Hiscox Ltd Ord New

Hello and welcome everyone to the Hiscox Q3 2025 Trading Update with Paul Cooper, Hiscox Group CFO. My name is Becky and I'll be your operator today. All lines will be muted throughout the presentation portion of the call with a chance for Q&A at the end. If you wish to ask a question at this time, please press star 551 on your telephone keypad. I will now hand over to your host, Paul Cooper, to begin. Please go ahead.

Thanks. Good morning everyone and welcome to our Q3 trading update. I'm Paul Cooper, Group CFO and today I'll cover growth, our change program progress, claims and investments. After that we will turn to Q&A. The Group's diversified business model is delivering compounding growth in retail and high quality opportunities in big ticket. This provides us with the capability to grow profitably through the cycle. The Group's ICWP is up 5.9% year-on-year to over $4 billion, with all three business segments delivering growth as we execute on our strategy. The multi-year momentum in retail continues, with the business on track to achieve constant currency growth in excess of 6% for the year. In Big Ticket, we remain focused on underwriting excellence in risk selection and disciplined pricing, London market has won attractive opportunities in a competitive market. In real IRS, through disciplined capital deployment, we have delivered net and gross growth. Let's dive into this by segment, starting with retail. Retail ICWP grew 7.3% in US dollars. In constant currency, this was 6.1% for the nine months, and 6.3% for Q3 Discrete driven by customer volumes in all markets as rates remained steady at 2%. In the UK, constant currency growth of 8% was underpinned by investments in technology, our reward-winning brand campaign and the many large distribution deals we have won over the last two years. Our European business delivered constant currency growth of 7.1%, driven by double-digit growth across our two largest markets, Germany and France. In the US, US BPD grew by 6.7%, underpinned by continued double-digit growth in digital direct. Digital partnerships grew mid-single digits, as the team worked to build momentum from new and existing partners through targeted incentives, and further enhancements to the sales journey. US broker premiums reduced by 1.2% due to a slower rate of new business growth in some classes of business. This trend is expected to reverse in the fourth quarter as a strong pipeline of growth opportunities is developing. With growth at 6.1%, new business growing at double digits, and momentum building across retail from distribution deals, brand investments, and new technologies, Hiscox Retail is well on track to deliver constant currency growth in excess of 6% for the year. Now moving on to London market, ICWP increased by 2.5% as a business found opportunities in a competitive market. In aggregate across the portfolio, rates are down 4% year to date and we are maintaining discipline and managing the cycles. This includes areas such as major property and commercial lines, where rates are down double-digit, and in casualty, where cyber and DLO rates have reduced for the third consecutive year. Nonetheless, we have been selective in finding opportunities for good quality growth, for example in our energy construction and portfolio deals in property. We are also expanding into new opportunities such as US middle market property, SME Cargo, and FI, leveraging our existing expertise and tech capabilities to access new markets. Hiscot 3 and IRS achieved net ICWP growth of 7%, driven by growth in specialty lines as we execute on our strategy to diversify our portfolio in a transitioning market. ICWP growth was 6.5%. While rates have reduced 5%, the business remains well-rated, with cumulative increases of 83% since 2018. Attachment points and terms and conditions have broadly held. ILS AUM was $1.3 billion at Q3, and we see a robust pipeline of potential investors ahead of 2026 renewals. Turning to our change programme. we continue to make good progress and remain on track to deliver our full-year targets. Developments in the third quarter include the selection of a new IT services provider, giving us access to an advanced service management platform that will automate and streamline business processes, and the signing of an exciting multi-year collaboration with Google, as well as further enhancing our claims fraud and recovery capabilities. Turning to claims. Claims experience for the group has been well within expectations in the third quarter. This has been underpinned by our underwriting excellence and further complemented by a largely benign experience from natural catastrophe and large man-made losses. This experience and the diverse earnings profile of the group have resulted in strong capital generation continuing in the third quarter. In terms of investments, The net investment result is $350.8 million, representing a year-to-date return of 4.2%. This has been driven by a strong coupon and cash income and mark-to-market gains. The reinvestment yield on the fixed income portfolio is 4.2%, with a duration of two years. The group's short duration and high-quality fixed income portfolio positions Hiscox well. To conclude, All three segments are growing. Retail momentum continues with the business on course to deliver constant currency growth in excess of 6% for the year. Our change program is on track. In terms of capital, capital generation continues to be strong. We have completed 65% of our $275 million buyback. Our final 2025 dividend per share will increase 20%, subject to final ratification by the Board, and as usual, the Board will consider any surplus capital returns ahead of the four-year results. This concludes my opening remarks, so I will now hand over to the Operator to start Q&A. Operator, over to you.

