REG - Hiscox Ltd - Hiscox Ltd interim results
07/08/2024 07:00
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RNS Number : 4509Z Hiscox Ltd 07 August 2024
Hiscox Ltd interim results
For the six months ended 30 June 2024
"Solid delivery. Executing on our commitments."
H1 2024 H1 2023
Insurance contract written premium 1 (#_ftn1) $2,812.9m $2,723.3m
Net insurance contract written premium(1) $2,027.2m $1,945.6m
Insurance service result $240.7m $221.4m
Investment result $152.4m $121.8m
Profit before tax $283.5m $264.8m
Earnings per share 75.1¢ 72.2¢
Interim dividend per share 13.2¢ 12.5¢
Net asset value per share 989.0¢ 823.3¢
Tangible net asset value per share 896.9¢ 728.1¢
Group combined ratio (discounted)(1) 85.4% 85.7%
Group combined ratio (undiscounted)(1) 90.4% 90.2%
Return on equity (annualised)(1) 16.5% 19.9%
Positive prior year development(1) $50.8m $61.7m
Highlights
· Insurance contract written premium (ICWP) grew by $89.6 million or
3.3% to $2,812.9 million (H1 2023: $2,723.3 million) with sustained retail
growth and additional capital deployed in big-ticket property.
· Profit before tax grew 7.1%, to $283.5 million (H1 2023: $264.8
million), underpinned by:
o insurance service result of $240.7 million (H1 2023: $221.4 million);
o investment result of $152.4 million (H1 2023: $121.8 million).
· Undiscounted combined ratio of 90.4% (H1 2023: 90.2%) in a more
active loss environment.
· Group ROE of 16.5% (H1 2023: 19.9%).
· Excellent tangible NAV per share growth of 23.2%.
· Over 85%(( 2 (#_ftn2) )) of the $150 million buyback completed;
interim dividend of 13.2 cents per share, an increase of 5.6% from last year.
· Strong balance sheet and reserves; estimated Bermuda Solvency
Capital Ratio (BSCR) of 206%.
· Our diversified portfolio is well placed to deliver sustainable
returns and growth for the Group through the insurance cycle.
Aki Hussain, Group Chief Executive Officer, Hiscox Ltd, commented:
"Our business has built on the momentum from 2023 and delivered strong profits
and robust growth in the first half. We are focused on deploying capital to
generate profitable growth and investing in underwriting and technology
capabilities to build out our competitive advantages. This has delivered a
strong and increased underwriting result of $241 million, despite a more
active loss environment, and positions us well to deliver high-quality growth
through the insurance cycle."
ENDS
A conference call for investors and analysts will be held at 10:00 BST on
Wednesday, 7 August 2024.
Participant dial-in numbers:
United Kingdom (Local): +44 20 3936 2999
All other locations: +44 800 358 1035
Participant access code: 975225
For further information
Investors and analysts
Yana O'Sullivan, Director of Investor Relations, London +44 (0)20 3321 5598
Marc Wetherhill, Group Company Secretary, Bermuda +1 441 278 8300
Media
Eleanor Orebi Gann, Group Director of Communications, London +44 (0)20 7081
4815
Simone Selzer, Brunswick +44 (0)20 7404 5959
Tom Burns, Brunswick +44 (0)20 7404 5959
Notes to editors
About The Hiscox Group
Hiscox is a global specialist insurer, headquartered in Bermuda and listed on
the London Stock Exchange (LSE:HSX). Our ambition is to be a respected
specialist insurer with a diverse portfolio by product and geography. We
believe that building balance between catastrophe-exposed business and less
volatile local specialty business gives us opportunities for profitable growth
throughout the insurance cycle.
The Hiscox Group employs over 3,000 people in 14 countries, and has customers
worldwide. Through the retail businesses in the USA, the UK, Europe and Asia,
we offer a range of specialist insurance products in commercial and personal
lines. Internationally traded, bigger ticket business and reinsurance is
underwritten through Hiscox London Market and Hiscox Re & ILS.
Our values define our business, with a focus on people, courage, ownership and
integrity. We pride ourselves on being true to our word and our award-winning
claims service is testament to that. For more information, visit
www.hiscoxgroup.com (http://www.hiscoxgroup.com) .
CEO's statement
The Group has continued to deliver strong profitability and sustained growth
in the first six months of the year, building on the momentum achieved in
2023. In our big-ticket businesses, positive market conditions have persisted,
although more variable than in 2023. Into this market we have proactively, yet
selectively, deployed capital and we are managing the various stages of the
cycle across different parts of our portfolio. Combining this with continued
profit and growth momentum in Retail has resulted in strong profits and an
annualised return on equity of 16.5%.
In the first six months the Group has added $90 million of premiums, with the
majority of this ($77 million) coming from growth momentum in Retail. Our
focus on profitable growth and underwriting discipline ensured that losses are
within our expectations, despite a more active loss environment. The strong
profit before tax of $283.5 million, up 7.1% year-on-year, is the combined
effect of an insurance service result of $240.7 million, up 8.7%, and an
improving investment result of $152.4 million.
In Retail, profitability is robust, with the business achieving an
undiscounted combined ratio of 93.8%. The actions we have taken over the last
few years are leading to strong growth momentum in US DPD, Europe and the UK.
In our target customer segments, new business formation and digital adoption
trends remain robust, underpinning significant long-term structural growth
opportunities. We continue to invest in our retail capabilities, including
improving broker service, to build market share and realise the full growth
potential of our business.
As the best property market conditions in a decade have mostly persisted into
2024, we deployed more capital early in the year into our reinsurance
business, to lock in advantageous pricing and terms when market conditions
were most certain. In our London Market business, we remain disciplined,
growing where we see profitable opportunities and continuing to manage the
cycle in cyber and D&O.
Our diversified portfolio is well placed to deliver attractive and sustainable
returns and growth for the Group through the insurance cycle. In line with our
strategy we are continuing to invest in the long-term opportunity in Retail to
grow the market and capture share. At the same time, we see opportunities to
generate strong returns in our London Market and Re & ILS businesses and,
as a result, have put more capital to work.
Our balance sheet remains strong, with the confidence level of our reserves
stable at 82% and solid capital generation leading to an estimated Bermuda
Solvency Capital Ratio (BSCR) of 206%. Over 85% of the $150 million share
buyback announced in March was completed at the balance sheet date. The
Group's capital management approach is to invest in the many attractive growth
opportunities available from our diversified business model while maintaining
balance sheet strength and efficiency. Following the first six months of the
year, I am pleased to announce that the Board has approved an interim dividend
of 13.2 cents per share, an increase of 5.6% from last year.
Hiscox Retail 3 (#_ftn3)
Hiscox Retail comprises our retail businesses around the world: Hiscox UK,
Hiscox Europe, Hiscox USA and DirectAsia. In this segment, our specialist
sector and class of business knowledge, ongoing investment in the brand,
distribution (including broker relations) and technology reinforce our strong
market position in an increasingly digital world.
Insurance contract written premium $1,335.3 million (H1 2023: $1,258.3 million)
Net insurance contract written premium $1,206.9 million (H1 2023: $1,146.7 million)
Insurance service result $123.0 million (H1 2023: $110.9 million)
Profit before tax $144.3 million (H1 2023: $146.1 million)
Combined ratio 88.8% (H1 2023: 89.3%)
Undiscounted combined ratio 93.8% (H1 2023: 94.0%)
Retail ICWP of $1,335.3 million (H1 2023: $1,258.3 million) increased by 5.0%
in constant currency, as growth returned to the target range. We continue to
see strong momentum in Europe and US DPD and a pleasing step up in UK growth
momentum. US broker premiums continue to contract due to a combination of both
external and internal factors, albeit at a slower pace in the second quarter.
We are taking targeted action to reverse this trend and expect to see the
benefit in the second half of the year.
Rates in Retail increased 3% across the markets, as inflation moderates.
On an undiscounted basis, Hiscox Retail's combined ratio was 93.8% (H1 2023:
94.0%). This is a 2.6 percentage point improvement on the full year 2023
undiscounted combined ratio of 96.4% and within the target combined ratio
range. We have continued to invest in our retail capabilities, including
people, marketing and technology to build momentum for growth. Our intention
remains to run our Retail business within the 89-94% combined ratio range for
the long-term benefit of our shareholders.
Hiscox UK
Hiscox UK provides commercial insurance, locally traded specialty insurance,
as well as personal lines cover, including high-value household, fine art and
luxury motor.
Hiscox UK ICWP grew 4.3%, on a constant currency basis, to $427.4 million (H1
2023: $399.3 million). The underlying growth, excluding the impact of some
non-recurring income in June 2023, was 6.4% in constant currency, which is the
highest since 2018 and is more reflective of the current momentum in the UK.
This underlying positive business momentum in the UK is broad based. The UK
commercial business is growing well and our art and private client business
delivered low double-digit growth, benefitting from favourable market dynamics
and the launch of the high-value household product on the e-trade platform.
The first half of the year also marked a significant milestone for Hiscox UK,
which now has over half a million customers. Proactive management of
distribution and improving broker sentiment have resulted in strong new
business flows complemented by high retention rates. The business also signed
six new distribution deals, which will help sustain growth momentum going
forward.
Our brand campaign continues to attract significant attention and was awarded
Gold at both the 2024 Outdoor Media Awards for the 'best multi-format
campaign' and the 2024 Creative Circle Awards in the 'best use of outdoor
medium' category, beating a number of well-known financial and non-financial
brands. Spontaneous brand awareness has improved significantly as a result of
the brand campaign and has had a positive impact on our acquisition metrics,
with strong double-digit growth in branded search.
Catherine Frost joined our business during the first half as UK Chief
Operating Officer, after 22 years at RSA where she was most recently Managing
Director for UK Commercial Lines.
Hiscox Europe
Hiscox Europe provides commercial insurance, and personal lines cover,
including high-value household, fine art and classic car.
Our European business achieved strong growth of 8.5% in constant currency for
the first six months of the year, with ICWP of $400.4 million (H1 2023: $365.6
million). Growth in Europe has been broad based with the strongest momentum in
France, our second largest market in Europe, where premiums are growing at a
strong double-digit rate. We expect the momentum in Europe to build further in
the second half of the year, sustained by continued product and distribution
innovation as well as the signing of new distribution deals.
The roll-out of our new core technology continues on schedule, with Germany's
commercial business now live and activity focused on Germany's art and private
client business and France's commercial business. Hiscox Europe is also
progressing with the build of broker and customer portals, across our markets,
wrapped around our single core technology, as we are digitalising more and
more of our customer and broker interactions. This will support sustained
growth and drive greater efficiencies in our European business.
