Hiscox Ltd full-year
results
For the
year ended 31 December 2023
"Record
profitability, positive growth outlook, very strong capital
generation leads to a special capital return."
|
2023
|
2022
As restated under IFRS
17
|
Insurance contract written
premium[1]
|
$4,598.2m
|
$4,355.4m
|
Net insurance contract written
premium1
|
$3,555.8m
|
$3,225.5m
|
Insurance service
result
|
$492.3m
|
$360.9m
|
Net investment result
|
$384.4m
|
$(187.3)m
|
Profit before tax
|
$625.9m
|
$275.6m
|
Earnings per share
|
206.1¢
|
73.8¢
|
Earnings per share adjusted for
Bermuda DTA
|
162.7¢
|
73.8¢
|
Total dividend per
share
|
37.5¢
|
36.0¢
|
Net asset value per
share1
|
951.1¢
|
764.5¢
|
Group combined ratio
(discounted)1
|
85.5%
|
88.7%
|
Group combined ratio
(undiscounted)1
|
89.8%
|
91.1%
|
Return on
equity1
|
27.6%
|
10.1%
|
Return on equity adjusted for
Bermuda DTA
|
21.8%
|
10.1%
|
Positive prior year
development1
|
$122.8m
|
$209.4m
|
Bermuda solvency capital ratio
(BSCR)[2]
|
212%
|
199%
|
Highlights
·
Net insurance contract written premium (net ICWP)
grew by 10.7% in constant currency to $3,555.8 million (2022:
$3,225.5 million).
·
Record profit before tax of $625.9 million
(2022: $275.6 million),
underpinned by:
o a
36.4% increase in the insurance service result at $492.3 million
(2022: $360.9 million); and
o a
record net investment income of $384.4 million (2022: loss of
$187.3 million).
·
Undiscounted combined ratio of 89.8% (2022:
91.1%).
·
Group ROE of 21.8%3.
·
$150 million buyback, with pro-forma BSCR post
ordinary final dividend and capital return of
200%2.
·
Strong start to 2024 across all business
segments.
Aki Hussain, Group Chief Executive
Officer, Hiscox Ltd, commented:
"Our business has delivered
excellent results, with record profits of $625.9 million
underpinned by a 36% improvement in the underwriting result and a
record investment income. The Group combined ratio below 90% and
ROE of 21.8%[3] have led to very strong capital
generation, which we are deploying for further growth in all parts
of the business in addition to a special return to shareholders of
$150 million."
ENDS
A conference call for investors
and analysts will be held at 10:00 GMT on Tuesday, 5 March
2024.
Participant dial-in numbers:
United Kingdom (Local): 020 3936
2999
All other locations: +44 20 3936
2999
Participant access code: 466558
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, 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.
Chief Executive's report
Strategic execution
Underwriting excellence and
investment result drive record profits
I am pleased to announce the Group
has delivered a record profit before tax of $625.9 million.
High-quality net ICWP growth of 10.7% in constant currency at
expanding margins resulted in an undiscounted combined ratio of
89.8% and an insurance service result approaching half a billion
Dollars, up 36% year on year. This is complemented by a record net
investment income of $384.4 million, as higher bond reinvestment
yields are now earning through. Group ROE of 21.8%[4] is the
highest the business has delivered in seven years. These record
profits are underpinned by continued growth in each of our business
segments, as we execute our strategy and capture both cyclical and
structural growth opportunities across our portfolio.
Capital management strategy
focused on delivery of consistently strong returns to our
shareholders
Effective and judicious capital
management is core to our ability to deliver consistently strong
returns to our shareholders. In 2023, Hiscox capitalised on some of
the best property pricing conditions in decades and deployed
significant capital in both our London Market and Re & ILS
businesses, alongside investing in continuing growth in Retail.
This strategy, along with a record investment performance, has
resulted in strong capital generation with an estimated year-end
solvency position of 212% (2022: 199%).
Capital allocation, together with
our expertise in our chosen lines of business and strong
distribution capabilities, is a key driver of profitable growth. As
I look forward, there are three key factors driving capital
allocation decisions at this juncture. Firstly, we expect
favourable market conditions in many of our big-ticket lines of
business to continue into 2024, most recently evidenced by the
strong January renewals. In addition, the structural growth
opportunity in Retail remains immensely attractive, and we
increased our investment in marketing by 29% in 2023 to support
growth into 2024. We will continue to allocate more capital to
support growth across all of these opportunities in line with our
strategy.
Secondly, we have continued to
take a conservative approach to reserves and risk adjustment, and
have taken the decision to increase the Group confidence level to
83% at year end from 77% at half-year 2023. Reserves have been
strengthened across the Group, although a significant part of the
strengthening relates to the US broker business we exited in 2021,
comprising mostly standalone general and other liability business
written for customers with revenues over $100 million.
Finally, our business has
generated record profits and has a strong balance sheet. We are
using the capital generated to drive growth and strengthen the risk
adjustment. In addition, we recognise that surplus capital beyond
these needs should be considered for return to shareholders. In
light of this, and consistent with our disciplined capital
deployment strategy, medium-term growth ambition, and the desire to
maintain high levels of financial flexibility, the Board has
recommended a final dividend of 25 cents per share and a further
return of $150 million of capital to shareholders in the form of a
buyback. The pro forma BSCR post the final ordinary dividend and
the share buyback is estimated at 200%. The Group's approach to
capital management ensures that it can invest in the many
attractive growth opportunities available and maintain its balance
sheet strength and financial flexibility.
Enabling technological
transformation
The pace of technological and
societal change continues to accelerate. To maintain our
market-leading position in our chosen lines of business, we
continue to invest time and resources in building out our
technological capabilities. For some time now we have been using
technology to make it easier for our customers to do business with
us; to drive superior risk selection; and to improve, streamline
and automate our processes.
Hiscox London Market is
collaborating with Google Cloud to create the first AI-enhanced
lead underwriting model in the Lloyd's market. The proof of concept
was undertaken in Hiscox's terrorism line of business, although the
principles will apply to other lines of business within and beyond
big-ticket insurance. The collaboration combines our recently built
in-house technology platform called Hiscox AI Laboratories (Hailo)
with Google Cloud's generative AI technology to automate lead
algorithmic underwriting from submission to quote. A manual quoting
process that used to take up to three days has been shortened to
just three minutes when using AI tools, freeing up time for our
underwriters to focus on higher-value tasks. We are very excited
about the potential applications of this new technology more widely
across our business.
In Retail, we made good progress
in our technological transformation. In US DPD, all new and renewal
business is now written on the new platform. We are beginning to
see evidence of its benefits - most notably in direct, where new
business growth was up 31% year on year. In Europe, the roll-out of
the new policy administration system is nearing its completion in
Germany and is in progress in France. Europe is still predominantly
a broker-led market, so the new platform will be accompanied by
digital broker portals. These will create a seamless digital
journey for our brokers and increase scalability for our business.
In the UK, we continue to expand our product and distribution
capabilities with solid progress in our e-broker extranet
roll-out.
Building the business of the
future
At Hiscox we are proud to have
grown our business organically, and to sustain this growth we are
continuing to innovate to expand our business reach. In the USA, we
aim to be the destination brand for our customers' insurance needs
by building out an SME insurance marketplace. In 2023, we took a
significant step in this direction when we launched a workers'
compensation product in partnership with a highly reputable
multi-line US insurer. With the product set we had available prior
to this initiative, we could reach approximately half of the total
market. The addition of a workers' compensation product enables us
to reach a further third of the available small business market.
This partnership increases our reach and relevance, and creates a
new capital light income stream from the commission we receive from
selling our partner's product.
We also see significant growth
opportunities as the 'green economy' transition accelerates. We
have launched a green consultant indemnity product in the UK which
covers businesses, professionals, and their clients within the
environmental and sustainability sector. Hiscox London Market's ESG
sub-syndicate went live on 1 April 2023 and so far has exceeded our
expectations, as we bound risks underwriting offshore windfarms in
Europe, hydro in New Zealand, battery energy storage systems in the
UK and solar in the USA. We are continuing to build our
capabilities in this area, with the addition of a team of engineers
planned in 2024.
A notable development in the
reinsurance market in 2023 has been a buoyant natural catastrophe
bond market. The Group has taken the opportunity to diversify our
outwards reinsurance programme by issuing our own $125 million
natural catastrophe bond in December 2023, which provides
multi-year protection against North American named storms and
earthquakes. The issue was upsized due to strong demand and priced
attractively. In Hiscox Re & ILS, we launched a new catastrophe
bond fund facility to complement our ILS offering, in time for the
January renewals.
People are at the heart of
our success
Our ability to attract and retain
talent is key to our continued success. During 2023 we welcomed our
new Chair, Jonathan Bloomer, following Robert Childs' retirement
after a long-standing and extraordinary career at Hiscox spanning
37 years. Jonathan is a very experienced Chair with a wealth of
leadership experience in the insurance sector. Beth Boucher also
joined the Board as an Independent Non Executive Director in 2023,
bringing with her expertise in cyber security, people management
and transformation.
We have continued to build the
quality and capabilities of our senior management team by adding
some fantastic new senior leaders to our business during the year.
Fabrice Brossart joined us in November from AIG as our Group Chief
Risk Officer, and his appointment completes my Group Executive
Committee. We also welcomed Todd Isaac as our Chief Investment and
Treasury Officer, Chris Loake as our Chief Information Officer, and
Steve Parry as our Group Claims Director. We are already
benefitting significantly from their fresh thinking from both
inside and outside of our industry.
We remain focused on building a
connected and engaged workforce and are pleased to have maintained
a high level of employee engagement of 82% in 2023, after posting
this highest employee engagement score in ten years for the first
time in 2022. Diversity, equity and inclusion (DEI) is another
constant area of focus. We seek to recruit from the whole talent
pool regardless of gender, ethnicity or background and to ensure
everyone who works at Hiscox feels a sense of pride and belonging.
We have chosen to participate in the updated Parker Review by
setting an ethnic minority representation target of 13% for senior
management to be achieved by the end of 2027. This is part of our
efforts to build transparency, and to ensure that everyone has an
equal opportunity to make the most of their potential and progress
to the highest levels in their business careers.
Business performance
Hiscox Retail
Hiscox Retail comprises our retail
businesses around the world: Hiscox USA, Hiscox Europe and Hiscox
UK. In this segment, our specialist knowledge and ongoing
investment in the brand, distribution (including broker relations)
and technology reinforce our strong market position in an
increasingly digital world.
