Hiscox Ltd Ord New

Okay, good morning everyone and welcome to the Hiscox Q3 trading update. I'm Paul Cooper, the Hiscox Group CFO, and I'll be walking you through the usual topics that we cover at Q3, namely growth, claims experience and the investment result. After this, I will hand over to the call moderator who will open the floor for Q&A. So let's begin with growth. The group delivered ICWP of 3.9 billion as we added 113 million of premiums, with 99 million contributed by retail. This has been underpinned by steady growth in our retail business, as well as disciplined capital deployment in RE and ILS. Our diversified portfolio is allowing us to deliver sustained growth in areas with attractive market opportunities. such as big ticket property and London market crisis management, while managing the cycle in other areas of big ticket. We continue to make progress in executing the group strategy to deliver sustainable and less volatile returns while growing the business. Let's dive further into this and examine our growth by segment, starting with retails. As we told you at the half year, retail growth is not linear and ICWP grew by 4.4% in constant currency, driven by continued strong momentum in Europe and the UK, offsetting slower growth in the US. In the UK, good performance across all areas of our business delivered growth of 4.5% in constant currency, an increase from 4.3% at half year. We expect the UK momentum to continue to build in the fourth quarter as we benefit from new distribution deals, a new AI solution in art and private client and our award winning brand campaign. Our European business has delivered growth of 6.7% in constant currency with growth broad based across markets and lines. Growth was lower in the third quarter due to a strong prior year comparator. Nonetheless, the underlying momentum is strong. You will have read in today's update that we have launched a new European partnership with a leading digital MGA. This exciting partnership, along with other innovations, will help build further momentum in 2025. In the US, Our digital business, USBPD, has delivered growth of 7.6%. Our digital direct business continues to deliver double-digit growth fueled by strong retention and a good rate of customer acquisition. In digital partnerships, we continue to grow, albeit at a lower rate, as the slower production momentum from some established partners, highlighted in the second quarter, has continued through the third quarter and is likely to continue for the rest of the year. The majority of partners continue to grow their premium placement with Hiscox, and the partner additions are continuing at a steady rate, with 55 partners added over the last 21 months. U.S. broker premiums have reduced by 3.9% over the first nine months, the business is rotating back to growth following our deliberate repositioning of the book that was completed in 2022. This required us to rebase relationships with brokers on our redefined risk appetite. Pleasingly, growth trends are emerging in an increasing number of lines across U.S. broker. Now moving on to London market. ICWP, has decreased by 2.9%, broadly in line with the trend at half year. This continues to reflect our proactive management of the cycle, growing where we see attractive opportunities, including property and crisis management, while also reducing our position in DNO and cyber, which took 2.3 percentage points off London market growth, continuing the adverse trend since 2023. In addition, Growth has been tempered by our decision to non-renew certain large binder deals earlier in the year and to stop writing space business. Looking at the underlying momentum, our crisis management division delivered the strongest growth in the quarter, up 18%, driven by strong momentum in both K&R and terrorism. Property classes continue to enjoy attractive market conditions and we are taking advantage of this by writing new business. Like retail, London Market continues to innovate. In August, we launched the first AI lead underwriting solution in the Lloyds Market for our terrorism business. You will have also seen we've launched a new Personal Security Plus product to complement our existing suite of K&R products. This has been well received by our clients. Moving on to RE&ILS. Hiscox Re and ILS achieved net ICWP growth of 12% as the business deployed additional capital into attractive underwriting conditions. ICWP grew by 4.3%. The net growth has been ahead of top line growth as we have taken more risks onto our own balance sheet. The reinsurance market has remained disciplined throughout the year with rates flat on average across our book and detachment points and T&Cs broadly holding firm. The active natural catastrophe environment, including Helene and Milton, looks likely to arrest or slow the reduction of rates forecast for 1-1. Hiscox ILSAUM was £1.5 billion at 30 September 2024, and we see a robust pipeline of potential investors ahead of the 2025 renewals. Now looking at our claims experience. The third quarter of 2024 has seen a number of US hurricanes make landfall, including Beryl, Debbie, Francine and Helene. There was also flooding in Europe and both wildfires and storms in Canada. We have been focusing on supporting our customers who were affected by these tragic events. For the first nine months of 2024, our natural catastrophe claims and overall claims experience is within expectations. Earlier in the fourth quarter, Hurricane Milton made landfall in Florida. The group expects to reserve a net loss of 75 million based on an industry insured loss of $40 billion. The vast majority of our exposure is in our big ticket businesses with the net loss split broadly equally between London Market and RIA and ILS. We remain within our full year catastrophe loss expectations. Let's move briefly on to our investment result. For the first nine months of 2024, the net investment result is 346.6 million, representing a return of 4.3% year to date. This has been driven by a combination of strong interest income, and favourable mark-to-market movements on our bond portfolio. The reinvestment yield on the bond portfolio reduced from 5.2% at the end of June 2024 to 4.4% at the 30th of September, with the duration at 1.9 years. In summary, our diversified business is demonstrating its strength as we continue to make progress in delivering sustainable and less volatile returns while growing the business. Retail growth is expected to improve in the fourth quarter, as the momentum from a range of distribution initiatives continues to build. Attractive market conditions continue to persist within our big ticket businesses, and we will continue to deploy capital where there is opportunity for profitable growth. Any surplus capital will be returned to shareholders following the board's decision at year end. This concludes my opening remarks, so I'll now hand over to the operator to open the floor for Q&A. Operator, over to you.

