12 september 2005
DESCRIPTION
Hiscox plc Interim results for the six months ended 30 June 2005 Robert Hiscox, Chairman Bronek Masojada, Chief Executive Stuart Bridges, Finance Director Robert Childs, Director of Underwriting. 12 September 2005. A Strong Performance. Profit before tax (£m). Combined ratio* (%). - PowerPoint PPT PresentationTRANSCRIPT
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www.hiscox.com
Aerospace Bloodstock Classic Cars Employers’ Liability Energy Financial Institutions Fine Art High Value Household Kidnap & Ransom Marine Media Personal Accident Political Risks Professional Indemnity Property Reinsurance Specie Technology Terrorism War
Hiscox plc
Interim results for the six months ended 30 June 2005 Robert Hiscox, ChairmanBronek Masojada, Chief ExecutiveStuart Bridges, Finance DirectorRobert Childs, Director of Underwriting
12 September 2005
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Return on equity** (%)
FY 2004 HY 2004
29.420.6 35.9
** annualised, based on adjusted opening shareholder’s funds
HY 2005
A Strong Performance
2H1 H2
FY 2004 HY 2004
Combined ratio* (%)
84.6 83.5
Profit before tax (£m)
FY 2004 HY 2005
88.160.3
29.2
89.5
HY 2005
* based on net earned premium
92.6
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Dividend per share (p)
2004 HY 200530 Jun 2004 31 Dec 2004
A Strong Performance
Net Asset Value per share (p)
125.7
EPS (p)
FY 2004 HY 2005
20.814.9
3
7.0
H1 H2
30 Jun 2005
143.3
21.9
120.2
2.251.5
3.5
5.0
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Highlights
Record profits
Underwriting discipline
Growing distribution
Retail expansion working
– UK profits doubled
– International strongly ahead
Strong additions to senior management
4
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Financial Performance
5
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Hiscox plc ResultsIFRS June 2005
(unaudited)
£m
June 2004
(unaudited)
£m
FY 2004
(audited)
£m
Gross Premiums Written
Net Premiums Written
Net Premiums Earned
437.2
345.0
345.7
489.0
396.5
349.7
816.6
704.1
714.9
Profit before tax 88.1 60.3 89.5
Profit for the period 61.1 43.3 63.9
Basic earnings per share (p) 20.8p 14.9p 21.9p
Interim/Final Dividend (p) 2.25p 1.5p 5.0p
Net Asset Value
• £m 421.7 350.2 368.8
• p per share 143.3p 120.2p 125.7p
Return on Equity 35.9%* 29.4%* 20.6%
*annualised, based on adjusted opening shareholder’s funds6
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Segmental Analysis
7
Six months to 30 June 2005 Six months to 30 June 2004
London Market/Group
£mUK£m
International£m
Group Total£m
Gross Premiums Written 306.2 437.284.1 364.4 489.045.679.0
LondonMarket/Group
£mUK£m
International£m
Group Total£m
Combined Ratio* 82.8% 83.5%95.4%81.6% 82.4% 84.6%103.8%89.3%
London Market/Group: Hiscox plc share of Syndicate 33, Managing Agent, Hiscox Investment Management and central Group costs. UK : UK within Hiscox Insurance Company and ConnectInternational : Guernsey Insurance Company and European business within Hiscox Insurance Company.