Retail ICWP of $2,368.5
million (2022: $2,273.1 million) increased by 4.2% in constant
currency. We continue to see strong momentum in Europe and
accelerating growth in US DPD, although overall Retail growth is
below our expectations. In US broker, ongoing competitiveness of
cyber pricing impacted growth, as we chose pricing discipline over
short-term growth. In the UK, we exited some non-core underwriting
partnerships which were outside of our risk appetite, and
fourth-quarter growth fell short of management expectation
following later than expected activation of signed broker
distribution deals. However, the issues in both US broker and the
UK are transient and we have taken action to reverse these trends.
As a result, we are seeing positive momentum build early in 2024.
Adjusted for cyber headwinds in the USA and the exit of
underwriting partnerships in the UK, Retail growth was within the
5% to 15% target range in 2023.
On an undiscounted basis, Hiscox
Retail's headline combined ratio was 96.2% (2022: 93.7%). This
reflects the Group taking the opportunity to increase investment in
marketing to build momentum for growth into 2024 and strengthening
reserves for the business exited in US broker ($160 million of
annual premiums), which was announced in March 2021 and completed
by half-year 2022. This exited business, comprising mainly
large-ticket standalone general liability and cyber, benefits from
some LPT cover for years 2019 and prior, which the Group purchased
at the time we decided to exit. However, the general liability part
of this exited book is experiencing higher loss trends, and as a
result we have added IBNR reserves for the portion of the book that
does not benefit from LPT cover.
The Hiscox Retail business has
been an organic endeavour. Over the years we have continued to
invest in building this business and becoming the leading
specialist insurer for small businesses and selective personal
lines. The long-term growth opportunity ahead remains extraordinary
and our objective is to capture it and build a material position.
In doing this we will remain disciplined, as we have done in 2023
when we increased our investment in marketing by 29% and
strengthened reserves, while achieving a Group RoE of
21.8%[5]. Our intention
remains to run our Retail business within the 89%-94% operating
range for the long-term benefit of our shareholders.
On 27 September 2023, the Group
announced its agreement to divest DirectAsia to Ignite Thailand
Holdings Limited. The transaction remains
subject to customary conditions and regulatory
approvals.
Insurance contract written
premium
|
$2,368.5 million (2022: $2,273.1
million)
|
Net insurance contract written
premium
|
$2,197.7 million (2022: $2,071.3
million)
|
Insurance service
result
|
$180.2 million (2022: $182.5
million)
|
Profit before tax
|
$267.3 million (2022: $130.2
million)
|
Combined ratio
|
91.6% (2022: 91.0%)
|
Undiscounted combined
ratio
|
96.2% (2022: 93.7%)
|
Hiscox USA
Hiscox USA provides commercial
insurance for small businesses with distribution through brokers,
partners and direct-to-consumer. Our ambition is to build America's
leading small business insurer.
US ICWP grew by 1.0% to $909.4
million (2022: $900.2 million), with ongoing positive momentum in
the digital business tempered by a deceleration in the broker
channel. The broker deceleration was driven by challenging market
conditions in cyber and the business taking longer than expected to
pivot to growth after the book was decisively re-underwritten. To
reverse this trend, we executed a growth campaign focused on our
most profitable classes, which has moderated the decline in the
fourth quarter. We are seeing some green shoots and cyber headwinds
are expected to alleviate in the coming year, although the outlook
remains uncertain.
US DPD ICWP increased 8.5% year on
year to $504.4 million, crossing the half a billion-Dollar
threshold (2022: $465.0 million). The second-half growth run rate
of 9.2% is an acceleration versus 7.8% in the first half. With
increased investment in marketing and increased production from
digital partners, positive momentum has continued into
2024.
The direct business has been live
on the new technology platform since June 2022 and continues to
show excellent progress, growing at a double-digit rate with new
business up in excess of 30% in 2023. In the coming year we expect
growth momentum to remain strong, supported by a new brand campaign
and the expansion of our social influencer programme. The
accelerating growth in direct provides an excellent base for the
full digital launch of our workers' compensation partnership in
February 2024. Our customers are now able to quote and bind a
Hiscox policy and a workers' compensation policy underwritten by
our partner without leaving the Hiscox website. It is a seamless,
convenient and easy user experience, allowing Hiscox to capture a
bigger share of the small commercial market. The collaboration has
performed ahead of expectations since its soft launch in
June.
The recovery of our digital
partnerships business from its low point in the first quarter of
2023 has continued, although at a slightly slower pace than we
initially anticipated. After a two-year pause, we onboarded over 30
new partners in 2023, taking the total to over 180. From our prior
experience, it often takes 12 months for partners to achieve the
appropriate cadence and momentum, and consistent with this,
momentum has improved in sequential quarters with the trend
continuing into 2024.
Hiscox
Europe
Hiscox Europe provides commercial
insurance for small- and medium-sized businesses, as well as
personal lines cover, including high-value household, fine art and
luxury motor.
Hiscox Europe continues to be the
strongest growing business in the Retail segment, with ICWP of
$606.7 million (2022: $545.6 million) and growth of 10.6% in
constant currency, with all countries enjoying strong
momentum.
Both commercial and personal lines
have seen double-digit growth year on year, demonstrating the
opportunities that Hiscox has across its European markets - most
notably in professional indemnity and specialist sectors such as
technology. We continue to market our small commercial defined
benefit cyber product across all the countries we operate in, which
we believe responds to the needs of our target customer base. The
cyber market remains competitive and we are focused on maintaining
pricing discipline and the high quality of our portfolio. The
European DPD business in Germany, France and the Netherlands is
still nascent, but is growing at a high double-digit
rate.
Hiscox UK
Hiscox UK provides commercial
insurance for small- and medium-sized businesses, as well as
personal lines cover, including high-value household, fine art and
luxury motor.
Hiscox UK ICWP grew by 2.4% in
constant currency or 2.0% in US Dollars to $793.8 million (2022:
$778.2 million), with the premium growth
impacted by the planned exit from non-core delegated authority
business which is now complete.
Our art and private client (APC)
business returned to growth in 2023. We continue to innovate to
maintain this momentum and are planning to launch a new digital
high-value household APC product for brokers that will reduce their
administrative burden and improve ease of doing business with
Hiscox.
The UK broker commercial business
continued to enjoy excellent retention, illustrating the underlying
quality of the business and the loyalty of our customers. However,
new business growth was below management expectation, particularly
in the fourth quarter. This was primarily due to a delay in the
activation of several broker distribution deals signed in the
latter part of the year.
In September we launched our new
brand campaign, titled 'Your story… underwritten by Hiscox', a
concept focused on recognising the people and stories behind every
policy. It is a significant milestone as we look to further
increase awareness and recognition of Hiscox in both our direct and
broker channels. The initial response has been positive and we
intend to increase brand spend through key media channels in
2024.
Hiscox UK also has a new Chief
Distribution Officer, Gareth Hemming, who is bringing a new and
higher intensity to the distribution teams' operating rhythm. The
combination of the marketing campaign noted above and the
activation of new distribution deals is increasing the flow of
business into the UK, resulting in a strong start to
2024.
Hiscox London Market
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
|
$1,243.4 million (2022: $1,114.7
million)
|
Net insurance contract written
premium
|
$908.5 million (2022: $789.2
million)
|
Insurance service
result
|
$176.0 million (2022: $123.3
million)
|
Profit before tax
|
$251.4 million (2022: $101.0
million)
|
Combined ratio
|
79.1% (2022: 84.5%)
|
Undiscounted combined
ratio
|
83.8% (2022: 86.7%)
|
Hiscox London Market delivered
strong growth in ICWP of 11.5% to $1,243.4 million (2022: $1,114.7
million). Net ICWP grew by 15.1% to $908.5 million (2022: $789.2
million), as we deployed more capital in property and benefitted
from significant opportunities within renewables and energy
construction.
Hiscox London Market benefitted
from an average rate increase of 7%, contributing to a cumulative
rate increase of 70% since 2018. While this is ahead of our
expectations, different lines of business are at varying stages in
the cycle. Property saw significant rate strengthening, with
property binders and major property rates up 26% and 21%
respectively, and terrorism rates up 15%. In contrast, cyber and
D&O have seen double-digit rate decreases, following several
years of strong re-rating. We continued our strict underwriting
discipline to maintain the high quality of our portfolios in these
lines by only writing the business that fits within our risk
appetite and return expectations. General liability rates are being
sustained and we continue to grow the book selectively, where we
see attractive new business opportunities.
Upstream energy has benefitted
significantly from the extensive amounts of construction taking
place in the renewables sector, and new business more than doubled
in 2023. The ESG sub-syndicate, ESG 3033, launched earlier this
year, is already exceeding our expectations and the majority of
risks written in 2023 are in the renewables space.
Overall, we remain focused on
profitable growth through effective cycle management. While it has
been an active loss year with a number of weather events, wildfires
in Hawaii and Canada, and several satellite losses, our London
Market business delivered a strong undiscounted combined ratio of
83.8% (2022: 86.7%), marking its fourth consecutive year of
delivering a combined ratio in the 80s.
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
|
$986.3 million (2022: $967.6
million)
|
Net insurance contract written
premium
|
$449.6 million (2022: $365.0
million)
|
Insurance service
result
|
$136.1 million (2022: $55.1
million)
|
Profit before tax
|
$221.4 million (2022: $46.9
million)
|
Combined ratio
|
68.3% (2022: 84.5%)
|
Undiscounted combined
ratio
|
69.8% (2022: 85.6%)
|
Hiscox Re & ILS achieved
excellent net ICWP growth of 23.2%, increasing to $449.6 million
(2022: $365.0 million) as the business deployed additional capital
into the favourable hard market. ICWP grew more modestly by 1.9% to
$986.3 million (2022: $967.6 million) as less ILS capital was
deployed throughout this year, reflecting broader ILS fund market
conditions.
Hiscox Re & ILS benefitted
from an average rate increase of 31% on a risk-adjusted basis, and
cumulative rate increases now stand at 90% since 2018. Rate growth
is beginning to plateau in the US property catastrophe market,
having achieved significant improvements in terms and conditions
during 2023. The international property catastrophe book continues
to see a broad rate hardening. Retrocession rates saw the greatest
increases in 2023, up 42% on prior year, and are now starting to
soften slightly as more capacity returns to the market. Despite
this, we believe that rates remain attractive.
Hiscox Re & ILS has delivered
an excellent undiscounted combined ratio of 69.8%
(2022: 85.6%) and a record
profit before tax of $221.4 million (2022: $46.9 million)
in an active year for natural catastrophe losses.
The business continued the trend of recent years of reducing
exposure to secondary perils by materially reducing exposure to
aggregate programmes.