Thank you, Paul. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure that your device is unmuted locally. Our first question is from Will DeHart-Castle from UBS. Will, please go ahead.

Thanks for taking the questions. There's two. The first one is thanks for the update on the growth that's come through. I guess just a little bit of a high-level view where you're most excited about or where you see most pressure likely for 25 would be helpful across retail, London market, and RIA and ILS. It's a big picture question, I guess, for next year. And secondly, just coming back to the USDPD status update on the partnerships, are we right in thinking that because the drag essentially started in Q2 this year, this could actually mean that the drag continues from these large partners until the beginning of next year? Is that right? So Q1 2025 might still be a bit of a drag. Thank you.

Yeah, thanks, Will. So, yeah, I mean, if I talk about growth, and it is important across each of those three segments. So, if I start with re-NILS, what you've seen, given the cat activity of Q3 and going into Q4 with Milton, is I think rates were sort of expected to come off a bit, and then sort of post Monte Carlo and then essentially since those events, we've seen the expectation that rates will remain firm and that's against the backdrop of 23 being the best conditions in 10, 20 years and 24 being the second best. So if that prevails into 2025, we see the conditions for property cap remaining very attractive and we would expect to incrementally deploy capital into that space, consistent with what we've done over the past sort of several years. I think for London market, the point to emphasise is that we do have a clear strategy of delivering sustainable, less volatile returns. And against that backdrop, it is very much a focus on looking at opportunities that are attractive. So property on the primary side in London market continues to be so. we continue to grow property and household binders rates continue to be, but I'd say firm and attractive. And then similarly crisis management, you know, we have seen good growth in Q3 and that remains an attractive area. I think there's also a structural opportunity in energy construction. And what we saw is, you know, there is a, significant multi-trillion dollar investment into the transition to net zero. And although these projects sort of don't come along, you know, I'd say at regular intervals, there was a flurry of them in Q3 last year that we didn't see to the same extent this year. The long run outlook for growth in energy construction is very compelling and that's why we have invested in developing lead underwriting capability and also sort of engineering expertise. So that's an area that I'm excited by going into next year and beyond. But I would say it's tempered by our cycle management and where we see conditions evolving, such as D&O and cyber, you know, we have seen rates continue to soften in those areas. That is off the back of what was a sort of sizable increase from, say, 17 through to 2022. But we are managing exposure in that space. So that's sort of the broad London market picture. And then from a retail perspective, we're very focused on driving, you know, ongoing momentum into both growth and quality, profitable growth. And from that perspective, if I look forward, you can see from the statement that I've said that we expect growth to improve in Q4. And I think the momentum is being driven and built off of those distribution partnerships that we have referenced earlier. And in particular, I'm particularly excited by the digital MGA that is a pan-European deal that is, you know, enables digital placement for our small and micro customers. And that's really connecting the MGA to ourselves. So, you know, I think the runway, the structural growth opportunities for retail continues into the future. Oh, and sorry, the second point about USDPD partnerships. So let's remind ourselves that Q1, growth was double digit for partnerships, and then we highlighted that production for some selected partners within the USDPD area had been below expectations. And what we have seen is that shortfall against expectations has continued for those partners into Q3, And we expect that trend to continue into Q4. So that's what we can see ahead of us. We are, as we've previously mentioned, very focused on driving joint marketing plans with those partners, as well as really looking at partnership incentives to further fuel growth. And that continues to be the case and the emphasis.

