Hiscox Ltd Ord New

Good morning, everyone, and thank you for joining us today as we present our interim results. I'm pleased to report growth in revenues and profits in every business. With our focus on quality of growth and earnings, we've maintained our commitment to disciplined underwriting and delivered an insurance service result of $221 million. That's an increase of 58%. And this combined with much improved investment income means we've achieved a near tenfold increase in our pre-tax profits. Now in a big ticket segment, against a backdrop of favourable market conditions, our focus has been on effective cycle management. And in this phase of the cycle, we've increased our capital allocation to these segments. And in turn, London Market and Rhian ILS have achieved strong growth in premiums and profits. And in retail, we're growing in every market and achieving sustained profitability in line with our operating framework. The group financial foundations remain robust with continued strong capital generation and a resilient balance sheet. And I'm pleased to announce an interim dividend of 12.5 cents per share, an increase of 4.2%. Now, the first six months of this year have been a clear demonstration of the strength of our business model and strategy. And this is a graphic that you're all quite familiar with now. The left-hand side of this represents our big ticket segments. Here, effective cycle management, disciplined underwriting, long-standing and deep broker relations, and agility are critical. For instance, in London market, we're experiencing favourable market conditions, but not everywhere. and we've been able to take our foot off the gas from the casualty portfolio, which has been a key source of growth over the last few years, and put the foot firmly down on the gas to drive material growth in our property and energy portfolios, which offer the highest risk-adjusted returns at this point in the cycle. In re and ILS, our capital strategy has enabled us to materially grow our net retained premiums and exposure, at a time when third-party capital capacity remains constrained. If I flip over to the other side, this represents our retail business, the red part of the diagram. And here we continue to see substantial long-term structural growth opportunities and our strategies to grow into these large and fragmented markets through the cycle, using the power of our brand, our technology, our long-standing relationships, all underpinned by excellence in underwriting. So the Hiscox portfolio of businesses allows us to operate in a number of different parts of the specialist insurance sector. allocating capital to those areas of expertise that offer the highest risk-adjusted returns. And that's enabled us to grow revenues and profits in every market at a group annualised return on equity of 20%. Now moving on to retail. Here we've grown revenues and profits in every business, as our investments in talent, technology and developing partnerships pay off. Now, looking at each of the geographies in turn, in the US, well, it's been a tale of two halves. I'm really pleased with the performance of our US DPD business. Here we've seen growth accelerating in line with our expectations as we continue to embed the business onto the new technology platforms. In contrast, in our US broker channel, we are experiencing a reduction in the top line as we maintain discipline in the face of intense pricing competition, in particular on cyber. In the UK, we're seeing growing momentum, with revenues increasing to 4% in constant currency, up from 1.2% at the end of the first quarter. Albeit the headline growth rate continues to be tempered by our decision to exit some non-performing underwriting partnerships. We're also seeing really good momentum in our UK E-Trade platform, which we launched at the start of this year. We now have over 200 brokers and 2,000 users live on the platform with new products being designed for launch in 2024. And in Europe, once again, we're seeing excellent momentum with revenues up 11% and each of the countries in growth mode. So when looking at the retail growth, headline growth overall at 5.5%, this is slightly short of our earlier expectations of trending towards the middle of our 5% to 15% range by the end of the year. Now, as you can see, we're delivering excellent growth in Europe, accelerating momentum in US TPD and growing momentum in our UK business. However, our underwriting decisions in the US regarding cyber and in the UK regarding non-performing underwriting partnerships are tempering that headline growth rate. So as we look forward to the rest of the year, these underwriting decisions will continue to have a moderating impact on the growth. As a result, our full year expectation is to be in line with the half year. Now, adjusting for these actions, the underlying growth is 7.3%. That's in line with our expectations. And it's these and other similar underwriting decisions that ensure that the quality of growth that we're driving is profitable. Moving on to USDPD. Now, as a reminder, our digital partnerships and direct business essentially comprises two large pillars, our direct-to-consumer business and our digital partnerships business. Now, you'll recall our direct-to-consumer business has been live on the new platform for a year now, and we've seen really encouraging improvement in operating metrics, with conversion rates up and also the number of products per customer rising as well relative to the old platform. That, combined with the uplift in marketing expenditure in the first half of this year, has really accelerated the growth in our direct-to-consumer business. In fact, our new business generation is over 30% up year over year. Now, digital partnerships business, if you remember, we started to migrate that onto the new platform towards the end of 2020 or in the latter half of 2022. And as expected, growth slowed down in Q1, but it is now beginning to recover into the second quarter. Now, to accelerate technology adoption and also new business generation, we have implemented a number of tailored engagement programs for our established partners, as well as some temporary financial incentives. You'll also remember that after a two-year hiatus, we added 17 partners at the start of this year. Now they're beginning to start to produce revenues, and that will build up over time. And we also have a healthy pipeline of potential new additions. So the combination of strong growth in our direct-to-consumer business, combined with a recovery in our digital partnerships business, means we expect our U.S. DPD business to continue to trend towards the middle of the 5% to 15% range as the year progresses. Staying on the topic of DPD, our ambitions in the U.S. are to become America's leading small business insurer. to be the destination brand for our customers' insurance needs by building out an SME insurance marketplace. And we took a big step forward earlier this year with the launch of a workers' comp product in partnership with a highly reputable multi-line US insurer. As our micro and small business customers build out their businesses and acquire employees, their insurance needs grow to include workers' comp, which is compulsory in most US states, but it's not a product that we manufacture. So this partnership means we can service the growing needs of our existing customers and also makes us more relevant in the market. Now, if you take a look at this chart here behind me, the pie chart on the left-hand side, this sets out the total US small commercial premiums by product. Now, the red segment is where we have reached today with our existing products of GLPL, Cyber and BOP. Now, as you can see, with the addition of workers' comp to our shop front, our reach extends by a further third. So in short, this partnership increases our reach, our relevance in the market, and introduces a new capital light revenue stream in the form of commissions we receive for selling our partner's product. Now we're in the soft launch phase at the moment. We launched this product about six weeks ago with our partner. The early results of the last six weeks have been very promising, ahead of our expectations, and we expect to be in a full integrated launch over the next six months. Now, moving on to our big-ticket segments, beginning with London Market. Our London Market business has had an excellent first six months, driving double-digit growth, top line, all at an undiscounted combined ratio of 83.7%. We continue to see favourable market conditions, in particular in the property segment, and as a result, we've increased revenues in our major property line by 75%, in our household binder book by 68%. We also see the Marine Energy and Specialty Division as a significant growth opportunity, and revenues here have increased in aggregate by 38%. Now, as we reported earlier, market conditions in the casualty business, in particular DNO and cyber, have become more challenging. Now, in line with the wider market, Generating new cyber growth has become more challenging following the Lloyd's mandated war exclusion. And in DNO, we're continuing to experience rate decline. This year, we've seen rate declines of about 10 or 11%. That's on top of the 10 to 15% we saw last year. Now, our DNO portfolio continues to remain attractively priced. You'll recall that in the preceding sort of four or five years, we saw over 200% rate increase. So it's still rate adequate and attractively priced, but it's not an area where we want to continue growing exposure. So we've taken our foot off the gas. So what you can clearly see in our London market business is the combination of proactive underwriting combining with improving market conditions, which have enabled our business to deliver an excellent result. Moving on to Re and ILS. Here again, we've delivered strong net growth of 18%, driven by North American CAT, Marine and Retro. We've been leaning into the hard market. We've allocated more capital. We've increased exposures. And at the same time, we've improved the quality of the portfolio by raising attachment points and decreasing our participation on aggregate programs. So here, once again, you can see the combination of active underwriting, improving market conditions, delivering an excellent result or an undiscounted combined ratio of 81.2%. And of course, as usual, you'll hear much more from Paul and Joe on the finer points of our financial performance and the contribution of active underwriting into our results. Now as we also reported in the first quarter, investment appetite from third-party capital providers remains constrained. And in the first half, we've seen $219 million of net outflows from our ILS funds. I expect that trend to continue into the second half and most likely into 2024 as well. Now, in contrast, we've added quota share capacity. So we've introduced new partners, both at 1.1 and at the mid-year renewals, demonstrating our ability to access different sources of capital. And finally, I'd like to leave you with some examples of initiatives that are underway right across the group to ensure we can deliver, on a sustainable basis, high-quality growth in revenues and earnings. Now, beginning with people, you'll remember from our earlier report that in 2023, we're experiencing the highest colleague engagement we've seen for a long time, for 10 years. So we continue to develop and nurture our talent whilst also bringing in some excellent external hires. You also know that we appointed a new chairman in May of this year, Jonathan Bloomer, who joined us. I'm delighted to say he brings a wealth of experience and a real passion for building business. We're also bringing in Fabrice Brossard, who's going to join us, the new Group Chief Risk Officer, and I look forward to working with both of them to deliver on our strategy. Innovation is part of the DNA of Hiscox. It's deep-rooted within our culture. And you remember from, again, from our earlier update, we launched an ESG sub-syndicate in London market. That is now fully live and we've begun writing risks. So far, those risks include a US solar farm and a European wind farm. There's been a lot of interest in the market and we expect good momentum over time. You just heard from me a couple of minutes ago that we're building out an SME insurance marketplace in the US to increase our reach, our relevance and our revenues. Alongside this, we also continue to innovate and manufacture products to meet the evolving needs of our customers. One example of that is in Germany, where we've launched a whistleblowing assistance programme in response to new legislation affecting our customers. Technology is a key ingredient of our business strategy. And over the years, we've been implementing technology platforms in our retail business to support significant customer growth and deliver scale efficiencies over time. And technology is also an increasing part of our risk selection and underwriting processes in our big ticket businesses, ensuring our underwriters can be the best they can possibly be. And finally, we're reinvigorating our brand. We're kicking off with a new brand campaign in the autumn of this year, starting in the UK. This is the first new brand campaign since 2018. This will be followed by a global rollout in 2024. There's quite a degree of excitement within the business, and I encourage you all to watch out for the new Hiscox brand campaign from the end of September onwards. So thank you very much. I'll now hand you over to Paul to take you through our financial results, followed by Joe to provide insights and underwriting. And then I'll be back to wrap up and make final remarks on the outlook for 2023.

