Q1 Interim Management Statement

6th May 2014

Hamilton, Bermuda (6 May 2014) -- Hiscox Ltd (LSE:HSX), the international specialist insurer, today issues its Interim Management Statement for the first three months of the year to 31 March 2014.

Hiscox’s gross written premiums grew by 2.3% in local currency, with a small decrease in Sterling to £501.6 million (2013: £506.1 million) as the Group pulls back in reinsurance. The Group’s long-term strategy of building local retail businesses to balance internationally traded business continues to present opportunities.

Bronek Masojada, Chief Executive, commented: “The market is softening, but conditions in many of our insurance lines are good. Our retail businesses continue to benefit from long-term investment in the brand and our acquisition of DirectAsia represents another important milestone.”

Gross Written Premiums for the period :

  Gross Written Premiums
to 31 March 2014
US$/€m/£m
Gross Written Premiums
to 31 March 2013
US$/€m/£m
Growth in local Currency % Growth in Sterling %
Hiscox UK and Europe            
- Hiscox UK   £98.2   £96.7 1.9 1.6
- Hiscox Europe €79.5 £66.4 €73.6 £60.3 8.0 10.0
Hiscox International            
- Hiscox USA US$82.6 £49.9 US$64.3 £41.5 28.5 20.4
- Hiscox Guernsey US$28.1 £17.0 US$28.1 £18.1 0.1 -6.0
Hiscox London Market   £126.8   £111.6 16.7 13.6
Hiscox Re* US$237.1 £143.3 US$276.3 £177.9 -14.2 -19.5
Total   £501.6   £506.1 2.3 -0.9

* New division for 2014 which includes Hiscox London Market Reinsurance and Hiscox Bermuda business.

Rates
As predicted rates in reinsurance continue to decline. During the 1 April renewals Japanese earthquake rates fell by around 15 percent. The US catastrophe market, already affected by a benign period for claims, continues to overreact to new capital with the inevitable results.

Rates in insurance lines are either broadly stable or softening. We have been increasing our risk appetite in areas where rates are healthy particularly in the mid-market catastrophe exposed property business written in the London Market.

Claims
The first quarter saw a diverse list of losses, including marine liability, upstream energy and movie production claims. The Group also has a small exposure to the tragic Malaysian Airline flight 370 and Korean ferry loss.

Claims for the UK floods and storms in 2014 have been reserved at net £10 million, up from the £5 million incurred by mid-February when the rain was still falling.

Investments
The investment result to 31 March 2014 was 0.4% for the quarter on a non annualised basis.  Income from cash and the bond portfolios was in line with expectations whilst our risk assets made only a modest contribution, reflecting a challenging period in equity markets.  Invested assets totalled approximately £3.16 billion at the end of March.  Since then, approximately £178 million has been returned to shareholders which has been funded from the cash and bond allocation.  As a result, risk assets now account for approximately 7.5% of the portfolio.

The economic recovery appears to be gaining traction in the developed world. There is therefore increased focus on the words and actions of the main central banks with speculation about monetary policy likely to lead to bouts of volatility in investment markets. We believe however that bond yields in our main markets, being the US and the UK, are likely to rise from here and our bond portfolios remain cautiously positioned in respect of duration and credit quality. Current valuations leave our return expectations for the year from equities at more modest levels than in the recent past but we expect them to benefit over time from the improving economic outlook.

Hiscox UK
Gross written premiums for Hiscox UK rose slightly by 1.6% to £98.2 million (2013: £96.7 million). As previously disclosed, an emphasis on performance has led to a further reduction in our business with Dual, an independent managing agent. This has been largely offset by good new business generation and excellent retention from our regional centres. The high net worth household business benefited from sustained efforts to increase customer numbers - returning to growth after being static for some time. The direct-to-consumer small business offering also continues its strong profitable performance.

During the quarter Hiscox has been campaigning to amend Flood Re, the Government’s proposed solution to affordable flood insurance. We believe too many homes, including some of our customers, will be excluded from the scheme. We are pleased the Association of British Insurers has now agreed that people living in council tax Band H and I homes should have access to the scheme, but we will continue to push for further reforms.

