Interim results for the six months ended 30 June 2014

28 July 2014

“A strong start”

  H1 2014 H1 2013
Gross premiums written £978.9m £1,017.9m
Net premiums earned £643.5m £628.7m
Profit before tax £124.6m £180.7m
Earnings per share 36.4p 42.4p
Interim dividend per share 7.5p 7.0p
Net asset value per share 425.6p 393.3p
Group combined ratio 82.0% 74.7%
Return on equity (annualised) 18.9% 25.8%
Investment return (annualised) 2.0% 1.5%
Reserve releases £90.0m £73.6m
Foreign exchange impact £(16.4)m £34.9m


  • Strong start to the year with gross premiums written growing by 4.6% in local currency
  • Profit before tax of £124.6m impacted by £51m foreign exchange swing (from 2013)
  • The long-term investment in Hiscox‟s retail businesses continues to deliver good profitable growth
  • Acquisition of DirectAsia complete
  • Hiscox London Market performs well, benefitting from product diversity
  • Hiscox Re premium income down by 21.6% (13.0% in local currency) as pressure on rates continues
  • Dividend increase of 7.1% per share

Bronek Masojada, Chief Executive Officer, Hiscox Ltd, commented

“It has been a great start - at constant exchange rates the Group made a similar profit to last year. Falling rates and deteriorating terms and conditions are putting pressure on the market. We‟ve seen this before, but our discipline and strategy of balance is designed to absorb these conditions. We will seize opportunities as they present themselves in our specialty lines and maintain our discipline in the face of increasingly strong headwinds.”



Jeremy Pinchin, Company Secretary, Bermuda
Kylie O’Connor, Head of Communications, London
+1 441 278 8300
+44 (0) 20 7448 6656
Tom Burns, 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 Retail (which includes Hiscox UK and Europe, Hiscox Guernsey, Hiscox USA and subsidiary brand, DirectAsia), Hiscox London Market and Hiscox Re. 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. Hiscox underwrites internationally traded, bigger ticket business and reinsurance through Hiscox London Market and Hiscox Re.

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Chairman’s statement

It is very pleasing to report another good profit, £124.6 million in the first half. Despite the early impact of the UK floods and storms the Group benefited from a benign global catastrophe claims environment. The top-line is up 4.6% in local currency but down 3.8% in Sterling following a substantial (21.6%) but expected, reduction in reinsurance income, much of which was offset by good growth through our regional distribution network in the USA, Europe and UK. We have also been affected by foreign exchange movements which, unlike the first half of 2013, have gone against us. It has been a strong start to the year, however we still have a hurricane season to face and earthquakes can happen at any time.

We expect the current soft market to deteriorate further, particularly for larger insurance lines and catastrophe reinsurance. However opportunities continue to present themselves as we pursue our strategy of building balance and diversity in the specialist insurance market. We have good underlying growth in many of these areas, a testament to our long-term investment in the brand.


The half-year result to 30 June 2014 was a pre-tax profit of £124.6 million (2013: £180.7 million). Gross written premiums reduced to £978.9 million (2013: £1,017.9 million). Net earned premiums were £643.5 million (2013: £628.7 million). The Group was impacted by foreign exchange losses of £16.4 million (2013: gains of £34.9 million). The net combined ratio was 82.0% (2013: 74.7%). Earnings per share were 36.4p (2013: 42.4p) and net assets per share grew to 425.6p (2013: 393.3p). The annualised return on equity was 18.9% (2013: 25.8%).

Dividend, balance sheet and capital management

The Board of Hiscox Ltd has declared an interim dividend for 2014 of 7.5p per share (2013: 7.0p) an increase of 7.1%. The record date for the dividend will be 8 August and the payment date will be 17 September.

The Board proposes to offer again a scrip dividend alternative in respect of the interim dividend, subject to the terms and conditions of Hiscox Ltd's Scrip Dividend Alternative. On 11 August a circular will be sent to shareholders with details of the scrip dividend. The final date for making elections in order to be eligible to receive new shares in respect of the interim dividend will be 27 August 2014.

