hiscox plc preliminary results for the year ended 31 december 2005
DESCRIPTION
Hiscox plc Preliminary results for the year ended 31 December 2005. March 2006. Good results for a tough year. Profit before tax (£m). Combined Ratio (%). 89.5. 70.2. 92.6. 96.0. 2005. 2005. 2004. 2004. 2. Disciplined underwriting. Gross Written Premium (£m). - PowerPoint PPT PresentationTRANSCRIPT
www.hiscox.com
Aerospace Bloodstock Classic Cars Employers’ Liability Energy Financial Institutions Fine Art High Value Household Kidnap & Ransom Marine Media Personal Accident Political Risks Professional Indemnity Property Reinsurance Specie Technology Terrorism War
Hiscox plc
Preliminary results for the year ended 31 December 2005
March 2006
Good results for a tough year
2
Profit before tax (£m)
2004 2005
70.289.5
Combined Ratio (%)
2004 2005
96.092.6
3
0
100
200
300
400
500
600
700
800
900
2001 2002 2003 2004 2005
548.9
676.7
797.4 816.6
Gross Written Premium (£m) Net Premium Earned (£m)
0
100
200
300
400
500
600
700
800
900
2001 2002 2003 2004 2005
344.2385.1
547.5
714.9
Disciplined underwriting
861.2
693.3
31 Dec 2004 31 Dec 2005
Delivering on a per share basis
Net Asset Value per share (p)
125.7 147.7
4
EPS (p)
2004 2005
15.621.3
2004 2005
Dividend
5p 7p
Strategy delivering balance
Hiscox UK
– Great results
Hiscox Global Markets
– Good underwriting results
Hiscox Europe
– Second year of profit
Regional expansion
– Creation of Hiscox Bermuda
– Creation of Hiscox USA
5
Financial performance
6
Hiscox plc results
Full Year 2005£000
Full Year 2004£000
Gross Premiums Written 861,174 816,609
Net Premiums Written 681,236 704,085
Net Premiums Earned 693,299 714,852
Profit before tax 70,221 89,522
Profit after tax 48,630 63,948
Basic Earnings per share (p) 15.6p 21.3p
Final Dividend (p) 4.75p 3.5p
Full Year Dividend (p) 7.0p 5.0p
Net Asset Value
• £m 578.0 368.8
• p per share 147.7 125.7
Return on equity after tax* 12.8% 20.6%
7
* Post tax, based on adjusted opening shareholders’ funds
Segmental analysis
For the year ended 31 December
8
2005Global Markets & Corporate
Centre£000
UK & Europe
£000International
£000
Total£000
Gross Premiums Written
Net Premiums Earned
Profit before tax
555,183
428,334
861,174
693,299
43,720
23,362
262,271
241,603
Combined Ratio 99.9% 96.0%91.3%86.9%
Global Markets & Corporate Centre: Hiscox plc’s share of the results of Syndicate 33, excluding Syndicate 33’s specie, fine art and non-US household business. It also includes the investment return and administrative costs associated with the parent company and other group management activities. UK & Europe: The results of Hiscox Insurance Company Limited, Hiscox plc’s share of Syndicate 33’s specie, fine art and non-US household business, together with the income and expenses arising from the group’s retail agency activities in the UK and in continental Europe.International: The results of Hiscox Insurance Company (Guernsey) Limited, Hiscox Insurance Company (Bermuda) Limited, and the US agency, Hiscox Inc.
