hiscox ltd preliminary results · combined ratio excluding monetary fx 91.9% 92.0%. hiscox london...

Hiscox LtdPreliminary resultsFor the year ended 31 December 2016

A record resultFlattered by FX

• Gross written premiums up by 23.6% to £2,402.6m

• Profit before tax up by 64% to £354.5m

• Full year dividend step up by 15% to 27.5p

• Net asset value up by over £1 per share to 649.9p

• Return on equity up by 7.0% to 23.0%

1

2010 split 2015 split 2016 split Big-ticketHiscox London MarketHiscox Re and ILS

RetailHiscox Retail

GWP

NWP

PBT excl. FX

54% 46%

47%53%

87%

13%

51%49%

40%60%

39%61%

49%51%

39%61%

46%54%

Retail comes of age

2PBT excludes Corporate Centre.

Financial performance

2016£m

2015£m

Change%

GrowthGross premiums written 2,402.6 1,944.2 23.6Net premiums written 1,787.9 1,571.8 13.7Net premiums earned 1,675.0 1,435.0 16.7EarningsUnderwriting profit 158.4 177.8 (10.9)Investment return 75.0 35.4 111.9Foreign exchange 152.4 15.2 902.6Other* (31.3) (12.3) (154.5)Profit before tax 354.5 216.1 64.0Combined ratio 84.4% 85.0% (0.6)Combined ratio excl. monetary FX 90.8% 85.7% 5.1Balance sheetOrdinary dividend (p) 27.5 24.0 14.6Additional return (p) ‒ 16.0 –Net asset value

£mp per share

1,818.4649.9

1,528.8545.0

18.919.2

Return on equity 23.0% 16.0% 7.0

Group performanceStrength in diversity

4*Includes finance costs, impairments and accelerated amortisation.

• Top line growth of 23.6%, 14.1% in local currency

• Net growth dominated by Retail

• Good underwriting profit and investment return

• Favourable currency movements

• Dividend step up

• NAV up by over £1 per share

• Underlying expense ratio steady

Hiscox RetailStrategy paying off

5*Includes impairments and accelerated amortisation.

• Hiscox USA – outstanding performance, premium growth of over 30%

• Hiscox UK and Irelandand Hiscox Europe – good profitability and growth

• Hiscox Special Risks –decreasing in the face of tough competition

• Local currency growth of 13.2%

• Profits more than doubled

• Retention rates consistently at 90%

• Combined ratios: – Hiscox UK and Ireland

83.0%– Hiscox Europe 86.3%– Hiscox International

93.6%

2016£m

2015£m

Gross premiums written 1,181.4 989.8

Net premiums written 1,092.0 936.6

Net premiums earned 1,020.5 888.0

Underwriting profit 99.5 72.2

Investment result 31.3 17.4

Foreign exchange and other* 27.2 (11.0)

Profit before tax 158.0 78.6

Combined ratio 88.1% 92.9%

Combined ratio excluding monetary FX 91.9% 92.0%

Hiscox London MarketA good result in a challenging market

6*Includes impairment.

• Top line growth of 14.2% in local currency –significantly moderated at net level

• Bottom line flattered by foreign exchange

• Step down in underwriting profit as challenging environment bites

• Growth driven by new teams

• Materially shrinking in 2017

2016£m

2015£m

Gross premiums written 726.0 571.0

Net premiums written 469.1 410.3

Net premiums earned 443.1 366.4

Underwriting profit (3.4) 40.9


Foreign exchange and other* 34.0 6.9




Hiscox Re and ILSGood underwriting and good growth

7*Includes finance costs.