Hiscox USA(3)
Hiscox USA focuses on underwriting 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.
Hiscox USA's ICWP grew by 2.9% to $476.5 million (H1 2023: $463.1 million)
with sustained growth in US DPD and continued but slowing contraction in US
broker.
US DPD grew ICWP by 8.8% to $284.2 million (H1 2023: $261.2 million),
sustaining the momentum built over 2023. Our US direct business delivered
strong double-digit growth boosted by increased investment in marketing spend
and strong retention. The first half of the year saw the full digital launch
of our workers' compensation partnership, which extends our range of products
and brings us a step closer towards meeting the full range of insurance needs
of small businesses. In US digital, partnerships growth was more variable, as
some established partners' production momentum slowed in the second quarter.
This is partially offset by growth from the 29 new partners onboarded over the
last 12 months.
US broker ICWP decreased by 4.8% to $192.2 million (H1 2023: $201.9 million).
The business is rotating back to growth, having been decisively
re-underwritten in 2021 and impacted by challenging conditions in the cyber
market. The rate of decrease has slowed in the second quarter to 1.9%, having
been 7.5% over the first three months of the year. Growth is now being seen
across architects and engineers, terrorism and entertainment, with other lines
of business showing improving trends. Nonetheless, we anticipate the US broker
business will continue to contract, albeit at a more measured rate, in the
second half of the year.
We are excited to welcome Mary Boyd, who has joined Hiscox USA as our new
Chief Executive Officer. Mary joins from Plymouth Rock Assurance where she
served as CEO of its independent agency business since 2018. She began her
career in actuarial roles before moving into leadership positions at The
Hartford Insurance Company, ACE, Explorer Insurance, and Chubb. This
appointment further underlines our ambition to build America's leading small
business insurer and to take the business to scale.
Hiscox Asia
DirectAsia delivered ICWP growth of 3.6% in constant currency to $31.0 million
(H1 2023: $30.3 million) with strong double-digit growth in Singapore
partially offset by more moderate growth momentum in Thailand. The Group
previously announced its agreement to sell DirectAsia to Ignite Thailand
Holdings Limited, subject to customary conditions and regulatory approvals.
These conditions have not been met within the agreed time period and the
agreement to sell has now been terminated. The Group is exploring other
options.
Hiscox London Market(3)
Hiscox London Market uses the global licences, distribution network and credit
rating of Lloyd's to insure clients throughout the world.
Insurance contract written premium $648.3 million (H1 2023: $667.1 million)
Net insurance contract written premium $439.1 million (H1 2023: $453.8 million)
Insurance service result $74.2 million (H1 2023: $77.8 million)
Profit before tax $108.1 million (H1 2023: $114.1 million)
Combined ratio 81.5% (H1 2023: 79.2%)
Undiscounted combined ratio 86.9% (H1 2023: 83.2%)
Hiscox London Market has continued to deliver excellent underwriting results,
through diligent risk selection and underwriting, combined with proactive, yet
selective, deployment of capital. This has led to strong profits of $108.1
million and an undiscounted combined ratio of 86.9%, despite a more active
claims environment.
ICWP decreased by 2.8% to $648.3 million (H1 2023: $667.1 million) and net
ICWP decreased by 3.2% to $439.1 million (H1 2023: $453.8 million). This is
driven by three factors: the decision to non-renew certain large binder deals;
our proactive management of the underwriting cycle in casualty lines; and a
reduction in space premiums, as there were fewer risks in the market and we
took a decision to reduce line size due to heightened recent loss activity. As
expected, in the second quarter the business delivered a four percentage point
improvement in growth compared to the first quarter of 2024, on a discrete
quarterly basis.
Hiscox London Market achieved an average rate increase of 4% during the first
half, with cumulative rate increases of 77% since 2018.
Property continues to enjoy a strong rating environment, particularly in
property binders and flood. Competition in major property has increased,
causing rate to begin to flatten after the strong growth achieved last year.
Property premiums grew in the period, although the trend was impacted by
strategic non-renewals. The Group utilises its broad market access to deploy
capital flexibly across both London Market and Re & ILS, to capture the
best opportunities, and we will continue to be agile as the market evolves.
Cycle management activities in cyber and D&O are ongoing, as rates
decreased by 9% and 8% respectively. ICWP reduced at a double-digit rate in
both of these lines, as we reflect the transitioning markets.
The core marine and upstream energy lines are experiencing an increase in
competition, although we continue to see attractive structural growth
opportunities in power and renewables and aim to lead more in this space.
Upstream construction is also seeing a good flow of new business, where Hiscox
is well placed with excellent engineering and underwriting expertise.
Our collaboration with Google Cloud continues in 2024. Our AI solution for
terrorism risk is about to be implemented into the live environment following
the 2023 proof of concept, which successfully demonstrated that we could
reduce the time taken to quote a terrorism risk from three days to three
minutes. In parallel, we are extending the core proof of concept capabilities
to major property, a more complex class, where we are also aiming to reduce
the time to quote. Over time, we aim to roll out AI capabilities to all
relevant lines of business to support both our growth and efficiency
ambitions.
We continue to proactively pursue new business in our ESG sub-syndicate,
Syndicate 3033, and have included liability, D&O, carbon offset and
product recall risks for the first time.
The first half of the year saw a number of uncorrelated small- to mid-size
loss events across non-casualty divisions of Hiscox London Market. These
losses have included the Francis Scott Key Bridge collision near the US Port
of Baltimore. Despite this more active loss environment, Hiscox London Market
delivered an insurance service result of $74.2 million (H1 2023: $77.8
million) and an undiscounted combined ratio of 86.9% (H1 2023: 83.2%). This
marks the fourth consecutive half year of an undiscounted combined ratio in
the 80-90% range.
Hiscox Re & ILS
Hiscox Re & ILS comprises the Group's reinsurance businesses in London and
Bermuda and insurance-linked securities (ILS) activity written through Hiscox
ILS.
Insurance contract written premium $829.3 million (H1 2023: $797.9 million)
Net insurance contract written premium $381.2 million (H1 2023: $345.1 million)
Insurance service result $43.5 million (H1 2023: $32.7 million)
Profit before tax $86.5 million (H1 2023: $55.1 million)
Combined ratio 73.8% (H1 2023: 76.3%)
Undiscounted combined ratio 77.3% (H1 2023: 81.2%)
Hiscox Re & ILS grew net ICWP by 10.5% to $381.2 million (H1 2023: $345.1
million) as the business deployed additional capital early to successfully
capture the attractive market conditions. ICWP grew by 3.9% to $829.3 million
in the first half (H1 2023: $797.9 million), with a majority of the growth
achieved during the January renewals when market conditions were most
attractive. The overall growth rate has reduced at subsequent renewal periods,
as additional quota share capacity and own capital deployed were offset by a
reduction in ILS capital.
The market has remained disciplined at mid-year renewals, with attachment
points and terms and conditions broadly holding firm. While market capacity
has increased, this has been largely offset by growth in demand from cedants.
As anticipated, there have been some rate reductions in the upper layers of
structures and on higher-quality business, however, these were from
generationally high levels. Overall, rate is flat for the first six months of
the year with the market remaining attractive, after cumulative rate increases
of 90% since 2018.
As a result of gross capital inflows of $300 million into our side car and ILS
funds from a number of new and existing investors in the first six months of
the year, Hiscox ILS assets under management were $1.7 billion as at 30 June
2024 (31 December 2023: $1.8 billion). Following a planned return of capital
to investors, these reduced to $1.4 billion at 1 July 2024. The third-party
capital strategy we have executed in Re & ILS over many years adds scale
to the business, enabling more meaningful relationships with our cedants, and
allowing Hiscox to manage net retentions within volatility parameters
consistent with our ambitions, and also creates a fee-based income stream for
risk origination and subsequent profit commissions. In the first six months of
this year, fee income increased by 57.7% to $44.3 million (H1 2023: $28.1
million) due to a rise in performance fees reflecting underwriting
performance.
Hiscox Re & ILS delivered a strong insurance service result of $43.5
million (H1 2023: $32.7 million) at an undiscounted combined ratio of 77.3%
(H1 2023: 81.2%), and an excellent profit before tax of $86.5 million (H1
2023: $55.1 million). Due to the seasonal nature of the risks underwritten by
Hiscox Re & ILS, the majority of premium is earned in the second half of
the year.
Claims
The first half saw several natural catastrophe loss events occur around the
world, including flooding in Dubai and Germany, an earthquake in Taiwan and
severe convective storms in the USA. The total net loss reserved for these
events for the Group is in line with our expectations.
The Group reserved $28 million net for the events relating to the MV Dali
collision with the Francis Scott Key Bridge in Baltimore, causing the bridge
to collapse and a number of tragic fatalities. The majority of this loss has
been recognised within Hiscox London Market, with the remainder booked in
Hiscox Re & ILS. Additionally, there have been a number of uncorrelated,
small- to mid-size man-made losses within Hiscox London Market impacting the
crisis management and marine, energy and specialty divisions.
The Group loss experience has been within our expectations.
Strong foundations
Reserves
As at 30 June 2024, the Group's net reserves are at the 82% confidence level
(FY 2023: 83%, HY 2023: 77%) in line with our conservative reserving
philosophy, with the risk adjustment above the best estimate of $262.0
million 4 (#_ftn4) (FY 2023: $272.9 million, HY 2023: $211.1 million).
Net reserve releases of $50.8 million demonstrate the effectiveness of our
reserving philosophy, which is evident in the consistently positive reserve
development we have reported over many years.
Over recent years we have been proactive in executing legacy portfolio
transactions (LPTs) to protect certain lines of business, in particular those
lines we have exited. These LPTs continue to provide protection, covering 31%
of Group gross reserves and 42% of casualty gross reserves for 2019 and prior
years from inflationary and other pressures. We will continue to periodically
pursue similar transactions to manage volatility and optimise capital.
Capital
The Group remains strongly capitalised from both a regulatory and a ratings
agency perspective. Capital generation has been strong in the first half,
lifting the estimated Group BSCR ratio to 206% at 30 June 2024 after payment
of the final dividend and with over 85% of the share buyback completed at the
balance sheet date. The BSCR ratio excludes any benefit from the $150 million
Bermuda deferred tax asset, consistent with our year-end quoted figure.