70,2216,15520,716 43,350
Net Premiums Written 417,128 681,23628,832235,276
511,491
483,958
816,609
714,852
37,317
18,526
267,801
212,368
90.9% 92.6%92.0%98.0%
89,5222,85767,810 18,855
451,517 704,08519,465233,103
2004GlobalMarkets &Corporate
Centre£000
UK &Europe£000
International£000
Total£000
31 December 2005 31 December 2004
Asset Allocation
%
Return%
Return£000
Asset Allocation
%
Return%
Return£000
Bonds 62.3 3.1 26,733 75.9 2.9 20,716
Equities 7.2 13.1 12,278 7.9 10.3 8,571
Deposits/Cash 30.5 3.7 11,276 16.2 3.0 5,711
Actual Return 4.0 50,287 3.6 34,458
Investment performance
9
Group Invested Assets*
£1,651.5m £1,100.3m
* As at 31 December
Financial activity
£170m rights issue at 183p - Nov 2005
45% gearing at 31 December 2005
– £137.5m letter of credit
– $225m term and revolving loan facilities
– Further gearing from third party capital
Syndicate 33
– 73% ownership
– 41% capital ratio
Strong internal capital modelling10
Hiscox Global Markets
11
0
100
200
300
400
Jan
98
to D
ec9
8
Jul9
8 to
Ju
n9
9
Jan
99
to D
ec9
9
Jul9
9 to
Ju
n0
0
Jan
00
to D
ec0
0
Jul0
0 to
Ju
n0
1
Jan
01
to D
ec0
1
Jul0
1 to
Ju
n0
2
Jan
02
to D
ec0
2
Jul0
2 to
Ju
n0
3
Jan
03
to D
ec0
3
Jul0
3 to
Ju
n0
4
Jan
04
to D
ec0
4
Jul0
4 to
Ju
n0
5
Jan
05
to D
ec0
5
Rating
12
Syndicate 33 Rating Index
London MarketReinsuranceSpecialty
Ind
ex
le
ve
l%
Hurricane impact
Reserving process led by Jeremy Pinchin, new Head of Claims
Total estimated loss to plc:
Bottom line impact of £85m, an increase of £25m since rights issue
Limited reinsurance cover left for these events
Gross loss (US$m)
Net loss (US$m)
Katrina 485.0 156.9
Rita 166.1 81.2
Wilma 81.3 45.6
Total 732.4 283.7
13
Business areas
Reinsurance and Major PropertyNon-marine reinsurance; marine & aviation reinsurance; whole account reinsurance; commercial property; onshore energy
USA cat rates up 50% across the book
Retro pricing at an all-time high
European rates up 5% on average
Property insurance rates rising
London Market Insurance
Terrorism; professional indemnity; directors & officers; political risks; financial institutions
Demand for terrorism product remains high
Terrorism - worldwide spread
Professional indemnity profitable, rates stable
Withdrawal from directors and officers indemnity
14
Business areas
Specialty
Kidnap & ransom; contingency; MGAs; homeowners; SMEs; bloodstock; personal accident
Profitable despite hurricane activity
Stable rating environment on non-catastrophe exposed business
Catastrophe exposed risks rates up – between 25% and 100%
Increased catastrophe deductible
Technology, Media, Telecoms
Technology, media, telecoms errors & omissions
Risk management and claims service remains highly valued
Continued expansion into Europe
San Francisco office now open
15
Marine and Energy
Marine hull; cargo; offshore energy; marine & energy liability;
Offshore energy rates up strongly, especially Gulf of Mexico
Offshore energy coverage reduced and more restrictive
Quota share for Gulf of Mexico
Liability and hull rates increasing
Expanding business reach
Representation in New York, San Francisco and Paris
E-commerce initiatives. Homeowners generated c.US$600K in January, increasing significantly month on month
Leading peer to peer trading
16
The opportunity
Hardening catastrophe market
Changes to reduce volatility
– Quota share reinsurance
– Reduction in property aggregate and line size
– Marine reinsurance book re-focused