• Local currency growth of 16.1%

• Continued disciplined underwriting

• Growth in specialty and casualty lines, with new products and new teams

• Kiskadee (ILS) now $1.25 billion AUM

• Increasing contribution from fees and profit commissions

• ILS funds have achieved positive monthly returns since inception

• Innovative fund structures and proximity to Hiscox Re provides access to a diverse pool of risk

2016£m

2015£m

Gross premiums written 495.2 383.4

Net premiums written 226.8 225.0

Net premiums earned 211.4 180.7

Underwriting profit 82.5 85.9


Foreign exchange and other* 21.3 6.9




A good claims experience

• Net catastrophe and market loss claims impact for Hiscox Ltd – Catastrophe: £65.4m (2015: £17.9m) – includes Hurricane

Matthew, Alberta wildfires, Louisiana and Houston floods, Texas hailstorm, Japan and Ecuador earthquakes, UK and European storms

– Market losses: £12.4m (2015: £17.6m) – includes Jubilee oil field, Prestige, Pemex, Brussels and Istanbul terrorist attacks

• For Hiscox Re and ILS, good risk selection in a year of high frequency, low severity catastrophe activity

8

A consistent approach to reservingReserve releases £213m (2015: £206m)

9

Loss development by accident year • 12.7% of openingnet reserves broadly consistent with prior years

• No adverse development

• Maintaining a cautious approach

2011 2012 2013 2014 2015

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6Ultimate net claims

Reserve release as % of opening net reserves

15.0%

10.2% 9.5%11.5% 12.9% 12.7%

2011 2012 2013 2014 2015 2016

70.5

18.3

9.5

1.7

USDGBPEURCAD and other

Portfolio – asset mixHigh-quality, conservative portfolio

10

Investment portfolio £4,410m as at 31 December 2016 • AUM increased as a result of growing balance sheet and USD strength

• Risk assets at 6.9%

• High credit quality maintained

• Yield to maturity of bond portfolio 1.3% at 31 December (1.0% as at 30 June)

• Average bond duration: 21.5 months

30.2

15.918.6

18.9

14.9

1.5

Gvt.AAAAAABBBBB and below

77.4

15.7

6.9

BondsCashRisk assets

Asset allocation Bond credit quality Bond currency split

31 December 2016 31 December 2015

Asset allocation

%

Annualisedreturn

%Return

£000

Asset allocation

%

Annualisedreturn

%Return

£000

Bonds £ 14.1 2.7 12.3 1.1

US$ 54.6 1.7 51.2 0.9

Other 8.7 1.1 8.9 0.6

Bonds total 77.4 1.9 55,709 72.4 0.9 21,585

Equities 6.9 6.2 17,246 7.2 4.0 10,410

Deposits/cash/bonds <three months 15.7 0.3 1,881 20.4 0.4 1,685

Actual return 1.9 74,836 1.0 33,680

Group invested assets £4,410m £3,609m

Strong investment performance

11Before fees, derivative positions and investments in insurance linked funds.

Solvency capital vs. regulatory requirements

12

$2.6bn

$1.2bn

Available statutory economic capital and surplus Bermuda enhanced solvency capital requirement

$1.4bn surplusSolvency ratio estimate 214%

A.M. Best(catastrophe

stressed)

S&P Fitch Group capital model(economic)

Group capital model(regulatory)

Bermuda enhancedsolvency capital

requirement

Capital requirement

13

£1.97bn available capital

£1.92bn available capital (post final dividend)

Rating agency assessments shown are internal Hiscox assessments of the agency capital requirements on the basis of 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 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.

Economic Regulatory

9%18%

29%36%

56%

91%82%

71%64%

44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015 2016

Retail providing bottom line stabilityBalance of insurance profits

14

Underwriting profitsHiscox Retail Big-ticket

(Hiscox London Market, Hiscox Re and ILS)

Total Group controlled income

UK and Ireland

Europe

Special Risks

USA

DirectAsia

Property

Specialty

Casualty

Marine and energy

Reinsurance

Quota share

ILS

Hiscox Retail Hiscox London Market Hiscox Re and ILS

Focus remains on growing shareholder valueNAV up, dividend up

15

Net asset value per share (p) • Compound growth of 13.4%

• Dividends and capital returns over five years: £825m

• Total shareholder returns over five years: £881m

• Final dividend up 19%, full year dividend up 15%

• Progressive dividend to continue

• NAV per share up £1.05 this year

210

258299

333 324346

402

463

545

650

0

100

200

300

400

500

600

700

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Underwriting

Rates stable in retail, continued pressure in big-ticket lines

17

• Retail stable

• Small reductions in catastrophe reinsurance

• Greatest pressure in London Market, driven by– Marine and energy– Aviation– Big-ticket property