Thank you. If you wish to ask a question, please press Start followed by 1 on your telephone keypad now. If you feel your question has been answered or for any reason would like to remove yourself from the queue, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Will Hardhouser from UBS. Your line is now open. Please go ahead.

Hey there. Thanks for letting me ask the questions. The first one... You mentioned there on the call, you know, a favourable claims experience within the quarter, and it's really clear on the NACAT and the MADE, they were benign. I guess my question is really, Andy, you're also suggesting, you know, the underlying was also really favourable as well, or perhaps getting carried away there. The second question is on investment AUM. You know, this grew 6% quarter-on-quarter, equivalent to half a billion dollars. I guess there's possibly a little bit of FX and some market moves in there, but just try to understand the drivers of that underlying growth. And maybe it might be helpful to go for a stable rather than X market moves and buybacks, et cetera, that's lined up with your growth plans. Thank you.

Yeah, thanks, Will. Yeah, just in terms of the underlying, as you said, the sort of cap and large were well within expectations. I think from the sort of more underlying loss performance, it was in line with expectations. So nothing significant to report there. And then in terms of the investment AUM, I think there's a sort of number of moving parts there. So firstly, just is premium growth clearly as to the pool of investable assets. Obviously, you know, we had a strong level of capital generation in the third quarter. And another aspect is just timing of reinsurance receipts from a reinsurance recovery. So there were a number of larger reinsurance recoveries that just added that up. So I think sort of looking forward to, you know, what's a run rate. I think it's quite difficult to predict, certainly on a quarter-by-quarter basis, because you've got moving parts of premium income. Clearly, if you look at, say, for example, reinsurance that's weighted towards the first half of the year, then you've got absolute levels of claims and timing of that, and then you've just got timing of receipts. along with capital returns. So I don't think there's a good rule of thumb. I think the important aspect to bear in mind is we have a compounding retail business that, as we've outlined, have ambitions to get to double-digit growth in 2028. And as a consequence of that, you should just naturally see an increase in AUM over time as that compounding growth occurs.

Thanks.

Thank you. Our next question comes from Cameron Hussain from JP Morgan. The line is now open. Please go ahead.

Hi. Good morning. Two questions for me. The first one is just on the capital side. It sounds like, you know, a surplus capital has been generated in the third quarter. Can you just maybe re-outline what your priorities are for that? My sense is that you probably get another buyback or something along those lines just to kind of re-outline those priorities on capital. And the second one is just on the Google Cloud collab. I think the AI-driven underwriting partnership has grabbed a lot of headlines, but what can the Google Cloud collaboration bring to the business? cost savings, simplicity, etc. or what else does this bring? Thank you. Thanks, Tam.