Strong underlying specialty book
Established name, experienced team
17
Hiscox UK & Hiscox Europe
18
Hiscox Insurance Company
19
Gross Written Premium: £m Combined Ratio: %
0
20
40
60
80
100
120
1997 1998 1999 2000 2001 2002 2003 2004 2005
93.697.897.7
102.6107.9
118.0
0
50
100
150
200
250
1997 1998 1999 2000 2001 2002 2003 2004 2005
218.7
163.9
127.3
97.890.0
74.7
176.497.9
231.3
92.6
Core Non-Core
232.8
88.5
212.1
17.5
96.8%
170.0
55.7
1.4
103.2%
42.4
Performance
2005 (£m) 2004 (£m)
UK UK Europe
GWP 207.3
Profit before tax 40.4
Combined Ratio 84.1%
Net Premiums Earned 194.5
Europe
55.0
3.0
99.7%
47.1
20
Ro
llin
g 1
2 M
on
th I
nd
ex o
f R
ates
Rates
21
UK Personal Lines UK PI France Germany
80%
90%
100%
110%
120%
130%
140%
150%
160%Ju
l-00
to
Ju
n-0
1
Jan-
01
t0
De
c-01
Jul-0
1 t
o J
un
-02
Jan-
02
to
De
c-02
Jul-0
2 t
o J
un
-03
Jan-
03
to
De
c-03
Jul-0
3 t
o J
un
-04
Jan-
04
to
De
c-04
Jul-0
4 t
o J
un
-05
Jan-
05
to
De
c-05
Hiscox UK
Art and Private Client
High value household and contents; fine art; classic cars; specie; executive household
Successful launch of broker e-trading
Purchase of $8m of fine art renewal rights from AIG
UK Household products rated market leader by Defaqto
Strong growth in Direct
Professions & Specialty CommercialProfessional indemnity; directors & officers; commercial office; internet & email
Successful launch of broker e-trading
Strong underwriting growth/discipline
Cross-selling success
Launch of Direct Commercial
22
Europe
23
Art and Private Client
High value household and contents; fine art; classic cars; specie; executive household
Stable rating environment
Strong fine art growth following new product introduction in Nov 2004
Record combined ratio
Professions & Specialty Commercial
Professional indemnity; directors & officers; commercial office; internet & email
France: core professional indemnity launched
Germany: exited unprofitable partnerships
Holland: professional indemnity team in place
2006: Accelerated marketing
Build Hiscox as a consumer brand
Accelerate growth across direct and broker channelsObjective
A-B households
TV debut (May)
Invest behind proven growth drivers (digital, direct mail, press advertising)
Contemporary arts sponsorship
Target Market
Plans
24
UK HNW opportunity is enormous
2.8 million HNW households in UK
16% of UK total
39% of all sums insured
Highly fragmented
25Source: Hiscox, Datamonitor, ABI
UK Contents >£75K
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000
£75K £1m+Contents Sums Insured
Po
lic
y V
olu
me
Hiscox International
26
37.3
2.9
92.0%
18.5
Performance
2005 (£m) 2004 (£m)
GWP
Profit before tax
Combined Ratio
Net Premiums Earned
27
43.7
6.2
91.3%
23.4
Guernsey
International: fine art; kidnap & ransom; personal accident
Stable rating environment
Record profitability for Guernsey operation in 2005
Staffing levels increased for 2006 to promote growth
Business areas
USA
Professional indemnity; fine art; terrorism
Ed Donnelly – experienced local as President
Recruited underwriting staff
13 March 2006 start
Est. US$15m first year
28
Bermuda
International: reinsurance; internal quota shares
Underwriting, pricing and modelling staff in place
Back office staff recruited
International reinsurance rates stable
USA rates continue to rise
2006 Bermuda business plan
Expected 2006 business mix100% = US$325m
27%
8%
Reinsurance
Kidnap & Ransom and Fine Art
UK
Syndicate 33 Q.S.