Hiscox ILS funds delivered a
record performance with assets under management of $1.8 billion
(2022: $1.9bn) as at 31 December 2023. These decreased to $1.6
billion on 1 January 2024 after a planned capital return of
$270 million. In total, the
business raised $140 million of new capital ahead of the January
renewals, including capital from new ILS investors and a
newly-launched side-car. The pipeline of further opportunities
remains strong. The impact of 2023 ILS net outflows was offset
through a combination of increasing Hiscox's own allocation of
capital and by a significant increase in ceded quota share
capacity. As a result, gross income was maintained, net income
increased materially and the excellent underwriting result has not
only generated a 69.8% undiscounted combined ratio, but a near
doubling of fee income year on year.
We also launched our first
catastrophe bond fund in January to diversify our ILS funds'
product offering. All of these will contribute to the bottom line
through fee income that will earn through in 2024 and
beyond.
The Hiscox Re & ILS business
model has access to several sources of capital ranging from Hiscox
own capital to third-party capital through a number of different
mechanisms including strategic quota share partnerships, ILS funds,
and more recently a side-car and catastrophe bond fund. This
strategy enables the business to compete effectively in our
specialist areas through providing scale and lowering the cost of
capital, while providing valuable fee income for risk origination
and performance-dependent profit commissions. Following the
excellent underwriting performance in 2023, fee income has risen
from $51.1 million to $101.7 million as substantial profit
commissions are generated.
Strong foundations
Reserves
Consistent with the Hiscox
conservative reserving philosophy, we have decided to further
strengthen reserves. As at 31 December 2023, the Group's net
reserves are at the 83% confidence level (HY 2023: 77%) and a risk
adjustment above best estimate of $272.9[6]
million (HY 2023: $211.13 million).
Our reserve philosophy is evident
in the consistently positive reserve development we have reported
over many years. In 2023, net reserve releases stood at $122.8
million (2022: $209.4 million), as the strengthening of the
reserves covering the exited US broker business was more than
offset by reserve releases across multiple classes of
business.
Over recent years we have been
proactive in executing LPTs to protect certain lines of business,
in particular those lines we have exited. These LPTs provide
protection for over 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 pursue similar transactions to
manage volatility and optimise capital.
Capital
The Group remains strongly
capitalised from both a regulatory and a ratings agency
perspective, allowing us to pursue our ambitious business plan
while being sufficiently protected against market events.
The Hiscox Group BSCR ratio at 31 December 2023
is estimated at 212%. The BSCR currently excludes any benefit from
the $150 million Bermuda deferred tax asset, as the treatment for
capital is currently uncertain.
Given the strong operational
capital generation in 2023, the Group intends to return $150
million of capital to shareholders by means of a share buyback, in
addition to the final ordinary dividend of 25 cents per share. The
total capital return is equivalent to 12 percentage points of the
2023 year-end BSCR ratio. The Group continues to see opportunities
to deploy capital at attractive returns in big-ticket and to invest
in the structural growth opportunity in Retail.
We remain comfortably above the
S&P 'A' rating threshold and significantly above the regulatory
capital ratio requirement. The Group
remains robustly capitalised, as demonstrated by its regulatory
capital ratio and continued strong results, from its three rating
agency assessments (S&P: A, AM Best: A and Fitch:
A+).
In November 2023 S&P released
the final details of its long-awaited new capital model, which
gives more credit for diversification. It has now been confirmed
that the impact on the Group's S&P capitalisation was positive
and that Hiscox's 'strong' operating rating with stable outlook
remains unchanged. S&P has also removed credit watch from
Hiscox's debt issuance rating with no change to its rating,
following its review of structural subordination in
Bermuda.
Liquidity
The Group, at the holding company
level, continues to retain a significant level of liquidity with
fungible assets in the region of $1 billion, comprised of liquid
assets and undrawn borrowing facilities. A full-year 2023 leverage
for the Group on a pro-forma basis post share buyback of $150
million is 17.5%[7],
comfortably within the range that the Group chooses to operate
in.
Investments
The total investment result was a
gain of $384.4 million (2022: loss of $187.3 million), or a return
of 5.2% (2022: negative return of 2.6%). Assets under management at
31 December 2023 were $8.0 billion (2022: $7.1 billion).
Inflation continued to fall over
the course of 2023, while employment remained resilient and
economic growth avoided the more severe adverse outcomes that can
accompany a sharp rise in interest rates. The robust economic
backdrop gave central banks room to first raise and then hold
interest rates at restrictive levels until inflation was back on
course to meet policy objectives. Market expectations shifted
several times during the year as to the likely timing of peak rates
and when the interest rates may be cut.
Other than at the very short end,
government bond yields ended 2023 broadly where they started.
However, this disguised significant volatility during the year, as
bond markets reacted to the US regional banking crisis,
inconsistent economic data and central bank statements. Yields then
fell sharply towards the year end and corporate bond spreads
tightened to historically narrow levels as markets moved to price
in the first rate reductions in early 2024. The bond portfolio made
significant mark-to-market gains which recovered a large proportion
of 2022's mark-to-market losses. Our bond portfolio remains
relatively conservative with an average credit rating of A and an
average duration of 1.6 years.
Bond coupons of $186.1 million
combined with $49.7 million earned from our cash and cash
equivalents contributed the majority of the return. The
reinvestment yield on the bond portfolio fell in the final quarter
to 5.1% as at 31 December 2023, down from 5.7% at the end of
September 2023, and is in line with 5.1% at the end of 2022, a
trend which supports strong forward-looking returns. The book yield
is at 4.3% and is still rising, underpinning the cash component of
income.
Despite slowing growth and central
bank policy uncertainty, equity markets made surprisingly strong
gains over 2023, albeit skewed by the performance of a handful of
the largest companies in the USA. The Group's exposure to riskier
assets remains modest and we reduced our equity allocation over the
second half of the year, giving us room to add risk should
appropriate opportunities arise.
Tax
The Group's tax credit for the
year of $86.1 million (2022: expense of $21.7 million) reflects
income taxes payable for 2023, offset by the impact of the initial
recognition of DTA generated by the introduction of Corporate
Income Tax (CIT) in Bermuda.
In December 2023, Bermuda passed
into law a new 15% CIT, which will take effect for periods from 1
January 2025. Broadly, the tax applies to those Bermudian companies
which are in scope of the Organisation for Economic Co-operation
and Development (OECD) global minimum tax, and closely follows the
OECD 'Pillar 2' model rules, which have also been passed (or are
currently being legislated), in many other jurisdictions globally.
Bermuda has announced that this measure forms part of a wider tax
reform programme, including the introduction of qualifying
refundable tax credits to incentivise business investment on the
island, which is intended to be designed and implemented during
2024.
Hiscox will be in scope of the
Bermuda CIT when it comes into effect in 2025, and we therefore
expect our effective tax rate for 2025 and subsequent years to
increase relative to recent years with a normal range closer to
15-20% on average. However, in 2023, as a consequence of the
enactment of the CIT, Hiscox has recognised a DTA of $150 million,
representing tax assets which will be available to bring into the
new regime at commencement. Further legislation anticipated in 2024
may also have the effect of partially mitigating the economic cost
of the CIT, although these are yet to be finalised.
Outlook
Our diversified business portfolio
is well positioned to deliver high-quality growth in revenue and
earnings and strong capital generation through the cycle. We continue to benefit from the
investments we are making in our people, brand and technology
infrastructure to drive disciplined growth in positive market
conditions across our big-ticket segments, and to pursue the
attractive long-term structural growth
opportunity in Retail, combined with investment income
tailwinds.
The Retail outlook for 2024 is
positive, and we have delivered a strong start to 2024 with US DPD
ICWP growing double-digit in the two months to 29 February. The
quarter-on-quarter growth acceleration in US DPD reflects the
impact of marketing initiatives in 2023, which will be further
increased in 2024. The business is also benefitting from several
new partners being fully activated. In the UK, the combination of a
new marketing campaign launched in September 2023 and activation of
several distribution deals signed in the last quarter of 2023 is
raising growth levels and in Europe strong growth
momentum continues. The US broker business remains challenging due
to cyber-related headwinds, although they are beginning to
dissipate. With multiple drivers of growth in Retail, we expect to
deliver full-year 2024 growth within the 5%-15% target range. Our
intention remains to run the Retail business within the 89%-94%
operating combined ratio range for the long-term benefit of our
shareholders. This opportunity remains immense and my focus is on
execution and delivery to build a material position in the small
business insurance market.
For Hiscox London Market, the
outlook for 2024 is positive, with rates and premium growth ahead
of our expectations in January. We continue to prioritise
underwriting discipline and effective cycle management, investing
capital in lines where the return is attractive and shrinking in
those lines where the market is softening.
Reinsurance market conditions are
expected to stabilise and remain attractive after the significant
improvements in 2023. We have allocated additional capital to this
segment as Hiscox Re & ILS continues to seize the opportunities
created by the hard market conditions and focuses on growing our
net book.
Our portfolio of businesses and
our people position us well to continue delivering high-quality
disciplined growth and earnings. I would like to thank our people
for their hard work and our partners and shareholders for their
continued support.
Aki Hussain
Group Chief Executive Officer
5
March 2024
Hiscox Ltd full year results
Condensed consolidated income statement
For the year ended 31 December
2023
|
|
2023
|
2022
(restated*)
|
|
Note
|
$m
|
$m
|
Insurance revenue
|
6
|
4,483.2
|
4,273.3
|
Insurance service
expenses
|
6
|
(3,189.3)
|
(3,485.9)
|
Insurance service result before reinsurance contracts
held
|
|
1,293.9
|
787.4
|
Allocation of reinsurance
premiums
|
6
|
(1,119.4)
|
(1,264.8)
|
Amounts recoverable from
reinsurers for incurred claims
|
6
|
317.8
|
838.3
|
Net expenses from. reinsurance contracts
held
|
|
(801.6)
|
(426.5)
|
Insurance service result
|
6
|
492.3
|
360.9
|
Investment result
|
9
|
384.4
|
(187.3)
|
Net finance (expenses)/income from
insurance contracts
|
|
(220.7)
|
213.7
|
Net finance income/(expenses) from
reinsurance contracts
|
|
81.0
|
(102.1)
|
Net insurance finance (expenses)/income
|
|
(139.7)
|
111.6
|
Net financial result
|
9
|
244.7
|
(75.7)
|
Other income
|
10
|
91.1
|
42.3
|
Other operational
expenses
|
10
|
(125.5)
|
(67.8)
|
Net foreign exchange
(losses)/gains
|
|
(27.0)
|
54.7
|
Other finance costs
|
11
|
(50.0)
|
(39.7)
|
Share of profit of associates
after tax
|
6
|
0.3
|
0.9
|
Profit before tax
|
|
625.9
|
275.6
|
Tax credit/(expenses)
|
12
|
86.1
|
(21.7)
|
Profit for the year (all attributable to owners of the
Company)
|
|
712.0
|
253.9
|
Earnings per share on profit
attributable to owners of the Company
|
|
|
|
Basic
|
14
|
206.1¢
|
73.8¢
|
Diluted
|
14
|
201.5¢
|
72.7¢
|
*restated for the adoption of IFRS
17 and IFRS 9, see note 2.
