March 2005
description
Transcript of March 2005
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 2004
Robert Hiscox, ChairmanBronek Masojada, Chief ExecutiveStuart Bridges, Finance DirectorRobert Childs, Director of Underwriting
March 2005
Strong Results
2003 2004
Combined Ratio (%)
93.0
Profit before Tax (£m)
2003 2004
77.083.4
2
Operating Profit* (£m)
2003 2004
86.377.1 87.2
*Based on longer term investment return
3
0
100
200
300
400
500
600
700
800
900
2001 2002 2003 2004
548.9
676.7
797.4 778.9
Gross Written Premium (£m) Net Premium Earned (£m)
0
100
200
300
400
500
600
700
2001 2002 2003 2004
344.2385.1
547.5
642.4
Strong Results
31 Dec 2003 31 Dec 2004
Strong Results
Net Asset Value per Share (p)*
119.1 132.8
(*before equalisation provision)
EPS (p)(on operating profit after tax)
2003 2004
21.019.3
4
EPS (p)(on profit after tax)
2003 2004
18.720.9
Highlights
Strong underwriting result
Dividend growth
Net tangible asset growth
Strategy continues to deliver
– Balance and focus
5
Financial Performance
Stuart Bridges Group Finance Director
6
Hiscox plc ResultsFull Year 2004
£000Full Year 2003
£000
Gross Written Premium 778,893 797,380
Operating profit based on longer term investment return 86,337 77,122
Short term fluctuations in investment return (7,800) 8,792
Movement in equalisation provision (1,503) (2,506)
Profit on ordinary activities before tax 77,034 83,408
Profit on ordinary activities after tax 54,574 60,491
Earnings per share (p)
• Operating profit after tax
• Profit after tax
21.0p
18.7p
19.3p
20.9p
Final Dividend (p) 3.5p 2.9p
Full Year Dividend (p) 5.0p 4.2p
Net Asset Value (before equalisation provision)
• £m 390 346
• p per share 132.8 119.1
Return on Equity (PAT/NAV) 16.5% 21.7%
7
Segmental AnalysisFor the year ended 31 December 2004
8
2004
London Market/Group£000
UK Retail£000
InternationalRetail £000
Group Total£000
Gross Premiums Written
Net Premiums Earned
Operating Profit
Profit before tax
511,874
444,407
778,893
642,429
86,337
91,320
60,090
3,990
175,699
137,932
Combined Ratio 92.9% 93.0%97.9%89.8%
63,561 18,786
London Market/Group: Hiscox plc share of Syndicate 33, Managing Agent, Hiscox Investment Management and central Group costs. UK Retail: UK retail within Hiscox Insurance Company and Hiscox ConnectInternational Retail: Guernsey Insurance Company and European retail business within Hiscox Insurance Company.
77,0343,17053,356 20,508
Net Premiums Written 462,325 681,56667,892151,349
541,442
366,810
797,380
547,451
77,122
81,387
48,452
562
174,551
132,189
85.8% 87.2%98.2%90.3%
61,545 15,015
83,40842764,458 18,523
458,463 660,96656,777145,726
2003
LondonMarket/Group£000
UK Retail£000
InternationalRetail £000
Group Total£000
31 December 2004 31 December 2003
Asset Allocation
%
Return%
Return£000
Asset Allocation
%
Return%
Return£000
Bonds 72.5 2.6 18,072 70.2 3.8 17,417
Equities 7.9 10.2 8,448 13.6 18.1 16,932
Deposits/Cash 19.6 2.9 5,479 16.2 3.2 5,026
Actual Return 31,999 39,375
Longer Term Rate of Return
(39,799) (30,583)
Short Term Fluctuations
(7,800) 8,792
Investment Performance
9Longer term rate of return: 4% Bonds & Cash, 6% Equities
Total Average Funds for Group
£957m £712m
IFRS: Adoption
Opening balance sheet for IFRS is January 2004
2004 results restated for IFRS announced summer 2005
Results for the half year 2005 will be under IFRS