Yes, so in terms of capital, you're right. So capital generation has been strong in Q3 and indeed really for the first nine months of the year, both from an asset side of the business, but also from an underwriting perspective. Just in terms of the capital management framework, I outlined that in May as part of our capital capital market today and really the priorities are you know first and foremost we are a growth business so it's all a capital for the growth secondly maintain a strong balance sheet in the context of the 190 to 200 operating range that we expect the FCR to be within And then thirdly, pay a progressive dividend. Now, you know, as per my opening remarks, you'll see that we've already committed to increasing the final dividend per share by 20%. And then lastly, once we get through that, and clearly this will be a consideration for the year-end results, will be determining what levels of surplus to return to shareholders. But I hope that you and others would take away... from our actions at the half year, where we increased the buyback by 100 million, that we've got no desire to hold on to surplus capital unnecessarily. So that's the sort of capital question. In terms of Google, we're very excited around that collaboration. It's a multi-year collaboration arrangement. And what we've seen is the benefits really in that sort of augmented lead underwriting arrangement on sabotage and terrorism where we drove submissions in terms of timing from a turnaround time of about three days to certainly around three minutes. That's something that we are certainly looking to accelerate into other parts of the business and taking components of that where we can deploy it into other lines. So, for example, one of the markets that we've accessed this year is middle market property, and we've been growing that in London Market. Now, what part of the Our ability to do so has been partnering with Google to cleanse data using AI and again accelerate the submission process as a consequence from that. So I think you'll see really two main drivers. One is a growth in Angular, similar to the surge in terrorism and the rollout in mid-market property. and then just generally looking at their technological expertise to drive efficiency into the business. Thanks, Paul.

Thank you. Our next question comes from James Shuck from Citigroup. The line is now open. Please go ahead.

Hi there, and good morning. Paul, I just wanted to return to your comment on the claims environment. Just reading the release, it sort of, it mentions claims experience being well within expectations. I mean, you say it's been complemented by a largely benign loss experience in that cat and large man leg. That implies to me that the attritional was actually better in Q3, but I think in answer to Will's question, you said that it hadn't been, it was more or less in line. But perhaps you could clarify that point for me, please, the first question. Secondly, on U.S. Broker, you mentioned the slowdown in U.S. Broker in Q3 in specific lines, and that was expected to reverse in Q4. Could you just shine a little bit more light on what those specific lines were and why you expect them to reverse in Q4? Thank you.

Yeah, so thanks, James. So just in terms of the claims, yeah, we're within expectations. Nothing substantial to report from a larger cap in Q3. And really, I think the point that we're making around the underlying business, it's in line, but that in line performance is good. So at the capital market today, you'll recall that we put out our loss ratios for retail, for example, have been mid-40s for the past 10 years and they are market leading. That's very much continued into the third quarter. So Just to put a bit more colour on that there. And then in terms of US broker, I think what we've seen, and it's interesting, is the trend has been improving over time. So the US broker business, two years ago was shrinking minus 7.5%, last year it was minus 4%, and now we're at minus 1.2%. There's a couple of lines of business that have been affected by uncertainty around tariffs, so entertainment has been one to call out, for example. But if I look across and look at the sort of management actions that we're taking to drive that trend line up, We've done and made significant efforts around streamlining submissions. We've deployed AI to, again, triage the submissions so that we can return submissions and responses back to brokers in a more effective and faster fashion. And then we've also automated or made improvements to the auto-renewals process. in those areas so and i think the sort of you know the minus one percent that you've seen us report that q3 really amounts to about two million dollars so in the context of a two billion retail franchise for nine months you can see it's pretty immaterial that two million is about four or five risks of larger retail risks on the broker side. And, you know, that really is dependent on which side of the quarter it falls. You know, sometimes it will fall in September, sometimes it will fall in October. So the pipeline that I can see ahead of us for Q4 is good. And I expect momentum for U.S. broker to improve into the end of sort of year end.

Yeah, got it. Thank you very much.

Thank you. Our next question comes from Andreas van Epten from Pilham. Your line is now open. Please go ahead.

Thank you. Good morning. I just have two questions on Hiscox Re, the reinsurance business. You mentioned there's sort of a strategy to diversify the portfolio. I think at present the portfolio is two-thirds property, cat-weighted and one-third specialty property. Is there a targeted mix you want to have in a few years' time as we go through this whole cycle in terms of low-rank exposure to public traffic, increasing specialty or perhaps even casualty? Is there sort of a target strategy there? And the second question is, on your growth-to-net premium strategy, last few years in the hard market, do you have retained more of your reinsurance premiums, NETs? and, you know, top line has been sort of relatively flat on a gross basis. I just want to go back to cycles, sort of show signs of softening into 2026, whether that retention policy will reverse in due course. Thank you very much.

