Hiscox Ltd Ord New

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

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

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

Thank you, Paul, and good morning, everybody. As you heard, we've grown and delivered a solid underwriting performance, combination of the composition of our portfolio, the actions we've taken and market conditions. We continue to benefit from a portfolio of both balance and choice, enabling us to lead in in a favourable way to the attractive market in our reinsurance and London market, and also executing in parallel the structural opportunity we have in retail. If you look at this chart, this is a chart of our segments, and what we go through is from a retail commercial, we've grown that 6%, and we continue that year-on-year compound growth. Art and private client is up 7%, and that's a combination of both rate and exposure. Both of those portfolios are adding net new customer growth, and we have now well over 1.5 million customers globally across retail. In reinsurance, we're continuing to execute on the most favorable market in over a decade, and we're growing our top line 3% and our net over 10%. London market property is also favourable, and we'll look for growth in the second half as we continue to deploy our aggregates. In our London market specialty lines, we're growing Terra, Kidnap and Ransom, and Personal Accident, and we're executing discipline in product recall as we react to some wider market conditions and claims activity. Marine Energy, favourable but competitive, but we do see a growth opportunity in our power renewables, and we're investing in our lead underwriting capability. And in global casualty, well, after spending many years building a well-rated and well-managed portfolio, we're now exercising discipline as some of those segments start to soften. So overall, I'm really pleased with our portfolio management and the underwriting performance it's delivering. Moving on to rates. So the racing environment remains positive. London market rates are up an additional 4%, and the attractive reinsurance property rates are holding. As a reminder, earlier rate rise in these segments offset view of risk, but more latterly has improved the margin, which is evident in the results. Retail is up a further 3%, and whilst generally a less cyclical portfolio, rate has been necessary over the last few years as we've dealt with a heightened inflationary environment. You may recall we priced for a robust view of inflation with claim assumptions, multiples of the historic past. But what we can see is whilst claims inflation, actual claim inflation is a lagging indicator, we're starting to see the emergence of that come off through our portfolio at a slightly lower rate than those assumptions. And this is an example on the right-hand side of some example portfolios across our group. Whilst claim inflation has moderated, the claims activity has actually been pretty busy. And the landscape in the first half has been busier than this time last year. So managing and paying claims is exactly what we're here for. Some of this will have been headline news, others not. but our proactive management of all is really vital to the customers that we protect. We have exposure to the Baltimore Bridge disaster, and we've reserved 28 million net based on a 2 billion industry loss. The first half has seen significant natural catastrophe activity, with sources putting insured loss above 60 billion and higher than the 10-year average. We ourselves have claims from the Dubai floods, the severe German weather, and Hurricane Beryl. And we've also been dealing with a number of risk losses through our specialty portfolios. So whilst it's been a pretty busy six months, it is within expectation. And there's nothing on this page that we don't contemplate when we underwrite our portfolio. And our job is to understand risk, the exposures they represent, and price for them, starting with the decades of data that we have. We add to this the latest digital and technology capability to augment this experience. In our big ticket businesses, we dynamically allocate capital through the cycle, depending on the market conditions. In retail, the vast majority of our portfolio is automatically underwritten, which enables us to put through prices or product changes at scale and remain nimble. And then technical excellence. This is our build out of processes and frameworks to enable us to take a forward looking view of risk. And all of this underpinned by people, you know, technical excellence with experience through the cycle and across the whole value chain from risk selection to claims management. And it's the combination of all of these that is responsible for our underwriting performance. So what you have here is the last 10 years disclosed combined operating ratio. for the group as a whole, but also our reporting segments. And maybe I'll make a few observations. So the first is we operate in a volatile sector and we don't always get it right. The second is the composition of the group over this last 10-year period has delivered a combined operating ratio of 93% excluding COVID and 94.6% including COVID, despite many of those years being a recognised soft market. The second thing that maybe I'd say is the volatility of the different segments, our reinsurance being the most volatile and our retail business being the least volatile. The next observation is the power of the portfolio, how that volatility is moderated at a group level, giving us the opportunity to deliver returns through the cycle. And then maybe lastly, the last observation is the most recent past, where we've had both an improving and a consistent performance moderating the volatility of our results, which has been our ambition. So that's what we've done, but what about the future? Well, this slide is probably where I envision spending the majority of my time over the next 12 months. Firstly, on emerging trends. We can't predict the future, but staying half a step ahead is vital, reacting to those emerging trends in the future landscape from both a risk and an opportunity point of view. building out the future of underwriting, so that's continuing our investment in technical excellence, and also our Underwriting Academy, which is our training program for underwriters. And then lastly, discipline profitable growth is about doing two things. It's about growing in a disciplined way the portfolio that we've already built, but also delivering new, saying yes to more customers who are already seeking solutions from us and building out our products and our propositions for the future. I'll now hand back to Aki. Thank you.