USA
52%8%
5%
External Internal
29
Already performing
Committed to a total of US$155m of business
– At 1 March 2006 48% of our budget
US$46m is new reinsurance business
– At 1 March 2006 26% of our budget
On target to meet business plan
30
Summary and outlook
31
Summary
Satisfying results
– Good profits
– Growth in net asset value per share
– Dividend growth
Disciplined underwriting
Distribution extended
– Hiscox Global Markets
– Hiscox Bermuda
– Hiscox USA32
Clear strategic focus
Build distribution to access new markets
Grow regional to balance London Market volatility
Retain specialist focus
33
100% = £1,105mTotal group controlled income for 2005
London Market Regional
Syndicate 33 & Hiscox Bermuda
Syndicate 33, Hiscox Insurance Company,
Hiscox Guernsey & Hiscox USA
TMT
Art & PrivateClient
London Market
Reinsurance & Major Property
Specialty
Professions & Specialty Commercial
29%
27%
15%9%
15%5%
Clear geographic and product focus
Hiscox plc
Hiscox Global Markets
Reinsurance & Major Property
London Market Marine & Energy Specialty Technology & Media
Hiscox Bermuda
Hiscox Guernsey
Hiscox USA
Reinsurance Group Capital
Support
Art & Private Client
Kidnap & Ransom
Art & Private Client
PI & Specialty Commercial
Regional Media & Technology
Hiscox International
Hiscox UK
Hiscox Europe
Art & Private Client
PI & Specialty Commercial
Regional Media & Technology
Art & Private Client
PI & Specialty Commercial
Regional Media & Technology
Direct
Hiscox UK & Europe
34
Outlook
Attractive rating environment
Strategy of balance will continue
– Regional business in UK, Europe, USA and Guernsey
– Global business in London and Bermuda
Seasoned leaders and staff in place
35
Appendices
36
Realistic disaster scenarios
Geographical & currency split
Loss ratios as a % of Syndicate premiums
Syndicate 33 capacity and Hiscox plc ownership
Reinsurance
Company background
Glossary of terms
Realistic disaster scenarios
37
Syndicate 33 - Losses shown as a percentage of 2006 capacity
0
5
10
15
20
25
30
35
CaliforniaEarthquake
FloridaWindstorm
SpecificEuropean
Windstorm
SpecificJapanese
Earthquake
Specific NewMadrid
Earthquake
Gulf ofMexico
Windstorm
Loss %Gross Loss
Net Loss
Industry Loss
Return Period
US$80Bn
1 in 200 yr
US$30Bn
1 in 500 yr
US$50Bn
1 in 500 yr
US$40Bn
1 in 500 yr
US$54Bn
1 in 250 yr
US$60Bn
1 in 250 yr
Geographical & currency split
38
CAD
USD
EURGBP
13.2%
55.9%
28.4%
2.5%
2006 Geographical split 2006 Currency split
North AmericaUK
1.2%Oceania
0.2%Northern Africa
0.4%South America
0.6%Middle East
1.1% East Asia
0.2%Central Asia
Western Europe (excl. UK)
0.2%South Asia
0.5%Central America
0.7%Central &
Southern Africa
0.5%Central &
Eastern Europe
0.9%Caribbean
23%
Worldwide
34.6%23%
9.4%26.5%
Loss ratios as a % of Syndicate premiums
39
GILR NILR
YOA 2002 2003 2004 2005 2002 2003 2004 2005
12 mths 13.4% 11.6% 30.0% 84.3% 20.0% 14.1% 30.8% 63.3%
24 mths 27.9% 30.0% 59.3% 36.6% 35.3% 59.0%
36 mths 37.2% 39.9% 45.3% 47.6%
48 mths 41.7% 44.9%
Syndicate 33 incurred losses as a percentage of signed premium
Syndicate 33 capacity & Hiscox plc ownership
40
0
100
200
300
400
500
600
700
800
900
2000 2001 2002 2003 2004
Capacity Hiscox plc Ownership QQS
£ m
2005
360
191 53%
360
191 53%
504
277 55%
201
842
547 65%
48
846
55065%
25
55071%
774
2006
60573%
833
Group reinsurance security
41
AAA6%
AA26%
A57%
Other 11%
2006 Programme
A
56%
AAA
AA40%
4%
Receivables at 31/12/05 of £467.8m
Reinsurance
42
0
5
10
15
20
25
30
35
40
2000 2001 2002 2003 2004 2005
35.3%
27.3% 26.0%
17.3%
13.7%
Reinsurance as a % of GWP (ex. QQS)
Reinsurance receivables as a % of total assets
0
5
10
15
20
25
30
2000 2001 2002 2003 2004 2005
18.2%
26.9%
15.4%
11.8% 10.8%
%%20.9% 17.0%
Regional Syndicate 33
Regional Hiscox Insurance Company
43
Building a balanced business