• Focus growth on areas of rate adequacy

Core London MarketAll Retail Catastrophe reinsurance

0

20

40

60

80

100

120

Rat

e on

line

inde

xed

to J

anua

ry 2

010

12 month rolling period ending

Small commercial Reinsurance Specialty Art and private client Property Marine and energy Global casualty

An actively managed business

18

Period-on-period in local currency2016 GWP

Non-marine

Marine

Aviation

Casualty

Specialty

Professional liabilities

Errors and omissions

Private directors and

officers’ liability

Cyber

Commercial small package

Small technology and media

Healthcare related

Media and entertainment

Kidnap and ransom

Contingency

Terrorism

Product recall

Personal accident

Political risks

Aerospace

Contractors’ equipment FTC

Extended warranty

Home and contents

Fine art

Classic car

Luxury motor

Asian motor

Commercial property

Onshore energyUSA homeowners Managing general

agentsInternational

property

CargoMarine hull

Energy liabilityOffshore energyMarine liability

Public D&O, PIHealthcare

General liability

+22.5%£762m

+11.8%£533m

+10.5%£530m

+1.1%£308m +6.6%

£285m

+4.8%£129m

+38.9%£126m

Total Group controlled premium 2016: £2,673m

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016

NW

P

Hiscox London Market business mixReducing where rates are under most pressure

19

• Grow new teams where we see opportunities– e.g. Cyber, flood,

product recall, general liability

• Hold areas of strength and margin– e.g. household and

commercial property binders, terrorism

• Reduce or exit lines where market conditions have materially eroded margin– e.g. extended warranty,

political risks, big-ticket property, aviation

NWP (100% share): £513m £581m

Reduce Hold Grow

+145%£83m

+4%£6m

-7%(£20m)

2015 2016

GWP NWP

Hiscox Re and ILS

2015 2016

GWP NWP

0

200

400

600

800

1,000

1,200

2015 2016

Gro

ss/n

et w

ritte

n pr

emiu

ms

(£m

)

GWP NWP

Managing our net exposureBig-ticket discipline and Retail growth

20

Gross/net written premiums in local currency

*Excludes retroactive reinsurance transaction (£13.2 million).

Hiscox RetailHiscox London Market

+4%

+14%

+11%

+4%

+18%

+39%

*

Hiscox USAAchieving scale and profitable

21

• Appetite broadened to extend SME footprint

– Direct Workers’ comp Health and beauty Small contractors Real estate

– Broker Cyber (accelerating) Financial services Crime General liability

0

100

200

300

400

500

600

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Gro

ss w

ritte

n pr

emiu

ms

($m

)

Broker Direct and partnerships

Twenty-first century underwritingInvesting in technology and data

22

Direct UKPortfolio underwritten (automated)

Portfolio underwriting brings together:

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

31 Dec 2014Pre Merlin

1 Jan 2015Day 1

1 Jan 2017Implementation

complete

Direct home Direct commercial

31 Dec 2014Pre-system

upgrade

Evolving our core specialties

23

Seizing cyber opportunity as the market grows

• Hiscox Retail focus on SME– Multi-channel approach

(broker and direct)

• Broader appetite and innovative solutions for big-ticket markets

Launching new products to remain relevant in a dynamic retail environment

• Special Risks launched Security Incident Response in 2016

Business performance and outlook

Net written premiums for the year to 31 December 2016

2016£m

2015£m

Change%

Growth in local currency

%

Hiscox Retail

Hiscox UK and Europe

Hiscox UK and Ireland 459.3* 423.7 8.4 7.1

Hiscox Europe 167.7 141.4 18.6 8.8

Hiscox International

Hiscox Special Risks 88.3 94.0 (6.1) (16.7)

Hiscox USA 381.0 267.0 42.7 27.4

DirectAsia 8.9 10.5 (15.2) (24.3)

Hiscox London Market 469.1 410.2 14.3 4.4

Hiscox Re and ILS 226.8 175.9† 28.9 14.2

Total 1,801.1 1,522.7 18.3 9.3

Managing the business

25*Excludes retroactive reinsurance transaction (£13.2 million).†Excludes consolidation of Kiskadee for 2015.