Comparatives will also be restated in the half year and annual report for 2005
10
IFRS:Estimated impact on the balance sheet
2004£m
2003£m
Net assets at 31 December under UK GAAP 371.6 329.8
Significant changes in accounting policies :
Share-based payments (IFRS 2) (2.0) (0.8)
Pensions (IAS 19) (41.6) (38.6)
Dividends (IAS 10) 10.3 8.4
Deferred tax (IAS 12) 12.6 11.3
Equalisation provision (IFRS 4) 17.9 16.4
Other (1.1) (2.6)
Net assets at 31 December under IFRS 367.7 323.9
Net Asset Value
• UK GAAP 126.7p 113.5p
• IFRS 125.4p 111.5p
11
IFRS:Estimated impact on profit
2004£m
Profit before tax reported under UK GAAP 77.0
Significant changes in accounting policies :
Share based payments (IFRS 2) (1.2)
Pensions (IAS 19) (0.8)
Equalisation provision (IFRS 4) 1.5
Goodwill and capacity amortisation (IAS 38) 1.5
Other 0.1
Profit before tax under IFRS 78.1
Adjusted basic earnings per share (based on profit after tax)
• UK GAAP 18.7p
• IFRS 19.5p
12
Hiscox Syndicate 33
Robert Childs Director of Underwriting
13
Rates Holding
1999 2000 2001 2002 2003
100 9578
69
100 104126
193
241
Exposure Premium
Rolling 12 Month Index to December
14
244
2004
6761
Syndicate 33 v Competitors: Incurred Loss Ratio
15
Syndicate 33
Moody’s Composite
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
1 2 3 4 5 6 7 8 9 10 11
NIL
R
2002 YOA Net Comparison
Quarters from Inception
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1 2 3 4 5 6 7 8 9 10 11
2002 YOA Gross Comparison
Quarters from Inception
-20%
-10%
0%
10%
20%
30%
40%
50%
1 2 3 4 5 6 7
NIL
R
2003 YOA Net Comparison
Quarters from Inception
0%
5%
10%
15%
20%
25%
30%
35%
40%
1 2 3 4 5 6 7
2003 YOA Gross Comparison
Quarters from Inception
Rating
16
Syndicate 33 Rating IndexJa
n9
8 to
De
c98
Jan
99
to D
ec9
9
Jan
00
to D
ec0
0
Jan
01
to D
ec0
1
Jan
02
to D
ec0
2
Jan
03
to D
ec0
3
Jan
04
to D
ec0
4
500
300
200
100
0
%
400
London MarketReinsuranceSpecialty
D&O - Relationship between Income and Rates
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
Year of Account
GP
I (£
)
0
200
400
600
800
1,000
1,200
1,400
1,600
Ind
ex
GPI
Index
17
1998 1999 2000 2001 2002 2003 E 2004 E 2005 E
Property Insurance Business Mix
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
Year of Account
GP
I (£
000'
s)
0
50
100
150
200
250
300
350
Ind
ex
Big Ticket GPI
Small Ticket GPI
Big Ticket Index
Small Ticket Index
18
Relationship Between Big Ticket and Small Ticket Business & Rates
1998 1999 2000 2001 2002 2003 E 2004 E 2005 E
Business Areas
Reinsurance and Major PropertyNon Marine Reinsurance; Marine & Aviation Reinsurance; Whole Account Reinsurance; Commercial Property; Onshore Energy
Reinsurance strongly profitable despite hurricanes in 2004.
Reinsurance rates still offer good margins.
Avoided other substantial losses through selective underwriting.
Rates declined in 2004; particular pressure on big ticket property.
London Market Insurance
Marine Hull & Liability; Offshore Energy; Terrorism; Professional Indemnity; D&O; Political Risks; Financial Institutions
Marine hull and liability rates stable. Profitable results.
Marine benefited from Marlborough renewal rights.
Controlled PI growth in 2004 – focus on smaller risks in 2005.
Growing demand for terrorism product.
Opportunities in political and enterprise risks.
19
Business Areas
Specialty
K&R; Contingency; MGAs; Homeowners; SMEs; Bloodstock; Personal Accident
Rates stable.