Thank you, Aki, and good morning, everyone. It's great to be here with you today presenting our first set of results under IFRS 17. It's been a very strong first half and, as Aki already mentioned, a very exciting time for us all, as a business has seen the most favourable market conditions in over a decade. So what does this mean for Hiscox? The group grew revenues, insurance service result and profits across all three segments. Group Net Insurance Contract Written Premiums, or Net ICWP in short, which is a net growth measure under IFRS 17, increased by 11.4% in constant currency to just under 2 billion, supported by a positive rate environment across all business segments and benefiting from our reshaped portfolio as we grew exposure into the hard market in reinsurance. I'm particularly pleased with the underwriting result, which saw us deliver an excellent insurance service result of £221 million, up over £80 million, or 58% from last year. It's also good to see the return of a positive net investment result of £122 million and I expect more to come as the bond reinvestment yield has improved further to 5.6% as at the end of June. Remember, the unrealised portion of the bond return is now offset by the discounting of our claims liabilities and you will have seen I've posted a short webcast on our website to provide you with a detailed explanation of this to help you in your modelling. Finally, the Board has recommended an interim dividend of 12.5 cents, representing an annual increase of 4.2%, in line with our progressive dividend policy. I will now take you through a more detailed view of each of our three segments, starting with Hiscox Retail. Retail Insurance Contract Written Premium, or ICWP in short, the gross growth measure under IFRS 17 is up 5.5% in constant currency, underpinned by strong double-digit growth in Europe, improving momentum in the UK and acceleration in US DPD. As Aki touched on earlier, active and disciplined underwriting decisions has meant that the growth rate is tempered versus expectation. And there are two reasons for this. We've seen increased competition and a decline in prices in cyber across the retail portfolio, notably in the US. And in order to grow sustainably, we therefore maintained pricing discipline and did not write business where pricing was below our technical floor. And we've also continued to exit some non-core underwriting partnerships in the UK, as flagged in our Q1 trading update. This is part of our normal course correction where we were not satisfied that some partnerships were performing in line with our expectations. And the impact of these will continue in the second half. Excluding these actions, underlying retail growth is 7.3% in constant currency, in line with our expectations. Turning to profitability, Hiscox Retail delivered a 50% improvement in the insurance service result year on year and a strong combined ratio of 93.8% on an undiscounted basis, a 0.6 percentage point improvement on the prior period. The permanent definitional benefit from reclassification of some expenses to non-attributable, combined with the negative impact of moving to an own share presentation, broadly results in a small net benefit, which we've reflected in the restated range of 89% to 94% on an undiscounted basis. Pleasingly, for the first half, we are within this range and a more detailed explanation of the new range is in the appendices to the new presentation. And while we no longer report results under IFRS 4, I can also say that the combined ratio achieved is within the 90 to 95% range. Let me turn to London market. Hiscox London Market had a very strong first half, increasing ICWP by 10.6%. Net ICWP grew by 14.2% on prior year, ahead of top line as we've retained more risk in attractive underwriting conditions. And I expect this positive momentum to continue through the rest of the year. The success of our disciplined underwriting strategy that Aki outlined earlier can be seen in the consistency of our strong insurance service result of 75.5 million, with an undiscounted combined ratio of 83.7%. The undiscounted combined ratio is a 4.2 percentage point improvement on the prior period, and I'm delighted that it marks the fourth consecutive year in the 80% range. Moving to our next segment. Hiscox Re and ILS saw net ICWP grow by 17.9% in the first half to $345 million. The group has allocated incremental organic capital to the Hiscox Re and ILS business, resulting in meaningful exposure growth, mainly in US and Caribbean windstorm and earthquake, in the best-rated reinsurance market in a decade, materially increasing expected profits in a normal lost year. ILS assets under management at 1.7 billion at 30 June 23 and the funds are performing at inception to date highs as a result of rate improvements, heightened interest earnings and modest loss activity in the first half of the year. We continue to see net outflows from our ILS fund and while we expect this trend to continue, our ILS offering remains well positioned to support any new incoming demand. I'm very pleased with the insurance service result of 32.7 million delivered in an active first half loss environment. And remember, this is somewhat lower under IFRS 17 compared to IFRS 4 due to seasonality of earned premiums, which will earn through during the second half of the year in line with the risk profile of the business. REE and ILS delivered a combined ratio on an undiscounted basis of 81.2%, benefiting from better than expected loss experience despite a relatively active first half, reflective of disciplined underwriting providing a better shield against attritional losses. This is an excellent result, especially when considering the impact of seasonality. Moving on to our investment performance. After a strong first quarter, our investment portfolio made modest gains in the second quarter, delivering a positive investment result for the half year of 121.8 million, a stark contrast to H1 2022, which saw a loss of 214.1 million. So a much better result with the rate of return also back up at 1.7%. I'm very happy with this outcome given this continuing macroeconomic uncertainties that persist. Rising coupon and cash returns combined with gains from equity exposure were sufficient to offset mark to market losses on the bond portfolio caused by rising yields. Our corporate bond return was positive, given only limited movement in credit spreads over the first six months of 2023. And our portfolio remains conservatively positioned with no defaults in the first half. We maintain modest exposure to selected risk assets with no direct exposure to commercial real estate. And we expect the investment result to continue being a tailwind for the remainder of 2023 as bond reinvestment yields reached 5.6% at the end of June. Now let's take a look at our balance sheet where reserve resilience continues. The group remains conservatively reserved with a confidence level of 77% within our stated target range of 75 to 85 and broadly similar to our year end position of 78%, highlighting the continued prudence within our reserves. And as you can see on the slide, our risk adjustment of 211 million sits on top of our already conservative best estimate of 3.6 billion, which includes Enids under IFRS 17, meaning in total we are holding 3.8 billion of undiscounted reserves, demonstrating our continued commitment to maintaining a robust reserve position. We continue to benefit from the protection of the LPTs in place. At half year 2023, LPTs provide protection of 25% for 19 and prior gross reserves. LPT recoveries form part of the best estimate you can see on the slide. And as a reminder, my IFRS 17 webcast provides a more detailed explanation of how LPTs impact certain lines in the financial statements to help you with your modeling. On the next slide, you can see how our prudence translates into favourable prior period runoff. And as you can see in the first half of the year, our bottom line benefited from reserve releases of 62 million. You can see from the slide that our 2023 release is broadly in line with 2022, which we've restated under IFRS 17, demonstrating the consistency of our reserve releases on a like for like basis. Inflation assumptions in pricing and reserving models remain strong and above our loss experience. And we continue to mitigate inflationary pressures through a combination of exposure, indexation and rate increases. Now let's look at our capital. Hiscox remains strongly capitalized from both a regulatory and ratings agency perspective. The Hiscox Group Bermuda Solvency Capital Requirement or BSCR ratio is estimated at the 30th of June, 2023 to be 199% in line with the full year result of 2022. And as you can see, capital generation exceeded capital consumption, despite the group growing NatCat exposure leaning into the hard market. We remain comfortably above the S&PA rating threshold and significantly above the regulatory capital ratio requirement. Even post a severe loss scenario, our solvency position remains consistent with the S&PA rating. As you might recall from our IFRS 17 restatements, our leverage number is lower than under the old basis due to the uplift in shareholder equity on transition to IFRS 17, and that the half year is coming in at 18.9%. In line with our strategic goals, we continue to maintain a well-funded and liquid balance sheet. I'll now hand over to Joe, who will take you through the underwriting performance of the group.