Strategy consistentDisciplined and opportunistic

• Exercise discipline in areas under pressure– Reduce net exposure, but remain relevant and ready for opportunities– Shrink where margin is evaporating; e.g. aviation and White Oak– Exit if necessary Closure of political risks Transfer of healthcare business in Bermuda Sale of DirectAsia Hong Kong

• Focus and invest where we see long-term opportunity – New teams in London Market– Product evolution– Portfolio underwriting in Retail– Brand across the world

26

Investing for growth

27

Hiscox London Market, Re and ILS

• New teams– Cargo– Product recall– General liability

• Establishing lines– D&O– Personal accident

• ILS collateralised fund launched

• Broadening of investor base

• Cyber reinsurance

• Hiscox MGA

Retail – broker channel

• Analytics and product ‘reboots’ in US– D&O and cyber– Enhanced pricing,

risk selection

• Expand Hiscox PRO suite– Home healthcare– Fast-growing industries– Fintech

• Security Incident Response– Bribery and extortion– Industrial espionage– Workplace violence

• Improved infrastructure– UK system replacement

in progress– US underwriting centre

Retail – direct and partnerships

• Broadening US appetite to attract switchers e.g. workers’ comp

• Improved IT infrastructure– UK upgrade complete

and working– US system replacement

planned

– New ‘application programming interface’ for partner connectivity

• Portfolio underwriting effective in UK

• Portfolio acquisitions from brokers

Continued investment in our brand2016: £42 million

28

Responding to the changing environment

• Brexit– Two candidates for NewCo location– Political deal will be required for run-off policies– Supportive of Lloyd’s plans– Temporary capital inefficiency

• US tax and political uncertainty: implications of ‘border adjustments’ unclear

• Currency volatility

• Ogden discount rate decision: material for market, not for Hiscox

29

2010 split 2015 split 2016 split Big-ticketHiscox London MarketHiscox Re and ILS

RetailHiscox Retail

GWP

NWP

PBT excl. FX

54% 46%

47%53%

87%

13%

51%49%

40%60%

39%61%

49%51%

39%61%

46%54%

Our evolutionBig-ticket vs. Retail business

30PBT excludes Corporate Centre.

Summary and outlookStrategy of balance to continue

• Hiscox London Market facing more pressure and will reduce

• Hiscox Re and ILS to remain a material player

• Hiscox Retail biggest contributor to 2016 profit and will continue to grow

• Capital management remains a core focus

– Step up in base dividend

– Continued commitment to progressive dividend approach

31

Appendices

• Big-ticket and retail business• Geographical reach • Strategic focus• A symbiotic relationship• Long-term growth• An actively managed business• Segmental analysis• Hiscox Ltd results• Boxplot and whisker diagram of Hiscox Ltd• Realistic disaster scenarios• Casualty extreme loss scenarios • GWP geographical and currency split• Group reinsurance security• Reinsurance• Portfolios – USD bond portfolios• Portfolios – GBP, EUR and CAD bond portfolios• Business segments• Glossary of terms

32

What do we mean by big-ticket and retail business?

• We characterise big-ticket as larger premium, catastrophe-exposed business written through Hiscox Re and ILS and Hiscox London Market. We expand and shrink these lines according to market conditions.

• Retail is smaller premium, less volatile business written through Hiscox Retail. Investment in our brand and specialist knowledge differentiates us here. We aim to grow this business between 5-15% per annum.

33

Geographical reach

34

USAAtlantaChicagoDallasLos AngelesNew York CitySan FranciscoWhite Plains

GuernseySt Peter Port

Latin American gatewayMiami

BermudaHamilton

EuropeAmsterdamBordeauxBrusselsCologneDublinHamburgLisbonLyonMadridMunichParis

UKBirminghamColchesterGlasgowLondonMaidenheadManchesterYork

AsiaBangkok Singapore

Strategic focus

35

A symbiotic relationship

36

-

400

800

1,200

1,600

2,000

2,400

2,800

Long-term growth

37

Hiscox Re and ILS Hiscox UK

Gro

ss w

ritte

n pr

emiu

ms

(£m

)

Hiscox London Market Hiscox EuropeHiscox Special RisksHiscox USA

DirectAsia

His

cox

Ret

ail

His

cox

Lond

on M

arke

tH

isco

x R

e an

d IL

S

0

Small commercial Reinsurance Specialty Art and private client Property Marine and energy Global casualty