Hiscox Europe
Hiscox Europe grew well considering the economic environment, increasing gross written premiums by 8.0% to €79.5 million (2013: €73.6 million) driven by above budget growth in commercial lines, particularly in Germany. The high value household business returned to growth after a period where performance was flat. We continue to invest in our direct operations in Europe where we see good opportunity.

Hiscox USA
Hiscox USA continues to grow apace with gross premium income up by 28.5% to $82.6 million (2013: $64.3 million). Many areas, particularly local errors and omissions, have benefited from a focus on excellent broker service resulting in above target new business growth. We are also seeing good traction in other small business solutions such as general liability.

The direct-to-consumer business continues to go from strength-to-strength with sales of over 1200 policies per week.

Hiscox Guernsey
Gross written premiums for Hiscox Guernsey remained flat at $28.1 million (2013: $28.1 million). This area is maintaining market share in core kidnap and ransom business where clients benefit from our expertise and exclusive relationship with Control Risks. Hiscox Guernsey remains focused on distributing specialist products worldwide.

DirectAsia
On the 31 March we completed our acquisition of direct-to-consumer online business DirectAsia. Hiscox acquired its combined debt and equity of approximately US$38 million for a total consideration of US$55 million plus earn out over four years.

DirectAsia was founded in Singapore in 2010 and has since launched into Hong Kong and Thailand. Its primary business is motor, one of the few non-discretionary insurances in Asia. DirectAsia has a strong business model, operating in markets where agent based channels with high distribution costs predominate. In time we will use it to distribute Hiscox products.

Hiscox London Market
Hiscox London Market increased gross premium income by 13.6% to £126.8 million (2013: £111.6 million).

This good growth was driven by property and small ticket binding authority business in North America, as well as extended warranty business (through our relationship with underwriting agency White Oak). Investment in new underwriters in the casualty area is now complete and starting to produce a steady stream of premium.

The marine and energy division reduced premiums by 15% in the face of tough competition in energy business. The team is focussed on new opportunities in emerging markets, recently hiring an agent in Brazil to build a local Hiscox presence.

Hiscox London Market have also added two new experienced underwriters to the personal accident and health team with the aim of growing in this specialty line.

Hiscox Re
Gross written premiums for Hiscox Re reduced by 14.2% to $237.1 million (2013: $276.3million).  Despite market challenges Hiscox remains a top-tier player in reinsurance as we focus on clients who value our underwriting, product design and ethos.  Alongside our core book, we continue to leverage our expertise writing on behalf of third party capital, and have enjoyed strong quota share support.

As disclosed previously we expected this area to shrink in 2014 as rates decline and the team remains disciplined.

We continue to build on our ILS activity through Kiskadee Investment Managers. New senior hires include COO Richard Lowther (formerly COO of Alpha Cat) and Alan Cossar, formerly Chairman of the Bermudian Monetary Authority, who becomes Non Executive Chairman of the two new Kiskadee ILS funds.

Outlook
We expect rates in many lines to remain under pressure, particularly in the absence of any catastrophes. However, our diverse business mix gives us options and we are restless and hungry for new opportunity.

ENDS

For further information:

Hiscox Ltd  
Jeremy Pinchin, Company Secretary +1 441 278 8300
Kylie O’Connor, Head of Communications +44 (0) 207 448 6656
   
Brunswick  
Tom Burns +44 (0)20 7404 5959
Fiona Micallef-Eynaud +44 (0)20 7404 5959

Notes to editors

About Hiscox
Hiscox, the international specialist insurer, is headquartered in Bermuda and listed on the London Stock Exchange (LSE:HSX). There are three main underwriting divisions in the Group - Hiscox London Market, Hiscox Re and Hiscox Retail (which includes Hiscox UK and Europe, Hiscox Guernsey, Hiscox USA and subsidiary brand, DirectAsia). Hiscox underwrites internationally traded, bigger ticket business and reinsurance through Hiscox Re and Hiscox London Market. Through its retail businesses in the UK, Europe and the US Hiscox offers a range of specialist insurance for professionals and business customers, as well as homeowners.

For further information visit www.hiscoxgroup.com.

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