Thank you, Joe. So through the strength of our diversified portfolio, we remain well positioned to deliver high quality earnings through the rest of the year and beyond. In retail, the last couple of years have been about laying the foundations for the long term. Now, looking out to the rest of this year, growth momentum will continue to build. gradually into the second half of the year, as management initiatives take effect, although this momentum is not expected to be linear. I expect London market to return to moderate growth in the second half, led by the property division. And in RE and ILS, we have now written over three quarters of the business for the year, and I expect the strong net growth which you've seen in the first half to continue to exceed ICWP for the rest of the year. Now going into the Atlantic hurricane season, the group is well capitalised with a high quality portfolio, well underwritten at attractive rates. And so to wrap up, we remain focused on achieving high quality growth and earnings using the strength of our diversified business portfolio. As ever, thank you very much for listening and we'll now open the floor to questions. Right, there's some roving mics, so please use a mic when you're asking questions so that we can, so people listening on the webcast can also hear you. So we'll begin with Ivan.

Thank you very much for the presentation. I think my first question would be related to growth in retail. And maybe if you could first comment a little bit more on what you mean by nonlinear acceleration. And secondly, clearly linked to the ramp up in the marketing spend, I'm just wondering what's the relationship there? Do you need to spend a lot more to get to the higher end of the 5% to 15% range? Are there any other reasons that stop you from getting there, especially as rates might moderate with inflation moderating? Because right now, you've been growing at 6%. Rates contributed half to that, if I'm not wrong. And maybe secondly, just also related to retail, you've mentioned the tech innovation. Are you seeing your peers coming up with new products, new solutions that make your existing platform more difficult for you to compete?

Okay. Thank you for those questions, Ilan. So in terms of non-linear, it's simply that growth is not metronomic. In terms of marketing, as you can see, we have substantially increased our marketing. This year, again, for the first half, we spent 50 million, which is up over 30% compared to same time last year. Now, the vast majority of this increase is on brand marketing. Brand marketing doesn't have a one for one relationship immediately with growth. This is part of laying the foundations for the long term. As you know, over the last preceding few years, we've really cut back and it's time to reinvigorate the brand in all of our territories. We have seen a step up in momentum compared to, say, the period pre-2022. I'd expect that momentum to continue to build slowly over time. And we're very pleased with the recognition that we're getting for the brand investment in the UK. We will continue to compound this investment. Pleasingly, we've been able to do that whilst delivering a robust profit outcome for the retail business with a robust combined ratio. In terms of tech innovations, if you think about our business and how we've executed our strategy over many years, there have been, certainly over the last decade or so, two constant pillars. One is the investment in underwriting and underwriting capability. And secondly, the investment in technology capabilities. to ease how people, customers, intermediaries can do business with Hiscox. So we're trying to do two things here through the use of technology. Make it really easy for customers to place business with us, but also to further augment our underwriting, pricing, and reselection. Those are the kind of key drivers, as well as being able to build scale efficiently. I would say in tech innovation, in many, many places, We have been ahead of the market and continue to be ahead of the market. In terms of our ability to auto-underwrite, that's been at the heart of the success of our retail business because we've been able to give customers a fantastic experience, being able to respond to their submissions and their feedback. their request for quotes in seconds as opposed to hours and days. The innovation that London market has been leading again is ahead of peers. This is the first lead algorithmically underwritten platform in the London market. So we're very pleased with that.

Let me just follow up on the 5 to 15%. Would you expect to be within that range this year and next? Sorry, on the 5 to 15% range?

I expect to be within the 5% to 15% range for this year.

Upper, lower end, or no comments?

Within 5% to 15%. Faizan?

Thank you for the detailed presentation. You mentioned in your comments that you've seen slowdown in some of your key partners and you're investigating that. Could you give sort of an early indication of what potentially drove that and if that's more sort of transitory or do you think there's something more structural there? And second, on the new partnerships, qualitatively, can you provide some sort of indication of what the economics are relative to your key partners? And effectively, what does that mean for your acquisition cost ratio going forward?