And good morning, everybody. So you've heard how we've grown each one of our segments was delivering an insurance service results of 221 million. And I'm delighted with the underwriting, you know, testament to a lot of hard work by so many across our organization. In our London market business, we are growing as we lean in to the hardening market in many of our lines. We're growing 15.7% in constant currency, slightly ahead on a net basis, slightly ahead of growth whilst delivering those attractive returns. In our reinsurance division, we've got excellent net growth of 20% in constant currency as we lean into that hard market, deploying more of our capital. And in retail, growth momentum continues 5.5% growth, 7.5% on a net basis as we deal with the embedding of our technology and account for some headwinds in cyber, but delivering within our target combined operating ratio range. The next slide shows the power of our portfolio, where we continue to benefit from balance. This gives us the opportunity to grow, but not the necessity to grow, which is essential for really good cycle management. The first observation I'd make is we have six out of our seven segments in growth mode, that compared to five out of seven at the year end, where we were shrinking London market property and specialty. Now, London market property, you've heard from me before, We did not believe that that was price adequate and we've been taking aggregate off the table for a few years. That is now reversed as we lean into a hard market and you can see we're growing that line. As Aki mentioned, our casualty portfolio is actually been at the peak of a hard market. It's been significantly re-rated over the last five years, but now we're starting to see softening, and here underwriting discipline is key. Then our retail segments of commercial and art and private client are less cyclical, and here we're looking for growth between five and 15 percent depending on the market conditions. So what are those market conditions? Well, from an external point of view, they remain pretty complex. Geopolitical tensions and other risks like the inflation and recession paradox and energy security are shaping the environment. And from a sector-specific viewpoint, heightened inflation persists. Whilst headline inflation may have peaked, we're still seeing inflationary pressures through our view of risk for things like climate, societal supply chain, as well as some legal pressures on wording and coverage. And it's these same external market conditions that are continuing the rate momentum. A familiar slide to all, you will see that our rates are up yet again across all of our segments, up 9% in London markets, 34% in RE and ILS, and this is on top of the sizable rate increases that we've achieved since 2008. On the right hand of the chart are our retail segments, where we and our customers look for more consistency of pricing through the cycle. However, inflation has necessitated rate increases, and you can see in aggregate, we're up 6%. So in summary, I'd say the market is attractive, but actually remains somewhat complex. And so therefore, proactive underwriting, effective cycle management, and investing in the long term is key. Proactive underwriting is so much more than taking rates. In addition to managing our portfolio, we've invested over the last few years in terms of risk selection, exposure management, through to capital claims and our reinsurance strategy. And we're able to quantify some of the differences that these changes have made. So as an example, the first half of this year has been pretty active from a catastrophe point of view. In the US alone, there's been 42 events with an industry loss of around 33 billion. But we have actively managed our portfolio to reduce our exposure to secondary perils. So in our reinsurance division, we've pretty much exited the traditional aggregate product and we've moved up our attachment points to a minimum of a one in ten year. And those two proactive actions have avoided significant loss in the first half. More broadly, in our London market business, there's been a significant number of large risk losses this year. Some we've been on and some we've not. For some that we haven't been on, sometimes it is just luck, but other times discipline. Maybe we were not on it because of the rate adequacy. And then for those that we have been on, our effective line size management has played dividend. It's not just the risk selection where we look to proactively take a position. As an example, RMS has released a major model change to the North Atlantic hurricane, increasing frequency and severity. Our own Hiscox view of risk had already accounted for a significant amount of this uplift. So again, our proactive position has meant that that impact more moderated. And then if we look across the rest of our business, sometimes taking a proactive view can mean you're countercyclical. And cyber is a good example. So we, like others in the industry, have seen a frequency reduction in cyber following the conflict in Russia-Ukraine. Now, we believe that to be temporary and not structural. And therefore, we came into this year looking for rate momentum in our cyber line. However, others have taken a different view and we've seen rate rating pressure. And when you become counter cyclical, you've got a couple of options. You can follow the market or you can maintain discipline. And we've we've we've done the latter. So proactive underwriting leads you to what you want to write at what price. But clearly we operate in a market and we can't always do what we want to do. And so therefore, that's where effective cycle management is key, particularly in our big ticket businesses. I showed earlier the headline rate growth across London market and in aggregate, it's positive. But if we look at that by segment, property, casualty and specialty, you can see we've got different parts of our portfolio in different parts of the cycle. So property rates are up 33%. We believe this is an attractive part of the cycle. We want to grow. And you will see that in terms of our deployment of capital. And you can see in the appendix, our box and whisker, where we're taking additional NAPCAT. Why? Because we believe we're getting paid for it. Casualties, as I mentioned, is actually in a softening part of the cycle. However, we have a very well-rated and very well-managed portfolio of over the last five years. And here, we want to maintain our portfolio. But if rates do go below rate adequacy, then we will shrink. Knowing where you are in the cycle is key, but actually being able to manage the cycle is essential. A few other things that we've done over the last few years, as well as take rate and tighten our terms and conditions, is enabled us to take more underwriting control. How? By leading more risk and also delegating our underwriting less, and also building out a digital and agile capability so we can make changes quickly. Moving on to retail. So retail is much less cyclical. And here we look for structural growth through the cycle by investing in our propositions and also technology, brand and capability. So starting with the customer, we strive to bring out products and propositions that our customers value and reward us with their loyalty. All of that underpinned by an outstanding claims service. With our new technology, we've rolled out modular products, so we're able to service all of our clients' needs in a single policy. In our UK digital business, we sell on average 2.5 products per customer. In Europe, that's 1.5, and in the US, 1.2, but growing as our technology embeds. Creating lifetime value, customer retention is key, and we've got impressive customer retention across all of our retail business. and underpinned by an award-winning claim service where our net promoter score following a claim is market leading. Next, investment in knowledge, whether that's our own continuous learning or utilizing the external world. We continue to invest in our underwriters, things like the Faculty of Underwriting, which I've talked about before, but also we've launched a new underwriting academy in the UK where we've accelerated time to competence of our underwriters by about 40 percent. Utilizing the external landscape and data, we bring in external databases to help us understand more about our customers and the risk without having to ask needless questions. And then lastly, utilizing the external intelligence to do things like what are the professions of the future? We have a portfolio of emerging professions we need to keep up to date with the professions of the future so that we can pull out our propositions to best reflect that. And then lastly, our technology investments through driving value through operational leverage and also seamless distribution and risk mitigation. So from an underwriting point of view, operational leverage is driven through automated underwriting. And as an example, in our U.S. digital and partnership business, 95% of our business goes through without needing to go through an underwriter. Seamless distribution through APIs is obviously great from a distribution point of view, but also good from an underwriting point of view, because we can maintain control of the underwriting and the pricing in one place. And then lastly, building customer resilience. So we're utilizing technology to help our customers become more resilient to claim. So a good example would be in our UK, we've rolled out 10,000 leak bot devices to our customer's property, helping them become more resilient to escape of water claims. So in summary, our strategy of creating a profit generation through effective cycle management and creating value through investing for the long term in retail is back on the front foot. I believe that all three of our segments are well positioned to capture the opportunities ahead. And I'll now hand back to Aki.