During the period the Group returned capital via a special distribution of £128 million and consolidated its share capital on 18 March, reducing the number of ordinary shares by 11% from 355,203,587 to 316,131,192 (excluding Treasury shares). A final dividend equivalent of 14p per share was paid to coincide with the return of capital, resulting in a total distribution (including interim) to shareholders of £200 million. There is no guarantee of future special distributions however.

Net asset value per share has increased by 5.8% from the year end, and the balance sheet remains strong.


After a difficult January, rates in reinsurance continue to decline. The market, already affected by a benign period for catastrophe claims, continues to adjust to new competition. During the 1 April renewals Japanese earthquake rates fell by around 15 percent. Rates for US property catastrophe business were down on average by 15%. Rates for international business reduced by around 8%.

Rates in insurance lines are either broadly stable or softening. We have transferred some of our catastrophe exposure to areas where rates are healthy, particularly in binding authority property business written in the London Market.

Business segments

During 2013 the Group restructured its Reinsurance business written by the London, Bermuda and Paris teams and combined them into one operating unit, Hiscox Re. In addition we introduced a single management structure for UK and Europe and brought all retail business under one umbrella. From 1 January 2014 the Group commenced reporting and monitoring its performance along this structure.

  • Hiscox Retail: Our retail business areas or local specialty lines, including Hiscox UK and Europe and Hiscox International combine to form Hiscox Retail. Hiscox International comprises Hiscox Guernsey, Hiscox USA and the newly acquired DirectAsia.
  • Hiscox London Market: This segment now includes internationally traded insurance lines only. Reinsurance lines have been combined with our Bermudian product lines to form Hiscox Re.
  • Hiscox Re: Reinsurance written by the teams in London, Bermuda and Paris.
  • The Corporate Centre division has remained unchanged.

There is no impact to the overall profit before tax or the net asset value of the Group for this restatement.

I cover each segment in turn below:

Hiscox Retail

The Hiscox Retail segment comprises Hiscox UK and Europe, and Hiscox International.

Hiscox UK and Europe

This division provides personal lines cover – from high-value household, fine art and collectibles to luxury motor – and commercial insurance for small and medium sized businesses, typically operating in white collar industries. These products are distributed via brokers and through a growing network of partnerships. We distribute cover for some simple risks direct-to-consumer in the UK, France and Germany.

Gross written premiums £309.4 million (2013: £295.1 million)
Profit before tax £26.3 million (2013: £44.4 million)
Combined ratio 92.9% (2013: 87.9%)

Hiscox UK and Europe delivered a good result despite the floods and storms in the UK and a small impact from foreign exchange.

In February Steve Langan was promoted to Managing Director of the newly created division, Hiscox UK and Europe, taking on responsibility for the oversight of Europe in addition to the UK and Ireland.

Hiscox UK and Ireland

Premium income grew by 3.4% to £212.6 million (2013: £205.5 million). The regional network of offices across the UK continues to perform very well, producing good growth and excellent business retention of over 90%. As mentioned previously an emphasis on performance has led to a further reduction of our business with Dual, an independent managing agent.

Overall, the UK experienced a return to normality in claims frequency after a quiet 2013, with the storms and floods in January and February impacting profits. Our brand is built on our claims promise, so we are happy to prove our worth when our clients need us.

Hiscox has been raising concerns over Flood Re, the Government‟s insurance scheme for those at flood risk. We believe the industry is building a problem for the future as too many people will be excluded from the scheme, including many of our customers. Floods are devastating, high profile events, and when the next major one occurs insurers will bear the brunt of the blame for the scheme‟s shortcomings.

Today we launch our new Cyber and Data Risks product, which will support those affected by cyber crimes practically as well as financially. Cover includes access to a formidable panel – from lawyers to IT forensic experts – who will be available to help customers get back on their feet.

We continue to invest heavily in marketing and see real value in building a strong brand. Our „Small and The Brave‟ commercial lines campaign continues to deliver good new business for our direct-to-consumer channel and Hiscox UK will return to TV in the autumn.

As announced previously the UK is undertaking a major IT project to replace the legacy system that supports underwriting, policy administration and claims. Progressing according to plan, we expect the project to cost £45 million over four to five years.

Hiscox was recognised for our investment in training and our focus on professional exams as a chartered insurer, winning the Investing in the Profession award at the British Insurance Awards.