Our next question is from Cameron Hussain of J.P. Morgan. Cameron, please go ahead.

Hi. Morning. Just on the comments on loss experience, I just wanted to clarify a couple of things. My read of it is that you're kind of within expectations of large loss, so actually maybe slightly below average, despite the hurricanes. I'm just interested in any kind of other comments on the traditional loss experience across the book. and kind of what that might mean. You know, I'm assuming maybe there's some upside from that, but just interested in kind of comments and views on that. The second question is just on capital. I think, you know, the comments around returning surplus capital are helpful. Just want a little bit of colour on how we should think about surplus heading into next year. It doesn't sound like there's a huge amount of growth potentially in some of the more capital intensive sectors. lines of business, but just interested in how we should think about surplus heading into next year and kind of all of the kind of trigger points we should think about. Thank you.

Yeah. Okay. Thanks, Cameron. So loss experience. Let's put some colour on that. So you're right to highlight, from a CAT perspective, you know, you would have seen that it's been an active Q3. I mentioned that. And at nine months, the CAT losses were within our CAT budget. What we've also explained is when you add in Milton, which is obviously a Q4 event, then our CAT losses still remain within the full year CAT budget. What we've also explained in the statement is our losses in total for the group are within expectations. So you can sort of get an understanding of lost performance for the nine months, and we're pleased with that. I'd also sort of point back to the half-year profitability. You know, we were delivering very solid combined ratios. You know, REIT was 77, London Market, you know, 87, and retail below 94. So, you know, good underwriting performance at the half-year. If I then talk about capital and surplus, what we have highlighted and said that we will deploy capital into attractive market conditions. And what we can see ahead of us currently is that reinsurance remains attractive. The interesting thing that we point out is on a net basis, we've doubled the amount of premium that we write over the last five years. So you can see that where we see the opportunity we do deploy capital now if I stand back that is entirely consistent with our capital management approach and the way that we think about it is we will deploy capital where we see attractive opportunities you know we will continue to grow and take it and drive growth into retail where we see the structural opportunity. I just remind you that retail isn't a capital-intensive business, certainly not as much as the bigger ticket aspects. So our priority is deploy capital for profitable growth, maintain a strong balance sheet. So you know that we had a 206% BSCR at the half year we've generated capital at Q3 and expect to continue to generate capital into Q4 and pay a progressive dividend. So after all of that, then we will look at the surplus capital and return that to shareholders upon the decision that's made by the board at the four-year results. So hopefully that gives you some colour on both what we have done in our track record of deploying our capital, but also the approach that we take with regards to surplus.

Thanks very much, Paul.

We have a question from Nick Johnson of Deutsche Bank. Nick, please go ahead.

Morning. Thanks very much. Just one question, actually. It's on London market and the growth there again. So you've talked about some of the growth opportunities, which sound interesting. Just wondering if you could talk a bit about the other side of the equation. So you've been very disciplined in 2024 in certain segments. If that discipline continues next year, what are the likely areas where you might shrink London market in 25? So net-net, do you actually see any growth potential in London market next year, or should we be expecting it to be flattish? Thanks.

Yeah, so... Thanks, Nick. So, again, you know, I put that back against the, we're very focused on disciplined underwriting. And that's led us to have four consecutive years of a combined ratio in the 80s that we're very pleased with. I think if I look at sort of growth, yeah, I mean, it's a question of, you know, continuing to grow in those areas I previously mentioned. I'm pleased with the innovation that supplements that. So you'd see that we've launched the new KNR product and the fact that we've fully launched and gone live with our AI supplemented terrorism product. That's very pleasing to get that off the ground so we can see opportunities there. I think the one area at the moment that we are very focused on and being disciplined about is DNO and cyber, as I've mentioned. Just to put some color on my previous comment, you know, we saw DNO run up rate increases up to around 250% before they started coming off, just to give you a sense of how well rated that book progressed to. I think the other area that will have a very slight drag on growth going into 2025 is obviously our withdrawal from space. Now, you know, that is a small part of the London market portfolio and it's a small, you know, a tiny part of the overall group. But nonetheless, it will have a bit of a dent into 2025. You know, but net-net in the round, we expect London market to be positive from a growth perspective into 2025.

