Hiscox Ltd

After my career in law enforcement, my wife and I were at the dinner when I had a local restaurant, and there was a wooden American flag hung up on the wall. She goes, could you make that for the house as a decoration? I took that same flag, I posted it on social media, and I said, look, made this for the wife this weekend. What do you guys think? And ever since then, it's just kind of taken off. Welcome to Veteran Wood Company. Come on in. I'm Michael O'Gregney, owner and operator of Veteran Wood Co. We're based out of Fairfield, New Jersey. There's really a sense of satisfaction when you deliver something from start to finish and you can show the customer, here's what you asked for. There's been so many impactful projects that I've had the opportunity to work on. I've been asked to do base signage for my old unit in the Marine Corps. I've done memorial pieces for people that have died in the line of duty. I've had business insurance from the first time I stepped out of my garage to go physically install something somewhere. I use Hiscox Business Insurance. I fully endorse them. They've been phenomenal to me. I look forward to many more years of their coverage. As long as you're able to manage the chaos that comes with being a small business owner, it is very rewarding. Find something that you like doing and just do it. If you fail at it, try it again. And if you fail it again, do something different. Execute, hit go, and run. That's my advice.

Good morning, everyone. Thank you for joining us. Now, what you'll hear today is that we are continuing to build positive momentum across the group. In the first six months of this year, we've added $90 million to the top line, of which $77 million has come from our retail business. We're maintaining high-quality growth, and we've delivered a strong... insurance result in a more active claims environment. And the key to this is the high quality of pricing, risk selection and cycle management, on which you'll hear more from Joe in a moment or two. And this has been combined with a lower expense ratio, and Paul will elaborate on this in a moment. And we've delivered a strong and increased profit before tax of $284 million at an attractive return on equity of 16.5%. And I'm pleased to announce a 5.6% increase to our interim dividend. Now what you can see here are hopefully themes that resonate and that are familiar to you from when I spoke about our capital allocation philosophy in March. So as a reminder, first and foremost, we prioritize the proactive deployment of capital in the pursuit of profitable growth. So we're investing actively to capture the long-term structural growth opportunity in retail, And at the same time, we are selectively deploying capital into attractive market conditions in big ticket. So by way of an example, you can see in the top left that our property net premiums have increased by 40% over the last couple of years. Secondly, we maintain resilience and balance sheet flexibility. Our reserves are prudent and robust, and our capital generation has been strong. And finally, we remain focused on balance sheet efficiency, as demonstrated by our total capital return to shareholders, which has increased by over 150% year over year, including the share buyback. Now let's turn to our business performance, and as usual, I'll begin with retail. In our retail business, we're actively investing to achieve high quality growth and I'm pleased with the gradual improvement in momentum and the robust profitability demonstrated by a combined ratio. Now taking a look at each of the businesses in turn, in the UK we're seeing a step up in growth rate, albeit that headline rate is moderated by some one-time premium we booked in the second quarter of 2023. The underlying performance of around 6% growth is a fairer reflection of the business performance in the first half and of the momentum we expect to see in the second. In Europe, we continue to post solid top line growth. And in USDPD, the momentum we were building and have been building during 2023 has continued into this year, with our direct business once again posting solid double digit growth. Now, overall US DPD growth has moderated in the second quarter, and that's been largely due to some variable performance in our digital partnerships, as a couple of our more established partners, or production from a couple of our established partners has slowed in the second quarter. Now, we're actively working with those partners to build momentum in the second half. And in our US broker business, revenues decreased by 4.8%. as a couple of our specialist lines continue to face challenging market conditions and we maintain our underwriting discipline. I expect this growth gap to narrow as the year progresses and as those market conditions ease. And the overall momentum we're achieving in our retail business is the result of many initiatives we've implemented over the last few years. And you can see a sample of them on this slide. This is by no means a comprehensive list. And indeed, many of these are already in play and having a positive impact on our business performance. Now, just to pull out a few, across UK and Europe, we're now winning distribution deals at a faster pace than we've done for many years. Now, the deals that we have won over the last 12 months on full activation are estimated to deliver in excess of $40 million of incremental new premium in 2025. Our investment in brand will continue to compound. Many of you will have experienced our award-winning brand campaign in the UK, which we launched last year in September. That's been incredibly successful. Not only has it won awards, it's increased our brand awareness. Our spontaneous brand awareness is up almost 40%, and it's driving increased flow into our UK platform. And finally, we continue to innovate in product, in