Having considered the capital requirements of the business, the Board has
approved the payment of an interim dividend of 13.2 cents per share, an
increase of 5.6%. The record date for the dividend will be 16 August 2024 and
the payment date will be 24 September 2024. The Board proposes to offer a
Scrip alternative, subject to the terms and conditions of the Group's 2022
Scrip Dividend Scheme. The last date for receipt of Scrip elections will be 2
September 2024 and the reference price will be announced on 10 September 2024.
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.
Liquidity
The Group, at the holding company level, continues to retain a significant
level of liquidity with fungible assets in excess of $1 billion, comprised of
liquid assets and undrawn borrowing facilities. The leverage position as at 30
June 2024 for the Group is 16.4% 5 (#_ftn5) , comfortably within the range
that the Group chooses to operate in.
Investments
The investment result for the first six months of 2024 was $152.4 million (H1
2023: $121.8 million), or a return of 1.9% year to date (H1 2023: 1.7%) as the
interest and coupons from cash, debt and fixed income portfolios increased by
48% year-on-year 6 (#_ftn6) . Assets under management at 30 June 2024 were
$8.0 billion (FY 2023: $8.0 billion).
Bond markets continued to fluctuate on statements from central banks as they
assess the inflation outlook. Although the inflationary trend was down,
pricing pressures did not ease as quickly as expected. While the European
Central Bank and Bank of Canada did cut rates, other central banks did not,
with expectations for policy changes pushed further into the second half of
the year. Market yields remaining at current levels is favourable for our
portfolio reinvestment, despite being a mark-to-market headwind in the short
term. The reinvestment yield on the bond portfolio was 5.2% at 30 June 2024,
up from 5.1% at year-end, with a book yield of 4.8%. Duration is now 1.9
years.
We continue to look to incrementally improve long-term risk and
capital-adjusted outcomes through diversification.
Outlook
Our priority remains profitable growth delivered through disciplined
underwriting and proactive capital allocation across our divisions. We will
continue to invest capital and drive growth where we believe the returns are
attractive and will step away from the business which in our view is not rate
adequate. The Group's diversified business portfolio is well positioned to
deliver high-quality earnings in 2024 and over the long term.
In Retail, we expect growth momentum to continue to build gradually in the
second half as management initiatives take effect and we capture more of the
structural growth opportunity, although growth momentum is not expected to be
linear. In our London Market business, moderate growth is expected to return
in the second half, as we write more business to replace non-renewed binders.
In Re & ILS, we wrote over three-quarters of this year's reinsurance
premiums in the first half, with a greater share of these premiums to be
earned in the second half in line with the risk profile of the business. For
the full year we expect to continue to see strong net growth in line with the
first half, which will exceed top-line growth as we continue to anticipate ILS
fund outflows. We face into the US wind season well capitalised and with a
high-quality portfolio written at attractive rates.
Our portfolio of businesses and our talented and ambitious teams position us
well to continue delivering high-quality disciplined growth and earnings.
Aki Hussain
Group Chief Executive Officer
7 August 2024
Condensed consolidated interim income statement
For the six month period ended 30 June 2024
Six months to Six months to
30 June 2024 30 June 2023
(reviewed) (reviewed)
Note $m $m
Insurance revenue 6 2,058.1 1,941.1
Insurance service expenses 6 (1,611.8) (1,486.7)
Insurance service result before reinsurance contracts held 446.3 454.4
Allocation of reinsurance premiums 6 (476.6) (417.3)
Amounts recoverable from reinsurers for incurred claims 6 271.0 184.3
Net expenses from reinsurance contracts held (205.6) (233.0)
Insurance service result 6 240.7 221.4
Investment result 9 152.4 121.8
Net finance expenses from insurance contracts (90.5) (64.4)
Net finance income from reinsurance contracts 29.9 26.6
Net insurance finance expenses 9 (60.6) (37.8)
Net financial result 9 91.8 84.0
Other income 10 49.0 33.7
Other operational expenses 6 (58.1) (33.8)
Net foreign exchange losses (14.5) (16.5)
Other finance costs 11 (25.4) (24.0)
Share of profit of associates after tax - -
Profit before tax 283.5 264.8
Tax expense 12 (24.6) (14.7)
Profit for the period (all attributable to owners of the Company) 258.9 250.1
Earnings per share on profit attributable to owners of the Company
Basic 14 75.1¢ 72.2¢
Diluted 14 73.1¢ 70.8¢
The notes to the condensed consolidated interim financial statements are an
integral part of this document.
Condensed consolidated interim statement of comprehensive income
For the six month period ended 30 June 2024
Six months to Six months to
30 June 2024 30 June 2023
(reviewed) (reviewed)
Note $m $m
Profit for the period 258.9 250.1
Other comprehensive income
Items that will not be reclassified to the income statement:
Remeasurements of the net defined benefit pension scheme (6.5) (2.8)
Income tax effect 1.9 (1.7)
(4.6) (4.5)
Items that may be reclassified subsequently to the income statement:
Exchange (losses)/gains on translation of foreign operations (2.5) 21.0
Other comprehensive income net of tax (7.1) 16.5
Total comprehensive income for the period 251.8 266.6
(all attributable to owners of the Company)
The notes to the condensed consolidated interim financial statements are an
integral part of this document.
Condensed consolidated interim balance sheet
As at 30 June 2024
30 June 2024 31 December 2023
(reviewed) (audited)
Note $m $m
Assets
Employee retirement benefit asset 37.2 44.4
Goodwill and intangible assets 313.6 323.9
Property, plant and equipment 122.3 130.3
Investments in associates 21.3 0.8
Deferred tax assets 184.1 180.7
Assets included in disposal group classified as held for sale 56.3 59.1
Financial assets carried at fair value 16 6,676.8 6,574.4
Reinsurance contract held assets 13 2,281.8 2,098.3
Trade and other receivables 274.5 206.5
Current tax assets 3.4 5.1
Cash and cash equivalents 1,368.0 1,437.0
Total assets 11,339.3 11,060.5
Equity and liabilities
Shareholders' equity
Share capital 38.2 38.8
Share premium 424.2 528.8
Contributed surplus 184.0 184.0
Currency translation reserve (381.7) (379.2)
Retained earnings 3,101.8 2,923.2
Equity attributable to owners of the Company 3,366.5 3,295.6
Non-controlling interest 1.1 1.1
Total equity 3,367.6 3,296.7
Deferred tax liabilities 71.1 56.9
Liabilities included in disposal group classified as held for sale 58.5 54.8
Insurance contract liabilities 13 6,809.7 6,604.0
Financial liabilities 16 689.3 674.7
Current tax liabilities 6.6 10.9
Trade and other payables 336.5 362.5
Total liabilities 7,971.7 7,763.8
Total equity and liabilities 11,339.3 11,060.5
The notes to the condensed consolidated interim financial statements are an
integral part of this document.
Condensed consolidated interim statement of changes in equity
For the six month period ended 30 June 2024 (reviewed)
Share capital Share premium Contributed surplus Currency translation reserve Retained earnings Equity attributable to owners Non- controlling interest Total equity
of the Company
$m $m $m $m $m $m $m $m
Balance at 1 January 2024 38.8 528.8 184.0 (379.2) 2,923.2 3,295.6 1.1 3,296.7
Profit for the period - - - - 258.9 258.9 - 258.9
Other comprehensive income net of tax
- - - (2.5) (4.6) (7.1) - (7.1)
Employee share options:
Equity settled
share-based payments
- - - - 9.4 9.4 - 9.4
Proceeds from
shares issued
0.1 19.9 - - - 20.0 - 20.0
Share buyback* (0.7) (126.0) - - - (126.7) - (126.7)
Deferred and current
tax on employee
share options
- - - - 0.9 0.9 - 0.9
Shares issued in relation
to Scrip Dividend
- 1.5 - - - 1.5 - 1.5
Dividends paid to owners of the Company
- - - - (86.0) (86.0) - (86.0)
Balance at 30 June 2024 38.2 424.2 184.0 (381.7) 3,101.8 3,366.5 1.1 3,367.6
* This represents the buyback of ordinary shares by the Company as part of
buyback programme commenced on 5 March 2024.
The notes to the condensed consolidated interim financial statements are an
integral part of this document.
Condensed consolidated interim statement of changes in equity (continued)
For the six month period ended 30 June 2023 (reviewed)
Share capital Share premium Contributed surplus Currency translation reserve Retained earnings Equity attributable to owners of the Company Non- controlling interest Total
equity
$m $m $m $m $m $m $m $m
Balance at 1 January 2023 38.7 517.6 184.0 (404.2) 2,297.8 2,633.9 1.1 2,635.0
Profit for the period - - - - 250.1 250.1 - 250.1
Other comprehensive income net of tax
- - - 21.0 (4.5) 16.5 - 16.5
Employee share options:
Equity settled
share-based payments
- - - - 19.7 19.7 - 19.7
Proceeds from
shares issued
- 3.5 - - - 3.5 - 3.5
Deferred and current
tax on employee
share options
- - - - 2.2 2.2 - 2.2
Shares issued in relation
to Scrip Dividend
- 1.1 - - - 1.1 - 1.1
Dividends paid to owners
of the Company
- - - - (82.8) (82.8) - (82.8)
Balance at 30 June 2023 38.7 522.2 184.0 (383.2) 2,482.5 2,844.2 1.1 2,845.3
The notes to the condensed consolidated interim financial statements are an
integral part of this document.
Condensed consolidated interim cash flow statement
For the six month period ended 30 June 2024
Six months to Six months to
30 June 2024 30 June 2023
(reviewed)
(reviewed)
Note $m $m
Profit before tax 283.5 264.8
Adjustments for:
Net foreign exchange losses 14.5 16.5
Interest and equity dividend income 9 (153.1) (105.3)
Interest expense 11 25.4 24.0
Net fair value gains on financial assets (7.7) (29.3)
Depreciation, amortisation and impairment 10 34.4 30.6
Charges in respect of share-based payments 25.5 19.7
Loss on sale of subsidiary undertaking, intangible assets
and property plant and equipment
1.5 -
Changes in operational assets and liabilities:
Insurance and reinsurance contracts 48.9 50.5
Financial assets carried at fair value (99.1) (248.1)
Financial liabilities carried at fair value (0.3) (0.2)
Financial liabilities carried at amortised cost 0.3 0.2
Other assets and liabilities (132.3) (72.1)
Cash paid to the pension fund -- (12.2)
Interest received 140.9 97.9
Equity dividends received 0.5 0.7
Interest paid (4.5) (3.9)
Current tax paid (13.9) (4.2)
Net cash flows from operating activities 164.5 29.6
Purchase of property, plant and equipment (1.8) -
Proceeds from the sale of property, plant and equipment 0.1 0.1
Purchase of intangible assets (14.3) (20.6)
Net cash flows used in investing activities (16.0) (20.5)
Proceeds from the issue of ordinary shares 3.8 3.5
Distributions made to owners of the Company (84.4) (81.7)
Shares repurchased (126.7) -
Principal elements of lease payments (5.8) (8.7)
Net cash flows used in financing activities (213.1) (86.9)
Net decrease in cash and cash equivalents (64.6) (77.8)
Cash and cash equivalents at 1 January 1,437.0 1,350.9
Net decrease in cash and cash equivalents (64.6) (77.8)
Effect of exchange rate fluctuations on cash and cash equivalents (4.4) 16.8
Cash and cash equivalents at end of period 18 1,368.0 1,289.9
The notes to the condensed consolidated interim financial statements are an
integral part of this document.