Thank you. Okay. Again, thank you for those questions. The slowdown in the digital partners sort of segment essentially is transitory, we believe. These are the same partners that deliver double-digit growth for us in the first quarter. So I think, as I've mentioned in the past, for some of our most established and large partners, They can be very, very large corporations with a core corporate asset. And what we present for them is a very healthy, almost risk-free income if they get effectively a commission, a clip on the business that we end up writing. From time to time, they can change their marketing focus. And we believe that's what's happened in the second quarter. We're actively engaged with those partners. And frankly, it's just one or two partners to develop joint marketing campaigns for the rest of this year. And I would expect that momentum to begin to come through. But it will be gradual over the year. In terms of economics, for new partners, they're pretty much the same as existing partners. It's a clip that they get on the way in as we write business. And that effective commission rate is broadly the same for all partners. I'll just keep going along. Anthony?

Thank you. It's Anthony from Goldman Sachs. Actually, my first question coming to the large-ticket business, how should we think about the undiscounted combined ratio from here given your micro-cycle or disciplined growth there? And then secondly, just on the reserve, can you give us an update on any update on the loss peaks, including, say, the casualty lines? Thank you.

So in terms of reserves and lost picks, I think somewhere between Paul and Joe will cover that question. And in terms of big ticket undiscounted combined ratio, as you can appreciate, I'm not going to give you a forecast on that. We believe the market conditions in both London market and reinsurance continue to be attractive. The way I describe our reinsurance business is that 2023 was the best market in over a decade. 2024 is the second best market in over a decade. And conditions continue to look positive as we look out from here. London markets, again, I would describe overall as being in a good place. London market, due to the nature of the business, is just more complex. They're more diverse. There's more diversity in the lines that we write. And there are pockets that are continuing to harden. So the property segment continues to see rate increases and we're positive about that. DNO and cyber is a continuation of the trends that we've seen over the last few years. I think from its peak, DNO for us, We've seen the rates fall by almost 30%, cyber I think around 20%. So these are still rate adequate, given the very large price increases we saw prior to that. It's just not a time for us to grow in those segments. It's time to take a foot off the gas. And the remaining divisions, again, we remain positive on. So it's an overall positive market. Loss picks on casualty.

Yeah, so maybe I will start. I mean, from a reserving point of view, I mean, you've seen the results. You know, there's nothing new to report. We've obviously gone through our reserving exercise and we've had another year of positive reserve releases continuing our, I think, unbroken record of reserve releases. And then also, you know, above that, we're holding, you know, the 82nd percentile in terms of in terms of our risk margin. I think more broadly in casualty, as you know, whilst not immune to those sorts of social inflation trends that you see more broadly, the majority of our portfolio is not as affected. We don't really see that trend in UK and Europe. Our US portfolio is very much focused on that SME, that micro segment. And so we don't really see that trend in the same way. Where we have seen the higher inflation is in our London market casualty. And of course, that's the sector that Aki has just been referring to, which has been significantly re-rated over that period. So from Andrew's point of view, pretty pleased where we are in terms of the loss picks. And I think maybe just the last thing to say, just in terms of casualty reserves, is we've also entered into, as you will recall, a number of loss portfolio transfers. Predominantly, they were in casualty lines of business. And so we have significant protection for 2019 and prior. for that sort of casualty inflation.

Sorry, it's a little bit dark in here. I think that's Will over there.

Good spot. Will Hardcastle, UBS. Just following up on the USDPDs, just what does actively working with the partnerships mean exactly? That's my naivety. And how much of this is in your control? So sort of driving growth versus it's dependent on what they're focusing on at any given time. And just linked with that, this week's been a bit violent from a market perspective, US macro growth, potential slowdown, I guess how comfortable are we with the targets in that context? second question just about sorry is the ratio on the FEV investment result it's changed on 100 bits is this because you've increased the duration on the asset side or is it something else and what was the mistake or something's changed clearly in that new guidance for this year what was that related to thanks okay thank you thank you for those questions will

Paul is delighted to receive the question right for S17.

Thank you, Will.