Thank you, Andrea. The answer to both of those has its roots in very strong cycle management. If I look at reinsurance We, as we've highlighted, have a significant property tax component. And, you know, although we've said that rates have come off 5% year to date, that market at the moment is attractive. I think it's more a question that from a property tax perspective in the last five years, we've doubled the net premium we've written. It was lent hard into that hard market. So I don't expect, you know, under the sort of current conditions to grow our property cap exposures significantly into 2026 on the basis of the current rating cycle now or the rating conditions. Clearly we've got a couple of months to go before 1.1. But we have been diversifying into specialty lines. We don't write casualty reinsurance. I think we should make that clear. But where we have seen growth are areas like cyber, mortgage and crop, for example, is where you've seen us grow into those areas where conditions are attractive and that business is attractive. In terms of the growth, the next draft is again very much dependent on where we are in the cycle and the market conditions. You're right to highlight that our business and our ability to attract third-party capital is strong, not only from an ILF perspective where we report the AUM, but also from a quota share reinsurance perspective. And what we have done in more softer market conditions is really ramped up the level of session and retained far less. I think the mix was more a 20% retention in the depth of the soft market versus a harder market where we were around 50%. So I think the benefit of that model really enables us to capture fee income, both on a fixed volume perspective, but also from a profit commission perspective. And if you look at the fee income that we generated last year in what were very good conditions, it was around 120 million. So, you know, that is a decent contribution to the bottom line.

Perfect. Thank you very much.

Thank you. Our next question comes from Chris Hartwell from Autonomous. Your line is now open. Please go ahead.

Hi. Good morning, Paul and Tim.

So a couple of quick questions. First of all, on retail Europe, you mentioned WGD growth in France and Germany. I think you say that Netherlands has some issues. So I'm assuming that's a large part of the difference between double-digit growth in France, Germany, and the overall growth of retail Europe. So I was wondering if you could maybe quantify what's going on in the Netherlands and how long you think this will last. And a second question just on London market. So you talk a lot about innovation issues. in the London Market book. I was wondering if maybe you could just help provide some examples on what you're doing there that's really exciting you and how much of a lead does that really give you over the competition in the market? Thank you.

Yeah, thanks for those questions, Chris. So let's deal with retail in Europe first. You're right. If you take the composition of the portfolio, around 60% of Europe is composed of our two largest countries, France and Germany. And as you say, those businesses in aggregate have continued to drive growth as double digits. Netherlands is an interesting example, and that has more subdued growth in the third quarter. Now, the driver of that is really a change in tax law, and it's akin to IR35 that was introduced into the UK several years ago. And what it did is it just had a greater focus on freelancers and sub-traders, which you'll know is kind of a core target market for us at that nano and micro end of the FME commercial insurance sector. And in essence, what it has done, again, similar to the UK, is driven by more of those freelancers, single person employers into corporate employment. Now if you look at the UK example, the growth bounce back or the consequence of that bounce back in the UK so we'll expect that to happen but also I think there's been some very strong vocal opposition in the Netherlands to that change in tax law and I think that you know, there is an expectation that there'll be some changes again in consequence of that opposition that we're seeing. And so, you know, we'd expect 2026 for that to be enumerated. So that's the sort of London perspective. In terms of London market, I'm very excited around the innovation that we're seeing there. I think one of the things that we've seen is the technology capabilities that we have in retail has been exported, that expertise and capability has been exported into London market and it's giving us access to new great opportunities that we wouldn't have otherwise seen. So the first aspect is the sort of augmented lead underwriting and sabotage and terrorism. I think around two-thirds of that business is now subject to the augmented underwriting. So we have industrialized that proof of concept this year. And then what we've also seen is deploying and utilising some of that technology into the middle market property that we can access and we're seeing good growth in that market. And it gives us an edge because we can turn around submissions faster using that technology than, let's say, a purely manual process that others may have. I think the last aspect is in marine cargo. where we're using APIs to basically digitally underwrite quotes and find the risks near instantaneously. And again, because of the size of the average premium in that small marine cargo end, we wouldn't have typically seen that business come to Lloyds. And certainly there's a question mark about whether we could have underwritten it economically. You know, there's a couple of examples, but I do expect us to continue to innovate more broadly, not only in London markets, but across the group. If you look at sort of what we've done in terms of the AI submissions process, that's an area that improves productivity in the UK by 40% in December last year.

