Hiscox plc group preliminary FY22 results to 31st December 2022

Headline figures:

                                                   2022                       2021
Group GWP                        US$4,424.9m        US$4,269.2m
Group underwriting profit   US$270m              US$216m
Group combined ratio         90.6%                   93.2%
Investment return                (2.6)%                   0.7%
Prior year development       US$239.1m            US$148.9m

Highlights:

• Group gross written premiums (GWP) +3.6% to cUS$4.4bn (FY21: cUS$4.3bn) boosted by an attractive rate environment, offset by a strengthening US Dollar.
• Group underwriting profit +25% to cUS$269.5m (FY21: cUS$216m), Hiscox’s highest group underwriting profit since 2015, notwithstanding another year of large natural catastrophe and man-made losses.
• Group combined ratio (CoR) of 90.6% (FY21: 93.2%).
• No material change to Group net losses from Hurricane Ian of US$135m and Russia/Ukraine of US$48m.
• Group reserves at 8.9% above actuarial best estimate (FY21: 11.7%), at the upper end of the group’s 5% – 10% range.
• Group investment loss of cUS$(187)m (FY21: profit of cUS$51m), primarily due to unrealised mark-to-market losses. Bond reinvestment yield of 5.1% at 31st December 2022 (vs. 1.0% at 31st December 2021).
• Hiscox plc Chair, Robert Childs, to retire during 2023.
• Hiscox London Market GWP down (4.8)% to cUS$1.1bn (FY21: cUS$1.2bn), mainly due to remediation of the property binder portfolio. CoR of 84.8% (FY21: 89.1%), 4.3 percentage points (ppts) improvement despite net losses from Hurricane Ian of US$40m and Ukraine US$34m. This is the division’s third consecutive year with a combined ratio in the 80% range. The attractive rating environment means London Market is expected to grow gross premiums written in 2023.
• Hiscox Re & ILS GWP +28.5% to cUS$1.0bn (FY21: cUS$808m) due to ILS inflows in 1H22 and an improving underwriting and rating environment. CoR of 81.6% (FY21: 68.0%) despite net losses from Hurricane Ian of US$90m. Due to new capital deployment during the 1/1 2023 renewals, Re & ILS net premiums are +49% year-on-year in January.

Aki Hussain, Group CEO, commented: “I am very pleased with the progress made across the Group during 2022, as we delivered the strongest underwriting result in seven years … The outlook for 2023 is very positive. We are facing favourable market conditions in all of our key markets”.

Rates:
• The group benefitted from favourable rating in 2022 and now sees an environment that is exhibiting all the signs of a hard market, particularly in primary insurance.
• Hiscox Re & ILS benefitted from an average risk adjusted rate increase (RARC) of +13% in the period, primarily driven by North American property and retrocession (+14% and +16% respectively), with Florida exhibiting particularly hard market conditions. Specialty lines also experienced double-digit increases, driven by cyber and terrorism, with RARC +42% and +26% respectively. Since 2017, Hiscox Re & ILS has achieved cumulative RARC of over +50% across the portfolio. Hiscox anticipates material improvement across nearly all lines for 2023.
• Hiscox London Market benefitted from RARC of +6% in 2022. Since 2017, this business has achieved cumulative RARC of +70%. RARC remained positive for all classes of business except D&O, which Hiscox believes was very attractively priced, having achieved cumulative RARC of over +240% since the end of 2017. Overall, Hiscox sees a positive rate outlook for London Market in 2023, with the strongest growth expected in terrorism and property lines.

Inflation:
• Inflationary pressures mitigated via a combination of exposure indexation and RARC, with current pricing and reserving assumptions incorporating “expected inflation which is a multiple of experience in recent times”.

Hiscox London Market:
• GWP down (4.8)% to cUS$1.1bn (FY21: cUS$1.2bn); CoR of 84.8% (FY21: 89.1%); Underwriting profit +22.8% to cUS$110m; Profit before tax (PBT) cUS$53m (FY21: cUS$105m).
• Strong growth in selected lines (i.e. D&O, general liability, upstream energy, terrorism and cargo) offset by reduced exposure to under-priced catastrophe-exposed business in the binder portfolio (which has halved since 2018), the impact of Russian sanctions and tempered flood growth.
• Hiscox expects London Market to grow GWP in 2023, whilst continuing to maintain a disciplined approach, primarily via specialty and casualty lines.
• Hiscox to launch a new ESG-focused Lloyd’s sub-syndicate within Syndicate 33, complementary to Hiscox London Market’s existing business.

Hiscox Re & ILS:
• GWP +28.5% (+34.4% excluding reinstatement premiums) to cUS$1.0bn (FY21: cUS$808m); CoR of 81.6% (FY21: 68.0%); Underwriting profit cUS$58m (FY21: cUS$91m); PBT cUS$22m (FY21: cUS$99m).
• Combined ratio 81.6% (FY21: 68.0%)
• Strong performance in retrocession and North American & international property catastrophe lines, underpinned by continued pressure on the supply of capacity.
• The combined ratio of 81.6% was despite a US$90m net loss from Hurricane Ian.
• Disciplined underwriting actions in 2023 will continue to see a reduced exposure to secondary perils.

2023 outlook:
• Hiscox are “very optimistic about the outlook for 2023”, with “reinsurance market conditions … the best we have seen in over a decade”.
• The London Market business is “building a solid and dependable track record of profitability” and is expected to grow as it deploys “underwriting aggregate with discipline in the improving market conditions”.
• Hiscox Re & ILS “has the expertise, strong balance sheet and financial flexibility to capitalise on the current trading conditions”.
• Investment returns, a headwind over the last 12 months, are expected to be “a tailwind in 2023”.