Great. That's very clear. Thanks a lot.

We have a question from Faizan Lakhani of HSBC. Faizan, please go ahead.

Hi, thanks for taking my questions. The first one is about the implications of the cyber slowdown on your broker business.

Faizan, you're really breaking up. Sorry. Is this better now? Yeah, that's much better.

Sorry. Okay. Sorry, my first question is on the gearing of your broker business to cyber and D&O growth. How dependent is that broker growth bounce back on those two markets and also just generally on general liability as well? The second question, when I look back at last year, your capital growth was very strong in H2. And back then as well, your cash experience was broadly in line or a touch below expectations. How do we think about H2 capital growth for this year?

Thank you. Yeah. OK, great. So I think gearing to cyber and DNO, I mean, I think probably the thing to take is and casualty is really have a look at the half year presentation and you can see the element of that portfolio as a proportion of the total London market business, it's actually relatively small as a proportion of the total. At the half year, it was 16%, 1.6%. So a relatively modest part of it. We expect, based on the current outlook, for D&O and cyber to continue to reduce. We are managing our exposures in that area, although... you know, the market is pretty dynamic and it can change pretty quickly. So, you know, if suddenly, for example, the IPO market starts to pick up, and who knows, sort of post-Trump, you're seeing a boost in capital markets already, for example, if IPOs suddenly start, you can suddenly get a pickup in IPO activity and that DNO may change from a profile perspective. But, you know, this is our sort of best outlook as of today. Interestingly, GL rates have started to increase. So we are seeing an element of growth in that area, but it's very much around rate rather than exposure. We are pretty cautious in that area. I think from a capital perspective, I'd say sort of the broad aspects and the broad profile, if I look at H1 versus H2, is that because we write a lot of the capital-intensive business, i.e. reinsurance, and it's weighted towards the first half of the year, the consumption is heavier in H1. H2, it's a lot lighter. And then the capital generation is really weighted from an underwriting side towards the first half versus the second half. What will play out is two things that changes that profile. One is the relative loss experience. and how that plays out. And you've highlighted that the relatively benign conditions of 2023 meant that we generated quite a bit of capital in the second half. And you can draw conclusions for that for this year. And then also from the investment return, that really is dependent upon market conditions. And it does remain a relatively, I'd say, volatile environment where you are seeing rate sort of move around a bit. I think as of September, the two-year had sort of neared, you know, it moved around a bit and sort of was near, close to where it was at the start of the year, for example.

Sorry, just to come back to the first question, I apologize, this is my line. What are the implications of cyber and DNO on your U.S. broker business that sits within retail?

Oh, well, look, so from a DNO perspective, we don't, you know, we don't write that in the US broker space. We stopped that in 21 and prior as part of that reposition that I talked about. And then from a cyber perspective, you'll know that we started talking about the competitive conditions in Q2 of last year. You know, the actual proportion of the cyber book as a proportion of the overall broker book is pretty small. So any drag from that is going to be relatively modest for Zahm. Okay, thank you very much.

We have a question from Anthony Yang of Goldman Sachs. Anthony, please go ahead.

Good morning. Thank you for taking my questions. Firstly, coming to retail growth within the U.S. broker market, I think it's pleased to see mentioned the end of the contraction period is coming. Does it mean it's likely going to be in Q4 or going to be in, say, early 2025 next year? And the second question is, how should we think about your 5% to 15% retail premium growth target? for this year, judging by your premium growth reported at nine months, 24. And then last question is coming to London market. At half year, you guided moderate growth in net premium growth in London market for the second half. But given the underwriting actions you mentioned, is that still a reasonable expectation for 2H?

