Hiscox Ltd

Well, good morning everyone and thank you for joining us today. Now it feels like it's only been a few weeks because it has only been a few weeks that you've heard from us at the Capital Markets Day. But today we're here to update you on our first half performance and the progress we're making on executing our strategy and achieving our ambitions. Now turning to our business performance, well the market conditions are evolving and we're once again seeing the benefits of our diversified business model. We've added $160 million of premium in the first half, capturing opportunities across each of our businesses, and we're growing profitably, achieving a robust combined ratio of 92.6% in a period which included the highest ever losses from wildfires. Now the diversity of our business model and execution of our strategy is leading to strong returns reflected in the group operating return on tangible equity of 14.5%, in line with our mid-teens target. Now, these strong returns are delivering attractive growth in net asset value per share, which is up 15% year over year. And as you can also see here, over the last few years, the group has generated significant capital. The step-up in capital formation since 2022 is the result of strong rate adequacy in Bitsa Kip, a growing and increasingly profitable retail business, and higher investment returns. Now, the material earnings growth, in particular the expanding revenues and profitability of retail, have enabled a step up in our progressive dividend twice in two years. We increased our final dividend per share by 20% in 2024, and we've committed to doing that once again this year. The significant profit improvements in Big Ticket have supported substantial special capital returns to shareholders, with a $150 million buyback in respect of 2023 and a further $175 million for 2024, which is currently being executed. This year, organic capital generation has once again been strong in the first half, supplemented by capital management actions signposted during the Capital Markets Day. As a result, the BSCR is substantially above our target range at the half-year stage. And whilst we are in the midst of the hurricane season, I expect organic capital generation to be strong in the second half. The combination of organic capital formation and capital management actions create the flexibility to take further steps to improve our balance sheet efficiency and reward shareholders now. So we have announced a further $100 million special return of capital through upsizing our previously announced share buyback from $175 million to $275 million. And Paul will provide more detail in a moment or two. Now we expect the group to be in a strong position at the end of the year when we make our forward-looking capital allocation decisions. And we will apply our normal capital framework, prioritizing high-quality growth, balance sheet resilience and our commitment to a progressive dividend. So now turning to each of our businesses, as usual, I'll begin with retail. Our premiums are up 6% in constant currency, continuing the trend of accelerating growth year over year. UK growth has increased to 6% and having just signed their largest distribution deal in recent times, and continue to build share in specialist niches, the business is well placed to build on this momentum. Our European business continues to grow strongly with a positive outlook, as we heard at the Capital Markets Day, driven by product innovation, tech-enabled distribution, and geographic expansion. Momentum in the US is building with the strongest half-yearly growth since 2019. The digital direct business continues to grow by double digits, and partnership momentum is improving. In the US broker, the contraction has been halted. This is despite pressure from macroeconomic uncertainty delaying new business flows into a couple of our larger classes of business, such as entertainment and architects and engineers. The cadence and intensity of our distribution platform continues to increase. This combined with the momentum from recently won distribution deals in all markets means we're on track to grow in excess of 6% at the full year. Now this positive momentum in top line is complemented by improving margins with the retail undiscounted combined ratio at 92.7%. Now let's turn to our London market business. London market has returned to growth driven by a number of factors including a new high net worth high net worth property distribution partnership reported in alternative risk. We're also growing revenues in general liability and using the rate strength to manage line size. And we're benefiting from strong flows in energy liability and personal accident. Now, overall, the London market portfolio remains attractively priced. But with the rates moderating in some classes of business, we are managing exposures with our customary approach. For instance, in D&O and cyber, where we've seen multiple years of rate reduction, where we are now reducing exposure. And more recently, in major property, where rates have dropped 12% this year, we're walking away from some large account business. Now at the same time, excitingly, we're expanding into adjacent specialist classes of business, launching new products, such as financial institutions and tech E&O, where we have extensive experience in retail, and this is now crossing over to London Market, where we write more complex clients. In addition, we're leveraging our tech capabilities, in particular our technology platforms are helping us access new markets, and we're using this advantage to expand into S&E Cargo, and US middle market property, where we see attractive opportunities. Now, moving on to RE and ILS. In RE and ILS, market conditions remain attractive, although rates have reduced from the peaks of 2023 and 2024. We have selectively deployed modest amounts of additional