Disclaimer in respect of forward-looking statements
This interim statement may contain forward-looking statements based on current expectations of, and assumptions made by, the Group's management. The Group is exposed to a multitude of risks and uncertainties and therefore cannot accept any obligation to publicly revise
or update forward-looking statements as a result of future events or the emergence of new information regarding past events, except to the extent legally required. Therefore undue reliance should not be placed on any forward-looking statements.
Group key performance indicators
Gross premiums written $2,426.2 million (2020: $2,235.5 million)
Net premiums earned $1,423.1 million (2020: $1,328.2 million)
Profit/(loss) before tax $133.4 million (2020: $(138.9) million)
Earnings/(loss) per share ($) 34.8¢ (2020: (50.2)¢)
Earnings/(loss) per share (£) 25.1p (2020: (39.8)p)
Interim dividend per share 11.5¢ (2020: 0.0¢)
Net asset value per share ($) 738.1¢ (2020: 712.4¢)
Net asset value per share (£) 534.2p (2020: 576.5p)
Group combined ratio 93.1% (2020: 114.6%)
Return on equity (annualised) 10.4% (2020: (12.7)%)
Investment return 1.7% (2020: 2.5%)
Foreign exchange gains/(losses) $11.2 million (2020: $(13.6) million)
Reserve releases $79.0 million (2020: $63.0 million)
Gross premiums written $2,426.2m
30 June 2021
31 Dec 2020
30 June 2020
Gross premiums written increased by 8.5% to $2,426.2 million (2020: $2,235.5 million) driven by good growth and positive rate momentum in all three divisions.
2020 Covid-19 net claims unchanged at $475 million; 2021 claims estimate lower than expected at $17 million.
Hiscox London Market net premiums written up 16.7% and delivered profit before tax of $87.3 million (2020: $16.3 million).
Hiscox Re & ILS net premiums written up 39.7%; returned to profit of $38.1 million (2020: loss of $15.0 million) despite $33 million impact of Winter Storm Uri.
Underlying combined ratio for Hiscox Retail of 96.7%* demonstrates an improvement on the full year 2020 and is on track to meet the target of 90-95% by 2023.
Group digital partnerships and direct business grew gross premiums written by 23%, delivering $355.0 million and now serving around 880,000 customers.
Strong reserves at 11.3% above actuarial estimate (2020: 9.6%).
Strong capital position with 210% Bermuda solvency capital ratio (BSCR), a 20-point improvement on the December 2020 position.
Interim dividend resumed at 11.5¢ per share with progressive dividend policy going forward.
*Underlying Retail combined ratio excludes Covid-19 net claims and loss portfolio transfer costs.
Hiscox Ltd Interim Statement 2021
Hiscox Ltd Interim Statement 2021
We have turned a corner, our business performance is on track and the course correction actions will continue to earn through.
"Rate momentum continues to be favourable across all Hiscox businesses."
I am very pleased to report strong growth and a return to profit for the first six months of 2021. Gross premiums written increased by 8.5% to $2,426.2 million (2020: $2,235.5 million) with growth in all three divisions. The Group has returned to profitability, generating a pre-tax profit of $133.4 million (2020: loss of $138.9 million). Excluding the impact of Covid-19 net claims and loss portfolio transfer costs, the pre-tax profit is $176.4 million.
After a challenging 2020, when many of our customers were severely affected by Covid-19 restrictions resulting in large losses for Hiscox and the wider insurance industry, it is pleasing to see positive results in each of our three divisions. In Hiscox London Market and Hiscox Re
ILS, we have seen multiple years of rate improvements as the market worked its way out of a prolonged soft market; the evidence of these rate increases combined with disciplined underwriting actions can be seen in the attractive combined ratios and profits reported at half year. As markets have improved, we have judiciously deployed more capital, enabling those businesses to grow their net premiums written at a faster rate than gross premiums written. These growing net premiums will, of course, emerge as earned premiums over the next 24 months providing additional earnings power to the Hiscox P&L. In Hiscox Retail, our digital partnerships and direct business globally continues to go from strength to strength, with the US digital partnerships and direct growing by 30%, as the business continues to evolve towards small commercial business customers. Retail growth overall is in line with expectations and underwriting profit performance remains on track.