Notes to the condensed consolidated interim financial statements
1. General information
Hiscox Ltd (the 'Company') is a public limited company registered and
domiciled in Bermuda. The condensed consolidated interim financial statements
for the Company as at, and for the six months ended, 30 June 2024 comprise the
Company and its subsidiaries (together referred to as the 'Group') and the
Group's interest in associates. The CEO's statement accompanying these
condensed consolidated interim financial statements forms the Interim
Statement for the half year ended 30 June 2024.
The Directors of Hiscox Ltd are listed in the Group's 2023 Report and
Accounts. A list of current Directors is maintained and available for
inspection at the registered office of the Company located at Chesney House,
96 Pitts Bay Road, Pembroke HM 08, Bermuda.
2. Basis of preparation
These condensed consolidated interim financial statements for the six months
to 30 June 2024 have been prepared in accordance with IAS 34 Interim Financial
Reporting, the UK-adopted international accounting standards, and the
Disclosure Rules Sourcebook and Transparency Rules issued by the Financial
Conduct Authority.
The accounting policies applied, the significant judgements made, and the key
sources of estimation uncertainty in the condensed consolidated interim
financial statements are the same as those applied in Hiscox Ltd's 2023
consolidated financial statements.
The Group has applied the exception under the IAS 12 amendment to recognising
and disclosing information about deferred tax assets and liabilities related
to Pillar Two income taxes.
These condensed consolidated interim financial statements are unaudited but
have been reviewed by the auditor, PricewaterhouseCoopers Ltd. The comparative
results for the year ended 31 December 2023 and 30 June 2023 have been taken
from the Group's 2023 Report and Accounts, and the 2023 Interim Statements.
They should be read in conjunction with the audited consolidated financial
statements of the Group as at, and for the year ended, 31 December 2023.
The condensed consolidated interim financial statements have been prepared on
a going concern basis. In adopting the going concern basis, management has
reviewed the Group's current and forecast solvency and liquidity positions for
the next 12 months and beyond. As part of this consideration, management uses
scenario analysis and stress testing to assess the robustness of the Group's
solvency and liquidity positions.
The Directors have a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence over a period of
at least 12 months from the date of approval of the condensed consolidated
interim financial statements. For this reason, they continue to adopt the
going concern basis in preparing the condensed consolidated interim financial
statements.
Items included in the financial statements of each of the Group's entities are
measured in the currency of the primary economic environment in which that
entity operates ('the functional currency'). The condensed consolidated
interim financial statements are stated in US Dollars which is the Group's
presentation currency. Except where otherwise indicated, all amounts presented
in the financial statements are in US Dollars millions ($m) rounded to the
nearest hundred thousand Dollars.
These condensed consolidated interim financial statements were approved by the
Board for issue on Wednesday, 7 August 2024.
2.1 New and amended accounting standards adopted by the Group
The Group has not early adopted any new standards, interpretations or
amendments that have been issued but are not yet effective. Several amendments
and interpretations apply for the first time in 2024, but do not have a
material impact on the condensed consolidated interim financial statements of
the Group.
2.2 Significant accounting judgements and estimates
In preparing these condensed consolidated interim financial statements,
management makes judgements, estimates and assumptions that affect the
reported amounts of assets and liabilities, income and expense. Actual results
may differ from these estimates.
The significant judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty were the
same as those that applied to and disclosed in the Group's 2023 Report and
Accounts.
3. Management of risk
Operational risk
The Group demonstrates continued operational resilience, underscoring the
benefits of its business model, disciplined risk management and ongoing
investment in technology and infrastructure.
Insurance risk
The insurance risks are consistent with those disclosed within the 2023 Report
and Accounts on pages 192 to 195. The Group continues to assess, review and
monitor its underwriting and reserving risk.
Financial risk
The Group continues to monitor all aspects of its financial risk appetite and
the resultant exposure is taken with caution.
Reliability of fair value
As detailed in note 16, the Group's investment allocation is broadly
comparable to that as at 31 December 2023. In order to assist users, the Group
has disclosed the measurement attributes of its investment portfolio in a fair
value hierarchy in note 17 in accordance with IFRS 13 Fair Value Measurement.
Price risk
The price risks are consistent with those disclosed within the 2023 Report and
Accounts on page 196. The Group's equity and investment fund holdings are
limited to a relatively small and controlled proportion of the overall
investment portfolio. The equity and investment funds holdings are diversified
over a number of companies and industries. The fair value of equities and
investment fund assets in the Group's balance sheet at 30 June 2024 was $214
million (31 December 2023: $205 million).
Interest rate risk
The interest rate risks are broadly consistent with those disclosed within the
2023 Report and Accounts on pages 196 to 197. The fair value of the Group's
investment portfolio of debt and fixed income holdings is normally inversely
correlated to movements in market interest rates. When market interest rates
decrease, the fair value of the Group's debt and fixed income investments
would tend to increase and vice versa if credit spreads remained constant. The
fair value of debt and fixed income assets on the Group's balance sheet at 30
June 2024 was $6,432 million (31 December 2023: $6,334 million).
One method of assessing interest rate sensitivity is through the examination
of duration-convexity factors in the underlying portfolio. Duration is the
weighted average length of time required for an instrument's cash flow stream
to be recovered, where the weightings involved are based on the discounted
present values of each cash flow. A closely related concept, modified
duration, measures the sensitivity of the instrument's price to a change in
its yield to maturity. Convexity measures the sensitivity of modified duration
to changes in the yield to maturity.
The Group has used a duration-convexity-based sensitivity analysis for the
debt and fixed income holdings, and recalculated the discounting impact for
the reinsurance contract assets and insurance contract liabilities, to
estimate that a movement in interest rates may affect the Group equity and
profit after tax for the period/year as follows:
Period end/Year end 30 June 2024 31 December 2023
1% increase/decrease in interest rates 1% increase/decrease in interest rates
Equity/Profit after tax Equity/Profit after tax
$m $m
Reinsurance contract assets (33)/33 (34)/34
Insurance contract liabilities 90/(90) 87/(87)
Debt and fixed income holdings (109)/109 (91)/91
The liability for incurred claims, reinsurance assets for incurred claims and
certain reinsurance assets for remaining coverage are calculated by
discounting expected future cash flows at a risk-free rate, plus an
illiquidity premium where applicable. Risk-free rates were derived using swap
rates available in the market denominated in the same currency as the
insurance contracts being measured. When swap rates are not available, highly
liquid sovereign bonds with the highest credit ratings (for example, AAA/AA)
are used. The following discount rates were applied for the currencies and
periods presented below:
Period end 30 June 2024
1 year 3 year 5 year
% % %
USD 5.13 4.50 4.31
GBP 5.05 4.52 4.31
EUR 3.55 3.13 3.03
CAD 4.47 3.85 3.66
3. Management of risk
Financial risk
Interest rate risk (continued)
Year end 31 December 2023
1 year 3 year 5 year
% % %
USD 4.83 3.92 3.74
GBP 4.97 4.12 3.82
EUR 3.49 2.75 2.65
CAD 4.63 3.69 3.39
Credit risk
The credit risks are consistent with those disclosed within the 2023 Report
and Accounts on pages 197 to 198.
The Reinsurance Credit Committee assesses the creditworthiness of all
reinsurers by reviewing credit grades provided by rating agencies and other
publicly available financial information detailing their financial strength
and performance as well as details of recent payment history and the status of
any ongoing negotiations between Group companies and these third parties. As
at 30 June 2024, 99.3% (31 December 2023: 99.6%) of the Group's reinsurance
assets are rated BBB or higher, or are fully collateralised. Individual
operating units maintain records of the payment history for significant
brokers and contract holders with whom they conduct regular business. The
exposure to individual counterparties is also managed by other mechanisms,
such as the right of offset, where counterparties are both debtors and
creditors of the Group, and are obtaining collateral from unrated
counterparties.
The Group mitigates credit risk by investing predominantly in high-quality
debt and fixed income instruments. As at 30 June 2024, 92.9% (31 December
2023: 92.6%) of the Group's investments are rated BBB or higher.
Liquidity risk
The liquidity risks are consistent with those disclosed within the 2023 Report
and Accounts on pages 199 to 200.
The available headroom of working capital is monitored through the use of a
Group cash flow forecast which is reviewed by management quarterly, or more
frequently as required.
Strong treasury management has ensured that the Group's balance sheet remains
well funded and its operations are financed to accommodate liquidity demands,
together with a high level of undrawn funds that are sufficient to meet future
catastrophe obligations even if difficult investment market conditions were to
prevail for a period of time.
The Group is exposed to daily calls on its available cash resources, mainly
from claims arising from insurance and reinsurance contracts.
Liquidity risk is the risk of being unable to meet customer or other
third-party payments as they fall due. This could result in
high costs in selling assets or raising money quickly to meet our obligations.
The Group's liquidity risk appetite is designed to ensure that appropriate
cash resources are maintained to meet obligations as they fall due, both in
business-as-usual and stressed circumstances. This is measured using a
liquidity coverage ratio, which compares liquidity sources to stress-tested
liquidity requirements.
A significant proportion of the Group's investments is in highly liquid assets
which could be converted to cash in a prompt fashion and at minimal expense.
The Group's exposure to equities is concentrated on shares and funds that are
traded on internationally recognised stock exchanges.
The main focus of the investment portfolio is on high-quality, short-duration
debt and fixed income securities and cash. There are no significant holdings
of investments with specific repricing dates. Notwithstanding the regular
interest receipts, and also the Group's ability to liquidate these securities
and the majority of its other financial instrument assets for cash in
a prompt and reasonable manner, the contractual maturity profile of the fair
value of these securities is presented below.