OK, thank you. Thank you very much. Now, as you've heard today, our diversified portfolio is well positioned to deliver high quality growth and earnings in retail. The long term structural growth opportunities remain significant and we will grow into these opportunities through a combination. of our own balance sheet, underwriting and technology, as well as through select partnerships. Our retail businesses continue to see positive growth momentum, albeit tempered by deliberate actions not to prioritise growth at the expense of quality of earnings. As such, we expect the full-year headline growth to be in line with the half-year trend. In the US, we expect DPD growth to continue building momentum towards the middle of our 5% to 15% range. We continue to experience very positive market conditions in our big-ticket segments. In London market, we believe we have the best quality underwritten portfolio for over 10 years. I expect our London market business to continue growing at its current trajectory. In real and ILS, we're well capitalised ahead of the US win season and with a high quality portfolio written at attractive rates. So to conclude, in the first half of this year, our business has delivered growth in revenues and profits in every business units. As the years of underwriting action combined with favourable market conditions come together, Our portfolio of businesses positions as well to continue delivering high quality growth, high quality discipline growth and earnings. We'll now be happy to take any questions you might have. Freya, you were first off the mark.

Can you hear me? Thanks for taking my questions. Maybe we could focus on the retail growth outlook for 2024 and beyond. Does a 5-15% target range for ICWP still make sense and should we expect it to no stay at the bottom or trend towards the middle of this range. And on the retail undiscounted combined ratio guidance of 89 to 94%, which is a direct translation from IFRS 4, so you hit the top end of this target range last year. Should we expect to see further improvement from here, or will you look to sit at the top end of this range, balancing growth and margins in DPD? Thanks.

Thank you. Thank you, Freya. So I guess taking the first part of the question, you've just seen the results we've reported. We're reporting very strong growth, excellent growth in Europe, improving and accelerating growth in our US TPD business. And as you know, we continue to expect that business to trend towards the middle of the 5% to 15% range for this year. And then beyond. We expect that business to grow faster as that technology system properly embeds and the business gets firmly back onto that front foot. And in the UK, we are seeing improving momentum. It's up from 1.2% up to 4%. And even that 4% is being tempered by our decision on non-performing underwriting partnerships, which is a temporary factor. We will lap that by the end of this year. So I think there's a natural momentum within the business that will cause the revenue to rise. So I think when you think about the overall context, We still have, and you can recall back a couple of years to when we presented this analysis, over 50 million small businesses in our target market and still growing. The new business formation remains strong, particularly in the U.S. So the target market is still large, it's still fragmented, it's still underserved, and the structural growth opportunities remain. So the 5% to 15% in aggregate remains an appropriate target range for us. And some of our businesses will be towards the upper end of that range. Others will be at the lower end. But the overall range remains sensible for our retail business. Then in terms of the combined ratio, we have an operating framework, which is 1995, now 1989 to 1994. there's no real benefit in trying to then narrow that range. That range is there because it gives us the flexibility to take the opportunities as we see them. If we're at the upper end of that range, we're generating very good returns for our shareholders. If we're at the lower end of that range, they are really excellent returns for our shareholders. Our ambition is Again, to grow into that huge market that we have. And for that, we need flexibility. And from time to time, we need to invest in marketing and technology and so on. So that range remains, again, appropriate. And if we're within that range, it's a good return for investors.