Hiscox Europe

Gross written premiums grew by 8.0% to £96.8 million (2013: £89.6 million), driven mainly by further progress in specialist commercial business and technology, media and directors and officers‟ lines. Growth was particularly good in Germany as relationships with new broker networks start to deliver. Our businesses in the Benelux and Spain have also done well. In Spain a focus on service and broker relations has improved retention. During the period we intensified efforts around our small office product, building on success we have seen in the UK and Ireland.

Hiscox Europe also benefited from a sustained focus on improving expenses and another largely benign period for claims, after having paid a small number of losses from the European hailstorms which devastated many parts of Northern Germany, France and the Benelux.

We continue to invest in our direct operations in Europe where we see good opportunity in the small business product area.

Hiscox International

This division comprises Hiscox Guernsey, Hiscox USA and DirectAsia.

Gross written premiums £146.4 million (2013: £128.4 million)
Profit before tax £11.1 million (2013: £14.5 million)
Combined ratio 92.1% (2013: 85.0%)

Hiscox Guernsey

Hiscox Guernsey underwrites kidnap and ransom, as well as personal accident, terrorism and fine art risks.

Despite the competitive market, Guernsey continues to perform well with gross written premiums only down slightly to £34.0 million (2013: £35.8 million). We are maintaining market share in 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.

Overall, Hiscox Guernsey has had an uneventful period for claims, however, we have provided for a small impact from repatriation claims due to the recent violence in Iraq.

As well as investing in new marketing and underwriting talent we have brought together different teams across the Group that focus on special risks, including kidnap and ransom and executive security, in a structure designed to boost local and global collaboration.

Hiscox USA

Hiscox USA underwrites the small to mid market commercial segment through brokers and directly to businesses online and over the phone.

We had another good start, increasing premiums by 16.4% to £107.8 million (2013: £92.6 million) 25.4% in local currency, with continued good claims experience. Every product area grew premium income well except for the property division where the team remains disciplined in the face of strong competition.

In kidnap and ransom we have been creating new opportunities with smaller sized clients, outside of the saturated market for larger risks. We are also now offering general liability and crime as stand-alone products, giving customers the type of flexibility they increasingly want.

We are seeing strong demand for our core errors and omissions and directors and officers products where we continue to differentiate with our brand and service model.

Ongoing investment in building the Hiscox brand in the US is delivering results with direct-to-consumer policy numbers nearly doubling in 12 months to 65,000. The direct business has also focused on driving growth from our distribution partners by improving service and hunting for new opportunities.

At the end of March Hiscox completed the acquisition of DirectAsia, a direct-to-consumer business in Singapore, Hong Kong and Thailand. DirectAsia sells predominantly motor insurance with ancillary lines in travel, healthcare and life. 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 is Hiscox‟s first business in Asia and builds on its other direct-to-consumer operations in Europe and the US.

In its first three months as part of the Hiscox Group, DirectAsia continues to make good progress, growing premium income healthily to £4.6 million.

Hiscox London Market

This segment uses the global licences, distribution network and credit rating available through Lloyd‟s to insure clients throughout the world.

Gross written premiums £251.7 million (2013: £248.1 million)
Profit before tax £24.8 million (2013: £48.1 million)
Combined ratio 87.2% (2013: 67.0%)

Hiscox London Market performed well despite strong competition in many lines. Profits were hit by an adverse foreign exchange movement and some medium sized losses in the marine and energy business.

Excluding any impact from foreign exchange movements, growth was a pleasing 7.9%, driven mainly by opportunities in property lines including binding authority business in the US and international property.

Terrorism business reduced as the team remains disciplined in the face of strong competition. Political unrest and sanctions in Russia has also had an impact on the political risks team as less business comes to the market.

We continue to grow the extended warranty business, particularly in China through our partnership with underwriting agency White Oak. Our automotive physical damage business, also with White Oak, has benefited from rate increases due to a hardening market mainly in the US. Given its increasing importance to our business, Hiscox recently acquired a 10% stake in White Oak and Richard Watson, our Chief Underwriting Officer, has now joined the White Oak Board.

We continue to develop our e-trading proposition. Our US-focused marine employers‟ liability and small value household products are both now sold in this way, and we plan to roll out our terrorism product later this year.