3. Management of risk
Liquidity risk (continued)
Fair values at balance sheet date analysed by contractual maturity:
As at 30 June 2024 Within one year Between one and two years Between two and three years Between three and four years Between four and five years Over five years 2024
$m $m $m $m Total
$m $m
$m
Debt and fixed income holdings 1,380.1 1,337.2 1,392.6 759.8 621.3 940.6 6,431.6
Cash and cash equivalents 1,368.0 - - - - - 1,368.0
Total 2,748.1 1,337.2 1.392.6 759.8 621.3 940.6 7,799.6
As at 31 December 2023 Within one year Between one and two years Between two and three years Between three and four years Between four and five years Over five years 2023
$m $m $m $m Total
$m $m
$m
Debt and fixed income holdings 1,595.7 1,587.7 1,489.3 659.9 366.6 634.4 6,333.6
Cash and cash equivalents 1,437.0 - - - - - 1,437.0
Total 3,032.7 1,587.7 1,489.3 659.9 366.6 634.4 7,770.6
The Group's equities, equity funds, hedge funds and credit funds and other
non-dated instruments have no contractual maturity terms but predominantly
could be liquidated in an orderly manner for cash in a prompt and reasonable
time frame within one year of the balance sheet date.
The following is an analysis by liability type of the estimated timing of net
cash flows based on the liability for incurred claims. The estimated phasing
of settlement is based on current estimates and historical trends and the
actual timing of future settlement cash flows may differ materially from the
disclosure below.
Liquidity requirements to settle the estimated profile of the net undiscounted
liability for incurred claims on balance sheet:
As at 30 June 2024 Within one year Between one and two years Between two and three years Between three and four years Between four and five years Over five years 2024
$m $m $m $m Total
$m $m
$m
Total 1,952.8 1,058.9 588.8 324.1 200.8 346.9 4,472.3
As at 31 December 2023 Within one year Between one and two years Between two and three years Between three and four years Between four and five years Over five years 2023
$m $m $m $m Total
$m $m
$m
Total 1,821.6 1,042.6 557.3 359.5 202.2 368.5 4,351.7
Currency risk
The currency risk is consistent with the disclosures in the 2023 Report and
Accounts on pages 200 to 202. The Group remains susceptible to fluctuations in
rates of foreign exchange, in particular between US Dollars, Euros and
Sterling.
Capital risk management
The Group's capital risk management approach is consistent with the
disclosures described within the 2023 Report and Accounts on pages 203 to 205.
Prudent capital management is critical to ensure the Group is able to continue
to serve its customers, pay valid claims and grow where opportunity permits.
As a result, at 30 June 2024, the Group remains strongly capitalised against
both our regulatory and rating agency requirements. The Group's available
capital was $3,361.6 million (31 December 2023: $3,323.4 million), comprising
net tangible asset value of $3,013.9 million (31 December 2023: $2,972.8
million) and subordinated debt of $347.7 million (31 December 2023: $350.6
million).
4. Seasonality and weather
The Group's material exposure to catastrophe losses on certain lines of
business such as reinsurance inwards and marine and major property risk mainly
in Re & ILS segment is greater during the second half of the calendar
year, broadly in line with the most active period of the North Atlantic
windstorm season.
In contrast, a majority of gross premium income written in these lines of
business occurs during the first half of the calendar year. The Group actively
participates in many regions and, if any catastrophic events do occur, it is
likely that the Group will share some of the market's losses. Consequently,
the potential for significant volatility in expected returns remains during
the second half of the year.
5. Related-party transactions
Transactions with related parties during the period are consistent in nature
and scope with those disclosed in note 30 of the Group's 2023 Report and
Accounts.
6. Operating segments
The Group's operating segment reporting follows the organisational structure
and management's internal reporting
systems, which form the basis for assessing the financial reporting
performance of, and allocation of resources to, each business segment.
The Group's four primary business segments are identified as follows:
Hiscox Retail brings together the results of the Group's retail business
divisions in the UK, Europe, USA and Asia. Hiscox UK and Hiscox Europe
underwrite personal and commercial lines of business through Hiscox Insurance
Company Limited and Hiscox Société Anonyme (Hiscox SA), together with the
fine art and non-US household insurance business written through Syndicate 33.
Hiscox USA comprises commercial, property and specialty business written by
Hiscox Insurance Company Inc. and Syndicate 3624.
Hiscox London Market comprises the internationally traded insurance business
written by the Group's London-based underwriters via Syndicate 33, including
lines in property, marine and energy, casualty and other specialty insurance
lines.
Hiscox Re & ILS is the reinsurance division of the Hiscox Group, combining
the underwriting platforms in Bermuda and London. The segment comprises the
performance of Hiscox Insurance Company (Bermuda) Limited, excluding the
internal quota share arrangements, with the reinsurance contracts written by
Syndicate 33. In addition, the healthcare and casualty reinsurance contracts
written in Bermuda on Syndicate capacity are included. The segment also
includes the performance and fee income from the insurance-linked securities
(ILS) funds, along with the gains and losses made as a result of the Group's
investment in the funds.
Corporate Centre comprises finance costs and administrative costs associated
with Group management activities and intragroup borrowings, as well as all
foreign exchange gains and losses.
All amounts reported on the following pages represent transactions with
external parties only. In the normal course of trade, the Group's entities
enter into various reinsurance arrangements with one another. The related
results of these transactions are eliminated on consolidation and are not
included within the results of the segments. This is consistent with the
information used by the chief operating decision-maker when evaluating the
results of the Group. Performance is measured based on each reportable
segment's profit or loss before tax and combined ratio.
6. Operating segments (continued)
Profit before tax by segment
Six months ended 30 June 2024 (reviewed)
Hiscox Hiscox Hiscox Corporate Total
London Market
Re & ILS
Retail
Centre
$m $m
$m $m $m
Insurance revenue 1,185.7 530.4 342.0 - 2,058.1
Insurance service expenses (1,018.3) (439.4) (154.1) - (1,611.8)
Incurred claims and changes to liabilities (490.9) (277.5) (83.7) - (852.1)
for incurred claims
Acquisition costs* (328.0) (107.1) (40.0) - (475.1)
Other attributable expenses* (194.4) (54.8) (30.4) - (279.6)
Losses on onerous contracts and reversals (5.0) - - - (5.0)
Insurance service result before reinsurance contracts held 167.4 91.0 187.9 - 446.3
Allocation of reinsurance premiums (119.8) (159.5) (197.3) - (476.6)
Amounts recoverable from reinsurers for 75.4 142.7 52.9 - 271.0
incurred claims
Net expense from reinsurance contracts held (44.4) (16.8) (144.4) - (205.6)
Insurance service result 123.0 74.2 43.5 - 240.7
Investment result 79.5 44.9 28.0 - 152.4
Net finance expense from insurance contracts (47.8) (25.3) (17.4) - (90.5)
Net finance income from reinsurance contracts 8.3 9.5 12.1 - 29.9
Net insurance finance expense (39.5) (15.8) (5.3) - (60.6)
Net financial result 40.0 29.1 22.7 - 91.8
Other income 7.1 12.9 27.8 1.2 49.0
Other operational expenses* (25.3) (7.9) (6.7) (18.2) (58.1)
Net foreign exchange losses - - - (14.5) (14.5)
Other finance costs (0.5) (0.2) (0.8) (23.9) (25.4)
Share of profits of associates - - - - -
Profit/(loss) before tax 144.3 108.1 86.5 (55.4) 283.5
Ratio analysis
Claims ratio (%) 41.0 41.0 31.6 - 40.0
Acquisition cost ratio (%) 30.0 26.8 24.0 - 28.6
Administrative expense ratio (%) 17.8 13.7 18.2 - 16.8
Combined ratio (%) 88.8 81.5 73.8 - 85.4
*Total marketing expenditure for the period was $50.3 million (30 June 2023:
$37.2 million).
The claims ratio is calculated as incurred claims and losses on onerous
contracts net of reinsurance recoveries, as a proportion of insurance revenue
net of allocation of reinsurance premiums. The expense ratio is calculated as
acquisition costs and other attributable expenses, as a proportion of
insurance revenue net of allocation of reinsurance premiums. The combined
ratio is the total of the claims and expense ratios. All ratios are on an own
share basis, which reflects the Group's share in Syndicate 33, and includes a
reclassification of LPT premium from allocation of reinsurance premium into
amounts recoverable from reinsurers as detailed below.
Costs allocated to Corporate Centre along with other non-attributable expenses
are non-underwriting-related costs and are not included within the combined
ratio.
6. Operating segments (continued)
As noted above, the claims ratio, expense ratio and combined ratio include a
reclassification of LPT premium from allocation of reinsurance premiums into
amounts recoverable from reinsurers for incurred claims. The subsequent
impacts of LPTs within reinsurance expenses and reinsurance income are
analysed on a net basis within the net claims to provide a view of the
underlying development on these contracts, against the corresponding
development of the gross reserves, consistent with the focus on net
performance when assessing underwriting performance. The impact on profit is
neutral, however this reclassification for the ratios removes any volatility
on a year-on-year comparison.
Six months ended 30 June 2024 (Reviewed)
Hiscox Hiscox Hiscox Total
London Market
Re & ILS
Retail
$m
$m
$m $m
Insurance revenue 1,185.7 530.4 342.0 2,058.1
Allocation of reinsurance premiums (119.8) (159.5) (197.3) (476.6)
LPT premium 27.4 29.4 21.9 78.7
Allocation of reinsurance premiums after reclassifying (92.4) (130.1) (175.4) (397.9)
LPT premium
Adjusted net insurance revenue 1,093.3 400.3 166.6 1,660.2
Incurred claims and changes to liabilities for incurred claims (490.9) (277.5) (83.7) (852.1)
Amounts recoverable from reinsurers for incurred claims 75.4 142.7 52.9 271.0
LPT premium (27.4) (29.4) (21.9) (78.7)
Amounts recoverable from reinsurers for incurred claims after reclassifying 48.0 113.3 31.0 192.3
LPT premium
Adjusted net incurred claims (442.9) (164.2) (52.7) (659.8)
Remove benefit from discounting of claims (55.5) (21.6) (5.8) (82.9)
Undiscounted adjusted net incurred claims (498.4) (185.8) (58.5) (742.7)
The following ratios reflect the reclassification of LPT premium and removes the impact of discounting.