capital for the mid-year renewals, and this, combined with inflows into the ILS funds and increasing quarter share support, has enabled our gross and net premiums to increase. And the business has achieved a robust combined ratio of 99.5%, absorbing the significant loss from the wildfires at the start of the year. And now turning to our growth initiatives. Across all of our businesses, we're taking action to capture profitable growth. You can see here a selective snapshot of these initiatives. Across both retail and big ticket, we are responding to market opportunity and evolving customer needs by developing new products and propositions as we go deeper into our chosen sectors and expand into new segments. And Joe will provide more analysis on this in a moment. On distribution, alongside winning new deals in each market, we're also leveraging the power of the group. For example, our London market and European business collaborated to gain access to a significant opportunity that they otherwise would not have won individually. In addition to organic initiatives, we are selectively making small Bolton acquisitions to expand our distribution, enter new geographies and add new customer segments. As you know, we've now entered Italy through a small bolt-on acquisition of a digital MGA, enabling us to build growth through local knowledge, front-end technology and an established regional distribution team. And in the US, through a small specialist in short at Bolton, we are accelerating our roadmap to expand our products and enter new customer segments, such as technology startups and life sciences, while adding cutting-edge technology in the broker channel to complement our investments in US DPD. As you can see, many of these initiatives, particularly in retail, will go live in the second half of this year, mostly in the fourth quarter, reinforcing our confidence in delivering growth in excess of 6% in constant currency. Now, looking at the progress of our change program, which was unveiled at the Capital Markets Day. Well, we are already seeing the impact and feeling the benefit of our change program. We're experimenting with technology applications in three key areas. Firstly, in new business automation in our broker channels. Secondly, enhanced claims management. And third, improving productivity in operations. Now, this is in addition to augmented underwriting, which, as you know, is an area we've been investing in and executing and making progress in for a number of years. Now, AI-enhanced new business tools have been deployed across the UK, in Ireland commercial, and US-brokered cyber with positive early results. We're investing in our claims fraud and recovery capabilities. The actions we have taken to reduce fraud and improve third-party recoveries are already delivering significant benefits. And that's prior to the full implementation of the technology solutions. And we've launched a technology centre of excellence in Lisbon to get the best out of our investments, reduce duplication and improve efficiency. And finally, we are delivering on our commitments. We are on track to achieve refill growth in excess of 6%. And as you've heard, we're investing in and making tangible progress in expanding product distribution and geography and entering new customer segments. As these initiatives come online in the second half, growth momentum will continue to build. With an operating realty of 14.5%, despite a record natural catastrophe loss in the first quarter, we are in line with our mid-teens target. We're also on track to deliver $25 million of operating efficiencies this year from our accelerated change program. And finally, capital generation across our business is strong. creating the flexibility to invest for growth and return substantial capital to shareholders. We've announced a 9% increase to our interim dividend and we have previously announced a 20% step up to our final dividend per share for this year. Our $175 million share buyback announced in February is being executed And today we've announced we're upsizing it to $275 million and intend to complete the buyback program ahead of our full year results. And with that, I'll now hand over to Paul to take you through the financial performance, followed by Joe, who will provide an update on underwriting. And I shall be back to wrap up.

Thanks, Aki. Good morning, everyone. It's great to be here with you today presenting another good set of results. You've heard from Aki about the highlights of our first half performance, so I'll dive straight into the numbers. Insurance contract written premiums increased by 5.7% or 160 million with all three business segments delivering growth. The group delivered an undiscounted combined ratio of 92.6. An insurance service result of $196 million is a good outcome following the California wildfires. As a reminder, the majority of Rio and Islas and London market premiums are still to earn through in the second half. An investment result of $235 million reflects the growing asset base and the earning through of higher bond yields. As outlined at the recent Capital Markets Day, we have introduced a range of operating KPIs to provide better insight into the underlying performance of the business. Operating profit before tax is $262 million. This is down year on year, mainly as a result of the California wildfires, and translates into a strong operating return on tangible equity of 14.5%. The effective tax rate has increased 9.2 percentage points to 17.9%, reflecting the implementation of the Bermuda corporate income tax on the 1st of January 2025. The interim dividend per share of 14.4 cents is in line with the new policy of paying one third of the progressive prior year total. As a result of strong organic capital formation and capital management actions in the first half, we are announcing a 100 million increase to our ongoing