An actively managed business

38

Period-on-period in local currency2016 GWP

Non-marine

Marine

Aviation

Casualty

Specialty

Professional liabilities

Errors and omissions

Private directors and

officers’ liability

Cyber

Commercial small package

Small technology and media

Healthcare related

Media and entertainment

Kidnap and ransom

Contingency

Terrorism

Product recall

Personal accident

Political risks

Aerospace

Contractors’ equipment FTC

Extended warranty

Home and contents

Fine art

Classic car

Luxury motor

Asian motor

Commercial property

Onshore energyUSA homeowners Managing general

agentsInternational

property

CargoMarine hull

Energy liabilityOffshore energyMarine liability

Public D&O, PIHealthcare

General liability

+22.5%£762m

+11.8%£533m

+10.5%£530m

+1.1%£308m +6.6%

£285m

+4.8%£129m

+38.9%£126m

Total Group controlled premium 2016: £2,673m

31 December 2016 31 December 2015*

HiscoxRetail

£m

HiscoxLondon Market

£m

Hiscox Reand ILS

£m

CorporateCentre

£mTotal

£m

HiscoxRetail

£m

HiscoxLondon Market

£m

Hiscox Re and ILS

£m

CorporateCentre

£mTotal

£m

Gross premiums written 1,181.4 726.0 495.2 – 2,402.6 989.8 571.0 383.4 ‒ 1,944.2

Net premiums written 1,092.0 469.1 226.8 – 1,787.9 936.5 410.3 225.0 ‒ 1,571.8

Net premiums earned 1,020.5 443.1 211.4 – 1,675.0 888.0 366.3 180.7 ‒ 1,435.0

Investment result 31.3 13.4 11.7 18.6 75.0 17.4 6.8 4.7 6.5 35.4

Foreign exchange gains/(losses) 37.2 35.0 23.0 57.2 152.4 (8.3) 6.9 8.3 8.3 15.2

Profit/(loss) before tax 158.0 44.0 115.5 37.0 354.5 78.6 54.6 97.5 (14.6) 216.1

Combined ratio 88.1% 91.0% 53.7% – 84.4% 92.9% 86.6% 46.6% ‒ 85.0%

Combined ratioexcluding monetary FX 91.9% 99.7% 65.6% – 90.8% 92.0% 88.8% 51.4% ‒ 85.7%

Segmental analysis

39*Restated to bring global kidnap and ransom business in to Hiscox Retail (Hiscox Special Risks).Business segments described in appendices.

£m 2016 2015 2014 2013 2012 2011

Gross premiums written 2,402.6 1,944.2 1,756.3 1,699.5 1,565.8 1,449.2

Net premiums written 1,787.9 1,571.8 1,343.4 1,371.1 1,268.1 1,174.0

Net premiums earned 1,675.0 1,435.0 1,316.3 1,283.3 1,198.6 1,145.0

Investment return† 74.8 33.7 56.4 58.9 92.7 25.9

Profit before tax 354.5 216.1 231.1 244.5 217.5 17.3

Profit after tax 337.0 209.9 216.2 237.8 208.0 21.3

Basic earnings per share 119.8p 72.8p 67.4p 66.3p 53.1p 5.5p

Dividend 27.5p 24.0p 22.5p 21.0p 18.0p 17.0p

Invested assets (incl. cash)† 4,409.6 3,609.4 3,244.9 3,129.5 3,055.8 2,873.4

Net asset value

£m 1,818.4 1,528.8 1,454.2 1,409.5 1,365.4 1,255.9

p per share 649.9 545.0 462.5 402.2 346.4 323.5

Combined ratio 84.4% 85.0% 83.9% 83.0% 85.5% 99.5%

Return on equity after tax* 23.0% 16.0% 17.1% 19.3% 17.1% 1.7%

Hiscox Ltd results

40†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

800

JPEQ

USEQ

EUWS

USWS

JPEQ

USEQ

EUWS

USWS

JPEQ

USEQ

EUWS

USWS

JPEQ

USEQ

EUWS

USWS

JPEQ

USEQ

EUWS

USWS

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

Boxplot and whisker diagram of modeledHiscox Ltd net loss ($m) January 2017

41

02 02 06 22 06 07 10 43 17 18 15 76 26 35 20 113 36 62 27 163Mean industry loss $bn