Three questions if I can. Firstly on capital. So given the ILS and the third party capital levels are subdued, how much appetite do you have to write business on your own balance sheet or on quite a share? And the second question is on rates. Are there any other areas where you see pricing becoming inadequate, so beyond DNO and beyond cyber? And if so, are there enough lines where pricing is firm or hardening that you can pivot to? And then the third question is on your NatCap budget. Can you give us a sense of what the NatCap budget for the full year is in terms of undiscounted call and how much have you used year to date? Thank you.

Sure. So you've got a question on capital, one on rates and one on NatCap budget. So in terms of capital, Paul, do you want to take that? Joe, if you can take the second one. And thirdly, if you can comment on that, albeit we don't tend to provide a lot of detail on the NatCap budget itself.

Yes. So if I deal with the capital question, first of all, I mean, I think what you've seen play out through 2023 is given the strength of our balance sheet, we've deployed it into the hard market and really taken rate and grown exposure, particularly at 1.1 for every NILS book. I think you've got to look at the dynamics and how they'll play out through 2023 to determine how capital might change, be it whether ILS chooses to come back or more meaningful capital comes back into the sector or not, to determine whether or not we'll deploy more capital. of our own capital of our own balance sheet so what what i would say is we've certainly got the balance sheet strength to execute on our plans i think what we do need to see is how this year's um cat season plays out you know we're in we're just at the start of it now and i think one of the things that um we have observed and maintain i think is It seems that capital remains uncertain from an alternative capital perspective and has remained thus far on the sidelines despite the very strong rating environment that we've seen and that we've benefited from. So I think what we need to see is some proof points. If you rewind to, let's say, the last five years, the reinsurance sector as a whole hasn't returned its cost of capital. And I think what ILS and perhaps other forms of capital want to see is some proof points that this very, very healthy and positive rate environment is going to turn into some very good returns and then see that to see whether more comes in. That, I think, will dictate to some degree our decision around what we do to deploy. That's all against the backdrop of the strategy of managing volatility. So we're not going to sort of go all in on CAT, nor would we.

And then if I pick up the rates, I think just as a reminder, we've been in a hardening rate market for now five years. You can see on that slide, we've seen substantial rate increases since 2018 across all of our businesses. So I'd say where we are today, the vast majority of our portfolio is rate adequate. I think what we highlighted was in things like, do you know, where rates have started to soften. Obviously, underwriting discipline is key, but we still believe that portfolio to be absolutely rate adequate. I think Aki said, rates have been up over 200 percent and a soft one to 11 this year, 10 last. In aggregate, we still believe that portfolio to be rate adequate. I think the one area that we highlighted last year that we didn't believe there was rate adequacy was in our London market property. As Paul said, in terms of the reinsurance, we still felt that there was more to go. Then clearly, we've seen a seismic shift in rates in 2023 in both of those areas, which has clearly meant that we're leaning into that hard market in both of those areas. In aggregate, I'm pretty pleased where we are in terms of the rating of the portfolio off the back of multiple reasons why rates have hardened over the last few years. And then in retail, we look for consistency of rating through the cycle. And again, happy with the rate advocacy in our retail portfolio. And then the last question, which was on the NACAP budget. So as Aki said, we don't disclose our NACAP budget. However, what I will say is we're performing absolutely in line with that budget. And if you think about from an IFRS 17, From a seasonal earnings point of view, we obviously earn most of that NACAT budget in the second part of the year, given the exposure. But yeah, despite the pretty heavy CAT first half of the year, I think it was second highest on record since PCS began from 1985. But yeah, we're within our first half NACAT budget.

Andrew.

Hi, it's Andrew Ritchie from Autonomous. A few questions. I wonder if you could just comment on tax. Maybe, Paul, just given some uncertainties raised yesterday on the Bermuda tax outlook, maybe just... reflect on any mitigants etc or possible impacts there second question I'm interested in the work comp partnership I don't know if you've named who the carrier is I guess I can probably find that somewhere but I'm more interested in the profit arrangements is this a pure fee is there any performance underwriting performance relationship or anything maybe just to clarify that the other questions could you update us on the progress of settlement of UK COVID claims there's been a number of court cases, not involving Hiscox, but ongoing court cases. How is that affecting yours? And finally, so I had a nerdy question on Note 10, which is other income and operational expenses. I guess, first of all, surprised at the growth in other income. Just remind me what that is. I'm talking year-on-year growth. And then I'm surprised at the lack of growth in operational expenses, including lower staff costs, which can't be great for morale. So maybe just clarify what's going on there. Maybe it's FX, but is there some catch up to occur in those items? Thanks.

OK, thank you for that. Composite question. Oh, many questions. So three parts to that. So in terms of tax and other income, Paul, can you take that? UK COVID claims. Joe, could you address that? In terms of the workers' comp. We're really pleased with the progress that we've been able to make. Just to provide a bit of context here, one of the prerequisites to being able to develop this type of partnership is what I call the gravitational pull of customer numbers. If you don't have customer numbers, partners aren't really that interested. But once you get to a tipping point, and you never know what that tipping point is, but for us it seems to have been over half a million customers, you then start to become a marketplace where others are interested because they can sell their products there as well, particularly in this digital age. So we're very pleased, and we're very pleased with the partner that we have. We don't comment, but I'm sure it won't be too difficult to find out who. I won't comment on the profit arrangement. We're in the soft launch phase at the moment. As I said, it's going really well. It's ahead of our expectations. We expect to be in a fully integrated launch in due course, but we are not taking any underwriting risk. This is a pure sales process, a referral process to the partner. So we're very pleased. And as I said, it does increase our reach and relevance in the market materially. And it will increase the profit signature for our retail business over time. Paul, do you want to take tax and OPEX and whether we're paying our people enough?