buyback, increasing it to 275 million. Now, taking each segment in turn and starting with retail. Retail ICWP increased by 6% in constant currency, and pleasingly, all markets are contributing to our growth momentum following decisive management actions across brand, distribution, and technology. The retail undiscounted combined ratio of 92.7 represents a 40 basis points improvement on the prior year, driven by an improvement on both our market leading claims ratio and our admin expense ratio as our change program gains traction. The growth in operating profit reflects growing investment returns and the improvement in the undiscounted combined ratio offset by a lower discounting benefit. Moving on to London market. ICWP increased by 3% as the business navigates the micro cycles across the market with growth driven by opportunities in each division. Though rates are down 4% in aggregate, significant rate has been taken over the recent years and our portfolio is rate adequate. Exercising our disciplined approach to cycle management has resulted in London market delivering an undiscounted combined ratio of 87.9, the fifth consecutive year in the 80s. Turning to Rhian ILS. The business has grown net ICWP by 7.9%, primarily in specialty and pro-rata lines, and as a reminder, the majority of this premium will earn through in the second half, reflecting the risk profile of the business. ICWP growth of 7% was driven by deployment of new third-party capital. And while rates have decreased during the year, terms and conditions have broadly held and business written remains rate adequate. The undiscounted combined ratio of 99.5 reflects the impacts of the California wildfires. Our initial loss expectation for the wildfires is developing favorably. The result also includes reserve releases on prior year large catastrophe events as these reserves mature. ILS AUM was 1.4 billion at the period end, reflecting the impact of planned returns to ongoing investors and the impact of the wildfires. The appetite of third parties to partner with Hiscox remains strong from both new and existing investors, and we raised over $300 million of new ILS capital and also increased quota share capacity. Now an update on our change program. As announced at our Capital Markets Day, the group will realise a P&L benefit of £200 million in 2028 from an acceleration of our ongoing change programme. And I'm pleased to report we're on track to deliver the £25 million benefit this year. In the first half, we've made strong progress through improvements in our fraud recovery, effective procurement management and a streamlining of parts of our organisation. Costs to achieve are also on track at half year. turning to our investment portfolio. The investment result is 234.9 million for the first six months of the year, or a return of 2.9% year-to-date. 187.2 million is recognised in operating profit. As a reminder, the operating KPIs are adjusted to exclude the impact of market movements on fixed income investments, and for the first half, this adjustment was to exclude a positive 47.7 million. Group-invested assets have risen to $8.9 billion, driven by profits in the debt issuance. Assets remain conservatively positioned, with the fixed-income assets having an average credit rating of A and a duration of two years. The bond reinvestment yield stands at 4.4% at the end of the period. Now looking at the impact of IFRS 17 discounting. The net impact of discounting for the first six months was a negative $11 million. The IFE unwind was 73 million and our prior year guidance is unchanged at between 125 and 155 million. As with investments, the impact from changes in rates is also excluded from operating KPIs. For the first half, this was to exclude a negative 8.1 million. We've updated the sensitivities to interest rate changes to reflect market conditions and the balance sheet as at the 30th of June. Turning to reserve releases. Reserve releases of 132.1 million for the first six months of the year continue our long-standing record of positive reserve development. Releases are higher than in recent years, mainly driven by the runoff of prior year large catastrophe losses, such as Hurricane Ian. Our long track record of positive reserve releases demonstrates our prudent reserve philosophy. Turning to reserves. Our conservative reserving philosophy remains unchanged with a confidence level of 83% within our 75 to 85% range. The risk adjustment is $279 million and sits on top of an already conservative best estimate. In addition, LPTs cover over 36% of gross casualty reserves for 2019 and prior, providing protection from inflation and other pressures. Finally, an update on capital. The BSCR stands at an estimated 239% at the end of the period. The increase since full year reflects strong net capital generation and our debt refinancing, which added 8 percentage points. In June, the group refinanced its subordinated debt, redeeming £261.2 million and issuing $500 million at a coupon of 7%. With a leverage ratio of 18.4, the group continues to operate comfortably within historical levels and has significant financial flexibility. Shareholder returns of 9 percentage points consist of the 2024 final dividend and our progress on the existing share buyback. Looking ahead, across our announced capital returns, namely the payment of the interim dividend, completion of the upsized share buyback and payment of the 2025 final dividend, we will be returning an estimated 21 percentage points of BSCR to shareholders. As a reminder, through the cycle, the group intends to broadly operate within 190 to 200% BSCR range, depending on capital deployment and investment opportunities at the time. Decisions on excess capital will be taken by the board ahead of the full year results. Thanks for listening. I'll now hand over to Jo, who will provide you with an update on underwriting.

