting

An improving market • Hiscox London Market Core London Market All retail Catastrophe reinsurance – Third year of 120 rate increases – Overall rates up 11% – Rates up in 100 14 of 15 lines – Double-digit rate improvement in D&O, 80 cargo, major property, GL and marine hull • Hiscox Re & ILS 60 – Overall rates up 6% – North American 40 catastrophe up 3% – International catastrophe up 2% 20 – Retrocession up 8% • Hiscox Retail 0 – US E&O and D&O rates begin to turn, up 5% and 13% • Pushing for rate and managing exposure 12-month rolling period ending in all segments 14

An actively managed business Good growth while exiting $200m of business Total Group controlled premium 31 December 2019: $4,530 million Period-on-period in constant currency +10% $1,568m 2019 GWP Professional liability Errors and omissions +11% Private directors and $982m officers’ liability Property Cyber Commercial +4% Marine small package $574m +1% +1% Small Commercial $456m technology $446m Aviation property and media +28% Onshore energy Kidnap and Home and +17% $275m USA homeowners contents ransom Healthcare Casualty $229m Contingency Flood programmes related Fine art Public D&O Terrorism Managing general Classic car Cargo Professional agents Product recall Marine hull Media and indemnity Luxury motor Specialty Energy liability Personal International entertainment Large cyber Offshore energy Asian motor accident property General liability Marine liability Small commercial Reinsurance Property Art and private client Specialty Global casualty Marine and energy 15