On USDPD. simply speaking we're working with the partners we have developed some joint marketing activity which is will be going live I believe imminently or in the next few days and weeks and we expect that to begin to rebuild the momentum but that's in essence what it means and then in terms of How much control? This is, like any business, about account management. We continuously work with our partners. The value that we bring to them is being able to provide a better and more comprehensive service to customers that come to their portals and the opportunity to create a high return on equity income stream. So it's in their interest. to work with us, and we also deliver a fantastic service. We're one of the very, very few companies that can provide pretty much instantaneous quotes for what is complicated insurance for small businesses. So we have joint interest, and there's gold congruence for that to occur. In terms of your other questions about the U.S., I guess the recently cited sort of macro concerns. I don't think you'd expect me to, and I'm not going to stand here and say no matter what happens, everything is going to be good. We are not immune to the economic volatility. But there's two or three things I would say. Firstly, new business formation in the U.S. remains particularly strong. Over the last 12 months, right up until the end of June this year, it's increased by a further 4.5%. So we now have around 33.5 million businesses to target in the U.S., the US economy has been remarkably dynamic, particularly the SME segment. And I would apply the same description actually to UK and Europe as well. This segment tends to remain robust. And when faced with challenge, and we saw that during the course of 2020 and 2021, Many businesses pivot because they tend to be the main breadwinners in the home. This is their business and you don't give up that lightly. And finally, the product that we provide is not a luxury product. It's almost a prerequisite to undertaking business so people don't give up their insurance easily. So whilst not immune, we feel good about the business.

Yeah, so your IFRS 17 question, Will. So, I mean, as a reminder, it's only 18 months old, so it's still a relatively young standard. And you can see sort of the middle bar was where we came in sort of from the top of the range of our forecasts. So, in essence, the main reason we put this slide up is just to help you guys model out sort of expectations for the various component parts of what is a complicated calculation. So, you know, the iffy unwind, it's dependent upon rate, dependent upon opening reserves, and it's also dependent upon payout patterns. And quite simply, what we've been doing is improving our forecasts over the time. So in essence, the previous guidance that we put out was 120 to 150. Given where we came out, we've refined our forecasts as we will continue to improve this process. And hopefully that standard will mature and firmly bed in across the whole sector. But we've moved it from 120 to 150 up to 135 to 165.

Andreas?

Thank you. Just had a few questions on the reinsurance business. I can see you're changing the mix of third-party capital, so you're doing more quarter share, and obviously you're paying back your third-party capital investors. Is that changing the risk appetite within your reinsurance book, i.e., does that change the mix between what you want to write in CAT and non-CAT reinsurance? And the second question is, your commissions and fees are quite attractive coming through that ILS, third-party capital structure. Moving more towards quota share, are the seeding commissions you get on the quota share book equivalent to the fees you're getting on the ILS capital, or is it going to be a mixed shift in that fee income structure? Thank you.

Okay. Thank you, Andreas. I guess in short, there is no change in risk appetite as a result of the changing mix in third-party capital. So there's no change there. Our main focus has been for many years property in retro, and it continues to be property in retro with some additions. In terms of fee income, The fee income that we receive from ILS funds or indeed quarter share partners, the exact quantum or basis points is different. The structure is very similar. And there is not a significant difference between what we would receive regardless whether it's quarter share or ILS for equivalent performance. Nick.

Thanks. Good morning. Nick Johnson from Deutsche Numis. A couple of questions. Firstly, on marketing investment. So the 50 million spent against 77 million of premium growth in the first half. I mean, at face value, that doesn't seem like a great return on investment. How do you think about the lifetime value of growth from marketing investment? Is there a magic ratio, sort of how much you spend versus lifetime value you expect to achieve? And secondly, on London markets, you mentioned second half this year. We should see some further growth in London market from property. I think that's right. Do you see that growth continuing into 2025 or is 2024 likely to be the peak of a top line on London market? Thanks.

Thank you, Nick. I guess in terms of marketing, the 50 to 77 million is not an appropriate way to think about it. The 50 million is made up of what we call acquisition marketing, where there is, frankly, a one to one relationship. And what we're driving is immediate growth. And for brand, that's about laying the foundations for a much longer term. strategy about reinvigorating the brand, creating that brand awareness which over time actually makes the acquisition cost more efficient. The most significant increase in expenditure actually last year and this year in particular has been in brand spend. rather than what we call acquisition marketing. So the relationship is a little bit different. But in terms of lifetime value, that's exactly how we think about it. With the retail business, one of the significant benefits driven by Our specialist nature and, frankly, the service that we provide is that retention rates tend to be pretty high, which means once customers join us, they stay with us for quite some time. And therefore, from a lifetime value perspective, which is a key measure for us, we're satisfied with the money that we're spending and the investment return that we're achieving. In terms of London market property, rates continue to hold up well. We're very pleased and I expect the business to grow in the second half of the year. As far as what will happen in 2025, I think we'll give you a much better update later on this year. Perhaps you can ask Paul when we do the Q3 update. Triff.