MGAs/ homeowners impacted by hurricanes; rate increases expected.
Good rates in high value household in USA.
Opportunities from Insurex - events, conference and exhibitions insurance provider.
ATMT
Aerospace; Technology; Media; Telecoms
Firm trading environment.
Successful expansion outside London to rest of UK and France.
Increased business flow from North America.
Excellent risk management and claims service.
20
Adjusting to the market cycle
Analysis, agility, action
– discipline
– renewals v. new business
– selective underwriting
Specialty focus
– opportunities in smaller risks
Global business, local presence
– Europe
– US
21
Retail: UK and International
Bronek Masojada Chief Executive, Hiscox plcActing Managing Director - Retail
22
Hiscox Insurance Company
23
Gross Written Premium: £m Combined Ratio: %
0
20
40
60
80
100
120
1997 1998 1999 2000 2001 2002 2003 2004
93.697.897.7
102.6107.9
118.0
0
50
100
150
200
250
1997 1998 1999 2000 2001 2002 2003 2004
218.7
163.9
127.3
97.890.0
74.7
176.4
97.9
231.4
92.6
Core Non-Core
174.6 37.2
15.0 2.3
90.3% 90.6%
18.9132.2
44.2
(1.7)
107.4%
29.6
Retail Performance
2004 (£m) 2003 (£m)
UK Guernsey UK Europe
GWP 175.7 35.6
Operating Profit 18.8 2.8
Combined Ratio 89.8% 91.1%
17.6Net Premiums Earned 137.9
Europe
55.7
1.2
102.1%
42.5
Guernsey
24
50%
70%
90%
110%
130%
150%
170%
190%Ju
l-00
to J
un-0
1
Jan-
01 t
0 D
ec-0
1
Jul-0
1 to
Jun
-02
Jan-
02 t
o D
ec-0
2
Jul-0
2 to
Jun
-03
Jan-
03 t
o D
ec-0
3
Jul-0
3 to
Jun
-04
Jan-
04 t
o D
ec-0
4
Month
Ro
llin
g 1
2 M
on
th I
nd
ex o
f R
ates
Retail: Rates
25
UK Personal Lines UK PI France Germany
Business Areas
Art and Private Clients
High Value Household and Contents; Fine Art; Classic Cars; Specie; Executive Household
Relaunched Fine Art product across Europe.
HVH competitive in London, so targeting UK regions and Europe.
Successful completion of transfer of Chubb European HVH business.
Profitable growth in direct channel.
Signed up more distribution partners.
Supporting business with marketing spend.
Professions & Specialty CommercialProfessional Indemnity; Directors & Officers; Commercial Office; Internet & Email
Focus on the professional Professional.
Cross sell of full portfolio working.
Developing smaller emerging professions using Colchester.
Launched new product for smallest PI risks.
Forgoing traditional professions business due to pricing and new capacity.
Continued European expansion.