And we're rolling that out to Europe and the US and the US broker, as I've mentioned. Thank you very much, Paul. Thank you.

Our next question comes from Vashka Seya from Goldman Sachs. Your line is now open. Please go ahead.

Hi. Thank you for the opportunity. I have two questions, and both of them related to retail. One is just thinking about retail as a segment. You're currently growing at more than 6%, but you obviously aim to reach a double-digit growth. Can you just help us understand how much of this acceleration from 6% to double-digit is dependent on U.S. brokered? Because it feels like over the last few quarters, U.S. brokered channel has been a bit more volatile than you would prefer. But let's say the draft continues. Do you think you would still be able to accelerate to the double-digit growth? That's the first question. The second one is, again, within detail, but just looking at U.K., Could you help us understand how much of UK is driven by the special distribution base of how much of the retail UK is this partnership to get a colour of where the growth is really coming from?

Yeah, thank you for that. Good question. So, you know, let's just orientate. So, you know, in terms of the third quarter performers, the standalones, Growth for retail was 6.3%, so clear momentum off of the 6% that we reported at the half year. Now, it is broad-based, and what I would say is, you know, the U.S. growth component is probably the smallest area of the retail franchise, and indeed is probably one that we expect. to have the let's say the lower growth opportunities versus the other areas so USDPD is an area that we'd expect to grow far stronger and Europe as you've heard apart from the sort of anomalous Q3 with Netherlands you know it's been growing in that double-digit territory and the UK momentum is clearly positive so that's gone from 4.4% to 6% to 8% in the three quarters so you can see that trajectory and momentum that's been built off of the UK. I'm saying that what we've done over the last two years is really introduced a significant number of management actions across all of the businesses and you would have seen the summary of that in our capital markets day that was led by each of the CEOs where they've outlined plans to go deeper in their existing chosen segments, but also expand using propositions, more marketing and growth in new products, new geographies and new customer segments. And so I'd expect that to continue. The US broker, you know, and I'll just sort of re-emphasize the point about the trend is up. You know, the minus 7.5 to minus 4 to minus 1.2 clearly gives you a decent indication of the trend line. And we've just completed our business planning process. It needs to be signed up at the board this month. but clearly we have a path to double-digit growth, and I'm confident that we'll get there. So I think in terms of the sort of individual components, and you asked about the UK, I say that it's actually true of all of the retail businesses, but it is volume-led. It isn't dependent upon, for the UK, the distribution deal. It really is an element of growth in the underlying through the improvement in brand. Our brand awareness has gone up something like 50 percentage points over the past two years as we've refreshed the brand in the UK. We've got much more productivity so we are the only high net worth product on the Actra system that's distributed digitally to brokers. and i talked about the ai um tool that we launched in the uk late last year that's driven productivity up 40 with no change in headcount so you know i think hopefully that gives you a flavor but importantly one of the reasons that we can do these distribution deals is the strength of the brand and the strength of our specialist product mix uh without that i'm sure that um you know, we wouldn't be able to be sort of front and centre of brokers' minds from winning these deals.

That's a very good point. Thank you so much.

Thank you. Our next question comes from Shanti Kang from Bank of America. Your line is now open. Please go ahead. Hi, morning. Thanks for taking my questions.

So just on the renewals into the 1.1, Given that we've seen accelerated price softening in the numbers today, how are you guys thinking about the positioning into the upcoming renewal period? Are there any pockets that you might grow or shrink? So just having a characterization of the market would be very helpful. And then in re-NILS, brokers up, even though pricing was down 5%. Could you just help us characterize the levers driving that growth? Are there any pockets that you really accelerated in? I think you mentioned prophecy, but just understanding what's really going on behind that kind of 6% increase would be helpful. And that was it. Thank you.