Thank you. I just want to come back to the sort of partnerships retail. I appreciate that obviously the comments you made, some of your partners obviously getting risk-free income. So you talk about you together driving marketing, so you want to obviously drive more growth. So it doesn't feel like they're not doing their part of sort of driving that. So I guess my question really is whether there's any structural difference between some of the products they're selling on your behalf versus what you're doing on the direct side, because clearly there's a discrepancy between the two. growth rates. So the second question is on, I guess you touched on it there, London market growth plans for next year. I was wondering if you have any sort of early comments on whether you're going to look to expand the capacity on the syndicate 33. Clearly you showed us the profitability being quite strong and I appreciate capacity. Staff capacity has been flat over the number of years, so any thoughts around you potentially growing that next year? And then last question, maybe one for Paul. How much limit or headroom do you have still available on the LPT, and how has your U.S. liability reserve position touched that move during the first half? Thank you.

Okay. Great. Thank you for those questions, Riff. And, Paul, you'll cover the question on LPT. In terms of products, there is no difference in the products that we sell direct to customers or through the partnership channel. It's the same products. In terms of London market growth and Syndicate 33 capacity, We have a headroom in the capacity currently, and we'll see how the rest of the year unfolds and what the market outlook looks like for 2025. I think the key thing is, as you've heard from Paul, is that the capital position remains very strong. We will deploy capital where we see attractive opportunities, and if needed, we will increase the capacity.

Yeah, and then on LPTs, you know, still loads of limit. If you have a look across all of the contracts that we've got in place, in aggregate, lots available. And then as sort of Joe referenced earlier when we touched on the earlier comment, you know, nothing significant around U.S. reserving. You could see that from, you know, the combination of where we end up from the confidence level, similar to last year at year end, and reserve releases still remain, you know, strong coming out.

I'll keep going along. Abid?

Hi, morning all. It's Abid Hussain from Panama Libre and thanks for taking my questions. I've got two questions. The first one is on capital. You just referenced the capital position is very strong. It does from the outside feel like it's very strong. Just wondering if you have a sort of target range that you'd like to operate to and how quickly you might want to get down to that target range, whether that's through deploying for growth or perhaps through additional capital distributions. So that's the first question. The second one is a slightly left-field question. It's on cyber rates and the outlook there. Just wondering, post the CrowdStrike outage, if there's any stabilization in rates or if margins are looking sort of attractive enough for you to pursue that as an avenue of growth going forward?

Great. Thank you, Abid. So Paul will cover the capital question and Joe will address the cyber rates question.

Yes. So capital, as we said, remains strong. You can see on the chart, we're very pleased with the 206% BSCR position. We don't have a range. So, you know, we've been operating in and around the 200%, but we don't have a target. What we have been very clear on, and particularly around last year end, if you can cast your mind back around our capital management policy. So very much deploy the capital for growth, and you've seen that we've done that last year and this year. That's not only to drive the retail business, but also to deploy into attractive market conditions. So from a reinsurance perspective, we've grown that net business double digit. Last year it was strong similarly. We maintain a strong balance sheet. You can see the strength of that. We've got the scenario up on the chart around the stress around it. It's a pretty extreme scenario. Continue to pay a progressive dividend. I'm pleased around the 5.6% increase. And then consider any surplus to return. So we are pretty much mostly through the buyback that we announced at year end.