building out our underwriting specialist expertise, and in the use of new generation technology. And I'll come back to this last point in a moment. In London market, my colleagues have delivered an excellent result, achieving a combined ratio of 86.9% in a more active claims environment. Now, a key underpin to this is our disciplined approach. We are growing where we want to, where we see attractive market opportunities, and we're managing the cycle or the micro cycles across the London market portfolio. We regard the property segment as continuing to be attractive, and I expect this to grow in the second half of the year. In DNO and cyber, we continue to manage the cycle as rates continue to fall. And in marine energy and specialty, We regard the power and renewable segment as providing the potential for structural growth. And we're well positioned, given our investment in engineering and underwriting expertise, we're well positioned to lead more business in this space. In re and ILS, Our colleagues have delivered a fantastic result, growing the netbook by over 10% at a combined ratio of 77%. We've deployed additional capital into attractive property and retro markets, and the portfolio is well positioned to deliver strong returns in a mean loss environment. Now, as you know, in REIT and ILS, we have an established third-party capital management strategy. It's been in place for well over a decade, comprising quarter-share partners, ILS funds, more recently a cap bond fund, and sidecars. In the first half of this year, we've attracted $300 million of new money into the fund. Now, this will go a long way towards offsetting the planned returns of capital in this year. Now, the third-party capital management strategy not only... gives a scale in our reinsurance business. It's also a key source of fee-based income, which this year has increased from $28 million to $44 million. And as you can see, is a key contributor to our overall reinsurance profits. Now I want to spend just a moment longer on our overall big ticket performance. Now, our flagship Lloyd Syndicate, Hiscox Syndicate 33, is the longest continuously operating Lloyd Syndicate still trading today. It's over 120 years old. And it's into this syndicate that we write all of our London market business and almost half of our reinsurance business. And what you can see plotted here is the performance of all the large Lloyd Syndicates, those writing over a billion pounds of premium per annum over the last three years. And what we've plotted here is the profitability and the volatility of that profit. And the quadrant on the top right represents those that are the most profitable and the least volatile. And as you can see, the Hiscock Syndicate is firmly within that quadrant. Now this is enabled as a result of our dynamic capital allocation framework, our deep underwriting expertise, and our disciplined approach. This has enabled our colleagues to deliver market-beating results over the last three years. Now, as you know, the sector that we're in is inherently volatile. So this is relative volatility. We are remaining absolutely focused. We're not being complacent at all. We're absolutely focused on managing that volatility and maintaining our disciplined approach. And then finally on technology. Technology is an increasingly important underpin to creating and maintaining competitive advantage. And as a specialist insurer, we believe to fully realise our potential, we have to maintain a competitive advantage in at least these four areas. Firstly, the ease and speed of doing business. Secondly, the deep customer understanding. Third, the quality of pricing, risk selection and cycle management capabilities. And finally, the ability to grow our business, to scale our business efficiently. Now, all of these are enabled and helped by technology. And we at Hiscox have been investing for many years to build market leading capabilities in auto underwriting and in digital connectivity, allowing our customers and intermediaries to place their business with us quickly and efficiently. Our many years of operating as a specialist insurer and collecting data enables us to develop a deep understanding of our customers and their risk management needs. That data that we've collected is now being super-powered through the use of latest data analytics platforms, which further improves our capabilities to price and select risk, and indeed to develop more products. Of course, there's a long way to go in this area of using data. And finally, we're just at the early stages of using latest generation technology, or AI, to augment and improve our processes. There are various initiatives and innovations across the Isacox group, and one of which you heard about when we spoke in May, which has been the Google Cloud collaboration with London Market, which, if you remember, we had established or built a proof of concept which reduced the time from submission to quote from up to three days for the sabotage and terrorism line down to a mere three minutes. Well, since then, the teams have been working diligently, taking that proof of concept to build a production model. And I'm pleased to say we went live as of late yesterday evening and have now begun to actively quote business through this new enhanced AI augmented platform. So very pleased and congratulations to our London market team. We see these innovations as doing at least two things. Firstly, increasing productivity, or secondly, creating new opportunities for growth. I look forward to updating you over the coming months and years as these innovations take hold. So with that, I'll hand over to Paul to take you through a more detailed financial analysis of our performance. And then you'll hear from Joe, who will provide an update on underwriting. And then I shall be back to make final remarks on Outlook.