We announced last month that our current Chief Executive Officer Bronek Masojada would retire at the end of the year and that our Chief Financial Officer, Aki Hussain, would succeed him, effective January 2022. On a personal level, my partnership with Bronek has been one of the longest in the industry and I have enjoyed working with him immensely. He has made an
outstanding contribution to the strategic development of Hiscox over the past three decades, and he has also been a great champion of the industry - an unashamed reformer, not afraid to stick his head above the parapet to move us all forward. Bronek still has the rest of
this year's work to deliver, while ensuring a seamless transition to Aki in the coming months.
Appointing a new Chief Executive Officer required us to articulate the qualities that matter to us; we wanted somebody who is a builder, with a founder's mentality and a vision for what could be achieved in the next stage of our journey. Somebody who has a breadth of experience, and who will nurture the culture and values we hold dear. I can confidently say we have found all of the qualities we were looking for in Aki. He has had an impressive career prior to Hiscox, which we benefit from immensely, and has both a knowledge of Hiscox and an existing influence on our strategy which is desirable as we go forward. I have no doubt that his clear thinking and drive will help us to realise the years of opportunity ahead, which at this stage in our journey, and bearing in mind the positive market conditions we now face, is precisely what we need.
Dividend, capital and liquidity management Capital strength and financial flexibility remain of paramount importance to the Board. The Group remains strongly capitalised against both regulatory and rating agency requirements. Hiscox Group Bermuda solvency capital requirement (BSCR) ratio as estimated at the end of June is 210%, a20-pointimprovement on the estimated December 2020 position. This has been driven mostly by strong capital generation in our businesses combined with additional Group coordinated actions to strengthen our capital base. There is no impact on the BSCR ratio due to the strengthening of the formula (anindustry-widebasis strengthening implemented by our Group regulator, the Bermuda Monetary Authority) in the end of June numbers but there will be an estimated reduction of10-15points at the year end from the final stage of this.
The additional actions to further strengthen the balance sheet comprise two loss portfolio transfer (LPT) transactions. The first relates to legacy healthcare claims in Bermuda, while the second covers selected lines of Hiscox Syndicate 3624, including the majority of Hiscox USA's surplus lines broker business. Both transactions are designed to remove reserve volatility in the coming years, allowing us to focus on the opportunities presented by the good trading conditions we have ahead of us. These transactions also improved the BSCR ratio by just over ten points. We have also fully repaid the contingent bank facility drawn as a precautionary measure in 2020.
The Board believes that paying a dividend is one important indicator of the financial health of the Group. Having carefully considered the capital requirements of the business, the Board has approved the decision to resume the payment of the interim dividend at
11.5 cents per share with a progressive dividend policy going forward. The record date for the dividend will be 13 August 2021 and the payment date will be
22 September 2021. The Board proposes to offer a Scrip alternative, subject to the terms and conditions of Hiscox's 2019 Scrip Dividend Scheme. The last date for receipt of Scrip elections will be 27 August 2021 and the reference price will be announced on 7 September 2021. Further details on the dividend election process and Scrip alternative can be found on the investor relations section of our corporate website, www.hiscoxgroup.com.
Rate momentum continues to be favourable across all Hiscox businesses. Rate strengthening is particularly prominent in cyber, where we have seen an average rate increase of 20%, primarily in response to the increased frequency and severity of ransomware claims across the industry.
Hiscox London Market achieved average rate increase across the portfolio of 12% year-on-year. 2021 is the
fourth year of rate increases with a cumulative rates increase of 60% since 2017. While the overall momentum continues to hold up strongly, the picture is more nuanced by line of business. Cyber, product recall and space rates have hardened significantly over the recent months, while in some casualty lines, which had benefitted from dramatic rate increases earlier in the cycle, we are seeing rate momentum continuing but at a slower pace. For example, the US public company D&O, where rates have tripled since 2018, and US general liability, where rates have more than doubled in the same period, are now both experiencing moderation of rate momentum, although both growing at double-digit rates of 15%
and 26% respectively.
Rate improvement has also continued in Hiscox Re & ILS, albeit at a slower pace, with an average increase of 9% across the portfolio and a cumulative rate increase of 36% since 2017. The business benefitted from double-digit increases in risk, marine, retro and North American property at the important January renewals. April reinsurance renewals focused on Japan delivered mid-to-high single digit rate rises, while June's Florida renewals achieved a 10% average rate increase, in line with our expectations. Rate momentum is expected to moderate over the rest of the year, although Winter Storm Uri and the inflated cost of construction materials are likely to provide further support to pricing.
