Hiscox Ltd

Ladies and gentlemen, welcome to the Hiscox Q3 IMS conference call. I'm Sasho, the chorus call operator. At this time, it's my pleasure to hand over to Paul Cooper, CFO. Please go ahead.

Good morning, everyone, and thank you for dialing in to Hiscox's Q3 2023 trading update. I'm Paul Cooper, the Hiscox Group CFO, and I'm going to briefly walk you through the usual topics that we cover at this time of the year namely top line growth, large loss experience year to date, and our investment result. Let me start with growth. On a gross basis, so using our insurance contract written premium metric, ICWP for short, Q3 saw the group deliver top line growth of 6.8% in constant currency, We continue to deploy capital in the attractive rate environment in London Market and Rhian ILS, and to build scale through disciplined and profitable growth in retail. Looking at net written growth, net insurance contract written premium, or net ICWP for short, increased even more by 11%, driven by the acceleration of net growth in Rhian ILS to 23.6%, and in London market to 18.1%, reflecting our cycle management and capital deployment strategy to maximize potential earnings. Before going into more detail, I want to preempt the question I know I'm going to get on capital return. We appreciate the importance of returning surplus capital to shareholders, but the timing depends on the market we see in front of us. Today, we are still in a hard market, As you can see, growth in our big-ticket business has accelerated in Q3, so we are deploying capital and at very attractive returns. Just to give you an insight into the performance of our reinsurance platform, Hiscox's ILS funds, which participate in the risks underwritten by our reinsurance business, have delivered record performance. AUM is unchanged since half year as the net capital outflows of £294 million in the third quarter were largely offset by the stellar returns generated by the ILS funds. Now let's take a closer look at how each of the segments have performed year to date, starting with retail. ICWP increased by 4.7% in constant currency with a couple of highlights to call out. Firstly, Europe continues to deliver. The region is once again the strongest growing business in the retail portfolio, delivering growth of 11.1% in constant currency. All markets are performing strongly, in particular Benelux, France and Iberia. Our new core technology rollout is progressing to plan and we are very pleased with the sustainability of growth in Europe. Secondly, USDPD premium growth continues to accelerate, up 9.2% in Q3 from 8.9% in Q2 and 6.8% in Q1. Direct business has been live on the new technology since June 2022 and is showing excellent progress. delivering new business growth in excess of 50%. The recovery of growth of our digital partnerships business from its low point in Q1 is continuing as both existing and new partners increased production. Overall, USDPD remains on track to deliver the full year 2023 USDPD growth guidance towards the middle of the 5% to 15% range. Thirdly, Underlying growth in the UK remains robust. There is a lot of excitement amongst our UK colleagues as we launched a new brand campaign in September. It is a significant milestone as we look to increase awareness and recognition of Hiscox in both our direct and broker channels. The creative thread running through the work is Your Story, underwritten by Hiscox, a concept focused on recognising the people and stories behind each policy. Early signs suggest a positive impact on brand spontaneous awareness, as well as good industry press coverage. And I hope one of you, one of the adverts caught your eye on your morning commute today. So these are the positives that give us confidence in the recovery of retail growth momentum. But there have clearly been some headwinds too. These are not new. As flagged in August, retail growth has been tempered by our deliberate underwriting actions, as we continue to exit non-core underwriting partnerships in the UK. This will be completed this year. We also adopted a disciplined approach in US Broker in response to the unfavourable rate environment in cyber. To mitigate the effects of this, we executed a growth initiative focused on our most profitable classes in US Broker. This has increased submissions, And we have seen signs that the adverse impact of cyber has started to moderate in the fourth quarter. The retail growth trend in October has been encouraging and we remain on track to deliver the full year 2023 growth guidance to be in line with the half year trend. And finally, just as a reminder, we have announced the agreement to sell the direct Asia business as part of our active portfolio management and focus on key markets. The sale is expected to complete by the end of the year, subject to customary conditions and regulatory approvals. Moving on to our London market division. ICWP increased by an impressive 12.2% up from 10.6% at half year. Net growth is even stronger at 18.1% up from 14.2% at half year, as we retained more risk in the attractive market conditions. Property classes continued to enjoy a hard market, most notably in property binders and major property. Marine energy and specialty was the fastest-growing segment of London market, with ICWP up in excess of 40%. Power and renewables has been the primary beneficiary from the large volume of construction taking place in the energy sector, as economies across the globe work towards their net-zero commitment and strive to achieve energy security amidst the uncertainties of the current geopolitical environment. We remain confident that our strategy of targeting profitable growth through effective cycle management positions us well to deliver strong returns in 2023. Moving on to our final segment. Hiscox Re-NILS delivered strong net ICWP growth of 23.6%, up from 17.9% at half-year, as we seized opportunities in the hard market to grow exposure and improve attachment points. Growth on a gross basis is more modest at 2.7%, in line with the trend highlighted throughout the year. I'm delighted to report that Hiscox's ILS funds have delivered record performance, generating an increasing amount of fee income for the group. Hiscox ILS assets under management of 1.7 billion are unchanged from the half-year position. This includes net capital outflows of 294 million in the third quarter, largely offset by record returns generated by the ILS funds. Looking ahead to January renewals, we anticipate that the market will remain disciplined and will continue to be very attractive. Now let's look at our loss experience. The third quarter has been fairly active as we saw several natural catastrophe events, as well as man-made large losses, including wildfires in Hawaii and Canada, an earthquake in Morocco, several hurricanes and claims in our space book. Pleasingly, despite the frequency and nature of these events, the group natural catastrophe losses during the first nine months of the year are within the group's budget. As you know, our current pricing and reserving assumptions incorporate expected inflation, which is a multiple of experience seen in the book historically. And this conservative approach means the increased premiums being collected through rate and indexation are keeping pace with our view of expected inflation. Lastly, a couple of comments on the investments. The year-to-date investment result of £202 million compares to a £294 million lost this time last year and represents a 2.8% return year-to-date. The yield to maturity on the fixed income portfolio rose to 5.7% at the end of September. Bond coupons and cash income, which more than doubled year on year, contributed the majority of return and continued to increase as bond yields and interest rates moved higher. To conclude, the first nine months of the year saw us deliver disciplined, profitable growth across the group through a combination of management actions to improve the quality of our portfolios, increased capital deployment in big ticket, and focus on the quality of growth in retail, we're in the best position for many years to deliver strong risk-adjusted returns. This in combination with a much improved investment result means the outlook for the full year 2023 results is very positive. I'll now hand over to the operator to open the floor for Q&A.

First question comes from Will Hardcastle with UBS. Please go ahead.