um yeah we i would certainly hope so um yeah if i i take the if i take the tax one um first so so there was a announcement by bermuda yesterday about introducing a consultation around how they propose to implement the global minimum tax now The global minimum tax is essentially an OECD initiative to drive out a minimum of 15% globally. So that is being implemented by various jurisdictions. What we've always maintained since this was first touted is that our effective tax rate will increase towards that 15%. We expect somewhere between 12% to 15%. Clearly, the clue or what we need to see play out is how that consultation actually lands. It's a day old. But we expect Bermuda to continue to push to be an attractive destination, not only from a tax perspective, but also from a regulatory perspective and also the fact it's an insurance reinsurance hub. So that's the tax perspective. On other income, I think that there's sort of several components to it. So on the retail, we've got various sort of non-risk income arrangements that can be lumpy. London market, what you're seeing is clearly we have a 72.5% ownership of the syndicate. So as we make more money in London market, You're essentially going to drive out more income from that perspective, all things equal. Now, there might be some timing aspects to that. And then re-NILS, it's really some of the management fees and some of the valuation on that fund. Now, clearly what will happen, and Aki's just referenced it, is, and it's very early days, but what you can see from a retail perspective is where that workers' comp fee will land will be within the other income bucket on a prospective basis. So it's not premium income, it will come through the other income. And then just from a cost perspective, I think, you know, if you look at the expense ratio, we expect a roughly similar perspective for the second half of the year. You know, what I would say about costs is, you know, I think that there are good costs. So to the point about. Being happy with our people will continue to invest in our talent will continue to invest in marketing and brand to grow the business, but at the same time we will continue to focus on cost control. And really the two aspects about that are controlling headcount overall, and I think the other aspect is around really driving out the benefits of procurement and vendor management that we've seen. So that's the sort of general focus on costs.

Just picking up the last point, Andrew, just on in terms of UK business interruption. So as you know, our own policy was subject to the FCA test case. And obviously, we got a Supreme Court judgment, which in effect said that there was one third of our customers that had coverage and two thirds not. We've been settling claims in line with that judgment ever since and we're over 99% settled. Yes, there's a lot of active litigation in the UK courts at the moment, but we're not directly involved in any of that litigation.

Will.

Thank you, Will Hardcastle, UBS. A couple of ones. Plenty of signs of effective cycle management. Just thinking about, you know, you have reduced the session year on year. It's another way of getting the deployment there. We're up to, I think it was about 28% at the half year. Pre-2016, it was as low as 20%. I'm guessing just trying to understand, is there something structural different in the group that would never see us down there, but can we? Is there scope to go lower and retain more risk? Second of all, on the Gulf of Mexico net RDS, it's risen 13% to 16% of net return as you've deployed. How do you think about headroom for more growth if the opportunity did arise? I guess, how do we think about the binding constraint there?

OK, thank you for those questions. I mean, essentially, it's about cycle management and our ability to grow, take more cat risk. And I'll give Joe a moment to kind of reflect and answer that question in detail. From an overall sort of strategy perspective. For us, we kind of triangle it between three things. One is capital, and you've heard from Paul. We have a pretty strong capital signature, particularly in this property segment where the deployment turns into capital generation pretty quick if you get it right. Secondly is volatility. And what we mean by that, of course, capital itself is an output of volatility, but we're also then talking about P&L volatility. one in 10, one in 20, one in 30, which doesn't really affect capital. It's not a balance sheet event, but does become a P&L event. And finally, returns. So when we think about where and how we're deploying capital and how much risk we can take, we're going to triangulate between those three factors as we make the decisions. But, George, you want to comment specifically on North American CAT and

Sure. No, absolutely. So thanks for that, Will. So if you look at slide 43 in the back of the pack, this is a slide we introduced at the folio and you can obviously see the updated view. So, you know, we have grown our exposure in the half year and obviously we've grown it from the folio. What you're looking at there is the three different return periods. Obviously, the highest return periods at the 1 in 250 and then obviously the moderate. What you can see there is whilst we've taken more than that cat risk, I think at that shorter return period, clearly it's not a significant amount. And as Aki said, this is really balanced by a few things. So one, yes, we're taking more risk. We're probably up on an inflation index basis to the historic highs. However, I think we're balanced by a few things here. One is this is the risk. What you can't see here is what premium we're getting for taking that risk. So I think that's one measure. The second thing that I'd say is we are the top of a hardening market over many lines. We've got balance in this. We've got a very well-rated and well-managed non-cap portfolio that balances this risk out. And then the third thing is retail. If you go back to the start of this slide, our retail business is so much smaller, so therefore you've got that balance of retail. But ultimately to your question, where could this go? It comes down to what Aki says, three things. Capital, what does our capital position look like? Clearly, overall volatility, what do we want the shape of the group to look like and how much volatility do we want to take? Then thirdly, market conditions. They are favorable. I'm not quite sure what they're going to do as we go forward to 2024, but obviously we'll react to those conditions as we've seen.

James.

Hey, guys. It's James Pearce from Jefferies. So first question, clearly you're seeing meaningful benefits from both higher attachment points and higher premium rate in real London market. Just interested to know kind of which one do you expect to have the most material upside, rising premiums or higher attachment points? The second question is on property, so seeing strong rates across property overall. Where are you seeing the best rate of return right now? Is it in property insurance or property reinsurance? And then the third one is probably another nerdy one. How does your risk adjustment plus the ENIDs in your best estimate under IFRS 17, how does that compare to the prudence in your liabilities under IFRS 4? Is it smaller or larger?

Okay. Thank you for those questions, James. So the first two Joe will cover, which is better, higher premiums or higher attachment points? And then where are we getting the best returns on property and reinsurance or insurance? And then the question that Paul has been waiting for all morning on I4S17. Of course. Your wish has come true.

If we just answer the first question in terms of what is better, the higher rate or the higher attachment, I think what I would say is go back to that proactive underwriting side, they all work together. Clearly, it's about risk selection, it's about exposure management, but also it's about rate, it's about line size management, and all of those things together is what we deem proactive underwriting. which clearly, you know, work in partnership, you know, rates doesn't make a poor risk a great risk. You know, so it is a combination of all those things together. In terms of where are we seeing the best returns, we're actually seeing great returns across both our big ticket businesses, both in our London market. you know, and in our reinsurance division, they're both delivering, as you can see, you know, significant returns on capital, particularly within our London market division. It is the major property line that we're seeing, the most attractive market. Hence, we're deploying more of our capital in that line. But yeah, in aggregate, we're seeing good returns both in both of our insurance and reinsurance divisions.

And yeah, the IFRS 17 question that I'm delighted to receive. So thank you. You know, I think what's important is that we do need to move away, whether you look at that fortunately or unfortunately, away from IFRS 4. But generally what we did, and you would have seen, I mean, we've got it here, but we restated the IFRS 4 equivalent. And you're right to pull out the fact that within the best estimate now contains Enid. So If you were looking at old money, you'd add those two together to have a direct read across. I think the key points around reserving is that if you put IFRS 17 to one side for a second, Our reserve philosophy hasn't changed, and it certainly hasn't changed in the last six months. We still reserve conservatively. We still have the LPTs in place, and you can see the protection that gives in terms of 25% of the 19 and prior. Now, you've got to remember that that protects casualty reserves, so the casualty element is greater as a proportion of that. And then I think if you look at one of the demonstration of the reserve robustness within that balance sheet is that consistency of runoff. So we are experiencing and continue to experience positive reserve releases. And you can see the 62 million that we generated in the first half of this year. Now, in terms of reserve strength, which goes directly to your question, let's get onto the new basis. On the new basis, the confidence level is more appropriate. I mean, the last sort of margin over best estimate was, dare I say, a quite crude measure of reserve strength. This gives you a sense of sort of percentile strength. And you can see it's pretty consistent with the closing rate, 78 versus 77. And you'd expect it to be so, because if you look for the last first six months of the year, not a great deal has actually happened. Andreas?