Ratio analysis (undiscounted)
Claims ratio (%) 46.0 46.4 35.1 45.0
Acquisition cost ratio (%) 30.0 26.8 24.0 28.6
Administrative expense ratio (%) 17.8 13.7 18.2 16.8
Combined ratio (%) 93.8 86.9 77.3 90.4
6. Operating segments (continued)
Six months ended 30 June 2023 (re-presented)
Hiscox Hiscox Hiscox Corporate Total
London Market*
Re & ILS
Retail*
Centre
$m $m
$m $m $m
Insurance revenue 1,133.8 505.2 302.1 - 1,941.1
Insurance service expenses (987.5) (382.1) (117.1) - (1,486.7)
Incurred claims and changes to liabilities for (474.9) (218.2) (44.1) - (737.2)
incurred claims
Acquisition costs (319.2) (106.8) (37.7) - (463.7)
Other attributable expenses (187.2) (57.1) (35.3) - (279.6)
Losses on onerous contracts and reversals (6.2) - - - (6.2)
Insurance service result before reinsurance contracts held
146.3 123.1 185.0 - 454.4
Allocation of reinsurance premiums (118.9) (140.3) (158.1) - (417.3)
Amounts recoverable from reinsurers for incurred claims 83.5 95.0 5.8 - 184.3
Net expense from reinsurance contracts held (35.4) (45.3) (152.3) - (233.0)
Insurance service result 110.9 77.8 32.7 - 221.4
Investment result 62.8 36.7 22.3 - 121.8
Net finance income from insurance contracts (27.4) (18.6) (18.4) - (64.4)
Net finance expense from reinsurance contracts 5.3 7.4 13.9 - 26.6
Net insurance finance income (22.1) (11.2) (4.5) - (37.8)
Net financial result 40.7 25.5 17.8 - 84.0
Other income 8.0 14.4 10.5 0.8 33.7
Other operational expenses (12.9) (3.5) (5.5) (11.9) (33.8)
Net foreign exchange gains - - - (16.5) (16.5)
Other finance costs (0.6) (0.1) (0.4) (22.9) (24.0)
Share of profit of associates - - - - -
Profit/(loss) before tax 146.1 114.1 55.1 (50.5) 264.8
Ratio analysis
Claims ratio (%) 40.4 35.3 23.6 - 37.7
Acquisition cost ratio (%) 30.8 28.6 27.2 - 30.0
Administrative expense ratio (%) 18.1 15.3 25.5 - 18.0
Combined ratio (%) 89.3 79.2 76.3 - 85.7
*Following a change in management structure at the start of 2024, Hiscox
Retail's Kidnap and Ransom business written in Syndicate 33 is now reported
within the London Market segment. The comparative period has been reclassified
to present on a consistent basis.
6. Operating segments (continued)
The impact of the reclassification of LPT premium is shown in the following table.
Six months ended 30 June 2023 (re-presented)
Hiscox Hiscox London Hiscox Total
Re & ILS
Retail* Market*
$m
$m $m $m
Insurance revenue 1,133.8 505.2 302.1 1,941.1
Allocation of reinsurance premiums (118.9) (140.3) (158.1) (417.3)
LPT premium 21.3 8.6 (5.6) 24.3
Allocation of reinsurance premiums after reclassifying LPT premium (97.6) (131.7) (163.7) (393.0)
Adjusted net insurance revenue 1,036.2 373.5 138.4 1,548.1
Incurred claims and changes to liabilities for incurred claims (474.9) (218.2) (44.1) (737.2)
Amounts recoverable from reinsurers for incurred claims 83.5 95.0 5.8 184.3
LPT premium (21.3) (8.6) 5.6 (24.3)
Amounts recoverable from reinsurers for incurred claims after reclassifying
LPT premium
62.2 86.4 11.4 160.0
Adjusted net incurred claims (412.7) (131.8) (32.7) (577.2)
Remove benefit from discounting of claims (48.3) (15.1) (6.8) (70.2)
Undiscounted adjusted net incurred claims (461.0) (146.9) (39.5) (647.4)
Ratio analysis (undiscounted)
Claims ratio (%) 45.1 39.3 28.5 42.2
Acquisition cost ratio (%) 30.8 28.6 27.2 30.0
Administrative expense ratio (%) 18.1 15.3 25.5 18.0
Combined ratio (%) 94.0 83.2 81.2 90.2
*Following a change in management structure at the start of 2024, Hiscox
Retail's Kidnap and Ransom business written in Syndicate 33 is now reported
within the London Market segment. The comparative period has been reclassified
to present on a consistent basis.
7. Net asset value (NAV) per share and net tangible asset value per share
Reviewed Audited
30 June 2024 31 December 2023
Net asset value NAV per share Net asset value NAV per share
(total equity) cents (total equity) cents
$m $m
Net asset value 3,367.6 989.0 3,296.7 951.1
Net tangible asset value 3,054.0 896.9 2,972.8 857.7
The NAV per share is based on 340,502,346 shares (31 December 2023:
346,612,554), being the shares in issue at 30 June 2024, less those held in
treasury and those held by the Group Employee Benefit Trust. Net tangible
assets comprise total equity excluding intangible assets.
8. Return on equity (ROE)
Reviewed Reviewed
Six months to Six months to
30 June 2024 30 June 2023
$m $m
Profit for the period 258.9 250.1
Opening total equity 3,296.7 2,635.0
Adjusted for the time-weighted impact of capital distributions, share buyback (36.6) (3.4)
and issuance of shares
Adjusted opening total equity 3,260.1 2,631.6
Annualised return on equity (%) 16.5 19.9
The ROE is calculated by using profit or loss for the period divided by the
adjusted opening total equity. The adjusted opening total equity represents
the equity on 1 January of the relevant year as adjusted for time-weighted
aspects of capital distributions, share buyback and issuing of shares or
treasury share purchases during the period. The time-weighted positions are
calculated on a daily basis with reference to the proportion of time from the
transaction to the end of the period.
9. Net investment and insurance finance result
Reviewed Reviewed
Six months to Six months to
30 June 2024 30 June 2023
$m $m
Investment result
Investment income including interest receivable 153.1 105.3
Net realised losses on financial investments at fair value through profit or (5.7) (10.3)
loss
Net fair value gains on financial investments at fair value through profit or 7.7 29.3
loss
Investment return - financial assets 155.1 124.3
Net fair value gains on derivative financial instruments 0.1 1.2
Investment expenses (2.8) (3.7)
Total investment return 152.4 121.8
Net finance (expense)/income from insurance contracts:
Interest accreted (125.6) (107.7)
Effects of changes in interest rates and other financial assumptions 35.1 43.3
Total net finance expense from insurance contracts (90.5) (64.4)
Net finance income/(expense) from reinsurance contracts:
Interest accreted 43.5 44.0
Effects of changes in interest rates and other financial assumptions (13.6) (17.4)
Total net finance income from reinsurance contracts 29.9 26.6
Net insurance finance expense (60.6) (37.8)
Net financial result 91.8 84.0
10. Other income and operational expenses
Reviewed Reviewed
Six months to Six months to
30 June 2024 30 June 2023
$m $m
Other income 49.0 33.7
Staff costs 149.9 146.7
Depreciation, amortisation and impairment 34.4 30.6
Other expenses 153.4 136.1
Operational expenses 337.7 313.4
11. Finance costs
Reviewed Reviewed
Six months to Six months to
30 June 2024 30 June 2023
$m $m
Interest charge associated with borrowings 23.8 22.6
Other interest expenses* 1.6 1.4
Finance costs 25.4 24.0
*Other interest expenses included interest on funds withheld which is included
in insurance finance expenses under IFRS 17.
12. Tax (credit)/expense
The Company and its subsidiaries are subject to enacted tax laws in the
jurisdictions in which they are incorporated and domiciled. The amount charged
in the condensed consolidated income statement comprises the following:
Reviewed Reviewed
Six months to Six months to
30 June 2024 30 June 2023
$m $m
Current tax expense 11.4 0.2
Deferred tax expense 13.2 14.5
Total tax charged to the income statement 24.6 14.7
The current tax charge of $24.6 million arises on taxable profits (i.e. after
adjusting for non-deductible expenses) based on a forecast effective tax rate
for the full year, and includes the adjustments in respect of prior year.
Multiple jurisdictions in which the Group operates have substantively enacted
such legislation ('Pillar Two legislation') before the balance sheet date. The
Hiscox Group expects to be within the scope of these rules, by virtue of the
fact that the Group's consolidated revenue in at least two of the four years
prior to 2024 exceeded €750 million.
This legislation brings into effect the Income Inclusion Rule (IIR) and
Qualified Domestic Minimum Top-Up Tax (QDMTT) from 2024, and the Undertaxed
Profits Rule (UTPR) from 2025, meaning that 'top-up taxes' on profits in
jurisdictions where the effective tax rate is below 15% may be payable in
other jurisdictions across the Group with effect from 2025.
Based on historic trend and forecast analysis, the Group is not expected to
incur top-up tax in 2024 and so no top-up tax has been provided for in the
period ended 30 June 2024.
13. Insurance liabilities and reinsurance contract
Reviewed Audited
30 June 2024 31 December 2023
$m $m
Insurance contract liabilities 6,809.7 6,604.0
Liabilities for remaining coverage 513.9 354.4
Liabilities for incurred claims 6,295.8 6,249.6
Reinsurance contract held assets (2,281.8) (2,098.3)
Asset for remaining coverage (105.2) 118.8
Asset for incurred claims (2,176.6) (2,217.1)
Net insurance contract liabilities 4,527.9 4,505.7
Net liabilities for remaining coverage 408.7 473.2
Net liabilities for incurred claims 4,119.2 4,032.5
Risk adjustment
For the incurred claim liabilities measurement purposes, the Group calculates
the risk adjustment at each insurance undertaking entity in accordance with
its risk profile using a combination of value at risk method and scenario
analysis targeting an overall confidence level for the aggregate risk
distribution. Scenario analysis is used to determine the level of compensation
that the Group requires for bearing uncertainty about the large event-driven
claims e.g. natural catastrophe. This element of the compensation for risk
takes into consideration the range of potential outcomes from an event and the
sensitivities of the loss positions in any modelled scenarios. Given the
nature of the underlying business and losses it is normal for new risks to
become apparent or for the magnitude of existing risks to change over time.