for the market thank you yeah great um look so perhaps i'll take the the last question first and then get into um the retail part of it so i think what we've said you know is you know if you look at london market let's let's be very clear we are absolutely focused on producing you know good sustainable less volatile returns and you've seen that in the performance and the delivery of the London market combined ratio, you know, it was 87% at the half year. I've talked about where we are very much focused on those areas of growth. And I don't think that there's sort of anything, any much more sort of colour to put on that. You know, property crisis management remains attractive. DNO, we're very focused. And You would want us to absolutely be focused on disciplined underwriting across those mini cycles that we're seeing, and we continue to do so. I think from a US broker perspective, again, it's really important to put that into perspective from, you know, it's 15% of the overall retail business. So what is especially gratifying, and I think that you highlighted that, Anthony, is you know, that we are seeing the end of that sort of transition into growth. And if you look at the actual discrete quarterly GWP trends, actually Q1 was minus seven and a half. And if you contrast that with Q3 discrete, it's minus 2%. Now, if you unpack that and look into the various lines of business, we are growing some lines of business like architects and engineers. and entertainment, for example. So, you know, it's not a broad brush, you know, everything's down. We have seen, call it the green shoots of improvement in U.S. broker, and I think that bodes well into the near future. Now, you know, I think that's unlikely for Q4, but, you know, let's turn to and give you an update on 2025, the full year results when we come to that in February. And then I think for the retail growth target that you mentioned, the five to 15, I mean, you know, what I take comfort from is that the Q4, we do expect the Q4 growth to improve for retail, you know, and there is momentum being built off of those distribution initiatives that are getting traction that I mentioned earlier on. So that is, the sort of direction of travel from a momentum perspective. But what I would say is the sort of full year outlook, I think we're going to be close.

Thank you. That's really helpful.

We have a question from Shanti Kang of Bank of America. Shanti, please go ahead.

Hi, thanks for taking my question. I had two questions. So the first one is, Just on the target for retail on the combined ratio, you sort of mentioned at half year, it's around 94%. I think your target range is 89 to 94. So how are you guys tracking against that given the sort of softness in the US? And then the second question is just around reserve development. If there's any qualitative comments you can add on anything you've seen in the last quarter or if there's anything extraordinary that would have meaningfully affected your results today. Thanks.

Yeah, great. Thank you. So retail, yeah, we have the 89 to 94 target range. Pleasingly, at the half year, we were under that. So we were something like 93.8. So good performance for the retail business. There's nothing to report at Q3. And we'll look forward to updating you at the full year. I think reserve development, the point I would emphasise or emphasize is we remain, and this is consistently the case, prudent and cautious reservists from a philosophical perspective. And you see that play out in two ways. One is our confidence level is above 80% at the half year, and we've got a long track record of reserve releases. And that's been true of 20 year plus, but As regards how that plays out at nine months, you know, it's very clear on the point of losses being within expectations for the group. And there's nothing sort of to report at Q3 otherwise.

That's great. Thank you.

Our final question is from Abid Hossain of Spanier Liberium. Abid, please go ahead.

Hi, morning everyone. Two questions from me, please. The first one is on the margin outlook. Just wanted to get a little bit more colour on that, please. So given that the loss experience is within budget for the full year, just wondering if you think the full year expectations for the combined ratio should remain unchanged or should we be baking in some deterioration in the margins? And then Net-net on the ROE, which I think should benefit from a better investment return by the end of the year. What's the outlook for the ROE? So that's the first question. And then the second one is just a short question on the reinsurance mix. Can you share what the property reinsurance book mix is like between quota share and excess of loss, please? Thank you.

Yeah thanks Abid for your questions. I think the two points on margin and ROE you know this is a trading update so it's really around growth claims investment return rather than sort of giving you four-year guidance but hopefully there's enough in there to direct you to sort of expectations around where we think we're coming out. I mean I'm You know, we had strong profitability across all three business segments at the half year. I'm very pleased with the results at Q3. And we've talked about where losses are from a cap perspective and that they're within expectations at nine months. So hopefully that will give you an indication of sort of margins and ROE for the full year. I think from a sort of inwards RI, you know, we write a very significant component of excessive loss versus Quotashare. Quotashare is pretty modest. What I would say about the excess of loss is it does reflect the changes in terms and conditions that I talked about being very favorable as 23 rolling into 2024. And that's principally the point about moving higher up into layers and attaching with higher attachment points. And I think you can see that playing out in terms of the results Okay, it feels like there's silence. So just ask the operator if there are any further questions, and if not, thanks for listening and draw this to a close. So any further questions?

We currently have no further questions. I will be handing back to Paul for closing remarks.

Great. Well, thank you for listening for Q3, and thanks very much. Bye.

This concludes today's call. Thank you for joining. You may now disconnect your lines.