In Hiscox Retail, rates have increased by 5% on average and are rising in all regions. This is led by the USA where rates in the broker excess and surplus business have increased in the mid-to-high single digit range.
We have been working closely with customers and brokers to pay business interruption claims as quickly as possible following the Supreme Court Judgment in January. To confirm how some policies respond we have had to wait until July for the Supreme Court's Declarations to be published, which is the final outcome
Hiscox Ltd Interim Statement 2021
Hiscox Ltd Interim Statement 2021
"The Retail segment, at $1.2 billion in gross premiums written, now represents half of our business on a gross basis, and just under two-thirds on a net basis."
Gross premiums written*
Profit/(loss) before tax*
Combined ratio (%)*
*The comparatives have been re-presented to reflect the reclassification of the Special Risks division into Retail and London Market divisions. See note 6 of the condensed consolidated interim financial statements for further details.
of the legal process. Applying the terms of the Judgment to a wide variety of situations and in large volumes does unfortunately take some time. We are making progress here, more than doubling the number of claims settled in May and June. Settling these claims remains a high priority for the Group.
Our Covid-19 loss estimate remains unchanged for 2020 at $475 million and is now $17 million for new lockdowns announced in 2021, in line with the earlier guidance of less than $40 million. The UK business interruption book has now been fully renewed with the appropriate pandemic exclusion terms. We have maintained continuous
and transparent dialogue with our reinsurance panel throughout the pandemic and remain confident of our reinsurance recoveries.
Other than the Winter Storm Uri in February, which resulted in an estimated net loss of $47 million predominantly in Hiscox Re & ILS, there were no significant natural catastrophes or large man-made losses in the first half. In July, however, the UK and continental Europe have been affected by severe flash floods that caused material damage to properties and livelihoods. Given the high-net-worth nature of the private customers we cover in these regions, we expect an elevated level of individual claims coming through in the third quarter.
In line with the rest of the industry, the Group has experienced an increased frequency and severity of cyber claims across a number of markets, particularly in the US region, impacting both Hiscox USA and Hiscox London Market. We saw early signs of this emerging trend three years ago and have been undertaking portfolio actions since 2019. We have adjusted the Group's cyber risk appetite and implemented corrective actions including repricing, focusing on customers with lower revenues in Retail and writing at higher excess levels in London Market. We also attach great importance to mitigation actions taken by customers, as human error is by far the biggest business vulnerability
when it comes to cyber attacks. We incentivise all our small business customers with revenues under $10 million to attend the Hiscox CyberClear Academy,
National Cyber Security Centre-approved cyber training programme designed to help learn how to counter cyber risks and develop a positive culture of cyber resilience. Over the last three years we have trained 20,000 people from 5,000 businesses. The Group also conducts extensive internal training, with our key underwriters at the same standard as IT security staff. Last but not least, we are introducing changes to our cyber product offering. In the USA, for example, we have added new features such as co-insurance and a sub-limit for ransomware.
The recent inflationary impact on the cost of construction materials has not had a material impact on the Group's claims costs, as we have avoided significant weather-related losses since the rise in prices. We are, however, taking pre-emptive actions in our London Market property binder book through significant rate increases and restricting limits, and in our UK and European property lines, where our sum insureds are indexed to take into account the increased cost of rebuild.
Hiscox Retail comprises our retail businesses around the world: Hiscox UK, Hiscox Europe, Hiscox USA and Hiscox Asia. In this segment, our specialist knowledge and retail products differentiate us and our ongoing investment in the brand, distribution and technology is helping us to reinforce our strong market position in an increasingly digital world.
Hiscox Retail delivered a strong performance in challenging conditions, growing its top line by 7.9%, or 2.6% in constant currency. This was driven by strong growth
in Europe, resilient performance in the UK and a slight decline in the USA, where the planned reductions in the US broker channel were almost fully offset by the US digital partnerships and direct business growth. We are now
about halfway through the $100 million US broker gross premium reduction. Adjusting for this, the Retail go-forward portfolio grew by 6.4% on a constant currency basis.