Group diversification benefit is not considered at the individual insurance
undertaking entity level but is considered in determining the confidence level
at a consolidated level for disclosure purposes. At 30 June 2024, the risk
adjustment in respect of the liability for incurred claims (LIC) net of
reinsurance is at the 82(nd) percentile (31 December 2023: 83(rd) percentile).
Detailed reconciliations of changes in insurance contract balances during the
year are included below.
13. Insurance liabilities and reinsurance contract (continued)
Net insurance contract liabilities
Net insurance contracts - Analysis by remaining coverage and incurred claims
Six months to 30 June 2024 (reviewed)
Net liabilities for Net liabilities for
remaining coverage
incurred claims
Excluding loss component Loss component Estimates of present value of future cash flows Risk adjustment for non-financial risk Total
$m $m
$m
$m
$m
Net opening balance 465.7* 7.5 3,731.5 301.0 4,505.7
Changes in the condensed consolidated
income statement
Insurance revenue, net of allocation of reinsurance premiums(†)
(1,581.5) - - - (1,581.5)
Insurance service expenses, net of
amounts recoverable from reinsurers
Incurred claims and other
attributable expenses
- (4.2) 987.8 24.1 1,007.7
Acquisition costs 475.1 - - - 475.1
Adjustments to liabilities for incurred
claims relating to past service
- - (114.4) (32.7) (147.1)
Losses and reversals of losses on
onerous contracts
- 5.0 - - 5.0
Effect of changes in non-performance
risk of reinsurers
- - 0.1 - 0.1
Total net insurance service expenses 475.1 0.8 873.5 (8.6) 1,340.8
Insurance service result (1,106.4) 0.8 873.5 (8.6) (240.7)
Net finance (income)/expenses from insurance contracts
(3.9) - 64.5 - 60.6
Net foreign exchange gains (7.8) - (16.3) (2.6) (26.7)
Total change recognised in comprehensive income
(1,118.1) 0.8 921.7 (11.2) (206.8)
Investment components 11.4 - (11.4) - -
Transfer to other items in balance sheet (132.3) - (326.0) (1.0) (459.3)
Net cash flows 1,173.7 - (485.4) - 688.3
Net closing balance 400.4 8.3 3,830.4 288.8 4,527.9
*Includes LPT ARC gross of premium payables of $532.3 million at 31 December
2023 and $459.9 million at 30 June 2024.
(†)includes allocation of LPT premium of $78.7 million.
13. Insurance liabilities and reinsurance contract (continued)
Net insurance contract liabilities
Net insurance contracts - Analysis by remaining coverage and incurred claims
Year to 31 December 2023 (audited)
Net liabilities for remaining coverage Net liabilities for incurred claims
Excluding loss component Loss component Estimates of present value of future cash flows Risk adjustment for non-financial risk Total
$m $m $m $m $m
Net opening balance 474.2* 1.9 3,454.7 246.3 4,177.1
Changes in the condensed consolidated
income statement
Insurance revenue, net of allocation of reinsurance premiums(†)
(3,363.8) - - - (3,363.8)
Insurance service expenses, net of
amounts recoverable from reinsurers
Incurred claims and other
attributable expenses
- (7.7) 1,962.5 72.4 2,027.2
Acquisition costs 1,039.0 - - - 1,039.0
Adjustments to liabilities for incurred
claims relating to past service
- - (179.5) (24.1) (203.6)
Losses and reversals of losses on
onerous contracts
- 13.2 - - 13.2
Effect of changes in non-performance
risk of reinsurers
- - (4.3) - (4.3)
Total net insurance service expenses 1,039.0 5.5 1,778.7 48.3 2,871.5
Insurance service result (2,324.8) 5.5 1,778.7 48.3 (492.3)
Net finance (income)/expenses from insurance contracts
(9.1) - 148.8 - 139.7
Net foreign exchange losses 20.5 0.1 52.3 7.4 80.3
Total change recognised in comprehensive income
(2,313.4) 5.6 1,979.8 55.7 (272.3)
Investment components 31.8 - (31.8) - -
Transfer to other items in balance sheet (258.3) - (682.7) (1.0) (942.0)
Net cash flows 2,531.4 - (988.5) - 1,542.9
Net closing balance 465.7 7.5 3,731.5 301.0 4,505.7
*Includes LPT ARC gross of premium receivable $534.1 million at 31 December
2022 and $532.3 million at 31 December 2023.
(†)Includes allocation of LPT premium of $61.7 million.
14. Earnings per share
Basic
Basic earnings per share (EPS) is calculated by dividing the profit or loss
attributable to equity holders of the Company by the weighted average number
of ordinary shares in issue during the period, excluding ordinary shares
purchased by the Group and held in treasury as own shares.
Six months to Six months to
30 June 2024 30 June 2023
(reviewed) (reviewed)
Profit for the period attributable to owners of the Company ($m) 258.9 250.1
Weighted average number of ordinary shares in issue (thousands) 344,899 346,546
Basic earnings per share (cents per share) 75.1¢ 72.2¢
Diluted
Diluted earnings per share is calculated by adjusting the assumed conversion
of all dilutive potential ordinary shares. The Company has one category of
dilutive potential ordinary shares, share options and awards. For the share
options, a calculation is made to determine the number of shares that could
have been acquired at fair value (determined as the average annual market
share price of the Company's shares) based on the monetary value of the
subscription rights attached to outstanding share options. The number of
shares calculated as above is compared with the number of shares that would
have been issued assuming the exercise of the share options.
Six months to Six months to
30 June 2024 30 June 2023
(reviewed) (reviewed)
Profit for the period attributable to owners of the Company ($m) 258.9 250.1
Weighted average number of ordinary shares in issue (thousands) 344,899 346,546
Adjustment for share options (thousands) 9,078 6,929
Weighted average number of ordinary shares for diluted earnings
per share (thousands)
353,977 353,475
Diluted earnings per share (cents per share) 73.1¢ 70.8¢
Diluted earnings per share has been calculated after taking account of
Performance share plan awards, options under Save As You Earn schemes and
employee share awards.
15. Dividends paid to owners of the Company
The Board has declared an interim dividend of 13.2¢ per share (30 June 2023:
12.5¢ per share) payable on 24 September 2024 to shareholders registered on
16 August 2024 in respect of the six months to 30 June 2024. The dividends
will be paid in Sterling unless shareholders elect to be paid in US Dollars.
The foreign exchange rate to convert the dividends declared in US Dollars into
Sterling will be based on the average exchange rate in the five business days
prior to the Scrip Dividend price being determined. On this occasion, the
period will be between 3 September 2024 and 9 September 2024 inclusive.
When determining the level of dividend each year, the Board considers the
ability of the Group to generate cash and the availability of that cash in the
Group, while considering constraints such as regulatory capital requirements
and the level required to invest in the business. This is a progressive policy
and is expected to be maintained for the foreseeable future.
16. Financial assets and liabilities
i. Analysis of financial assets carried at fair value
30 June 2024 31 December 2023
(audited)
(reviewed)
$m
$m
Debt and fixed income holdings 6,431.6 6,333.6
Equities and investment funds 214.0 205.4
Investments 6,645.6 6,539.0
Insurance-linked funds 31.2 35.4
Derivative financial instruments - -
Total financial assets carried at fair value 6,676.8 6,574.4
ii. Analysis of financial liabilities carried at fair value
30 June 2024 31 December 2023
(audited)
(reviewed)
$m
$m
Derivative financial instruments - 0.3
Total financial liabilities carried at fair value - 0.3
iii. Analysis of financial liabilities carried at amortised cost
30 June 2024 31 December 2023
(audited)
(reviewed)
$m
$m
Borrowings 661.9 667.0
Accrued interest on borrowings 27.4 7.4
Total financial liabilities carried at amortised cost 689.3 674.4
Total financial liabilities 689.3 674.7
On 24 November 2015, the Group issued £275.0 million 6.125% fixed-to-floating
rate callable subordinated notes due 2045, with a first call date of 2025.
The notes bear interest from and including 24 November 2015 at a fixed rate of
6.125% per annum annually in arrears starting 24 November 2016 up until the
first call date in November 2025, and thereafter at a floating rate of
interest equal to the sum of compounded daily Sterling Overnight Index Average
(SONIA), the reference rate adjustment of 0.1193% and a margin of 5.076%
payable quarterly in arrears on each floating interest payment date.
On 25 November 2015, the notes were admitted for trading on the London Stock
Exchange's regulated market. The notes were rated BBB- by S&P and Fitch.
On 22 September 2022, the Group issued £250.0 million 6% notes due September
2027. The notes will be redeemed on the maturity date at their principal
amount together with accrued interest.
The notes bear interest from, and including, 22 September 2022 at a fixed rate
of 6% per annum annually in arrears starting
22 September 2022 until maturity on 22 September 2027. On 22 September 2022,
the notes were admitted for trading on the Luxembourg Stock Exchange's Euro
MTF. The notes were rated BBB+ by S&P and Fitch.
iv. Investment and cash allocation
30 June 2024 31 December 2023
(audited)
(reviewed)
$m
$m
Debt and fixed income holdings 6,431.6 6,333.6
Equities and investment funds 214.0 205.4
Cash and cash equivalents 1,368.0 1,437.0
Total 8,013.6 7,976.0
17. Fair value measurements
An analysis of assets and liabilities carried at fair value, categorised by
fair value hierarchy that reflects the significance of the inputs used in
measuring the fair value, is set out below.
Level 1 Level 2 Level 3 Total
As at 30 June 2024 (reviewed) $m $m $m $m
Financial assets
Debt and fixed income holdings 1,226.0 5,107.9 97.7 6,431.6
Equities and investment funds - 183.8 30.2 214.0
Insurance-linked funds - - 31.2 31.2
Derivative financial instruments - - - -
Total 1,226.0 5,291.7 159.1 6,676.8
Financial liabilities
Derivative financial instruments - - - -
Total - - - -
Level 1 Level 2 Level 3 Total
As at 31 December 2023 (audited) $m $m $m $m
Financial assets
Debt and fixed income holdings 1,235.2 5,033.5 64.9 6,333.6
Equities and investment funds - 175.4 30.0 205.4
Insurance-linked funds - - 35.4 35.4
Total 1,235.2 5,208.9 130.3 6,574.4
Financial liabilities
Derivative financial instruments - 0.3 - 0.3
Total - 0.3 - 0.3
All assets and liabilities for which fair value is measured or disclosed in
the financial statements are categorised within the fair value hierarchy
described as follows:
- Level 1 - fair values measured using quoted prices (unadjusted) in
active markets for identical instruments;
- Level 2 - fair values measured using directly or indirectly
observable inputs or other similar valuation techniques for which all
significant inputs are based on market observable data;
- Level 3 - fair values measured using valuation techniques for which
significant inputs are not based on market observable data.