The notes to the condensed
consolidated financial statements are an integral part of this
document.
Condensed consolidated statement of comprehensive
income
For the year ended 31 December
2023
|
|
2023
|
2022
(restated)
|
Note
|
$m
|
$m
|
Profit for the period
|
|
712.0
|
253.9
|
Other comprehensive income
|
|
|
|
Items that will not be
reclassified to the income statement:
|
|
|
|
Remeasurements of the net defined
benefit pension scheme
|
19
|
(4.1)
|
34.9
|
Income tax effect
|
|
(1.7)
|
(7.7)
|
|
|
(5.8)
|
27.2
|
Items that may be reclassified
subsequently to the income statement:
|
|
|
|
Exchange gains/(losses) on
translation of foreign operations
|
|
25.0
|
(118.0)
|
|
|
|
|
Other comprehensive income net of tax
|
|
19.2
|
(90.8)
|
Total comprehensive income for the period (all attributable
to the owners of the Company)
|
|
731.2
|
163.1
|
The notes to the condensed
consolidated financial statements are an integral part of this
document.
Condensed consolidated balance sheet
As at
|
|
31 December
2023
|
31
December 2022
(restated)
|
1
January 2022 (restated)
|
|
Note
|
$m
|
$m
|
$m
|
Assets
|
|
|
|
|
Employee retirement benefit
asset
|
19
|
44.4
|
20.9
|
-
|
Goodwill and intangible
assets
|
|
323.9
|
320.4
|
313.1
|
Property, plant and
equipment
|
|
130.3
|
133.1
|
90.4
|
Investments in
associates
|
|
0.8
|
5.6
|
5.7
|
Deferred tax assets
|
12
|
180.7
|
38.2
|
70.3
|
Assets included in disposal group
classified as held for sale
|
10
|
59.1
|
-
|
-
|
Financial assets carried at fair
value
|
16
|
6,574.4
|
5,812.1
|
6,041.3
|
Reinsurance contract held
assets
|
13
|
2,098.3
|
2,517.2
|
2,856.9
|
Trade and other
receivables
|
|
206.5
|
160.6
|
155.4
|
Current tax assets
|
|
5.1
|
4.0
|
4.9
|
Cash and cash
equivalents
|
|
1,437.0
|
1,350.9
|
1,300.7
|
Total assets
|
|
11,060.5
|
10,363.0
|
10,838.7
|
|
|
|
|
|
Equity and liabilities
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
Share capital
|
|
38.8
|
38.7
|
38.7
|
Share premium
|
|
528.8
|
517.6
|
516.8
|
Contributed surplus
|
|
184.0
|
184.0
|
184.0
|
Currency translation
reserve
|
|
(379.2)
|
(404.2)
|
(286.2)
|
Retained earnings
|
|
2,923.2
|
2,297.8
|
2,108.8
|
Equity attributable to owners of the
Company
|
|
3,295.6
|
2,633.9
|
2,562.1
|
Non-controlling
interest
|
|
1.1
|
1.1
|
1.1
|
Total equity
|
|
3,296.7
|
2,635.0
|
2,563.2
|
|
|
|
|
|
Employee retirement benefit
obligations
|
|
-
|
-
|
35.1
|
Deferred tax
liabilities
|
|
56.9
|
4.1
|
4.5
|
Liabilities included in disposal
group classified as held for sale
|
10
|
54.8
|
-
|
-
|
Insurance contract
liabilities
|
13
|
6,604.0
|
6,694.3
|
7,186.9
|
Financial liabilities
|
16
|
674.7
|
636.2
|
746.7
|
Current tax liabilities
|
|
10.9
|
14.1
|
21.3
|
Trade and other
payables
|
|
362.5
|
379.3
|
281.0
|
Total liabilities
|
|
7,763.8
|
7,728.0
|
8,275.5
|
Total equity and liabilities
|
|
11,060.5
|
10,363.0
|
10,838.7
|
The notes to the condensed
consolidated financial statements are an integral part of this
document.
Condensed consolidated interim statement of changes in
equity
For the year ended 31 December
2023
|
|
|
|
|
|
|
|
|
|
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 31 December
2022
|
38.7
|
517.6
|
184.0
|
(404.2)
|
2,297.8
|
2,633.9
|
1.1
|
2,635.0
|
Profit for the year
|
-
|
-
|
-
|
-
|
712.0
|
712.0
|
-
|
712.0
|
Other comprehensive income net of
tax
|
-
|
-
|
-
|
25.0
|
(5.8)
|
19.2
|
-
|
19.2
|
Employee share options:
|
|
|
|
|
|
|
|
|
Equity settled share-based
payments
|
-
|
-
|
-
|
-
|
43.2
|
43.2
|
-
|
43.2
|
Proceeds from shares
issued
|
0.1
|
9.6
|
-
|
-
|
-
|
9.7
|
-
|
9.7
|
Deferred and current tax on
employee share options
|
-
|
-
|
-
|
-
|
2.1
|
2.1
|
-
|
2.1
|
Shares issued in relation to Scrip
Dividend
|
-
|
1.6
|
-
|
-
|
-
|
1.6
|
-
|
1.6
|
Dividends paid to owners of the
Company
|
-
|
-
|
-
|
-
|
(126.1)
|
(126.1)
|
-
|
(126.1)
|
Balance at 31 December 2023
|
38.8
|
528.8
|
184.0
|
(379.2)
|
2,923.2
|
3,295.6
|
1.1
|
3,296.7
|
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 year ended 31 December
2022
|
|
|
|
|
|
|
|
|
|
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 31 December 2021 (as
previously reported)
|
38.7
|
516.8
|
184.0
|
(289.3)
|
2,088.0
|
2,538.2
|
1.1
|
2,539.3
|
IFRS 17 and IFRS 9 opening equity
adjustments (note 2)
|
-
|
-
|
-
|
3.1
|
20.8
|
23.9
|
-
|
23.9
|
Balance at 1 January
2022
|
38.7
|
516.8
|
184.0
|
(286.2)
|
2,108.8
|
2,562.1
|
1.1
|
2,563.2
|
Profit for the year
|
-
|
-
|
-
|
-
|
253.9
|
253.9
|
-
|
253.9
|
Other comprehensive income net of
tax
|
-
|
-
|
-
|
(118.0)
|
27.2
|
(90.8)
|
-
|
(90.8)
|
Employee share options:
|
|
|
|
|
|
|
|
|
Equity settled share-based
payments
|
-
|
-
|
-
|
-
|
27.2
|
27.2
|
-
|
27.2
|
Proceeds from shares
issued
|
-
|
0.1
|
-
|
-
|
-
|
0.1
|
-
|
0.1
|
Deferred and current tax on
employee share options
|
-
|
-
|
-
|
-
|
1.2
|
1.2
|
-
|
1.2
|
Shares issued in relation to Scrip
Dividend
|
-
|
0.7
|
-
|
-
|
-
|
0.7
|
-
|
0.7
|
Dividends paid to owners of the
Company
|
-
|
-
|
-
|
-
|
(120.5)
|
(120.5)
|
-
|
(120.5)
|
Balance at 31 December
2022
|
38.7
|
517.6
|
184.0
|
(404.2)
|
2,297.8
|
2,633.9
|
1.1
|
2,635.0
|
The notes to the condensed
consolidated interim financial statements are an integral part of
this document.
Condensed consolidated statement of cash
flows
For the year ended
31 December 2023
|
|
2023
|
2022
(restated)
|
|
Note
|
$m
|
$m
|
Profit before tax
|
|
625.9
|
275.6
|
Adjustments for:
|
|
|
|
Net foreign exchange
losses/(gains)
|
|
27.0
|
(54.7)
|
Interest and equity dividend
income
|
9
|
(237.0)
|
(119.5)
|
Interest expense
|
11
|
50.0
|
39.7
|
Net fair value (gains)/losses on
financial assets
|
9
|
(170.6)
|
254.2
|
Depreciation, amortisation and
impairment
|
10
|
77.1
|
60.0
|
Charges in respect of share-based
payments
|
|
43.2
|
27.2
|
Realised gain/(loss) on sale of
subsidiary undertaking, intangible assets and property plant and
equipment
|
|
(4.0)
|
0.1
|
Changes in operational assets and
liabilities:
|
|
|
|
Insurance and reinsurance
contracts
|
|
248.3
|
2.2
|
Financial assets carried at fair
value
|
|
(549.6)
|
(128.3)
|
Financial liabilities carried at
amortised cost
|
|
0.7
|
0.9
|
Other assets and
liabilities
|
|
(15.6)
|
(49.8)
|
Cash paid to the pension
fund
|
19
|
(24.8)
|
(13.5)
|
Interest received
|
|
218.1
|
109.1
|
Equity dividends
received
|
|
1.5
|
3.9
|
Interest paid
|
|
(48.5)
|
(31.3)
|
Tax paid
|
|
(9.6)
|
(2.4)
|
Net cash flows from operating activities
|
|
232.1
|
373.4
|
Proceeds from sale of
associate
|
|
9.5
|
-
|
Purchase of property, plant and
equipment
|
|
(1.1)
|
(20.9)
|
Proceeds from the sale of
property, plant and equipment
|
|
-
|
0.9
|
Purchase of intangible
assets
|
|
(42.6)
|
(61.9)
|
Net cash flows used in investing
activities
|
|
(34.2)
|
(81.9)
|
Proceeds from the issue of
ordinary shares
|
|
9.6
|
0.1
|
Proceeds from the issue of loan
notes
|
|
-
|
279.1
|
Distributions made to owners of
the Company
|
|
(124.5)
|
(119.8)
|
Repayments of
borrowings
|
|
-
|
(336.6)
|
Principal elements of lease
payments
|
|
(14.0)
|
(13.7)
|
Net cash flows used in financing activities
|
|
(128.9)
|
(190.9)
|
Net increase in cash and cash equivalents
|
|
69.0
|
100.6
|
Cash and cash equivalents at 1
January
|
|
1,350.9
|
1,300.7
|
Net increase in cash and cash
equivalents
|
|
69.0
|
100.6
|
Effect of exchange rate
fluctuations on cash and cash equivalents
|
|
17.1
|
(50.4)
|
Cash and cash equivalents at 31 December
|
18
|
1,437.0
|
1,350.9
|
The notes to the condensed
consolidated financial statements are an integral part of this
document.