The Hiscox Retail bottom line has also improved, with profit before tax of $31.7 million and combined ratio of 100.7%. Adjusting the latter for the 2021 Covid-19 net loss estimate and LPT cost, the Retail business has delivered an underlying combined ratio of 96.7%, demonstrating progression from full year 2020. This reinforces our confidence in our ability to return to the 90%-95% combined ratio range by 2023.
The Retail segment, at $1.2 billion in gross premiums written, now represents half of our business on a gross basis, and just under two-thirds on a net written basis. It has enjoyed a symbiotic relationship with the Group's big-ticket business; benefitting from our London Market and Bermudian underwriting pedigree, operational expertise, financial and human capital. Over the last 20 years we have been able to set up and organically grow our Retail businesses in the UK, USA and Europe from scratch, by consistently investing a proportion of cash and profits from the big-ticket business.
Our digital partnerships and direct (DPD) business now represents over a quarter of Retail's gross premiums written globally and grew 23% in the first six months of the year to $355.0 million of gross premiums written and 880,000 customers. The US DPD business is growing ahead of our expectations at 30% and now represents over a half of our global DPD business. It has had a head start in digital trading and has benefitted from a secular shift towards digitalisation that was accelerated by Covid-19.
Hiscox UK provides commercial insurance for small- and medium-sized businesses as well as personal lines cover, including high-value household, fine art and luxury motor.
Hiscox UK gross premiums writtem grew 13.2% to $411.2 million (2020: $363.3 million) or 3.8% on a constant currency basis. The resilient performance in the UK is underpinned by good customer retention rates, particularly in our direct business. Broker commercial also performed well with a number of large schemes launched in the first six months of the year. New business generation was negatively impacted by the effects of Covid-19 and government restrictions on specific sectors of the economy. Reduced activity in events, entertainment and hospitality had an approximately 2% adverse impact on Hiscox UK's growth in the first half of the year, although hospitality and events market has started to open again in July. Overall growth was supported by a favourable rating environment across most classes.
Net customer numbers increased by 39,000 compared to the prior-year period, driven by direct commercial and broker schemes. This demonstrates the strength and resilience of our business. We continue to invest in growth opportunities and launched a new commercial property owners package incorporating a range of covers allowing customers to tailor their cover to their specific needs within a single policy.
The overall UK claims environment has remained relatively benign in the first half, particularly across the personal lines where the business benefitted from short-term reductions in claims frequency resulting from the pandemic restrictions.
We have always prided ourselves on our service and constantly look for ways to improve it. Earlier this year we launched a cross-functional project involving distribution, underwriting and operations aimed at improving the existing operating model to drive a shift change in the quality of service we are delivering to our partners and customers.
Hiscox Europe provides personal lines cover, including
Hiscox Ltd Interim Statement 2021
Hiscox Ltd Interim Statement 2021
"Germany, our largest market in Europe, has reached the milestone of €100 million in gross premiums."
"Our US DPD business has been growing at a 35% CAGR in the period."
high-value household, fine art and classic car; as well as commercial insurance for small- and medium-sized businesses.
The business delivered a strong performance, growing gross premiums written by 18.2% to $322.8 million (2020: $273.0 million), or 8.3% on a constant currency basis. Commercial lines are driving top-line growth, while household is benefitting from a benign claims environment. Europe is experiencing good rate momentum with an average rate increase of 3%, up on the Q1 increase of 2%.
All markets in Europe grew gross premiums written in the first half. Germany, Benelux and Iberia, which together constitute 65.5% of Europe's gross premiums, all delivered double-digit growth. Germany, our largest market in Europe, has reached the milestone of €100 million in gross premiums written. The Netherlands has become the third market in Europe to launch the direct digital proposition in June, now offering professional indemnity policies to small commercial customers online. We expect a relatively quick pick-up in this market due to the higher adoption of digital trading and services
in Holland. The project was an excellent example of leveraging cross-market expertise and infrastructure. While the distribution strategy was fine-tuned to the idiosyncrasies of the Dutch market, we leveraged technology, product expertise and marketing collateral from France, Germany and the wider Group.
Hiscox Europe is taking proactive action in cyber across all countries, refocusing new business on customers with smaller revenues, driving through risk-appropriate pricing and adjusting terms and conditions where necessary. Despite increasing rates in cyber, we expect some impact on customer retention which will impact top-line growth in Europe in the second half.
Excluding Covid-19 losses, the claims experience for Europe continues to be within expectations.
