Hiscox Ltd Preliminary results For the year ended 31 December 2015 - PowerPoint PPT Presentation

Hiscox Ltd Preliminary results For the year ended 31 December 2015

A good year • Premium growth of 10.7% (2014: 3.3%) – Hiscox Retail now 50% of Group GWP • Profit before tax £216.1m (2014: £231.1m) • Combined ratio 85.0% (2014: 83.9%) • Return on equity 16.0% (2014: 17.1%) • Total dividend for year 40.0p: second interim 32.0p (special 16.0p, final equivalent 16.0p) 1

Strategy of balance working 2

Financial performance

A strong result Full year Full year 2015 2014 £m £m Gross premiums written 1,944.2 1,756.3 Net premiums written 1,571.8 1,343.4 1,435.0 1,316.3 Net premiums earned Investment return on financial assets 33.7 56.4 15.2 5.0 Foreign exchange gains Profit before tax 216.1 231.1 Profit after tax 209.9 216.2 Basic earnings per share (p) 72.8 67.4 24.0 22.5 Interim/final equivalent dividend (p) 16.0 45.0 Additional return (p) Net asset value £m 1,454.2 1,528.8 462.5 p per share 545.0 Return on equity after tax 16.0% 17.1% 4

Segmental analysis 31 December 2015 31 December 2014 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 975.6 585.2 383.4 ‒ 1,944.2 891.1 510.9 354.3 – 1,756.3 Net premiums written 919.6 427.2 225.0 ‒ 1,571.8 825.9 336.9 180.6 – 1,343.4 Net premiums earned 870.4 383.9 180.7 ‒ 1,435.0 790.7 332.5 193.1 – 1,316.3 Investment result – Financial assets 17.2 6.7 3.3 6.5 33.7 25.9 8.9 9.4 12.2 56.4 Foreign exchange gains/(losses) (8.1) 6.7 8.3 8.3 15.2 (5.1) 9.0 2.7 (1.6) 5.0 Profit/(loss) before tax 73.3 59.9 97.5 (14.6) 216.1 78.1 62.6 105.6 (15.2) 231.1 Combined ratio 93.5% 85.7% 46.6% ‒ 85.0% 93.5% 84.2% 49.8% – 83.9% Combined ratio excluding monetary FX 92.6% 87.8% 51.4% ‒ 85.7% 92.9% 87.2% 51.6% – 84.7% 5 Business segments described in appendices.

Solid investment performance 31 December 2015 31 December 2014 Asset Annualised Asset Annualised allocation return Return allocation return Return % % £000 % % £000 Bonds £ 12.3 1.1 15.1 2.1 US$ 51.2 0.9 52.6 1.2 Other 8.9 0.6 10.1 1.9 Bonds total 72.4 0.9 21,585 77.8 1.5 36,714 Equities 7.2 4.0 10,410 7.8 7.6 17,604 Deposits/cash/ bonds <3 months 20.4 0.4 1,685 14.4 0.4 2,037 Actual return 1.0 33,680 1.8 56,355 Group invested assets £3,609m £3,245m 6 Before fees, derivative positions and investments in insurance linked funds.

Portfolio – asset mix High-quality, conservative portfolio Investment portfolio £3,609m as at 31 December 2015 • Cash higher due to proceeds from subordinated debt Asset allocation Bond credit quality Bond currency split issuance Bonds Gvt. USD Cash AAA GBP • Risk assets at 7.2% AA Risk assets EUR A • High credit quality CAD BBB maintained BB and below • Yield to maturity of bond portfolio at 1.3% 1.8 1.5 • Average bond duration: 18 months 7.2 10.8 13.1 32.7 20.4 17.0 17.6 70.7 72.4 16.3 18.5 7

Capital management Supporting growth • Changing requirements: growth opportunities and business mix moving to longer-tail • Optimising balance sheet structure – Subordinated debt issue: £275m at 6.125% – Proceeds used to pay down shorter duration Letter of Credit by $458m – $500m bank facility will remain undrawn until appropriate opportunities arise • Capital management priorities – Maintain progressive core dividend – Retain balance of earnings to support profitable growth 8

Capital requirement £1.80bn available capital £1.71bn available capital (post return) 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 2015 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. 9 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 shareholders’ equity and subordinated debt.