Notes to the condensed consolidated financial
statements
1. General information
The Hiscox Group, which is
headquartered in Hamilton, Bermuda, comprises Hiscox Ltd (the
parent company, referred to herein as the 'Company') and its
subsidiaries (collectively, the 'Hiscox Group' or the 'Group'). For
the current period the Group provided insurance and reinsurance
services to its clients worldwide. It has operations in Bermuda,
the UK, Europe, Asia and the USA and currently has over 3,000
staff.
The Company is registered and
domiciled in Bermuda and its ordinary shares are listed on the
London Stock Exchange. The address of its registered office is:
Chesney House, 96 Pitts Bay Road, Pembroke HM 08,
Bermuda.
2. Basis of preparation
The condensed financial statements
of the Group have been prepared in accordance with UK-adopted
International Accounting Standards and Section 4.1 of the
Disclosure and Transparency Rules and the Listing Rules, both
issued by the Financial Conduct Authority (FCA).
The basis of preparation and
summary of accounting policies applicable to the Group's condensed
consolidated financial statements can be found in Note 2 to the
2023 Annual Report and Accounts. The comparative figures are
consistent with those presented in the Group's 2022 Annual Report
and Accounts, except for certain balances which have been restated
following the implementation of IFRS 17 Insurance Contracts and IFRS 9
Financial Instruments. In
these condensed consolidated financial statements, the Company has
applied IFRS 17 and IFRS 9 for the first time. Please refer to the
Interim Statement 2023 for the impact of adoption of these
standards.
Further information about these
new accounting standards and their impact on the future reporting
and presentation of the Group's results is disclosed in note 2 of
the Annual Report and Accounts.
The Group's consolidated financial
statements from which the condensed financial statements are
extracted have been audited. The auditor's report on the
consolidated financial statements is unqualified and does not
contain an emphasis-of-matter paragraph.
The condensed consolidated
financial statements have been prepared on a going concern basis.
In adopting the going concern basis, the Board has reviewed the
Group's current and forecast solvency and liquidity positions for
the next 12 months and beyond. As part of the consideration of the
appropriateness of adopting the going concern basis, the Directors
use scenario analysis and stress testing to assess the robustness
of the Group's solvency and liquidity positions.
In undertaking this analysis, no
material uncertainty in relation to going concern has been
identified, due to the Group's strong capital and liquidity
positions providing resilience to shocks, underpinned by the
Group's approach to risk management.
After making enquiries, the
Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence over a period of at
least 12 months from the date of this report. For this reason, the
Group continues to adopt the going concern basis in preparing the
condensed consolidated 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
financial statements are presented in US Dollars millions ($m) and
rounded to the nearest hundred thousand Dollars, unless otherwise
stated.
These condensed consolidated
financial statements were approved on behalf of the Board of
Directors by the Group Chief Executive Officer, Aki Hussain and the
Group Chief Financial Officer, Paul Cooper. Accordingly, the
financial statements were approved for issue on 5 March
2024.
3. Use of estimates and judgements
In preparing these condensed
consolidated financial statements, management make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities, income
and expense. Estimates and assumptions are continually evaluated
and are based on management's knowledge of current facts and
circumstances, and their expectations of future events.
Significant accounting estimates
The following describes items
considered particularly susceptible to changes in estimates and
assumptions.
3. Use of estimates and judgements
(continued)
The most critical estimate
included within the Group's balance sheet is the measurement of
insurance contract liabilities and reinsurance contract held
assets, and in particular the estimate of the liability for
incurred claims (LIC). The total gross estimate of LIC as at 31
December 2023 is $6,604.0 million (2022: $6,694.3 million). The
total estimate for reinsurance asset for incurred claims as at 31
December 2023 is $2,098.3 million (2022: $2,517.2
million).
Insurance and reinsurance
contracts
In applying IFRS 17 measurement
requirements, the assumptions and methods were used that include
significant estimates. The present value of future cash flows is
estimated using deterministic scenarios. The assumptions used in
the deterministic scenarios are derived to approximate the
probability-weighted mean of a full range of scenarios. For the
sensitivities with regard to the assumptions made that have the
most significant impact on measurement under IFRS 17 please refer
to note 3 Management of risk of 2023 Annual Report and
Accounts.
Employee Benefits
The employee retirement benefit
scheme obligations are calculated and valued with reference to a
number of actuarial assumptions including mortality, inflation
rates and discount rate, many of which have been subject to recent
volatility. This complex set of economic variables can have a
significant impact on the financial statements.
Deferred Tax Asset
A deferred tax asset can be
recognised only to the extent that it is recoverable. The
recoverability of deferred tax assets in respect of carry forward
losses requires consideration of the future levels of taxable
profit in the Group. In preparing the Group's financial statements,
management estimates taxation assets and liabilities after taking
appropriate professional advice. Significant estimates and
assumptions used in the valuation of deferred tax relate to the
forecast taxable profits, taking into account the Group's financial
and strategic plans. Please refer to Note 12 for details on the
deferred tax assets including the impact of Bermuda corporate
income tax (CIT).
Significant accounting judgements
The following accounting policies
are those considered to have a significant impact on the amounts
recognised in the condensed consolidated financial
statements:
Consolidation: assessment of
whether the Group controls or has significant influence over
underlying entity, for example, the treatment of insurance-linked
securities funds including consideration of its decision-making
authority and its rights to the variable returns from the
entity;
Financial investments:
classification and measurement of investments including the
application of the fair value option.
Insurance contracts: determining
the assumptions to arrive at the estimated ultimate cost of claims
and the risk adjustment being the compensation that the Group
requires for bearing the uncertainty about the amount and timing of
the cash flows of groups of insurance contracts.
4. Financial, insurance and other risk
management
The Group's overall appetite for
accepting and managing varying classes of risk is defined by the
Group's Board of Directors. The Board has developed a governance
framework and has set Group-wide risk management policies and
procedures which include risk identification, risk management and
mitigation and risk reporting. The objective of these policies and
procedures is to protect the Group's shareholders, policyholders
and other stakeholders from negative events that could hinder the
Group's delivery of its contractual obligations and its achievement
of sustainable profitable economic and social
performance.
The Board exercises oversight of
the development and operational implementation of its risk
management policies and procedures through the Risk Committee, and
ongoing compliance therewith through a dedicated internal audit
function, which has operational independence, clear terms of
reference influenced by the Board's Non Executive Directors and a
clear upwards reporting structure back into the Board. The Group,
in line with the non-life insurance industry generally, is
fundamentally driven by a desire to originate, retain and service
insurance contracts to maturity. The Group's cash flows are funded
mainly through advance premium collections and the timing of such
premium inflows is reasonably predictable. In addition, the
majority of material cash outflows are typically triggered by the
occurrence of insured events, although the timing, frequency and
severity of claims can fluctuate.
The Group maintains explicit
reserve uplifts to allow for the impact of high inflation in recent
years. Loss ratios are also closely monitored to ensure they
include an appropriate allowance for future inflation.
Losses from Covid-19 continue to
settle well within expectations. As time passes and legal cases are
gradually settled, the outcome becomes more certain and so the
level of risk adjustment above the best estimate can be
reduced.
4. Financial, insurance and other risk management
(continued)
The principal sources of risk
relevant to the Group's operations and its financial statements
fall into three broad categories: operational risk, insurance risk
and financial risk. Please refer to the 2023 Annual Report and
Accounts for more information on risk management.
5. Related-party transactions
Transactions with related parties
during the period are disclosed in note 30 of the Group's 2023
Annual 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)
Year ended 31 December 2023
|
|
Hiscox
Retail
|
Hiscox
London
Market
|
Hiscox Re
&
ILS
|
Corporate
Centre
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
Insurance revenue
|
2,337.7
|
1,175.6
|
969.9
|
-
|
4,483.2
|
Insurance service
expenses
|
(2,072.3)
|
(856.5)
|
(260.5)
|
-
|
(3,189.3)
|
Incurred claims and changes to
liabilities for incurred claims
|
(983.6)
|
(486.5)
|
(55.6)
|
-
|
(1,525.7)
|
Acquisition costs *
|
(668.2)
|
(251.1)
|
(119.7)
|
-
|
(1,039.0)
|
Other attributable expenses
*
|
(407.3)
|
(118.9)
|
(85.2)
|
-
|
(611.4)
|
Losses on onerous contracts and
reversals
|
(13.2)
|
-
|
-
|
-
|
(13.2)
|
Insurance service result before reinsurance contracts
held
|
265.4
|
319.1
|
709.4
|
-
|
1,293.9
|
Allocation of reinsurance
premiums
|
(250.6)
|
(336.5)
|
(532.3)
|
-
|
(1,119.4)
|
Amount recoverable from reinsurers
for incurred claims
|
165.4
|
193.4
|
(41.0)
|
-
|
317.8
|
Net expense from reinsurance contracts held
|
(85.2)
|
(143.1)
|
(573.3)
|
-
|
(801.6)
|
Insurance service result
|
180.2
|
176.0
|
136.1
|
-
|
492.3
|
Investment result
|
203.9
|
109.9
|
70.6
|
-
|
384.4
|
Net finance expense from insurance
contracts
|
(110.9)
|
(61.1)
|
(48.7)
|
-
|
(220.7)
|
Net finance income from
reinsurance contracts
|
21.5
|
23.7
|
35.8
|
-
|
81.0
|
Net insurance finance expense
|
(89.4)
|
(37.4)
|
(12.9)
|
-
|
(139.7)
|
Net financial result
|
114.5
|
72.5
|
57.7
|
-
|
244.7
|
Other income
|
21.3
|
22.0
|
41.5
|
6.3
|
91.1
|
Other operational expenses
*
|
(47.8)
|
(18.8)
|
(12.8)
|
(46.1)
|
(125.5)
|
Net foreign exchange
losses
|
-
|
-
|
-
|
(27.0)
|
(27.0)
|
Other finance costs
|
(0.9)
|
(0.3)
|
(1.1)
|
(47.7)
|
(50.0)
|
Share of profits of
associates
|
-
|
-
|
-
|
0.3
|
0.3
|
Profit/(loss) before tax
|
267.3
|
251.4
|
221.4
|
(114.2)
|
625.9
|
Ratio analysis
|
|
|
|
|
|
Claims ratio (%)
|
41.6
|
35.5
|
20.5
|
-
|
37.4
|
Expense ratio (%)
|
50.0
|
43.6
|
47.8
|
-
|
48.1
|
Combined ratio (%)
|
91.6
|
79.1
|
68.3
|
-
|
85.5
|
* Total marketing expenditure
for the year was $85.0 million (2022: $65.8 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.