And then from a cyber point of view, so yeah, I think the global IT outage in July was a timely reminder that this type of risk shows no geographical or indeed industry boundaries. And so a lot of people were affected at the same time. I think a couple of interesting things on that event. Firstly, it was non-malicious. So not all cyber policies respond to non-malicious events. Our own retail core policies don't respond to non-malicious events. As an example, I think the other thing that was quite interesting was, you know, the geographical. It came on on a time basis, a time update. And so, you know, Asia-Pac was most affected and then into Europe. And then obviously it was largely done and dusted by the time the U.S. woke up. Again, from our own point of view, you know, we have very little in Asia-Pac and the majority of our business is written in the U.S. and obviously Europe. And in Europe. And I think there were other things about that event which was quite interesting. One was obviously it was contained really quickly. Both Microsoft and obviously working with CrowdStrike come up pretty quickly. So most people who were affected were up and running on the Saturday actually. So maybe one day outage. And again, within the market and obviously our own policies, there's waiting periods. So, you know, from our own point of view, we might anticipate a bit of activity. But, you know, our London market business is written, you know, high excess. So, you know, significant sort of waiting periods before it would be affected. But having to your question about price, I think it probably does two things. I think it absolutely drives the need for cyber. I think, you know, consumers, customers, businesses, be looking at that and thinking how reliant they are on technology and so i think the um propensity of people to buy will will increase um you know this event you know i mean the sorts of cybercube who are one of the main vendors here are coming out with an industry loss of between 0.4 and 1.3 so you know whilst um you know not a not a significant event in terms of some of the rds's so Yeah, that has two schools of thought. It can either drive people being more cautious because they've seen this test in terms of this aggregation, or they may say, well, actually it tested it and actually it's not going to be a significant market industry loss. And so therefore that might fuel. So I think it's difficult to tell, but I think it definitely will drive propensity of people to buy this product because it really highlighted the risks.

Okay, Cameron.

Hey, it's Cameron Hussain from JP Morgan. Just wanted to touch back on the partnerships again. Just intrigued about the partnership concentration risk that you really have. So I think you've got, I mean, it's very difficult from the outside to see whether this is a small handful of partners that had maybe a disproportionate effect on volumes in Q2 or not. So just interested in that. the second question i'm just kind of thinking longer term about dpd um you referenced i think it was 33 and a half million potential customers um i know you're probably not going to give us your market share but do you think that's gone up or down in the last five years um as a you know as the market kind of what directionally where do you think that's gone or a number would be amazing um and the third question is Just coming back to a slide that Joe put up, which basically showed that you've got a really diverse mix of business. You know, you've got Rhian ILS, you've got London Market, you've got retail, but you stick it all together and you come up with a very smooth result. At what point will you move to a single combined ratio guidance for the group? Thanks.

Thank you for those questions, Cameron. In terms of partners, we have at last count over 150 partners. I think the way to think about it is it's a typical Pareto sort of distribution. there will be sort of 20% that account for, these aren't the specific figures, but 20% account for 80% of the income. So the distribution is no different from that. But we are, actually we're quite happy with I would say over the last few years, the diversification within that partnership group has actually increased. If you go back a few years, it was perhaps more concentrated, but we've added more and more partners. A few of those have become quite established and large with us. So we're pleased with that. In terms of market share, I guess the short answer is I can't give you a stat, but I will tell you it's gone up. because our growth, if you compare to, I don't know, whatever period, five, six years ago, our growth rate has been a little bit faster than the market growth. And then in terms of single combined ratio, not yet.

Darius, and then we'll go to Freya. Hi, Darius, KBW. Two questions, please. In your BSCR waterfall, you showed that the dividends and the buyback were not covered by the net capital generation in the first half. Is this because you executed most of the buyback, and should we expect repatriations to be fully covered by the year end, or some of the buyback should be expected to come from the excess? That's the first question. Second question, I think you showed that as a percentage of reserves, your reserve releases have been coming down from 1.8% to 1.3 over the past few years. At the same time, your confidence level did not increase. It actually slightly came down from last year. I would have thought that the hardware insurance market would have allowed you to increase the overall buffers. So what is driving this when the reserve releases were actually coming down? Thank you.

Thank you, Darius. Both of those questions are for Paul.