0
200
400
600
800
1000
1200
19
88
*
19
89
*
19
90
*
19
91
*
19
92
*
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
Gro
ss W
ritt
en P
rem
ium
* London Market/Regional split estimated for these years
London MarketSyndicate 33
Glossary of terms
44
Annual Venture The system used for running a Lloyd’s syndicate under which each “year of account” is treated separately. Members own capacity on a syndicate for a “year of account” and the results are declared when the year is closed by the RITC mechanism, usually after three years.
Claims ratio Net claims incurred, including IBNR, as a percentage of net earned premiums.
Combined ratio The total of the claims and expenses ratios.
Equalisation provision This a provision made to cover future catastrophe losses and is calculated in accordance with a set sector formula, which has the effect of smoothing the profit cycle.
Expenses ratio Expenses as a percentage of net written premiums.
Funds at Lloyd’s The amount of assets, which can be cash, investments or letters of credit, that a syndicate member has to deposit with Lloyd’s to support his share of the capacity on a syndicate. The minimum amount is 40% of the capacity owned by the member.
Gross written premium Premiums contracted for before any deductions.
Group controlled The total gross written premium controlled by the group including the 35% of the syndicate capacity not owned by Hiscox in 2004 (29% in 2005).
IBNR Incurred but not reported. An estimate made at the end of each accounting period to cover the expected cost of losses that have occurred but have not yet been reported to the insurer or reinsurer.
Incurred loss ratio Paid and outstanding losses as a percentage of premiums. Gross incurred loss ratio is before deducting any reinsurance and net is after deducting reinsurance.
gross written premium
Glossary of terms
45
Long-tail A term used to describe an insurance risk that has the potential for claims development or new claims to be reported a number of years after expiry of the term of the policy.
Member or Name The companies or individuals who own the capacity of a syndicate and who belong to the membership of the Society of Lloyd’s.
Net premiums earned Premiums received after the cost of reinsurance and adjustment for unearned premium. Unearned premium covers the future period of risk of an insurance policy.
Net premiums written Premiums contracted for after deduction of reinsurance.
Open year A Year of Account of a syndicate which has not been closed by Reinsurance To Close (RITC). RITC usually occurs at the end of the third year. A Year of Account can be left open beyond the third year if the extent of the future liability cannot be accurately quantified.
Qualifying quota share These are quota share reinsurance policies, which Lloyd’s allow in certain circumstances, that enable a syndicate to write gross premium in excess of its capacity.
Reinsurance to close – RITC The reinsurance to close comprises a premium payable by the closing year to the members on the next open year of account and a contract which transfers the liability for all claims in respect of the closing year to the next open year.
Run-off account At Lloyd’s, a year of account which is kept open after the date on which it would normally have been closed.
Subrogation The right of the underwriter to “stand in the shoes of the insured” and take over the Insured's rights, following payment of a claim, to recover the payment of an incurred loss from a third party responsible for the loss. It is limited to the amount of loss paid by the insurance policy.
Syndicate Capacity Also referred to as the ‘stamp’. The maximum amount of business that a syndicate in Lloyd’s can write per year, aggregated from all its members.
reinsurance