Year ended 31 December 2023
|
Hiscox
Retail
|
Hiscox
London
Market
|
Hiscox Re
&
ILS
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
Insurance revenue
|
2,337.7
|
1,175.6
|
969.9
|
4,483.2
|
Allocation of reinsurance
premiums
|
(250.6)
|
(336.5)
|
(532.3)
|
(1,119.4)
|
LPT Premium
|
62.4
|
7.9
|
(8.6)
|
61.7
|
Allocation of reinsurance premiums
after reclassifying LPT premium
|
(188.2)
|
(328.6)
|
(540.9)
|
(1,057.7)
|
Adjusted net insurance revenue
|
2,149.5
|
847.0
|
429.0
|
3,425.5
|
|
|
|
|
|
Incurred claims and changes to liabilities for incurred
claims
|
(983.6)
|
(486.5)
|
(55.6)
|
(1,525.7)
|
Amounts recoverable from
reinsurers for incurred claims
|
165.4
|
193.4
|
(41.0)
|
317.8
|
LPT Premium
|
(62.4)
|
(7.9)
|
8.6
|
(61.7)
|
Amounts recoverable
from
reinsurers for incurred claims
after reclassifying LPT premium
|
103.0
|
185.5
|
(32.4)
|
256.1
|
Adjusted net incurred claims
|
(880.6)
|
(301.0)
|
(88.0)
|
(1,269.6)
|
Remove benefit from discounting of
claims
|
(98.5)
|
(39.5)
|
(6.3)
|
(144.3)
|
Undiscounted adjusted net incurred claims
|
(979.1)
|
(340.5)
|
(94.3)
|
(1,413.9)
|
The following ratios reflect the
reclassification of LPT premium and remove the impact of
discounting.
|
Ratio analysis (undiscounted)
|
|
|
|
|
Claims ratio (%)
|
46.2
|
40.2
|
22.0
|
41.7
|
Expense ratio (%)
|
50.0
|
43.6
|
47.8
|
48.1
|
Combined ratio (%)
|
96.2
|
83.8
|
69.8
|
89.8
|
The impact on profit before tax of
a 1% change in each component of the segmental combined ratios is
shown in the following table. Any further ratio change is linear in
nature.
|
|
Year ended 31 December
2023
|
|
|
Hiscox
Retail
|
Hiscox
London
Market
|
Hiscox Re
&
ILS
|
|
|
$m
|
$m
|
$m
|
1% change in claims or expense
ratio
|
|
21.5
|
8.5
|
4.3
|
6. Operating segments (continued)
Year ended 31 December 2022 (restated)
|
|
Hiscox
Retail
|
Hiscox
London
Market
|
Hiscox
Re &
ILS
|
Corporate
Centre
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
Insurance revenue
|
2,218.0
|
1,130.6
|
924.7
|
-
|
4,273.3
|
Insurance service
expenses
|
(2,002.2)
|
(881.9)
|
(601.8)
|
-
|
(3,485.9)
|
Incurred claims and changes to
liabilities for incurred claims
|
(958.0)
|
(506.4)
|
(436.7)
|
-
|
(1,901.1)
|
Acquisition costs
|
(618.4)
|
(276.6)
|
(110.5)
|
-
|
(1,005.5)
|
Other attributable
expenses
|
(422.5)
|
(98.7)
|
(54.3)
|
-
|
(575.5)
|
Losses on onerous contracts and
reversals
|
(3.3)
|
(0.2)
|
(0.3)
|
-
|
(3.8)
|
Insurance service result before reinsurance contracts
held
|
215.8
|
248.7
|
322.9
|
-
|
787.4
|
Allocation of reinsurance
premiums
|
(293.3)
|
(356.3)
|
(615.2)
|
-
|
(1,264.8)
|
Amount recoverable from reinsurers
for incurred claims
|
260.0
|
230.9
|
347.4
|
-
|
838.3
|
Net expense from reinsurance contracts held
|
(33.3)
|
(125.4)
|
(267.8)
|
-
|
(426.5)
|
Insurance service result
|
182.5
|
123.3
|
55.1
|
-
|
360.9
|
Investment result
|
(98.9)
|
(54.4)
|
(34.0)
|
-
|
(187.3)
|
Net finance income from insurance
contracts
|
107.0
|
56.0
|
50.7
|
-
|
213.7
|
Net finance expense from
reinsurance contracts
|
(38.5)
|
(27.5)
|
(36.1)
|
-
|
(102.1)
|
Net insurance finance income
|
68.5
|
28.5
|
14.6
|
-
|
111.6
|
Net financial result
|
(30.4)
|
(25.9)
|
(19.4)
|
-
|
(75.7)
|
Other income
|
11.7
|
7.4
|
20.8
|
2.4
|
42.3
|
Other operational
expenses
|
(32.1)
|
(3.8)
|
(8.4)
|
(23.5)
|
(67.8)
|
Net foreign exchange
gains
|
-
|
-
|
-
|
54.7
|
54.7
|
Other finance costs
|
(1.5)
|
-
|
(1.2)
|
(37.0)
|
(39.7)
|
Share of profit of
associates
|
-
|
-
|
-
|
0.9
|
0.9
|
Profit/(loss) before tax
|
130.2
|
101.0
|
46.9
|
(2.5)
|
275.6
|
Ratio analysis
|
|
|
|
|
|
Claims ratio (%)
|
40.0
|
37.3
|
38.1
|
-
|
39.1
|
Expense ratio (%)
|
51.0
|
47.2
|
46.4
|
-
|
49.6
|
Combined ratio (%)
|
91.0
|
84.5
|
84.5
|
-
|
88.7
|
6. Operating segments (continued)
The impact of the reclassification
of LPT premium is shown in the following table.
Year ended 31 December 2022
|
Hiscox
Retail
|
Hiscox
London
Market
|
Hiscox Re
&
ILS
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
Insurance revenue
|
2,218.0
|
1,130.6
|
924.7
|
4,273.3
|
Allocation of reinsurance
premiums
|
(293.3)
|
(356.3)
|
(615.2)
|
(1,264.8)
|
LPT Premium
|
114.0
|
20.8
|
46.0
|
180.8
|
Allocation of reinsurance premiums
after reclassifying LPT premium
|
(179.3)
|
(335.5)
|
(569.2)
|
(1,084.0)
|
Adjusted net insurance revenue
|
2,038.7
|
795.1
|
355.5
|
3,189.3
|
|
|
|
|
|
Incurred claims and changes to liabilities for incurred
claims
|
(958.0)
|
(506.4)
|
(436.7)
|
(1,901.1)
|
Amounts recoverable from
reinsurers for incurred claims
|
260.0
|
230.9
|
347.4
|
838.3
|
LPT Premium
|
(114.0)
|
(20.8)
|
(46.0)
|
(180.8)
|
Amounts recoverable
from
reinsurers for incurred claims
after reclassifying LPT premium
|
146.0
|
210.1
|
301.4
|
657.5
|
Adjusted net incurred claims
|
(812.0)
|
(296.3)
|
(135.3)
|
(1,243.6)
|
Remove benefit from discounting of
claims
|
(53.9)
|
(17.7)
|
(4.0)
|
(75.6)
|
Undiscounted adjusted net incurred claims
|
(865.9)
|
(314.0)
|
(139.3)
|
(1,319.2)
|
The following ratios reflect the
reclassification of LPT premium and remove the impact of
discounting.
|
Ratio analysis (undiscounted)
|
|
|
|
|
Claims ratio (%)
|
42.7
|
39.5
|
39.2
|
41.5
|
Expense ratio (%)
|
51.0
|
47.2
|
46.4
|
49.6
|
Combined ratio (%)
|
93.7
|
86.7
|
85.6
|
91.1
|
The impact on profit before tax of
a 1% change in each component of the segmental combined ratios is
shown in the following table. Any further ratio change is linear in
nature.
|
|
Year ended 31 December
2022
|
|
|
Hiscox
Retail
|
Hiscox
London
Market
|
Hiscox
Re &
ILS
|
|
|
$m
|
$m
|
$m
|
1% change in claims or expense
ratio
|
|
20.4
|
8.0
|
3.6
|
7. Net asset value (NAV) per share and net tangible asset value
per share
|
2023
|
2022
(restated)
|
|
Net asset
value
(total
equity)
|
NAV
per share
cents
|
Net
asset
value
(total
equity)
|
NAV
per
share
cents
|
|
$m
|
|
$m
|
|
Net asset value
|
3,296.7
|
951.1
|
2,635.0
|
764.5
|
Net tangible asset
value
|
2,972.8
|
857.7
|
2,314.6
|
671.5
|
The NAV per share is based on
346,612,554 shares (2022: 344,672,172), being the shares in issue
at 31 December 2023, less those held in treasury and those held by
the Group Employee Benefit Trust. Net tangible assets comprise
total equity excluding intangible assets.
Previously reported NAV as at 31
December 2022 was $2,416.7 million (701.2 cents) and previously
reported net tangible asset value as at 31 December 2022 was
$2,096.3 million (608.2 cents). Comparatives have been restated for
the adoption of IFRS 17 and IFRS 9.
8. Return on equity
(ROE)
|
2023
|
2022
(restated)
|
|
$m
|
$m
|
Profit for the year (all
attributable to the owners of the Company)
|
712.0
|
253.9
|
Opening total equity
|
2,635.0
|
2,563.2
|
Adjusted for the time-weighted
impact of capital distributions and issuance of shares
|
(54.3)
|
(54.9)
|
Adjusted opening total
equity
|
2,580.7
|
2,508.3
|
Return on equity (%)
|
27.6
|
10.1
|
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 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. Previously
reported ROE was 1.7% as at 31 December 2022. Comparatives have
been restated for the adoption of IFRS 17 and IFRS 9.