We have made good progress on key technology projects in Europe. The roll-out of the new core system is underway in Germany, scheduled to go live by the end of this year. The business is now planning to roll out the same core system in France, building on our German experience, and we are aiming to achieve a fast and cost effective implementation.
In April, the Group appointed Robert Dietrich, previously Chief Executive Officer of Hiscox Germany, to be Chief Executive Officer of Hiscox Europe, succeeding Stéphane Flaquet who became Chief Transformation Officer for the Group earlier in the year. Robert has been with Hiscox for 24 years in a variety of underwriting roles across the business, before being appointed as Managing Director of Hiscox Germany in 2006, and as such has a deep understanding of our European operations and the opportunities for Hiscox that exist in these markets.
Hiscox USA focuses on underwriting small commercial risks with distribution through brokers, partners and direct-to-consumer using a wide range of trading models
traditional, service centre, portals and application programming interfaces (APIs). Our aspiration is to build America's leading small business insurer.
We reduced gross premiums written by 1.6% to
$459.3 million (2020: $466.8 million), as we implemented the planned reductions in broker lines to reshape this business towards the profitable small business segment. These were almost fully offset by a strong growth of 30% achieved in DPD, reinforcing our strategy.
The broker channel loss ratio has been improving steadily since 2019, mainly as a result of the earlier portfolio remediation actions in D&O, media and the strategic decision we announced in March to exit $100 million of business with customer revenues over $100 million, including stand-alone general liability and larger premium cyber policies. The portfolio repositioning work is tracking
on plan, and we have exited c.$45 million of larger premium business in the first half. Alongside rightsizing the portfolio, we have also been driving substantial rate increases through the broker book, achieving cumulative rate growth of over 20% since 2019.
Our DPD business delivered an excellent performance in the first half, with top-line growth accelerating ahead of our expectations to reach $220 million. We are on track to exceed $400 million of gross premiums in 2021. We now have around 490,000 customers insured, growing by 62,000 in the first half. This growth has been boosted by a rebound in the US economy, strong new business formations and the pandemic driving traction in the use of digital trading.
The structural growth opportunity of our US DPD business is significant. There are c.32 million SMEs in the USA. The insurance penetration level is still low, and the market is underserved and fragmented. In gross premium terms this translates into a total addressable market of c.$130 billion, which has grown at a compound annual growth rate (CAGR)
of 3.5% since 2016.
Our US DPD business has been growing at a 35% CAGR in the same period, significantly faster than the market. We have been taking share by offering a market proposition that resonates with small businesses, focused on ease of purchase and a great digital experience. While our current risk appetite and product set narrow our target market to $16 billion of premium at the moment, we know it will expand substantially over time through new partnerships, product evolution, risk appetite and overall market growth.
To drive further expansion, we have developed an omni-channel distribution strategy we refer to as 'All roads lead to Hiscox'. We strongly believe that the most effective way of acquiring customers is by supporting all the various channels where they choose to place their
business insurance. We are agnostic as to whether a small business reaches us and transacts with us directly or through our partners and we constantly look for new ways to reach new customers.
The increasingly digital and automated way of doing business across all channels helps to improve customer experience, increase operational efficiency and lowers costs of doing business. In the first half of the year 90% of our new customers accessed us digitally and 95% of new policies were auto-underwritten. We are in the final stages of the roll-out of our new digital technology platform in our DPD business, with a similar transformation program planned for our broker channel in the coming years. At the end of last year, we launched it in our service centre and it is now being rolled out externally to connect to our partners using this new-generation technology. We have successfully launched a new business owner's policy (BOP) on this new digital platform, adding more industry classes and increasing our footprint.
Our significant scale gives us a strong competitive advantage. While the business is already profitable, our focus is on continued investment to drive growth, enhance structural profitability and widen the competitive moat. The financial resources required to support the continued growth of this business are provided by Group as part of its capital allocation process. An additional advantage arises because the cost of back and middle office functions is shared across the Group, which contributes to DPD being a profitable business. Over the years we have made significant investments to grow the Hiscox brand awareness and affinity in our target markets. In the USA, the Hiscox brand has evolved from
green field to a well-recognised and well-regarded specialist small commercial digital brand. Today brand awareness is at 52%, up from 34% three years ago.
In April, the Group announced the appointment of Kevin Kerridge as Chief Executive Officer of Hiscox USA. Kevin, the architect of our digital strategy in the UK and