Yes, good morning. Thank you. Just coming back to your Hiscox Re's sort of reinsurance protection program with the decline in the ILS and the increase in your quarter share partnerships. Can you maybe talk about your quarter share partnerships in that business? How long is that capital available for? What kinds of deals do you have there? And is it replacing the decline in the ILS capital one for one? Or would you need to... increase your outwards on your quota share partnerships to increase your cat appetite in the future. Thanks.

Thank you, Andreas. I won't go into the detail of the nature of those deals, but I think what we've been able to demonstrate is that for expert capital, so these are organizations that already participate in the insurance and reinsurance sector. that they've recognised, one, our underwriting quality, and secondly, the favourable conditions in the market. And as I said earlier, we added capacity at 1.1 and at the mid-year renewals. It is not a one-for-one. The capacity, particularly as I look forward, because we expect more net outflows from the ILS funds, the capacity we've added thus far will not be a one-for-one replacement. However, we also have a number of... inquiries that we're dealing with where further quota share capacity may well come on board between now and January. So I couldn't give you a forecast whether it will be a one for one, but it's not there at present. But the deals and as you know, our sort of philosophy when putting together these quota share partnerships is long term. And many of the partners that we have on our panel have been with us for many, many years. That's our intent. But we'll see how this plays out. At least one of the partners is new to us, but the intent is to go long term. Triff and then Cameron.

Hi, this is from Birnbeck. Two questions. The first one is on the, you previously gave some sort of guidance or thoughts around the combined ratio for land market and re-NLS. So I was hoping to get your views on the discounted sort of combined ratio on IFRS 17. And the second one is on cyber. And I was just interested to understand your thoughts there. It looks like you're getting a little bit more cautious. Rates down sort of meet a single digit, perhaps. But then in the context and the grand scheme of things, they're up almost three-fourths of the last three years. So I was just trying to understand why are you turning more cautious and whether you can comment on the combined ratio of cyber versus the wider market segment and how that fares. Thank you.

Sure. So in terms of cyber question, Joe will deal with that. In terms of the combined ratio of expectations we'd set out on a mean basis, on an expected basis. If you recall, I mean, last year we delivered a mid 80s for London market and a low 80s for re-NILS on an IFRS 4 basis. and i'd commented that actually given market conditions that mid 80s we expected to improve a little bit in a average year and the reinsurance again in an average loss year would probably start with a seven now you can't kind of translate all of that into what it means and arrive for a 17 but suffice to say the expectations that are that were in my mind at the time in terms of rating, terms and conditions, they have come to pass. We're still very positive, remain very positive about both London Market and Rio & Islas. You've heard Joe, Paul and me talk about the various aspects of the market that are either very hard or very good. We are deploying capital. And as you can see in the half-year results, both of those businesses have been a material contributor to the results. with a significant part of the earned premium, particularly in re-analysis, yet to come. So we remain confident and optimistic. Jo, if you want to deal with the question on cyber.

Thank you, Aki. Yeah, so I think you'll recall us saying before that we're a tier two cyber underwriter, and that's not to do with our underwriting expertise, but just to do with the fact that it's a modest part of our total portfolio. And you're absolutely right. And if you go back a few years, that cyber portfolio for the market was not performing. There was significant increase in things like ransomware claims, and we, like the rest of the market, needed to drive significant rate rate through, which clearly we did in our big ticket businesses. We moved up. We recently positioned our portfolio much higher attachment points. And in our retail businesses, we moved down, focusing on the smaller segments. And as we came into this year, we were looking for that rate momentum to continue, certainly nowhere near the highs that we'd seen historically. But clearly, there's also a slight increase in inflation going through that portfolio as well. So we were looking for rate momentum. However, as we came into the year and as we've gone through the year, clearly others are taking a slightly different view. And I think that's a combination of a few things. Yes, we've seen a reduction in that frequency post-Russia-Ukraine. Our view is that's more temporary than structural, so we've not really taken that into account. I think there's definitely been an increased capacity, particularly in the U.S. There's been significant capacity that's come in. And I think the last thing is the strengthening of the war clause that, you know, clearly we support, but others are taking a slightly different view. And so all those things together has meant that, you know, are what we what we intended to do. You know, clearly we were facing a market where that was that was proven more difficult. And so that that that discipline changed. I think that the thing that I would say, though, you know, if I look at the retail portfolio, I know we've signaled the headwinds in cyber, but it has a disproportionate. You know, what we're talking about here is sort of single digit millions across a one point three billion portfolio. So while small in its nature, it just has a disparate because of mass. It just has a disproportionate proportion. thing on growth, just because of the maths, but really we're talking single digit million. So the market remains competitive and clearly our view is we want to remain disciplined. So it's not that we believe our portfolio to be rate inadequate. On the contrary, all of that rate that we've driven over the last few years, we believe it's driving rate adequacy, but it is just about that discipline and race erosion.

Cameron?

Hi, it's Cameron Hussain from JP Morgan. Three questions. Coming back to the workers' comp kind of soft launch and potential there, I'm just interested in kind of, I mean, you've obviously suggested that you increase your kind of target market enormously. How do you think about partnering with other people? Obviously, you're just starting. It's a soft launch, but that 33% isn't just from one partner. So how do you think about in the future partnering with other people? And why capital light versus manufacturing a product? The second question is on capital and kind of what's going on there. Obviously, you've got a very good ratio. You've got lots of headroom. If I look at your dividend, it's up 4%. It's less than 20% of the H1 earnings. If you get to the end of the year, you hit your targets, you go with a 20% plus or 20% return on equity, how are you going to think about capital management at the year end? Are we going to sit or deploy? How do you think about that framework? I know you're not going to promise anything now, but how do you think about that? And then the final question, I guess we very rarely talk about Hiscox UK. Obviously, at the beginning of last week, we saw the FCA consumer duty come into place. My understanding is that Hiscox APRs are very, very low or nothing. Has there been any change in approach on premium finance at Hiscox UK? Thanks.