Industry loss returnperiod and peril

JP EQ – Japanese earthquakeUS EQ – United States earthquakeEU WS – European windstormUS WS – United States windstorm

His

cox

Ltd

loss

($m

)Lower 5%- upper 95% rangeModelled mean loss

Hur

rican

e K

atrin

a $5

0bn

mar

ket l

oss

21 y

ear r

etur

n pe

riod

Hur

rican

e A

ndre

w $

56bn

mar

ket l

oss

25 y

ear r

etur

n pe

riod

Nor

thrid

ge Q

uake

$24

bn m

arke

t los

s 40

yea

r ret

urn

perio

d

Sup

erst

orm

San

dy -

$20b

n m

arke

t lo

ss, 7

yea

r ret

urn

perio

d

1987

J $

10bn

mar

ket l

oss

15 y

ear r

etur

n pe

riod

Lom

a P

rieta

Qua

ke $

6bn

mar

ket l

oss

15 y

ear r

etur

n pe

riod

2011

Toh

oku

Qua

ke $

25bn

mar

ket

loss

, 45

year

retu

rn p

erio

d

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

Realistic disaster scenarios

42

Hiscox Group – losses shown as percentage of 2016 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.

38%

16%

35%

49%

26%

7%

3%

8%

8%

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 lossNet loss

Casualty extreme loss scenariosChanging 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 £125m-£350m could be suffered in the following extreme scenarios:

43

Event Est. loss

Pandemic Global Spanish flu type event (high infection, low mortality)45% infection rate, 20% medical treatment, 0.3% case fatality rate £125m

Cyber Very large cloud service provider goes offline for 12 days. Insurance industry loss of c.£30bn £175m

Multi-year loss ratio deterioration 5% deterioration on three years casualty premiums of c.£2.4bn £125m

Economic collapse US GDP drop of 10% to 15%, approximately three times the 2007-08 financial crisis £350m

Casualty reserve deterioration

35% deterioration on existing casualty reserves of c.£1bnEstimated 1 in 200 year event £350m

Property catastrophe 1 in 200 year catastrophe event from £160bn US windstorm £365m

GWP geographical and currency split

44

2016 geographical split – controlled income 2016 currency split – controlled income

51.5%

8.3%

9.2%

14.5%

16.5%

North AmericaOtherWesterm Europe (excl. UK)WorldwideUK

24.0%

60.4%

3.9%

11.7%

GBPUSDCAD and otherEUR

Group reinsurance security

45

Receivables at 31/12/16 of £805.6m

52.1%

20.6%

24.4%

2.9%

AAAAAA and collateralisedOther

61%

33%

6%

AAAAAA

*Reinsurance placements in force at 13 February 2017.

2017 reinsurance protections*First loss exposure by S&P

20.9

13.4

18.7

21.7

19.4 21

.0

19.0

19.0

19.3

23.5

19.2

25.6

0

5

10

15

20

25

30

Reinsurance

46

Ceded as a percentage of GWP Reinsurance receivables as a percentage of total assets

17.0

10.0

7.7

13.4

11.0 11

.6

11.7 12

.3

10.3

10.6

10.2

12.1

0

5

10

15

20

25

Portfolio – USD bond portfoliosas at 31 December 2016

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

• Liquid portfolio

• Short duration

• Corporates still favoured

Portfolios: $3.0bnAAA

%AA%

A %

BBB%

BB and below

%Total

%Durationmonths

Government issued 31.4 0.1 0.1 0.1 31.7 20.0

Government supported* 0.7 5.5 0.4 6.6 21.4

Asset backed 6.1 0.2 6.3 13.6

Mortgage backed agency 6.7 6.7 34.1

Non agency 0.5 0.4 1.4 2.3 13.8

Commercial MBS 1.5 0.1 0.1 1.7 7.7

Corporates 0.9 7.1 19.6 15.6 0.3 43.5 17.5

Lloyd’s deposits 0.8 0.1 0.3 1.2 14.0

Total 10.5 51.5 20.4 15.8 1.8 100.0 19.1

Portfolio – GBP, EUR and CAD bond portfoliosas at 31 December 2016

48*Includes supranational and government guaranteed bonds.