Net Premiums Earned 235.7 345.732.377.7 256.4 349.729.264.1
Profit before tax 88.13.064.0 21.1 49.5 60.30.510.3
Net Premiums Written
* Based on Net Earned Premium
IFRS(unaudited)
46.9
233.3 75.0 36.7 345.0 295.3 68.1 33.0 396.5
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30 June 2005 31 December 2004
Asset Allocation
%
Return%
Return£000
Asset Allocation
%
Return%
Return£000
Bonds 69.8 3.5 14, 874 75.9 2.7 19,088
Equities 7.5 8.9 3,729 7.9 10.3 8,529
Deposits/Cash 22.7 4.5 4,319 16.2 2.9 5,467
Actual Return 4.0 22,922 3.4 33,084
Group invested assets* 1,238.9m 1,098.9m
Investment Performance
8
* Includes investments, cash and cash equivalents
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Summary Consolidated Balance Sheet
IFRS 30 June 2005(unaudited)
£m
30 June 2004(unaudited))
£m
31 Dec 2004(audited)
£m
Intangible assetsDeferred acquisition costs
Investments, cash and cash equivalents
Reinsurance contract receivables
Trade receivables and other assets
TOTAL ASSETS
Claims and claims handling provision
Unearned premiums
Other liabilities
TOTAL LIABILITIES
SHARHOLDERS EQUITY
LOC drawn
Net Asset Value per share (basic)
Net Tangible Assets per share (basic)
32.4114.9
1,238.9
290.3
342.8
2,019.3
928.6
445.3
223.7
1,597.6
421.7
137.5
143.3p
132.3p
26.6117.9
966.7
270.8
368.6
1,750.6
727.7
470.7
202.0
1,400.4
350.2
132.4
120.2p
111.0p
30.0110.0
1,098.9
238.9
340.6
1,818.4
830.7
416.2
202.7
1,449.6
368.8
137.5
125.7p
115.4p
9
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Hiscox Global Markets
10
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Rates vs Exposure
100 9478
6071
100 106126
191
240
Exposure Premium
Rolling 12 Month Index to June
11
67
239
70
217
1999 2000 2001 2002 2003 2004 2005
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Rating
12
0
100
200
300
400
500
Jan9
8 to
Dec
98
Jul9
8 to
Jun
99
Jan9
9 to
Dec
99
Jul9
9 to
Jun
00
Jan0
0 to
Dec
00
Jul0
0 to
Jun
01
Jan0
1 to
Dec
01
Jul0
1 to
Jun
02
Jan0
2 to
Dec
02
Jul0
2 to
Jun
03
Jan0
3 to
Dec
03
Jul0
3 to
Jun
04
Jan0
4 to
Dec
04
Jul0
4 to
Jun
05
Specialty
London Market
Reinsurance
Syndicate 33 12 month rolling rate and index since 1998
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Hurricane Katrina
13
Hiscox plc Net Loss = $100m estimate
Marine Reinsurance
$25m
Non Marine Reinsurance
$30m
Non MarineInsurance
$30m
Marine Insurance
$15m
£1 = UDS$ 1.84
This analysis is without prejudice to the interpretation of any contract and the handling or outcome of any claim.
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Reinsurance Underwriting
14
19%29% 25%
20%
44%
103%
175%
56%
166%
23%18%
69%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Reinsurance Account: Gross Incurred Loss Ratio
Average 58%
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Claims Breakdown
15
Budgeted Breakdown of Claims for 2005
Risk 47%
Attritional42%
Catastrophe11%
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Extending Geographic Reach
16
2004
Distribution
Global brokers
Major wholesale broker -London wholesale brokers
All other risks – London wholesale broker
London Business Development
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Extending Geographic Reach
17
2005
Creation of local underwriting centre
Ed Donnelly - Establishment
of office in Armonk, NY
Regional business development
Bruno Ritchie – Europe
Nick Ward – New York
David Chavez – West Coast
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Global Markets Summary
18
Experienced underwriting team - maintain discipline
Extend geographic coverage
Focus on known business areas
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Hiscox UK and Europe
19
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Hiscox Insurance Company
Gross Written Premium: £m Combined Ratio: %
20
0
20
40
60
80
100
120
140
1997 1998 1999 2000 2001 2002 2003 2004 2005
93
.697.897.7102.6
107.9
118.0
0
50
100
150
200
250
1997 1998 1999 2000 2001 2002 2003 2004 2005
218.7
163.9
127.3
97.890.0
74.7
176.497.9
FYHY
98.8 105.5
FYHY
91
.8
93
.9
2003 and prior years not restated
229.8
110.6
85.2
94
.6
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Retail Performance
30 June 2005 (£m) 30 June 2004 (£m)
UK Guernsey UK EuropeEurope Guernsey
Gross Premiums Written 84.1 20.426.5 79.0 19.126.5
Operating Profit 21.1 1.31.7 10.3 0.30.2
81.6% 90.6%97.6%Combined Ratio 89.3% 93.4%108.6%
21
9.9Net Premiums Earned 77.7 22.4 64.1 20.1 9.2
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UK & Europe: Rates
22
50%
70%
90%
110%
130%
150%
170%
190%
Jul-0
0 to