Thank you, Paul, and good morning, everybody. So an active environment with elevated natural catastrophes and a heightened geopolitical tension, but robust underwriting and generally favourable market conditions has led to opportunities for profitable growth. And I'm delighted how we navigated each one of our segments, growing our portfolio 5.7% and strong underwriting returns. As a reminder, our underwriting strategy aims to manage a cycle in our big ticket businesses by leaning into opportunities where we see profit and exercising discipline where we don't. This is balanced by the less volatile retail part of our organisation where we look for structural growth. This strategy gives us the opportunity to expand profitably through the cycle and it creates a balanced and diversified portfolio across geography, line of business and risk size. So where are we in the cycle and how favourable is the market? So this next slide should be familiar to you. The exhibit on the left is our rate index back to 2018 across our three segments. The purple line, which is our retail segment, is just less sensitive when it comes to the rate cycle. Rates are up 2% and each line will have its own dynamic, but pricing across UK, Europe and the US remains in great shape. Our big ticket business of London Market and Reinsurance is still in an attractive part of the cycle. However, for the first time in a number of years, we are seeing rate decline. albeit from decade highs, and importantly, terms and conditions are broadly held. The blue line, which is our property cap reinsurance, at the one-run renewals, we saw rates decline 8%. This is moderated as we've gone through the year, and we've gone through the mid-year renewals, where we've achieved rates, particularly on loss-affected accounts. And across the whole of re-NILS, rates are down 6%. But cumulatively, they're up 81% since 2018, and we believe the portfolio is well rated to deliver good returns in a mean loss environment. And you can see this with the exhibit on the right, where we believe our portfolio is priced adequate plus for 70% and additional 25% adequate. In London Market, which for us is a combination of 16 different lines across four different divisions, rates are down 4%, slightly more than the 3% we talked about at the 1-1 renewals, as property particularly has continued to soften, although remains sufficient. Again, rates are up aggregate 67% since 2018, and you can see on the right-hand exhibit, the vast majority of the portfolio is rated adequate or better to deliver a good return. We do have a small part of the portfolio that we now believe will deliver insufficient returns in a mean loss environment. And we're managing accordingly. And you can see this on the next slide. So going from left to right. So retail rates are good. We want to continue that year-on-year compound growth. And in retail commercial, we've grown that portfolio over 5%. We've seen some great double-digit rating premium growth in things like health and well-being and commercial liability, and this is offsetting some headwinds in property and in crime. Health and well-being is a fantastic example of our sector expertise, where we're leaning into exhibit distribution and underwriting, and we've grown that segment 17% in the first half of this year. Our other retail segment is our art and private clients. And again, it's had a good year with growth of 9%. A lot of that growth is delivered by policy count growth in our high net worth business in the UK, where we continue to benefit from our brand expertise and also an AI solution that's helping our end writers. Our reinsurance segment, well, as I said, the rates are still attractive, albeit slightly soft, softening, but it's still an attractive market. And we've grown our portfolio at 7%, leaning into things like crop and pro rata. While also a net premium growth, if I look at our net PMLs, they're actually flat or reduced as we benefit from some additional retro protection. And then in London market, well, we continue to have different lines in different parts of the cycle, and we're managing those accordingly. In property, we're up 11% as we execute on a high net worth opportunity, and we benefit from the aggregate that we deployed in the last half of last year earnings through. Casualty is actually back to growth as we launch a couple of new adjacencies and also we're taking rate in our general liability portfolio. And this is offsetting some declines in cyber and DNO. And our specialty is affected by our decision to reduce exposure in product recall as we react to some broader market trends. So all of this is a result of our proactive portfolio management. And this is the framework that we use, a framework that is grounded in decades of data. We look at key qualitative metrics across the whole of our business at a systematic and a very detailed line of business level. Things like rate adequacy, but also exposure, loss trends. We complement this with expert judgments on the market. So these are qualitative metrics, things like broker behavior, demand, and sentiment. And then both of those feed into what we call our underwriting ecosystem. So this is policies and procedures underpinned by technical experts with experience through the cycle and across the whole value chain from reselection to claims. We overlay a forward-looking view of risk, and then we react accordingly to any emerging trends in the market. Disciplined profitable growth means, of course, actively managing the portfolio that we have, but it also is about seeking new opportunities for expansion. And as Aki mentioned, we're looking to increase our capability in the development of our product proposition and speed to market. And we're doing this across our whole portfolio in a number of ways, providing more solutions to our customers by going deeper into some of our chosen segments, by attracting new segments, and then also some innovation around products and services. So let me bring this life to you with a few examples. So in London Market, we have launched a technology E&O error and omission offer. This is alongside our cyber proposition. So technology E&O is not new to us. We've got decades of experience. We've written this for a very long time in our retail business from micro to jumbo. But going deeper into this sector allows us to capture the more complex technology businesses that are finding their way to London and written on a subscription basis. Here we lean into not just our underwriting expertise, but our expertise around claims management and risk management. When it comes to attracting new segments in the UK, we're expanding our health and wellbeing sector to vets and dentists. Again, leaning into not just our underwriting expertise, but our distribution expertise and risk management. New products and services. Well, in France, we've launched an innovative new product to protect reputation. If this is successful, we'll also roll this out more broadly across the group. And then in the last half of this year, we will be launching a new proposition for our micro-cyber customers focused on services that are really focused on prevention and mitigation, helping our cyber customers become more resilient and also protecting the broader interest in society. So these are just some examples of the new products and propositions that we're launching to fuel that future pipeline growth and to complement our existing well-managed portfolio. I'll now hand back to Akin.