The fair values of the Group's financial assets are typically based on prices
from numerous independent pricing services. The pricing services used by the
investment manager obtain actual transaction prices for securities that have
quoted prices in active markets. For those securities which are not actively
traded, the pricing services use common market valuation pricing models.
Observable inputs used in common market valuation pricing models include, but
are not limited to, broker quotes, credit ratings, interest rates and yield
curves, prepayment speeds, default rates and other such inputs which are
available from market sources.
Investments in mutual funds comprise a portfolio of stock investments in
trading entities which are invested in various quoted and unquoted
investments. The fair value of these investment funds is based on the net
asset value of the fund reported by independent pricing sources or the fund
manager.
Included within debt and fixed income holdings is $47.1 million (31 December
2023: $nil) of holdings in private credit funds which, in turn, hold debt
investments in private companies that are not quoted in an active market. The
Group's private credit investments are held at fair value using the most
appropriate valuation technique based on the nature, facts and circumstances
of the private company. The Group classified these assets as Level 3.
Included within Level 1 of the fair value hierarchy are certain government
bonds, treasury bills, borrowings and exchange-traded equities which are
measured based on quoted prices in active markets.
17. Fair value measurements (continued)
Level 2 of the hierarchy contains certain government bonds, US government
agencies, corporate securities, asset-backed securities and mortgage-backed
securities. The fair value of these assets is based on the prices obtained
from independent pricing sources, investment managers and investment
custodians as discussed above. The Group records the unadjusted price provided
and validates the price through a number of methods, including a comparison of
the prices provided by the investment managers with the investment custodians
and the valuation used by external parties to derive fair value. Quoted prices
for US government agencies and corporate securities are based on a limited
number of transactions for those securities and as such the Group considers
these instruments to have similar characteristics to those instruments
classified as Level 2. Also included within Level 2 are units held in
collective investment vehicles investing in traditional and alternative
investment strategies and over-the-counter derivatives.
Level 3 contains investments in a limited partnership, unquoted equity
securities and insurance-linked funds which have limited observable inputs on
which to measure fair value. Unquoted equities, including equity instruments
in limited partnerships, are carried at fair value. Fair value is determined
to be net asset value for the limited partnerships, and for the equity
holdings it is determined to be the latest available traded price. The effect
of changing one or more of the inputs used in the measurement of fair value of
these instruments to another reasonably possible assumption would not be
significant.
Following an inflow of capital from third-party investors during 2024,
resulting in a dilution of the Group's exposure to variable returns from its
involvement in the Kiskadee Cadence Fund, the Group has determined that this
Fund no longer meets the criteria for consolidation. The Fund has been
deconsolidated from the Group accordingly.
The fair value of the Kiskadee funds is estimated to be the net asset value as
at the balance sheet date. The net asset value is based on the fair value of
the assets and liabilities in the funds. The majority of the assets of the
funds are cash and cash equivalents. Significant inputs and assumptions in
calculating the fair value of the assets and liabilities associated with
reinsurance contracts written by the Kiskadee funds include the amount and
timing of claims payable in respect of claims incurred and periods of
unexpired risk. The Group has considered changes in the net asset valuation of
the Kiskadee funds if reasonably different inputs and assumptions were used
and has found that an 11% change to the fair value of the liabilities would
increase or decrease the fair value of funds by $1.5 million.
In certain cases, the inputs used to measure the fair value of a financial
instrument may fall into more than one level within the fair value hierarchy.
In this instance, the fair value of the instrument in its entirety is
classified based on the lowest level of input that is significant to the fair
value measurement.
There were no material transfers of assets into or out of Level 3 during the
current period.
The following tables present a reconciliation of opening and closing balances
for financial instruments classified under Level 3 of the fair value
hierarchy:
As at 30 June 2024 31 December 2023
total total
$m
$m
Financial assets
Balance at 1 January 130.3 139.7
Fair value losses through profit or loss (10.4) (11.5)
Foreign exchange (losses)/gains (0.3) 4.8
Purchases 53.1 -
Settlements (13.6) (28.7)
Transfers - 26.0
Closing balance 159.1 130.3
Net unrealised (losses)/gains in the period/year on securities
held at the end of the period/year
(10.3) 3.5
18. Condensed consolidated interim cash flow statement
The purchase, maturity and disposal of financial assets and liabilities,
including derivatives, is part of the Group's insurance activities and is
therefore classified as an operating cash flow.
Included within cash and cash equivalents held by the Group are balances
totalling $172 million (30 June 2023: $231 million) not available for
immediate use by the Group outside of the Lloyd's Syndicates within which they
are held. Additionally, $70 million (30 June 2023: $66 million) is pledged
cash held against Funds at Lloyd's, and $16.2 million (30 June 2023: $0.5
million) is held within trust funds against reinsurance arrangements.
19. Post balance sheet events
There are no material events that have occurred after the reporting date.
Directors' responsibilities statement
The Directors confirm, to the best of our knowledge, that these condensed
consolidated interim financial statements have been prepared in accordance
with UK-adopted international accounting standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and that the Interim
Statement includes a fair review of the information required by DTR 4.2.7 and
4.2.8, namely:
- an indication of important events that have occurred during the
first six months and their impact on the condensed set of consolidated interim
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
- material related-party transactions in the first six months and any
material changes in the related-party transactions described in the last
report and accounts.
The Interim Statement 2024 was approved by the Board for issue on Wednesday, 7
August 2024.
Alternative performance measures
The Group uses, throughout its financial publications, alternative performance
measures (APMs) in addition to the figures that are prepared in accordance
with UK-adopted international accounting standards. The Group believes that
these measures provide useful information to enhance the understanding of its
financial performance. The APMs are: combined, claims and expense ratios,
return on equity, net asset value per share and net tangible asset value per
share, insurance contract written premium and prior-year developments. These
are common measures used across the industry, and allow the reader of the
report to compare across peer companies. The APMs should be viewed as
complementary to, rather than a substitute for, the figures prepared in
accordance with accounting standards.
- Combined, claims and expense ratios
The combined, claims and expense ratios are common measures enabling
comparability across the insurance industry, that measure the relevant
underwriting profitability of the business by reference to its costs as a
proportion of the insurance revenue net of allocation of reinsurance premiums.
Claims are discounted under IFRS 17 which can introduce volatility to the
ratios if interest rates move significantly during a period, therefore ratios
are also presented on an undiscounted basis. The calculation is discussed in
more detail in note 6, operating segments. The combined ratio is calculated as
the sum of the claims ratio and the expense ratio.
- Return on equity (ROE)
Use of return on equity is common within the financial services industry, and
the Group uses ROE as one of its key performance metrics. While the measure
enables the Group to compare itself against other peer companies in the
immediate industry, it is also a key measure internally where it is used to
compare the profitability of business segments, and underpins the
performance-related pay and pre-2018 share-based payment structures. The ROE
is shown in note 8, along with an explanation of the calculation.
- Net asset value (NAV) per share and net tangible asset value per share
The Group uses NAV per share as one of its key performance metrics, including
using the movement of NAV per share in the calculation of the options vesting
of awards granted under performance share plans (PSP) from 2018 onwards. This
is a widely used key measure for management and also for users of the
financial statements to provide comparability across peers in the market. Net
tangible asset value comprises total equity excluding intangible assets. NAV
per share and net tangible asset value per share are shown in note 7, along
with an explanation of the calculation.
- Insurance contract written premium and net insurance contract written
premium
Insurance contract written premium (ICWP) is the Group's top-line key
performance indicator, comprising premiums on business incepting in the
financial year, adjusted for estimates of premiums written in prior accounting
periods, reinstatement premium and non-claim dependent commissions to ensure
consistency with insurance revenue under IFRS 17.
The definition of net insurance contract written premium (NICWP) has been
adjusted for certain items to ensure consistency with insurance revenue under
IFRS 17. The adjustments primarily relate to reinstatement premium and
non-claim dependent commissions, along with reinsurance commissions offset.
The tables below reconcile the insurance contract written premium back to
insurance revenue and net insurance contract written premium back to net
insurance revenue.
Six months to Six months to
30 June 2024 30 June 2023
$m $m
Insurance contract written premium 2,812.9 2,723.3
Change in unearned premium included in the liability for remaining coverage (754.8) (782.2)
Insurance revenue 2,058.1 1,941.1
Six months to Six months to
30 June 2024 30 June 2023
$m $m
Net insurance contract written premium 2,027.2 1,945.6
Change in unearned premium included in the liability for remaining coverage (754.8) (782.2)
Change in reinsurance provision for unearned premium included in asset for 309.1 360.4
remaining coverage
Net insurance revenue (insurance revenue less allocation of reinsurance 1,581.5 1,523.8
premiums)
- Prior-year developments
Prior-year developments are a measure of favourable or adverse development on
claims reserves, net of reinsurance, that existed at the prior balance sheet
date. This measure enables the users of the financial statements to compare
and contrast the Group's performance relative to peer companies.
The prior-year development is calculated as the positive or negative movement
in ultimate losses on prior accident years between the current and prior-year
balance sheet date on an undiscounted basis adjusted for LPT premium. The LPT
premium reclassification captures the LPT reinsurance recoveries due to
changes in ultimate losses related to the covered business which is recognised
in the reinsurance asset held for remaining coverage.
Prior-year development recognised for the period amounts to $50.8 million (31
December 2023: $122.8 million) and comprises:
30 June 2024 31 December 2023
(reviewed) (audited)
$m $m
Adjustment to liabilities for incurred claims relating to past service, net of 147.1 203.6
reinsurance recoveries (on a present value basis)
Adjustment for discounting impact (17.6) (19.1)
Adjustment for LPT premium and experience adjustment (78.7) (61.7)
50.8 122.8
1 (#_ftnref1) Alternative performance measure definitions used by the Group
are included within the condensed consolidated interim financial statements.
2 (#_ftnref2) As of 30 June 2024.
3 (#_ftnref3) K&R business written through Syndicate 33 has been
transferred from Hiscox USA to Hiscox London Market. 2023 financials have been
restated to report on a consistent basis.
4 (#_ftnref4) Allows for the reclassification of LPT recoveries into claims.
5 (#_ftnref5) Leverage defined as borrowings over borrowings and shareholder
equity.
6 (#_ftnref6) Net of fees.
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