9. Net investment and insurance
finance result
|
2023
|
2022
(restated)
|
|
$m
|
$m
|
Investment result
|
|
|
Investment income including
interest receivable
|
237.0
|
119.5
|
Net realised losses on financial
investments at fair value through profit or loss
|
(17.6)
|
(54.1)
|
Net fair value gains/(losses) on
financial investments at fair value through profit or
loss
|
170.6
|
(254.2)
|
Investment return - financial assets
|
390.0
|
(188.8)
|
Net fair value gains on derivative
financial instruments
|
1.1
|
8.5
|
Investment expenses
|
(6.7)
|
(7.0)
|
Total investment return
|
384.4
|
(187.3)
|
Net finance (expense)/income from
insurance contracts:
|
|
|
Interest accreted
|
(228.5)
|
(35.7)
|
Effects of changes in interest
rates and other financial assumptions
|
7.8
|
249.4
|
Total net finance (expense)/income from insurance
contracts
|
(220.7)
|
213.7
|
Net finance income/(expenses) from
reinsurance contracts:
|
|
|
Interest accreted
|
87.5
|
9.5
|
Effects of changes in interest
rates and other financial assumptions
|
(6.5)
|
(111.6)
|
Total net finance income/(expenses) from reinsurance
contracts
|
81.0
|
(102.1)
|
Net insurance finance (expense)/income
|
(139.7)
|
111.6
|
Net financial result
|
244.7
|
(75.7)
|
10. Other income and operational
expenses
|
2023
|
2022
(restated)
|
|
$m
|
$m
|
Other income
|
91.1
|
42.3
|
Staff costs
|
373.0
|
313.4
|
Depreciation, amortisation and
impairment
|
77.1
|
60.0
|
Other expenses
|
286.8
|
269.9
|
Operational expenses
|
736.9
|
643.3
|
Other income includes management
fees and are recognised when the investment management services are
rendered to
the ILS funds and commissions paid
to Group owned Syndicate managing agent by third party
names.
On 4 July 2023 the Group disposed
of an investment in associate, Media Insurance Brokers
International Ltd, for $9.5 million resulting in a gain of $4.0
million also presented in other income.
Operational expenses comprise
attributable expenses amounting to $611.4 million (2022: $575.5
million) included within insurance service expense, and
non-attributable expenses amounting to $125.5 million (2022: $67.8
million) included within other operational expenses. Total
operational expenses have been restated for the year ended 31
December 2022 to include reclassification from acquisition costs
under IFRS 17 and the impact of IFRS 9 credit loss impairment
charges. The restatement results in an increase of total
operational expenses by $1.0 million.
On 27 September 2023, the Group
announced its agreement to divest DirectAsia to Ignite Thailand
Holdings Limited. The transaction remains subject to regulatory
approval. As such, the DirectAsia business has been classed as a
disposal group held for sale in the financial statements. The
disposal group has been valued at its expected recoverable amount,
which has resulted in a charge of $18.5m to Operational expenses.
The DirectAsia business is part of the Retail operating segment but
the assets, liabilities and results of DirectAsia are not material
to the segment. Assets held for sale include reinsurance contract
held assets and cash, while liabilities held for sale include
insurance contract liabilities and trade and other
payables.
11.
Other finance costs
|
|
2023
|
2022
(restated)
|
|
|
$m
|
$m
|
Interest charge associated with
borrowings
|
|
39.4
|
32.2
|
Other interest
expenses*
|
|
10.6
|
7.5
|
Other finance costs
|
|
50.0
|
39.7
|
*Other interest expenses included
interest on funds withheld which is included in insurance finance
expenses under IFRS 17. Previously reported
finance costs for the year ended 31 December 2022 were $48.1
million.
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:
|
2023
|
2022
(restated)
|
|
$m
|
$m
|
Current tax expense/(credit)
|
|
|
Expense for the year
|
10.0
|
4.5
|
Adjustments in respect of prior
years
|
(1.8)
|
(1.7)
|
Total current tax expense
|
8.2
|
2.8
|
Deferred tax
|
|
|
Expense for the year
|
70.4
|
16.7
|
Adjustments in respect of prior
years
|
(13.4)
|
(0.2)
|
Adjustment in relation to Bermuda
Economic Transition Adjustment (ETA)
|
(150.0)
|
-
|
Effect of rate change
|
(1.3)
|
2.4
|
Total deferred tax
(credit)/expense
|
(94.3)
|
18.9
|
Total tax (credit)/expense to the income
statement
|
(86.1)
|
21.7
|
An increase to the UK corporate
tax rate to 25% from 1 April 2023 was substantively enacted on 24
May 2021. This will have a consequential effect on the company's
future tax charge, and deferred tax liabilities in relation to the
UK have decreased by $1.2 million. The impact of these changes in
future periods will be dependent on the level of taxable profits in
those periods.
One hundred and thirty countries
have agreed to implement a new global minimum tax (GMT) as 'Pillar
Two' of the OECD two-Pillar reform framework. The GMT uses adjusted consolidated accounting data
to calculate the Effective Tax Rate (ETR) paid on profits by a
multinational in each jurisdiction in which it operates; and then
applies a 'top-up tax' on any jurisdictions where the ETR is below
15%. 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
€750m.
Based on historic trends, the
proportion of the Group's profits expected to be impacted is
between $0m and $5m, and the average effective rate currently
applicate to those profits is 5% to 7%. As a result of legislative
changes introduced in Bermuda, the proportion of the Group's
profits arising in Bermuda is not expected to be subject to Pillar
Two top-up tax and is not included in the estimated
impact.
As a response to the Pillar Two
reform, Bermuda has introduced a corporate income tax (CIT) which
was substantively enacted at the balance sheet date, and will apply
at a rate of 15% to profits of certain Bermuda constituent entities
with effect from 1 January 2025. The Group expects to be subject to
Bermuda CIT. The proportion of the Group's profits arising in
Bermuda is therefore not expected to be subject to Pillar Two
top-up tax and is not included in the estimated impact.
A deferred tax asset of $150.0m in
relation to the Economic Transition Adjustment (ETA) required by
this legislation has been recognised at the balance sheet date. The
ETA requires each taxable entity, which would also have been a
taxpayer had the CIT been in effect at 30 September 2023, to adjust
the calculation of taxable income on first entering the scope of
tax, by replacing the carrying value of the certain assets and
liabilities on the balance sheet at 30 September 2023 with the
corresponding estimated fair value, creating temporary
differences.
13. Insurance liabilities and
reinsurance contract
13.1 Net insurance contract
liabilities
Net insurance contracts - Analysis by remaining coverage and
incurred claims
|
Year to 31 December
2023
|
|
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
|
Opening assets
|
186.8*
|
(0.6)
|
(2,282.4)
|
(421.0)
|
(2,517.2)
|
Opening liabilities
|
287.4
|
2.5
|
5,737.1
|
667.3
|
6,694.3
|
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
|
Net premium received
|
3,337.4
|
-
|
-
|
-
|
3,337.4
|
Net claims and other insurance
service expenses paid
|
-
|
-
|
(988.5)
|
-
|
(988.5)
|
Insurance acquisition cash
flows
|
(806.0)
|
-
|
-
|
-
|
(806.0)
|
Total cash flows
|
2,531.4
|
-
|
(988.5)
|
-
|
1,542.9
|
Closing assets
|
118.8*
|
-
|
(1,696.3)
|
(520.8)
|
(2,098.3)
|
Closing liabilities
|
346.9
|
7.5
|
5,427.8
|
821.8
|
6,604.0
|
Net closing balance
|
465.7
|
7.5
|
3,731.5
|
301.0
|
4,505.7
|
* Includes LPT ARC gross of premium
payables of $534.1 million at 31 December 2022 and $532.3 million
at 31 December 2023.
**Includes allocation of LPT
premium of $61.7 million.
13. Insurance liabilities and
reinsurance contract (continued)
13.1 Net insurance contract
liabilities
Net insurance contracts - Analysis by remaining coverage and
incurred claims
|
Year to
31 December 2022
|
|
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
|
Opening assets
|
266.7*
|
(4.2)
|
(2,616.0)
|
(503.4)
|
(2,856.9)
|
Opening liabilities
|
130.1
|
16.5
|
6,188.0
|
852.3
|
7,186.9
|
Net opening balance
|
396.8
|
12.3
|
3,572.0
|
348.9
|
4,330.0
|
Changes in the condensed consolidated income
statement
|
|
|
|
|
|
Insurance revenue, net of
allocation of reinsurance premiums**
|
(3,008.5)
|
-
|
-
|
-
|
(3,008.5)
|
Insurance service expenses, net of amounts recoverable from
reinsurers
|
|
|
|
|
|
Incurred claims and other
attributable expenses
|
-
|
(12.8)
|
2,001.5
|
32.6
|
2,021.3
|
Acquisition costs
|
1,005.5
|
-
|
-
|
-
|
1,005.5
|
Adjustments to liabilities for
incurred claims relating to past service
|
-
|
-
|
(258.3)
|
(120.2)
|
(378.5)
|
Losses and reversals of losses on
onerous contracts
|
-
|
2.5
|
-
|
-
|
2.5
|
Effect of changes in
non-performance risk of reinsurers
|
-
|
-
|
(3.2)
|
-
|
(3.2)
|
Total net insurance service expenses
|
1,005.5
|
(10.3)
|
1,740.0
|
(87.6)
|
2,647.6
|
Insurance service result
|
(2,003.0)
|
(10.3)
|
1,740.0
|
(87.6)
|
(360.9)
|
Net finance expenses/(income) from
insurance contracts
|
38.2
|
-
|
(149.8)
|
-
|
(111.6)
|
Net foreign exchange
gains
|
(65.9)
|
(0.1)
|
(74.1)
|
(15.0)
|
(155.1)
|
Total change recognised in comprehensive
income
|
(2,030.7)
|
(10.4)
|
1,516.1
|
(102.6)
|
(627.6)
|
Investment components
|
20.4
|
-
|
(20.4)
|
-
|
-
|
Transfer to other items in balance
sheet
|
(235.9)
|
-
|
(575.4)
|
-
|
(811.3)
|
Net cash flows
|
Net premium received
|
3,091.3
|
-
|
-
|
-
|
3,091.3
|
Net claims and other insurance
service expenses paid
|
-
|
-
|
(1,037.6)
|
-
|
(1,037.6)
|
Insurance acquisition cash
flows
|
(767.7)
|
-
|
-
|
-
|
(767.7)
|
Total cash flows
|
2,323.6
|
-
|
(1,037.6)
|
-
|
1,286.0
|
Closing assets
|
186.8*
|
(0.6)
|
(2,282.4)
|
(421.0)
|
(2,517.2)
|
Closing liabilities
|
287.4
|
2.5
|
5,737.1
|
667.3
|
6,694.3
|
Net closing balance
|
474.2
|
1.9
|
3,454.7
|
246.3
|
4,177.1
|
*Includes LPT ARC gross of premium
receivable $493.0 million at 31 December 2021 and $534.1 million at
31 December 2022.
**Includes allocation of LPT
premium of $180.8 million.
13. Insurance liabilities and reinsurance contract
(continued)
13.1 Net insurance contract liabilities
Prior year development recognised
for the year amounts to $122.8 million (2022: $209.4 million) and
comprises:
|
2023
$m
|
2022
$m
|
Adjustment to liabilities for
incurred claims relating to past service, net of reinsurance
recoveries (on a present value basis)
|
203.6
|
378.5
|
Adjustment for discounting
impact
|
(19.1)
|
11.7
|
Adjustment for LPT premium and
experience adjustment
|
(61.7)
|
(180.8)
|
|
122.8
|
209.4
|
13.2 Claims development
tables
The development of insurance
liabilities provides a measure of the Group's ability to
estimate the ultimate cost of claims. The Group analyses actual
claims development compared with previous estimates on an accident
year basis.