Great. Thanks, Aki, and good morning, everyone. It's great to be here with you today presenting another good set of results. The group grew insurance contract written premium by 3.3% driven by sustained growth in retail and in big ticket property by deploying additional capital into continuing attractive market conditions. Our focus remains on profitable growth and underwriting discipline. And the group delivered a strong insurance service result of 241 million at a 90.4 combined undiscounted in a more active loss environment. The group is benefiting from its diversified business model with strong and consistent profit contribution from each of our business units. Also pleasing is the continued improvement in the expense ratio, which reduced by more than two percentage points year on year. This is partially driven by our disciplined cost control and expense management, partially mixed and partially due to timing. We continue to focus on cost management, including tight headcount control, realising savings from procurement and vendor management, and driving economies of scale in the business. The insurance service result was supported by the investment result of £152 million, which was driven by higher bond yields earning through. Together, these underpin a strong profit before tax of $283.5 million, which results in a return on equity of 16.5%. Capital generation has continued to be strong over the first half of the year. We have made good progress with our share buyback, with over 85% completed at the period end. Given the strong performance in the first half, the board has approved an interim dividend of 13.2 cents per share, an increase of 5.6% from last year. Delving into these results a little further, starting with our retail segment. Retail ICWP increased by 5% in constant currency with growth within the target range and contributing 77 million of the 90 group ICWP growth in the first six months of the year. We continue to see strong momentum in Europe and USDPD and a pleasing step up in the underlying UK growth. The UK headline growth reflects some non-recurring premium recognised in June 2023. U.S. broker continues to contract with the rate of decrease slowing in Q2 versus Q1. The retail undiscounted combined ratio is 93.8, which is pleasing given our continued investment in marketing to seize the structural growth opportunities. Moving on to London market. ICWP decreased by 2.8% in London market. This is driven by three factors. The decision to non-renew certain large binder deals, our proactive management of the underwriting cycle in casualty lines, and a reduction in space premiums, as there were fewer risks in the market, and we took a decision to reduce line size due to heightened recent loss activity. Despite a more active loss environment, our London market business delivered an excellent insurance service result of 74.2 million and an undiscounted combined ratio of 86.9, the fourth consecutive half year in the 80s range. Turning to RE and ILS. We deployed additional capital early to capture the attractive market conditions, with net ICWP growing by 10.5%. ICWP was up 3.9% as growth from additional quota share capacity and our own capital deployed were offset by a reduction in ILS capital. The market remains disciplined at mid-year renewals with attachment points and terms and conditions broadly holding firm. While rates on some business has decreased slightly, these were from generationally high levels and the market remains attractive. This is demonstrated by a strong undiscounted combined ratio of 77.3% for the first half, together with an excellent insurance service result of 43.5 million. As a result of gross capital inflows from new and existing investors of 300 million into our sidecar and ILS funds, AUM was 1.7 billion at the 30th of June. And following a planned return of capital to investors on the 1st of July, AUM reduced to 1.4 billion. Look at investments. The investment return is 152.4 million or 1.9% for the first six months of the year. Coupon income and cash returns increased by nearly 50% year on year. The reinvestment yield has risen to 5.2% with the book yield increasing to 4.8% from 4.3% at year end as we continue to reinvest the portfolio. We have also extended duration to 1.9 years to lock in higher yields for longer. The strong investment results should continue to provide a tailwind in the second half of the year. Moving on to the highlight of today's presentation, IFRS 17 discounting of claims liabilities. For the first six months of 2024, the net discounting impact was 26 million. As you can see, the IFI unwind is 79 million. This is at the higher end of our previous guidance issued in March. We are continuously refining our IFRS 17 forecasting processes and as a result we are slightly updating our full year 2024 guidance range to 135 to 165 million. We have updated the sensitivity to interest rate changes to reflect market conditions and the balance sheet as at the 30th of June. Looking at reserves. Our conservative reserving philosophy remains unchanged with a confidence level of 82% within our 75 to 85 range. The risk adjustment is 262 million. In addition, our LPTs cover over 42% of gross casualty reserves for 2019 and prior and provide protection from inflation and other pressures. Turning to reserve releases, Reserve releases of 51 million for the first six months of the year continue the positive release trend. Our long track record of positive reserve releases demonstrates our prudent reserve philosophy. And finally, an update on capital. The balance sheet remains strong with an estimated BSCR of 206% following the deployment of additional capital into property, payment of the final dividend for 2023 and completion of over 85% of the buyback at the reporting date. And as you can see, capital generation remains strong in the attractive market conditions. This is a strong solvency position. I will now hand over to Jo, who will provide you with an update on underwriting performance and priorities.