Cautious reserving approach unchanged Reserve releases £206m (2014: £172m) Loss development by accident year 2007 2008 2009 2010 2011 2012 2013 2014 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Ultimate net claims 10

Focus remains on growing shareholder value Net asset value (£m) • Compound growth of 8% • Dividends and capital returns since 2012: £750m 1,800 • Total shareholder returns over ten years: £1,068m 1,600 1,529 1,454 1,409 1,365 1,400 1,266 1,256 1,200 1,121 951 1,000 824 800 682 600 400 200 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 11

Underwriting

Mixed rating environment • Continued competition in Core London Market UK local casualty and commercial Catastrophe reinsurance US Direct core London Market and reinsurance business 140 • Growing where rates are flat e.g. UK commercial and US Direct 120 Rate on line indexed to January 2010 100 80 60 40 20 0 13

An actively managed business Total Group controlled premium 2015: £2,165m Period-on-period in local currency 2015 GWP +14.0% £581m Professional liabilities +15.2% -2.5% Errors and £434m omissions £429m Kidnap and ransom Directors and officers’ liability Non-marine Contingency +5.2% Cyber Terrorism £292m Marine -4.7% Product recall Commercial small Home and £238m package contents Personal accident Commercial Aviation property Fine art Small technology Political risks and media Onshore energy -17.2% Classic car Aerospace +39.1% £111m USA homeowners Casualty Healthcare related £80m Cargo Managing general Contractors’ Luxury motor Marine hull agents equipment FTC D&O, PI Energy liability Media and Specialty International Healthcare Offshore energy entertainment Asian motor Extended warranty property General liability Marine liability Local casualty and Specialty Reinsurance Art and private client Property Marine and energy Global casualty commercial 14

Hiscox London Market Changing business mix GWP £m 800 Total = £729m 700 71 600 176 Total = £456m 500 39 Casualty: D&O, PI, healthcare Contractors’ equipment FTC 11 145 400 Specialty: terrorism, political risks, 137 personal accident, aerospace 300 226 Property: onshore energy, 126 200 US homeowners, commercial 100 143 Marine and energy 111 0 2010 2015 15

Hiscox Re Changing business mix GWP £m 600 Total = £534m 5 34 Total = £438m 500 12 27 Casualty 400 27 31 Specialty 51 300 Healthcare 495 Marine 200 Kiskadee 290 Property 100 0 2010 2015 16

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 £75m-£300m could be suffered in the following extreme scenarios: Event Est. loss Global Spanish flu type event (high infection, low mortality) Pandemic £75m 45% infection rate, 20% medical treatment, 0.3% case fatality rate Systemic attack on domain name servers. Widespread webpage outage for one to Cyber £100m two days. Insurance industry loss of c.£5bn Multi-year loss ratio 5% deterioration on three years casualty premiums of c.£2bn £100m deterioration Economic collapse US GDP drop of 10% to 15%, approximately three times the 2007-08 financial crisis £225m Casualty reserve 35% deterioration on existing casualty reserves of c.£825m £300m deterioration Est. 1 in 200 year event Property catastrophe 1 in 200 year catastrophe event from £160bn US windstorm £300m 17

Business performance

Managing the business Gross written premiums for the year to 31 December 2015 2015 2014 Change Growth in local £m £m % currency % Hiscox Retail Hiscox UK and Europe Hiscox UK and Ireland 443.3 435.0 1.9 2.2 Hiscox Europe 151.8 155.1 (2.1) 7.8 Hiscox International Hiscox Guernsey 67.8 64.5 5.1 (1.9) Hiscox USA 294.5 223.1 32.0 21.5 DirectAsia* 18.2 13.5 34.8 24.7 Hiscox London Market 585.2 510.8 14.6 8.5 Hiscox Re 383.4 354.3 8.2 2.9 Total 1,944.2 1,756.3 10.7 7.2 19 *DirectAsia – 2014 figure relates to the nine months from the date of acquisition.

A differentiated retail brand around the world 20