Jun
-01
Jan-
01 t0
Dec
-01
Jul-0
1 to
Jun
-02
Jan-
02 to
Dec
-02
Jul-0
2 to
Jun
-03
Jan-
03 to
Dec
-03
Jul-0
3 to
Jun
-04
Jan-
04 to
Dec
-04
Jul-0
4 to
Jun
-05
Month
Ro
llin
g 1
2 M
on
th In
dex
of
Rat
es
UK Personal Lines UK PI France Germany
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Business Areas
Art and Private Clients
High Value Household and Contents; Fine Art; Classic Cars; Specie
Updated Hiscox HVH wording awarded top Defaqto rating
Inscribe semi-automated underwriting system being rolled out
Good growth from direct; marketing responses going well
Competitive in London, opportunities in UK Regions and Europe
Acquired fine art renewal rights from Ascot
Professions & Specialty CommercialProfessional Indemnity; D&O; Employers’ Liability; Property
Good growth of emerging professions
Additional underwriting resource focussed on Specialty Commercial and Ireland
Launch of direct business focussed on small PI
Launch of automated underwriting of business up to £250k turnover
Continued competition for large traditional professions
Solicitors book reduced
23
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Summary and Outlook
24
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Developing balance by growing retail
Retail - Hiscox Insurance Company
0
200
400
600
800
1000
1200
1993 1995 1997 1999 2001 2003
Gro
ss W
ritt
en P
rem
ium
Retail - Syndicate 33
London Market - Syndicate 33
25
1994 1996 1998 2000 2002 2004
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Expand Distribution
Expand
Closer to UK brokers via regional offices
Create local presence in Europe and Guernsey
Open direct channels via internet and telephone
Create local presence in USA and regional business
development for Global Markets
26
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Capitalise in London Market on opportunities post Katrina
Grow retail through distribution initiatives
– UK Retail locations
– UK Partnerships & Direct
– Europe & Guernsey
– USA underwriting & marketing
Market will become more disciplined
Profit outlook remains strong
27
Outlook
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Questions and Answers
28
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Appendix
29
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Hiscox Business Mix:2004Controlled GWP100% = £1,051m
London Market Insurance• Energy• Marine• Terrorism• E&O and D&O
Art & Private Clients• Fine Art• Jewellery• Specie• Home & Contents
Speciality• Kidnap & Ransom• Personal Accident • Bloodstock• US SME Commercial
ATMT• Aerospace• Technology• Media• Telecommunications
17%
33%
9%
10%6%
25%
London Market Retail
Syndicate 33 Syndicate 33, Hiscox Insurance Company & Hiscox Guernsey
Reinsurance & Major Property• Major Property• Marine RI• Non-Marine RI• Whole Account RI
Professions & Speciality Commercial• Traditional PI• Emerging PI• UK SME Commercial
30
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Management Structure
• RAMP• London Market• Speciality• ATMT
• Art & Private Clients• PI & Speciality
Commercial• Regional TMT• Executive Household
• Hiscox Guernsey• Hiscox
Investment Management
Hiscox plc
Hiscox Global Markets
Hiscox UK & Europe
Other activities
Hiscox USA
• Art• Regional TMT• Small ticket terrorism
Currently under development; will initially be part of Global Markets
31
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48
Syndicate 33 Capacity & Hiscox plc Ownership
32
0
100
200
300
400
500
600
700
800
900
2000 2001 2002 2003 2004
Capacity Hiscox plc Ownership QQS
£ m
2005
360191 (53%)
360191(53%)
504
201
277(55%)
547(65%)
842
551(65%)
847 775
550(71%)
2006 estimate
775
550(71%)
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Geographical & Currency Split
33
CAD
USD
EUR
GBP
11.9%43.5%
42.8%
1.8%
2005 Geographical Split 2005 Currency Split
USA
39.2%
EUEurope (exc. UK)
11.4%
31.4%UK
3.4%Canada
1.5%Australia
2.0%Asia (exc. Japan
& China)
1.0%China &
Japan
1.4%Central &
South America
4.4%Other
0.3%Israel
0.4%Middle East (exc. Israel)
1.0%Africa
1.2%Caribbean
1.4%Non-EU Europe
& Russia
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Loss Ratios as a % of Syndicate Premiums
34
GILR NILR
YOA 2002 2003 2004 2005 2002 2003 2004 2005
6 mths 1.4% 2.7% 5.1% 7.0% 8.0% 4.9% 7.6% 10.6%
12 mths 13.7% 11.6% 29.6% 20.0% 14.2% 30.8%
18 mths 19.8% 20.3% 42.5% 23.8% 24.4% 43.9%
24 mths 27.9% 29.8% 37.0% 35.5%
30 mths 31.3% 35.9% 40.4% 43.1%
36 mths 37.0% 45.7%
Syndicate 33 incurred losses as a percentage of signed premium
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Realistic Disaster Scenarios