26
Europe
Further progress
Strong premium growth
Product expansion
– Large high net worth
– Professional insurances
– Distribution for TMT
27
Summary and Outlook
Bronek Masojada Chief Executive, Hiscox plc
28
Summary
Solid progress on strategy
– Syndicate 33, operating profit up to £63.5m, 92.9% combined ratio
– UK Retail, operating profit up to £18.8m, 89.8% combined ratio
– International operations, operating profit up to £4.0m, 97.9% combined ratio
Sustainable profits
Net asset growth
29
Strategy
30
100% = £1,051mTotal group controlled income for 2004
ATMT
London Market
Specialty
Professions & Specialty Commercial
Reinsurance & Major Property
Art & PrivateClients
34%
24%
17%9%
10%6%
London Market Retail
Syndicate 33Syndicate 33,
Hiscox Insurance Company & Hiscox Guernsey
Grow Retail to balance London Market volatility
Successful to date
– 25% to 42% of group in 10 years
– Larger than entire group GWP in 1994
Use all group locations and legal entities to reach customers
Focus for 2005 and beyond
Outlook
Competitive trading environment
Opportunities
– Selective underwriting in London market
– Increase ownership of Syndicate 33
– Continue Retail expansion: UK, Europe and globally via Lloyd’s
– Extend distribution
Good start to 2005
31
Q & A
32
Appendices
33
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
34
Syndicate 33 - Losses shown as a percentage of 2005 capacity
0
5
10
15
20
25
30
35
40
45
CaliforniaEarthquake
Florida Windstorm Specific EuropeanWindstorm
Specific JapaneseEarthquake
Specific NewMadrid Earthquake
Loss %
Gross Loss Net Loss
Geographical & Currency Split
35
CAD
USD
EUR
GBP
11.9%43.5%
42.8%
1.8%
2005 Geographical Split 2005 Currency Split
USA
39.2%
EUEurope (exc. UK)
11.4%
31.4%UK
3.4%Canada
1.5%Australia
2.0%Asia (exc. Japan
& China)
1.0%China &
Japan
1.4%Central &
South America
4.4%Other
0.3%Israel
0.4%Middle East (exc. Israel)
1.0%Africa
1.2%Caribbean
1.4%
Non-EU Europe
& Russia
Loss Ratios as a % of Syndicate Premiums
36
GILR NILR
YOA 2001 2002 2003 2004 2001 2002 2003 2004
12 mths 26.5% 13.4% 11.6% 30.0% 49.7% 20.0% 14.1% 30.8%
24 mths 43.6% 27.9% 30.0% 57.5% 36.6% 35.3%
36 mths 50.2% 37.2% 59.0% 45.3%
48 mths 57.6% 61.6%
Syndicate 33 incurred losses as a percentage of signed premium (excluding WTC)
Syndicate 33 Capacity & Hiscox plc Ownership
37
0
100
200
300
400
500
600
700
800
900
2000 2001 2002 2003 2004
Capacity Hiscox plc Ownership QQS
£ m
2005 E
360
191 53%
360
191 53%
504
277 55%
201
842
547 65%
48
846
55065%
25
55071%
775
Group Reinsurance Security
38
AAA1% AA
36%
A49%
Other 14%
Successful commutations
Bad debt provision: £7.5m
Reinsurance receivables 10.6% of total assets
2005 Programme
A
51%
AAA
AA38%
11%
25% self-insurance on large proportion of reinsurance bought
Receivables at 31/12/04 of £196m
Reinsurance
39
0
5
10
15
20
25
30
35
40
2000 2001 2002 2003 2004
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
18.2%
26.9%
15.4%
11.8%10.6%
%%
Established in 1901
Hiscox Syndicate 33 has been a leading underwriter at Lloyd’s for many years. Now a top 3 syndicate in the market. Rating; A from AM Best, A from Standard & Poor’s
Hiscox Insurance Company acquired in 1996. Rating: A- from A M Best, A- from Standard & Poor’s
We have built up a sound reputation in the US, UK and internationally
Involved at senior levels at Lloyd’s
– RRS Hiscox, Deputy Chairman, 1993-95
– B E Masojada, Currently Deputy Chairman
– R S Childs, Currently Chairman, Lloyd’s Market Association
Background - Hiscox Pedigree
40
Build a successful European based insurer known for its specialist policies, customer focus and financial performance
Build a retail business to complement the Lloyd’s business
Allocate capital between Syndicate 33 and retail business according to prevailing market opportunities
Background - Group Strategy
41
• Hiscox Syndicates Ltd• 71% of Syndicate 33• Hiscox Corporate Names
• Colchester• Birmingham• Glasgow• Leeds• London• Maidenhead• Hiscox Direct
• Belgium• France• Germany• Guernsey• Ireland• Netherlands
Hiscox plc
Lloyd’sbusiness
UK Retail business
International business
42
Background - Hiscox Structure
Controlled Gross Written Premium £m
422
603
403 413
480514
Grow Lloyd’s
101132
190
244
370 379 378
Grow Insurance Company
Maintain Lloyd’s
Grow Lloyd’s
Develop Insurance Company
780
941
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Lloyd'sHiscox Insurance Company
1083
2003
43
Background - Building a Balanced Business
1051
2004
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 3 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 their 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