Okay, thank you for those questions. I mean, as I said earlier, we're very pleased with the partnership that we've launched with respect to workers' comp. Soft partnership, soft launch at the moment, and we'll become fully integrated within the next sort of six months. But for the moment, there are no plans to add. But of course, we remain vigilant and interested in how we can continue to serve the needs of our existing and indeed prospective customers. So it's unlikely to be the end, but there's no plans at the moment. We're very pleased with the partnership that we have. I think it has a lot of potential. In terms of why Capital Light versus manufacturing ourselves, we're a specialist underwriter. So we want to stick to our specialisms. This is quite far removed from what we do. It's not adjacent. If it was adjacent, it's something that we could consider. And frankly, our partner is a very credible, very high quality, one of the leading underwriters for this product in the US. And this arrangement actually works for both of us. In terms of capital, dividend, et cetera, I think the half-year dividend is formulaic. We're yet to go into the hurricane season. There's a lot to go between now and the end of the year. But I think reflect on where we are within the market in terms of market conditions. We see huge structural growth opportunities in retail. That just should continue to grow for the foreseeable future year in, year out. And we continue to invest to drive growth in that business. We are in a genuine hard market. You've heard the words bandied around seismic shift at the start of this year. a hard market in reinsurance, we're leaning in, we're deploying capital and then finally in insurance we're also experiencing very favourable conditions. So when it comes to the end of the year and where we are confident that in an average loss season the business will generate significant capital and significant earnings, the way we and the board would think about that is firstly what are the market opportunities and we see significant opportunities at the moment and if we can see ongoing significant opportunities that allow us to generate the sort of ROEs that you can see at the half year, then I'm sure you and our shareholders would agree, keep going. And that's essentially the framework. What are the opportunities? What are the returns? How much capital do we have? And as you can see, and as you've heard from Paul, we run a pretty tight ship when it comes to capital. All the capital we deployed this year has been entirely organic. We've not raised anything. And then Hiscox UK. Consumer Duty. Look, Consumer Duty has not been a big lift and shift for us in our UK businesses. As you know, we've consistently targeted and tried to deliver good customer outcomes. That's just part of the philosophy. That's part of the DNA of our business. We don't do premium financing. We don't charge for whether you pay by installments or in one lump sum. So that's not something we do. For us, consumer duty has been really, frankly, brushing up on our paperwork, making sure we have the right sort of frameworks in place to demonstrate and evidence all the activity that actually goes on within the business. No tangible change to product or the way we do things. Nick. Nick.

Thanks. Sorry, I'm conscious of time, so I'll be quick. It's Nick Johnson from Numis. Just a few questions on marketing spend, if I may. So firstly, to what extent is growth in marketing spend a lead indicator for growth in the retail business? And with that in mind, perhaps you could possibly give us some numbers around growth in marketing spend in the first half this year and what your growth in marketing spend budget is for the second half. And also, to what extent is marketing spend above or below sort of normal as an expense drag in the combined ratio in the first half? Thanks.

Thank you. Thank you, Nick. The marketing spend, remember, if you go back a year, I think I said that our plan was to increase our marketing expenditure as we were coming out of the pandemic and people were coming back onto the streets, as it were. That's exactly what we've done. In the first half, you've seen our marketing expenditure go up by 19%. And we should expect that in the second half, probably to accelerate a little bit more than that as we launch our brand campaign, which we kick off in the UK. In terms of going forward for the next few years, I would expect that that marketing expenditure will continue to rise. So this is not above trend. This is recovering from a below trend sort of level. I'd expect the marketing expenditure to continue to rise whilst we continue to remain within our operating framework. for the overall retail business. And in terms of whether it's a lead or a lag, well, the uplift in marketing expenditure, not entirely, and it's not all in the US, but has been a key driver of, frankly, very substantial growth in our US DPD business, which, as a reminder, we saw a new business increase by over 30% in the first half of this year. That's a combination of being on a new technology platform with improved customer journeys, improved customer experience, helping increase those conversion rates, but also greater awareness of Hiscox through that increased marketing. I think we covered everybody. Yep. There's one question on the phone. Is there? Okay. There's a question on the phone. So whoever it is, can you go ahead?

Okay. Thank you. We have one question registered on the phone coming from Ivan Birkmaat from Barclays. Ivan, your line is now open. Please go ahead.

Hi, good morning. Thank you very much. Sorry, I couldn't be in the room. I have a couple questions to follow up, please. One, just related to the U.S. broker channel. I mean, the revenues were up in first quarter. By second half, they were down 4%. And I think the line you specifically called out was cyber. But if I remember correctly, U.S. broker channel was about half of your total U.S. business. Maybe you could comment a little bit more about what you're selling there, what has been the specific underwriting decisions that you've taken that have resulted in this growth headwind. And then the second question, I think it's quite minor, but when I look at the extreme loss scenarios, I also see a little bit of an increase of kind of casualty-related losses. Is that the effect of the high retention, growth and exposure, maybe anything to highlight, or is there some kind of a view of risk change that's happening?

Thank you, Ivan. So a question on the U.S. brokerage channel and the impact of the decisions there. And the second one, which Joe will take, which is on the extreme loss scenario relating to casualty. Ivan, you're right in Q1 that the business was in aggregate still growing. What we've seen in the second quarter and. At one level, it's as much of a surprise to me as it is to you, is we saw a rapid deceleration and indeed a decrease in the pricing for cyber as a result of additional capacity coming into the market. And there might have been a time where either we didn't have the visibility or we delayed action. We have done neither. The visibility of business performance and what's going on in the underwriting portfolios led by Joe has significantly improved over the last two to three years. So we get to know about things sooner than perhaps we would have done earlier. a few years ago and secondly we're determined to deliver high quality growth that's going to deliver high quality earnings not just now but in years to come you know how insurance works we could write this now and then hope that it performs better in a year or two's time that's not what we want to do we don't want to deliver this our strategy and help So that's a decision we've taken. We have our view of risk on cyber. The current pricing environment in the U.S., it is isolated into the U.S. for the moment, is the pricing is currently below a technical rate. And therefore, what you've seen is not only a reduction in new business, but we've seen a rapid reduction in retention. And that's why it seems to have a disproportionate impact on the growth rate. I would just echo what Joe was saying. In absolute numbers, you're still talking about single digit millions in a business that generated 1.3 billion at the half year and probably doubled that for the full year. In terms of the extreme loss scenario, Joe, could you cover that?

Of course. So there's two lost scenarios that look at casualty. One is on the casualty reserves deterioration, and that's seen a modest increase, and that's just a function of growth. So obviously, as our reserves grow, then that number gets bigger. I think it's up about 25 million on the half. The other one is the economic collapse. And we've seen a reasonable increase there of over 50 million. Again, that's a function of two things. Growth as we grow our portfolios, our casualty portfolios, clearly that has an impact. And also there's some specialty business that we write in our reinsurance. It's not casualty business, but it does contribute to this economic collapse. And that's contributed to that increase as well.

OK, thank you very much. We will wrap at this point. So to conclude, once again, that the first half of the year, in the first half of this year, our business has delivered growth in revenues and profit in every business. It's a combination of the underwriting actions of the last few years combined with favourable market conditions. They've come together to generate the result that you can see in front of you now. And our portfolio of businesses positions as well to continue delivering high quality disciplined growth and earnings. So thank you very much.