35
Syndicate 33 – potential losses shown as a percentage of 2005 capacity
0
5
10
15
20
25
30
35
40
$70bn FloridaWindstorm
$54bnCalifornia
Earthquake
$30bnEuropean
Windstorm
$50bnJapanese
Earthquake
$35bn NewMadrid
Earthquake
$60bn Gulf ofMexico
Windstorm
Loss %
28.1
8.1
31.8
7.7
22.0
10.1
24.4
11.3
24.4
5.1
Gross Loss
Net Loss
11.3
34.3
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Group Reinsurance Security
36
AAA1% AA
36%
A49%
Other 14%
2005 Programme
A
51%
AAA
AA38%
11%
Receivables at 30/06/05 of £222m
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Reinsurance
37
0
5
10
15
20
25
30
35
40
2000 2001 2002 2003 2004 HY 2005
35.3%
27.3% 26.0%
17.3%13.7%
Reinsurance as a % of GWP (ex. QQS)
Reinsurance Receivables as a % of Total Assets
0
5
10
15
20
25
30
2000 2001 2002 2003 2004 HY 2005
18.2%
26.9%
15.4%
11.8%
%%
11.0%10.6%15.4%
HALF YEAR TO 30TH JUNE
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Glossary of Terms
38
Annual Venture The system used for running a Lloyd’s syndicate under which each “year of account” is treated separately. Members own capacity on a syndicate for a “year of account” and the results are declared when the year is closed by the RITC mechanism, usually after 3 years.
Claims ratio Net claims incurred, including IBNR, as a percentage of net earned premiums.
Combined ratio The total of the claims and expenses ratios.
Equalisation provision This a provision made to cover future catastrophe losses and is calculated in accordance with a set sector formula, which has the effect of smoothing the profit cycle.
Expenses ratio Expenses as a percentage of net earned premiums.
Funds at Lloyd’s The amount of assets, which can be cash, investments or letters of credit, that a syndicate member has to deposit with Lloyd’s to support their share of the capacity on a syndicate. The minimum amount is 40% of the capacity owned by the member.
Gross written premium Premiums contracted for before any deductions.
Group controlled The total gross written premium controlled by the group including the 29% of the syndicate capacity not owned by Hiscox in 2005 (35% in 2004).
IBNR Incurred but not reported. An estimate made at the end of each accounting period to cover the expected cost of losses that have occurred but have not yet been reported to the insurer or reinsurer.
Incurred loss ratio Paid and outstanding losses as a percentage of premiums. Gross incurred loss ratio is before deducting any reinsurance and net is after deducting reinsurance.
gross written premium
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Glossary of Terms
39
Long-tail A term used to describe an insurance risk that has the potential for claims development or new claims to be reported a number of years after expiry of the term of the policy.
Member or Name The companies or individuals who own the capacity of a syndicate and who belong to the membership of the Society of Lloyd’s.
Net premiums earned Premiums received after the cost of reinsurance and adjustment for unearned premium. Unearned premium covers the future period of risk of an insurance policy.
Net premiums written Premiums contracted for after deduction of reinsurance.
Open year A Year of Account of a syndicate which has not been closed by Reinsurance To Close (RITC). RITC usually occurs at the end of the third year. A Year of Account can be left open beyond the third year if the extent of the future liability cannot be accurately quantified.
Qualifying quota share These are quota share reinsurance policies, which Lloyd’s allow in certain circumstances, that enable a syndicate to write gross premium in excess of its capacity.
Reinsurance to close – RITC The reinsurance to close comprises a premium payable by the closing year to the members on the next open year of account and a contract which transfers the liability for all claims in respect of the closing year to the next open year.
Run-off account At Lloyd’s, a year of account which is kept open after the date on which it would normally have been closed.
Subrogation The right of the underwriter to “stand in the shoes of the insured” and take over the Insured's rights, following payment of a claim, to recover the payment of an incurred loss from a third party responsible for the loss. It is limited to the amount of loss paid by the insurance policy.
Syndicate Capacity Also referred to as the ‘stamp’. The maximum amount of business that a syndicate in Lloyd’s can write per year, aggregated from all its members.
reinsurance