So, I mean, you've got to think, and this slide is really about the first half. So what you've rightly highlighted is the share buyback, you know, 85% of it is in the first half of the year. So we've still got the second half to go, you know, capital generation. We still expect to be strong, all things equal, you know, we've got to get through the wind season to be strong in the second half of the year. The interesting thing on the chart is if you look at the sort of capital consumed, because this is very driven by property cap and both in reinsurance and in the primary basis, a lot of that is weighted towards the first half of the year. More than 75% of the reinsurance business has been written as at the 30th of June. So the capital consumption for the second half, we expect to be relatively modest, capital generation to be strong, and therefore the overall capital generation overall will more than offset both the buyback and the dividends. That's sort of the first aspect. And then I think from the second component around sort of reserves confidence level, I think it's a combination of different aspects. So, you know, you've not got to just look at the sort of the rates and the hard market. You've got to look at the underlying composition of the reserves themselves. The proportion of CAT versus non-CAT will play a part. But, you know, I come back to the same part. We conduct every quarter a comprehensive reserving review with our actuaries. We are at the top of that range. 82nd is pretty consistent. And just to reflect, if you think about the hard market conditions, just as a reminder, if you go back to the half year last year, we were at the 77th, and that was the first time when we published it. So there has been a meaningful increase in terms of the overall confidence level, and Joe mentioned at the earlier questioning, the track record of reserve releases goes back 20 years or more, so we're very comfortable around the reserving position.

Hi, thanks for taking my questions. Freya Kong from Bank of America. Just back to the retail momentum pickup you expect in H2, does this factor in your plans to work with these larger partnerships which have fallen short in Q2, or is this reliant on the pipeline of partnerships that you have already planned to come online? And I guess a follow-up to this is, how hard do you have to work each period to bring on new partners in order to sustain growth and the second question is more on the market outlook given that inflation seems to be tracking below expectations for yourselves and probably for peers do you expect this could put downward pressure on pricing over the coming months and on pricing adequacy it seems like your comments on seems to match peers, that it's quite satisfactory in most lines. Any comments you can share on the competitive dynamics you're seeing across the different lines of business? Are we going to expect a plateau in rates or a peak in the cycle? Thanks.

Okay, so I'll address the question on momentum pickup on retail. I think Joe will provide a perspective on pricing adequacy across our portfolios. In terms of... momentum pick up in the second half of the year. As I mentioned, we expect it to be gradual, I expect it to be non-linear, and I expect it to be broad-based across our retail business, not specifically or entirely driven by DPD. We are working, as I mentioned, with our partners on improving momentum in the second half of the year. I would say that this is not the flick of a switch. Plans are in play. They'll be implemented and then momentum will build over time. As far as adding partners to our portfolio, We're very pleased. As I said, we have over 150 partners and we have actually a pretty healthy pipeline of prospects, both sort of large, medium and small opportunities that we're looking at. And frankly, this is just part of the business proposition that we provide. We are not dependent hugely on on those to maintain growth rates. They are a welcome addition and have definitely made an impact on our business performance in the first half of the year, but they're not the key drivers of short-term growth.

And then maybe in terms of rate adequacy, if we want to flick up the rating slide, because I think this brings it to life. I think, you know, from... when we look at our portfolio, you know, the vast majority of our portfolio is in a really attractive, in a really attractive market. You know, what you can see on this slide is those markets have been repricing for many, many, many years and driven by, you know, a combination of lots of different factors. So, you know, unlike other sorts of cycles that have maybe been driven by, you know, a single catastrophe loss that drives that reinsurance that then flows into insurance, you know, what we've seen here is You know, low interest rate environment, which meant underwriting profit has been essential. You know, soft markets, and there's been losses, so people are driving up their prices. You know, geopolitical instability. There's been so many different factors, and obviously more recently a high inflation environment that has driven up these prices. I think the most important thing that you can't see on the chart is actually this is just relative in terms of up or down. The most important thing is how adequate is that portfolio? You know, it's fine to take off five points off a portfolio that has 20% in addition to rate adequacy. You know, clearly it's different if it was just rate adequate, and so therefore you would reduce the margin. So I'd say, you know, from my point of view, most of our markets are in very attractive parts of the cycle. Rates are adequate, and you can see that, you know, it's evident in our results, the results that... that we're posting of course there's always going to be parts of the portfolio that is stronger than others and we talked about some of those sort of micro cycles but you know that's that's where we exercise our discipline and we've done that before we'll do that again you know if we believe that the market is not pricing appropriately that is when we we shrink that is when we we reduce and obviously you can see we've done that in some some segments that are on the softening but yeah overall the market remains pretty attractive

Okay, I think we have addressed all the questions. Okay, so thank you very much for listening and thank you very much for your questions. I guess just to reiterate, we're very pleased with the performance of our business. We're growing where we want to. We're delivering robust profitability across the group. The last couple of years have been about laying the foundations in our retail business. And we're beginning to see that momentum build in the first half and that will continue into the second half. So thank you very much.