Our London Market business is hunting for opportunities, recently adding a business development executive in Brazil, after similar success in the US. After significantly boosting our casualty team with over seven new hires over the past 18 months this area is performing well, opening up new areas for Hiscox in what remains a challenging market. This includes a new management liability team focused on building our US and international directors‟ and officers‟ liability business, and we have also bolstered our contingency and personal accident teams.

Despite the deteriorating Costa Concordia market loss, Hiscox remains well reserved and well reinsured. Our net loss remains unchanged at $19 million.

Hiscox was awarded 'Insurer of the Year' at the Reactions London Market awards.

Hiscox Re

The Hiscox Re segment comprises the Group‟s reinsurance businesses in London, Paris and Bermuda, Insurance Linked Security (ILS) activity and the Bermudian healthcare business.

Gross written premiums £271.5 million (2013: £346.3 million)
Profit before tax £75.6 million (2013: £65.6 million
Combined ratio 41.8% (2013: 56.6%)

Hiscox Re increased profits by 15.2% despite the challenging market. Careful risk selection meant we avoided some of the larger losses in the market and were helped by the absence of any major global catastrophes. However, Hiscox Re does have a small exposure to the February snowstorms in Japan.

Rates in reinsurance have succumbed to pressure from increased competition and a benign period for catastrophes. Gross written premiums reduced as predicted, due to this soft market and our disciplined response.

Our established relationships are serving us well. The team is using their extensive market knowledge to develop new products and these are being well received in the market. Hiscox has a strong track record of underwriting on behalf of others and we continue to enjoy good support from our quota share business partners who like our underwriting expertise and our focus on profit over volume. As a business we have the flexibility to respond to market changes; underwriting in the conventional way, using quota share arrangements or via the Insurance Linked Securities (ILS) market.

Our ILS strategy continues to develop following the launch in January of our two funds - Select and Diversified - under the Chairmanship of Alan Cossar, former Chairman of the Bermuda Monetary Authority. We are seeking new investors in these funds, and are working on a number of potentially bespoke portfolios on behalf of third parties.


The investment performance for the first six months has been much as we expected, given the ongoing low level of interest rates and bond yields and the more subdued returns from equity markets. Following the £178 million return of capital to shareholders in April, assets under management at 30 June 2014 reduced to £2,996 million (2013: £3,153 million) and our investment result, before derivatives, was £30.1 million (2013: £23.3 million), 2.0% on an annualised basis (2013:1.5%).

In contrast to the corresponding period last year the majority of our investment income has come from our fixed income portfolios, albeit that the returns achieved remain modest in absolute terms. Most investors have been surprised by the decline in bond yields in the early part of the year and, despite being short duration, our portfolios enjoyed some of that benefit. The majority of the return however, came from the allocation to non government bonds where credit spreads continued to narrow. Not surprisingly our risk asset portfolio has made a smaller impact but remains a useful contributor to performance.

Our concerns about rising yields have proved unfounded as yet but the timing of the first upward move in official interest rates is clearly under discussion in the US and is more imminent in the UK. We therefore continue to be cautious about taking much duration risk. Investment grade credit remains our preferred source of seeking some extra income and corporate bonds now comprise 32% of the bond portfolios. In a world where monetary policy has boosted most asset values, equities remain relatively attractive, particularly on a longer term view and we are maintaining our allocation.


The benign claims environment is masking the underlying deterioration in rates and conditions for big ticket insurance and reinsurance. We expect a more normal claims pattern will resume and there will be less money across the market to pay for the losses. Reducing prices represents a challenge for our supporting brokers as they see their margins squeezed and they look for ways to share the pain, asking for increased remuneration from us. We prefer to invest in new products and markets helping us and them to win new business, rather than squeezing the same lemon.

We will continue to navigate these waters as we always have: reducing where competition drives rates to unhealthy levels, and increasing our specialist and direct-to-consumer lines. Our diversity by geography and product allows us options. We continue to invest in the brand, good underwriting and our people. Over 40 years experience tells me that sticking to what we know and doing it well will deliver long term value for customers, shareholders and staff.

Robert Childs
28 July 2014

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