• Governments favoured for duration management

• No exposure to Greece, Ireland , Italy, Portugal or Spain Sovereign debt

• GBP corporates add yield

• EUR portfolios on negative yields despite credit and duration

GBP portfolios: £586m AAA

%AA%

A%

BBB%

BB and below

%Total

%Durationmonths

Government issued 28.7 28.7 36.0

Government supported* 17.7 6.3 0.1 24.1 20.3

Asset backed 3.7 0.1 0.8 4.6 22.0

Corporates 4.6 4.2 16.2 16.1 1.5 42.6 33.6

Total 26.0 39.2 16.3 17.0 1.5 100.0 30.5

EUR and CAD portfolios: £437m AAA

%AA%

A%

BBB%

BB and below

%Total

%Durationmonths

Government issued 23.5 0.3 23.8 49.3

Government supported* 17.8 12.5 2.7 0.1 33.1 20.0

Asset backed 1.7 1.7 12.2

Corporates 6.5 5.8 11.3 6.3 0.1 30.0 15.2

Lloyd’s deposits 6.1 3.5 1.1 0.7 11.4 13.0

Total 55.6 22.1 15.1 7.1 0.1 100.0 24.6

Business segments

Hiscox RetailHiscox Retail brings together the results of the UK and Europe, and Hiscox International being the US, Special Risks and Asia retail business divisions. Hiscox UK and Europe underwrite European personal and commercial linesbusiness 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, and Hiscox Europe excludes the kidnap and ransom business written by Hiscox Insurance Company Limited. 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. It also includes the European kidnap and ransom business written by Hiscox Insurance Company Limited and Syndicate 33.

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, excluding the kidnap and ransom business. In addition the segment includes elements of business written by Syndicate 3624 being auto physical damage, auto extended warranty and aviation business.

Hiscox Re and ILSHiscox 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 and fee income of Kiskadee, further details of which can be found in note 2.3 of the Group’s Report and Accounts for the year ended 31 December 2016.

Corporate CentreCorporate 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 2016. Corporate Centre forms a reportable segment due to its investment activities which earn significant external returns.

49

Glossary of terms

Binding authorityAn agreement between a Lloyd’s managing agent and a coverholder under which the managing agent delegates its authority to enter into contracts of insurance to be underwritten by the members of a syndicate.

Claims ratioNet claims incurred, including IBNR, as a percentage of net earned premiums.

Combined ratioThe total of the claims, expenses and impact of foreign exchange ratios.

Expense ratioExpenses as a percentage of net earned premiums.

Funds at Lloyd’sThe 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 premiumPremiums contracted for before any deductions.

Group controlled The total gross written premium controlled by the Group including the 27.5% of the Syndicate capacity not owned by Hiscox in 2016 (27.5% in 2015).

IBNRIncurred 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.

ILSInsurance-linked securities. Financial instruments whose value is affected by an insured loss event. Examples include catastrophe bonds and other forms of risk-linked securitization.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-tailA 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.

50

Glossary of terms

MGAManaging General Agency. An individual or business entity appointed by an insurer to solicit applications from agentsfor insurance contracts or to negotiate insurance contracts

on behalf of an insurer.

Member or NameThe companies or individuals who own the capacity of a syndicate and who belong to the membership of the Society of Lloyd’s.

Net premiums earnedPremiums 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 writtenPremiums 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 shareThese 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 – RITCThe 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 accountAt Lloyd’s, a year of account which is kept open after the date on which it would normally have been closed.

Stamp capacityThe volume of business measured in gross written premiums net of acquisition costs underwritten by the group through its managed syndicates at Lloyd’s of London.

SubrogationThe right of the underwriter to ‘stand in the shoes of the insured’ and take over the Insured's rights, following payment of a claim, to recover the payment of an incurred loss from a third party responsible for the loss. It is limited to the amount of loss paid by the insurance policy.

Syndicate capacityAlso 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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hiscox ltd preliminary results · combined ratio excluding monetary fx 91.9% 92.0%. hiscox london...

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