Yeah. So re-insurance, really, I think sort of it's a reinforcement of the points that we made to Andreas's question. So, you know, we are being disciplined in terms of cycle management You're right, we've seen rates come off this year. But I'll sort of direct you back to our half-year presentation. So, you know, rates have gone up since 2018 in the reinsurance space by something like 80-something percent. So very strong. And Joe articulated the rate adequacy. on one of her slides in terms of, I think, in excess of 90% of the business is rated adequate or adequate plus from our perspective. So, you know, we've got a portfolio that is very attractive. I'd say that market conditions, you know, yes, rates have come off, but they remain very attractive. You know, our management in Rio said this is something like the fifth best market in the last 20 years, to give you a sense of it. it's still an attractive market to write in. In terms of our appetite, you know, I mentioned that I don't expect to grow really from a property cap perspective significantly, given where the rates are. But we have seen attractive opportunities in specialty. And, you know, as I said, we've sort of grown in areas like prop, mortgage, cyber. They continue to be attractive. We think that there are more opportunities there to, to go after. So generally, yes, that's sort of an outlook and outline. Clearly, you know, there's sort of six weeks, seven weeks to go, so let's see how the rating environment develops from now to there.

Okay, thanks.

Thank you. Our next question is from Abir Hussain from Panmure, Liverham. The line is now open. Please go ahead.

Oh, hello, everyone. Just two questions. The first one is actually just a follow-up on the previous question. It's just on the pricing outlook beyond this year and just focusing on the big ticket lines. It looks like the headlines are sort of slightly misleading in terms of people focusing in on rate declines because, as you just suggested, actually, cumulatively, the rate is fully attractive actually, fifth best in the last 20 years over the real IRS. So can we sort of characterize more broadly from the outset, it looks like pricing is still highly adequate. You just said 90% are rated adequate or adequate plus. And then sort of drilling down a little bit deeper in terms of T's and C's, where T's and C's holding up pretty well, pricing is actually holding up pretty well outside of property. Is that sort of fair characterization just at a higher level? That's the first question. And then the second one is your pivot to retail. So having embarked upon your change program, is there any early wins that you might point to your ability to successfully pivot into retail? I think the Google example is a good one. Is there any other examples? that you can share with us.

Thank you for that question. I think you really hit the key points for me. The market remains attractive. Terms and conditions have remained firm from what we've seen. I think there's a really strong by the market and the market commentary would have seen a strong desire to hold firm on those conditions and not concede in terms of attachment points or loosening up the overall conditions. I'd extend the point to London market. You know, as I've said, we are disciplined underwriters and The attractiveness of the portfolio isn't just confined to reinsurance. Again, if you go back to the past year, you'll see that, you know, I talked about the sort of reinsurance dynamics, both about rate strength since 2018 and more than 90% of the portfolio being plus or adequate plus. The London market equivalent is something like 67% up since 2018 and the portfolio rated adequate, adequate plus is something like in excess of 80. So we're coming from a real position of strength and that's led us to five or more years of combined ratios in the 80s for London market as an example. I think what it does show, given the market condition that you're seeing and the general softening, I guess, in rates for big ticket is, you know, our diversified model and our ability to access risk gives us the ability to compound the retail growth. You've seen that with our guidance of 6 Plus and, you know, our confidence in moving towards a double-digit growth in 2028. but also the innovation that enables us to access risk in the big ticket that we talked about earlier. So I think those are real positives. I think in the change program, you know, I'd say that it remains on track. It is highly complementary in terms of the overall strategy to drive productivity and efficiency into the group. And so, you know, we've seen real benefits around consolidating IT suppliers. I'm excited about the new IT service management that not only provides sort of a, let's say, help desk ability, but also enables us to improve processes and systems at the same time through more automation. So there's an example, and I talked about sort of AI. So there's a big drive that that the sort of accelerated change program, as well as delivering sort of bottom line, will really enable further growth and further productivity.

Super, thanks.

Thank you. Just as a reminder, if you did wish to ask a question on today's call, please press star followed by one on your telephone keypad now. That is star followed by one. We currently have no further questions. This concludes today's call. Thank you for joining us today. You may now disconnect your lines.