Hiscox Ltd (LON:HSX) today announced full year results for the year ended 31 December 2018.
Highlights
· Profit before tax tripled to $137.4 million (2017: $39.7 million), with a strong underwriting result of $148.0 million (2017: $43.0 million) in another busy year for claims.
· Gross premiums written grew by 15.0% with double-digit growth in all segments.
· The standout performer was Hiscox London Market, which returned to growth and profit after three years of disciplined cycle management.
· Hiscox Retail wrote over $2 billion of premium and served one million customers for the first time, and its profits cover the dividend for the third consecutive year.
· Hiscox Re & ILS was impacted by a second year of significant natural catastrophes and some large individual claims. Kiskadee Investment Managers’ assets under management now at $1.5 billion.
· Ongoing investment in brand and infrastructure to capture long-term growth opportunity continues.
Bronek Masojada, Chief Executive of Hiscox Ltd, commented:
“We have generated strong growth and good profits in a busy year for claims. The tough action we took in our London Market business is paying off, and we are seeing some positive momentum in big-ticket lines, where rates, terms and conditions are improving. We are growing well in our chosen retail segments, and our small market shares mean the size of the opportunity in retail remains immense. We will continue to invest in our people, infrastructure and brand and maintain our focus on disciplined growth.”
Chairman’s statement
Hiscox delivered a good profit before tax of $137.4 million (2017: $39.7 million) despite another busy year for claims. After a relatively benign start, we saw a number of natural catastrophes and significant market losses in the second half which, combined with turbulent financial markets, have impacted our result. Our long-held strategy of balancing the volatility of big-ticket lines with more steady retail earnings continues to serve us well, and the strength of our products, people and brand mean we are able to seize opportunities.
Our retail businesses had a good year, delivering double-digit growth and solid profits as we reached the milestone of one million retail customers. Our business in the USA continues to develop strongly, however as we continue to exercise discipline in the under-performing directors and officers’ account, growth will be tempered.
In big-ticket lines, market conditions have been challenging but our London Market business has reaped the rewards of the tough action we have taken over the last three years to reduce or exit from unprofitable lines, and returned to excellent growth and profitability.
Our reinsurance and ILS operations experienced a very active year for claims, with exposure to hurricanes and wildfires in the US, typhoons in Japan, hailstorms in Australia and large claims in cyber and marine hull.
In our investments, we were impacted by both difficult equity markets and the value of our bond portfolio which naturally reduced as interest rates rose in the US. We will benefit from those same rising interest rates in 2019 and recover 2018 losses as we hold the bonds to maturity.
Financial performance
The result for the year ending 31 December 2018 was a profit before tax excluding foreign exchange of $151.1 million (2017: $120.6 million). Gross premiums written increased by 15.0% to $3,778.3 million (2017: $3,286.0 million). The combined ratio was 94.9% (2017: 99.9%). Earnings per share increased to 45.1¢ (2017: 12.0¢) and the net asset value per share decreased to 819.1¢ (2017: 835.1¢). Post-tax return on equity was 5.6% (2017: 1.5%). Our investment return of $42.5 million (2017: $112.5 million), before derivatives and fees, equates to a return of 0.7% (2017: 2.0%) on total assets under management.
I am pleased to announce a final dividend of 28.6¢, which is an increase of 5.2%. The record date for the dividend will be 10 May 2019 and the payment date will be 12 June 2019.
The Board has approved a scrip alternative subject to the terms and conditions of Hiscox Ltd’s 2016 Scrip Dividend Scheme. The last date for receipt of scrip elections will be 20 May 2019 and the reference price will be announced on 30 May 2019.
Our market
We are ruled by the market, particularly in big-ticket and reinsurance lines, and adjust our appetite according to the opportunities it provides. Rates did not respond as much as we feel they should have following the losses arising from hurricanes Harvey, Irma and Maria in 2017, but where they did we were able to take advantage. A second successive year of historic market losses seems to have done little to spur a widespread market turn, but once again we have been ready, taking opportunities where they have been available.
In London, the Lloyd’s Decile 10 work is making good progress to redress the balance when it comes to capacity and market discipline. We have been very supportive of Lloyd’s, which has put pressure on the market’s underwriters to take action in unprofitable areas. I feel it strange that it takes a regulator to tell businesses that it is a bad thing to lose money, but the process has certainly squeezed out some of the worst performing lines and that is a very good thing indeed.
Although the reinsurance market did not harden as many had hoped, the retrocession market – reinsurance of reinsurers – did become more sensibly priced. This has in the past led to sufficient increases all the way through to insurance pricing. It remains to be seen whether that particular tail still wags the dog.
Progress can feel painstaking, but we are gaining ground on improved rates, and on the technical, but important, area of terms and conditions. As our London Market result shows, we are happy to navigate these waters and our underwriters are up to the task.
People and culture
People and culture make a difference; indeed, culture and values are as important as strategy and distribution, so when it comes to values we expect our top executives and the Board to show leadership. As Hiscox continues to grow, the continuity of our culture is key. It has been pleasing this year to see strong succession from within and, in retail, the top team sharing their expertise with different parts of our business to help drive Hiscox to the next level.
I am regularly told by those that know us that Hiscox has a distinctive culture underpinned by strong values. Being the highest ranking financial services firm in Glassdoor’s 2019 best places to work in the UK, and receiving very positive customer feedback, validates that our values are being lived. We do not take this for granted, and around every five years, as new people join and the business evolves, we undertake an exercise to refresh them. I am pleased that we are embarking upon another such exercise, led by our Chief Executive Bronek. It doesn’t mean that we feel they are wrong – language becomes dated and core principles need to be expressed so they resonate with new generations of employees. Our values inform all our day-to-day decisions and that makes them critical to maintaining our reputation for integrity and decent and fair behaviour in everything we do.
Outlook
The diversity of our products and distribution continues to give us options. Our retail operations have again balanced the volatility of the big-ticket lines, validating our long-held strategy. We have talked before about the moderating percentage growth rate in Hiscox USA, but we find the size of the US opportunity exciting.
In the London Market, it has been a war of attrition but rates and terms are improving in many lines and the refinements we have already made to the portfolio mean we are well positioned as renewed discipline courses through the market. Similarly in reinsurance, we believe opportunities will present themselves in loss-affected accounts. We also expect to benefit from improved investment conditions.
2018 was a year of change and achievement in our operations, and more change is planned in 2019. Although we have completed our structural readiness for Brexit, our investment in infrastructure projects that will boost our abilities to serve customers and create efficiencies continues. This is all good, necessary work, but as we have mentioned previously it will have an impact on growth and expenses in the short term.
I would like to finish by thanking everyone at Hiscox for their efforts this year, particularly as we entered the FTSE100. Their hard work in serving our customers, paying claims, establishing new partnerships, building new systems and supporting our growth has all contributed to this result.