(a) Insurance claims and
claim adjustment expenses reserves - net of reinsurance
Accident year
|
2019
|
2020
|
2021
|
2022
|
2023
|
Total
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Estimate of ultimate claims costs
as adjusted for foreign exchange*
|
|
|
|
|
|
|
at end of accident
year:
|
1,555.5
|
1,911.0
|
1,587.1
|
1,515.2
|
1,489.7
|
8,058.5
|
one period later
|
1,487.1
|
1,897.3
|
1,480.5
|
1,523.1
|
-
|
6,388.0
|
two periods later
|
1,409.3
|
1,729.9
|
1,427.9
|
-
|
-
|
4,567.1
|
three periods later
|
1,452.8
|
1,692.3
|
-
|
-
|
-
|
3,145.1
|
four periods later
|
1,405.4
|
-
|
-
|
-
|
-
|
1,405.4
|
Current estimate of cumulative
claims
|
1,405.4
|
1,692.3
|
1,427.9
|
1,523.1
|
1,489.7
|
7,538.4
|
Cumulative payments to
date
|
(988.0)
|
(1,120.4)
|
(857.0)
|
(693.3)
|
(303.9)
|
(3,962.6)
|
Net cumulative liability for
incurred claims - accident years from 2019 to 2023
|
417.4
|
571.9
|
570.9
|
829.8
|
1,185.8
|
3,575.8
|
Net cumulative liability for
incurred claims in respect of accident years before 2019
|
-
|
-
|
-
|
-
|
-
|
775.9
|
Effect of discounting
|
-
|
-
|
-
|
-
|
-
|
(319.2)
|
Total Group liability for incurred
claims to external parties included in balance sheet -
net
|
4,032.5
|
* The foreign exchange adjustment
arises from the retranslation of the estimates at each date using
the exchange rate ruling at 31 December 2023.
The table above excludes
reinsurance recoveries related to the retroactive reinsurance
contracts, for example legacy portfolio transfer arrangements where
the financial effect of the underlying claims is still uncertain.
These are included in the reinsurance contract asset for remaining
coverage.
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. Previously reported EPS as at 31 December
2022 was 12.1 cents. Comparatives have been restated for the
adoption of IFRS 17 and IFRS 9.
|
2023
|
2022
(restated)
|
Profit for the period attributable
to owners of the Company ($m)
|
712.0
|
253.9
|
Weighted average number of
ordinary shares in issue (thousands)
|
345,402
|
344,130
|
Basic earnings per share (cents
per share)
|
206.1¢
|
73.8¢
|
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.
|
2023
|
2022
(restated)
|
Profit for the period attributable
to owners of the Company ($m)
|
712.0
|
253.9
|
Weighted average number of
ordinary shares in issue (thousands)
|
345,402
|
344,130
|
Adjustment for share options
(thousands)
|
7,981
|
4,908
|
Weighted average number of
ordinary shares for diluted earnings per share
(thousands)
|
353,383
|
349,038
|
Diluted earnings per share (cents
per share)
|
201.5¢
|
72.7¢
|
Diluted earnings per share has
been calculated after taking account of 5,190,855 (2022: 3,680,735)
Performance share plan awards, 648,208 (2022: 352,505) options
under Save As You Earn schemes and 2,142,256 (2022: 457,100)
employee share awards. Previously reported diluted EPS as at 31
December 2022 was 12.0 cents. Comparatives have been restated for
the adoption of IFRS 17 and IFRS 9.
15. Dividends paid to owners of
the Company
|
2023
$m
|
2022
$m
|
Final dividend for the year
ended:
|
|
|
31 December 2022 of
24.0¢ (net) per share
|
82.8
|
-
|
31 December 2021 of
23.0¢ (net) per share
|
-
|
79.2
|
Interim dividend for the year
ended
|
|
|
31 December 2023 of
12.5¢ (net) per share
|
43.3
|
-
|
31 December 2022 of
12.0¢ (net) per share
|
-
|
41.3
|
|
126.1
|
120.5
|
The interim and final dividend for
2022 was paid either in cash or issued as a Scrip Dividend at the
option of the shareholder. The interim dividend for the year ended
31 December 2022 was paid in cash of $40.9m and 34,760 shares for a
Scrip Dividend. The final dividend for the year ended 31 December
2022 of 24.0¢ was paid in cash of $81.7 million and 77,904 shares
for the Scrip Dividend.
The interim dividend for 2023 was
paid either in cash or issued as a Scrip Dividend at the option of
the shareholder. The amounts were $42.7 million in cash and
43,673 shares for a Scrip Dividend.
The Board recommended a final
dividend of 25.0¢ per share to be paid, subject to shareholder
approval, on 12 June 2024 to shareholders registered on
3 May 2024. 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 21 May 2024 and
28 May 2024 inclusive.
A Scrip Dividend alternative will
be offered to the owners of the Company.
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
|
2023
|
2022
|
|
$m
|
$m
|
Debt and fixed income
holdings
|
6,333.6
|
5,426.6
|
Equities and investment
funds
|
205.4
|
339.1
|
Total investments
|
6,539.0
|
5,765.7
|
Insurance-linked funds
|
35.4
|
45.3
|
Derivative financial
instruments
|
-
|
1.1
|
Total financial assets carried at fair
value
|
6,574.4
|
5,812.1
|
ii. Analysis of financial liabilities
carried at fair value
|
2023
|
2022
|
|
$m
|
$m
|
Derivative financial
instruments
|
0.3
|
0.3
|
Financial liabilities carried at fair
value
|
0.3
|
0.3
|
|
|
|
iii. Analysis of financial liabilities
carried at amortised cost
|
2023
|
2022
|
|
$m
|
$m
|
Borrowings
|
667.0
|
628.8
|
Accrued interest on
borrowings
|
7.4
|
7.1
|
Financial liabilities carried at amortised
cost
|
674.4
|
635.9
|
Total financial liabilities
|
674.7
|
636.2
|
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 as well as by Fitch.
The fair value of the borrowings
is estimated at $681.0 million (2022: $623.1 million).
The fair value measurement is classified
within Level 1 of the fair value
hierarchy. The fair value is estimated by reference to the actively
traded value on the stock exchanges.
The increase in the carrying value
of the borrowings and accrued interest during the year comprises a
drawdown of new borrowings of $nil (2022: $279.1 million),
repayment of short-term borrowings of $nil (2022: repayment of
$336.6 million), the amortisation of the difference between the net
proceeds received and the redemption amounts of $0.7 million (2022:
$0.9 million), the decrease in accrued interest of $0.1 million
(2022: increase of $6.5 million) plus exchange movements of $37.9
million (2022: less exchange movements of $60.5
million).
16. Financial assets and liabilities
(continued)
iv. Investments at 31 December are denominated in the
following currencies at their fair value:
|
2023
|
2022
|
|
$m
|
$m
|
Debt and fixed income
holdings
|
|
|
US
Dollars
|
4,572.0
|
3,932.4
|
Sterling
|
960.9
|
821.5
|
Euro and other
currencies
|
800.7
|
672.7
|
|
6,333.6
|
5,426.6
|
|
2023
|
2022
|
|
$m
|
$m
|
Equities and investment
funds
|
|
|
US
Dollars
|
84.5
|
188.2
|
Sterling
|
84.3
|
117.0
|
Euro and other
currencies
|
36.6
|
33.9
|
|
205.4
|
339.1
|
Total investments
|
6,539.0
|
5,765.7
|
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.
As
at 31 December 2023
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
$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
|
As at 31
December 2022
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
Financial Assets
|
|
|
|
|
Debt and fixed income
holdings
|
1,122.4
|
4,237.1
|
67.1
|
5,426.6
|
Equities and investment
funds
|
-
|
311.8
|
27.3
|
339.1
|
Insurance-linked funds
|
-
|
-
|
45.3
|
45.3
|
Derivative financial
instruments
|
-
|
1.1
|
-
|
1.1
|
Total
|
1,122.4
|
4,550.0
|
139.7
|
5,812.1
|
Financial Liabilities
|
|
|
|
|
Derivative financial
instruments
|
-
|
0.3
|
-
|
0.3
|
Total
|
-
|
0.3
|
-
|
0.3
|
17.
Fair value measurements (continued)
The levels of the fair value
hierarchy are defined by the standard 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 as reported by
independent pricing sources or the
fund manager.
Included within Level 1 of the
fair value hierarchy are certain government bonds, treasury bills,
corporate bonds having a quoted
price in active markets, and
exchange-traded equities which are measured based on quoted prices
in active markets.
The fair value of the borrowings
carried at amortised cost is estimated at $681.0 million
(2022: $623.1 million) and is considered as Level 1 in
the fair value hierarchy.
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
limited partnerships, 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 inputs
used in the measurement of fair
value of these instruments to
another reasonably possible assumption would not be significant. At
31 December 2023, the insurance-linked funds of
$35.4 million represent the Group's investment in the
unconsolidated Kiskadee funds
(2022: $45.3 million).
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 fund. 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
$3.0 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.
The Group's policy is to recognise
transfers into and transfers out of fair value hierarchy levels at
the end of the relevant reporting period during which the transfers
are deemed to have occurred. During the year, investments of $26.0
million (2022: $25.9 million) were transferred from Level 2 to
Level 3 due to insufficient observable data being available, as a
result of reduced trading volumes.
17.
Fair value measurements (continued)
The below table sets forth a
reconciliation of opening and closing balances for financial
instruments classified under Level 3 of the fair value
hierarchy:
|
2023
$m
|
2022
$m
|
Balance at 1 January
|
139.7
|
125.7
|
Fair value losses through profit
or loss
|
(11.5)
|
(0.4)
|
Foreign exchange
gains/(losses)
|
4.8
|
(4.4)
|
Settlements
|
(28.7)
|
(7.1)
|
Transfers
|
26.0
|
25.9
|
Closing balance
|
130.3
|
139.7
|
Net unrealised gains in the period on securities held at the
end of the period
|
3.5
|
0.6
|
The closing balance at year end
comprised $64.9 million debt and fixed income holdings (2022: $67.1
million), $30.0 million equities and investment funds (2022: $27.3
million) and $35.4 million insurance-linked funds (2022: $45.3
million).
18. Condensed consolidated 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 $181 million
(2022: $178 million) not available for immediate use by the Group
outside of the Lloyd's Syndicate within which they are held.
Additionally, $108 million (2022: $89 million) is pledged cash held
against Funds at Lloyd's, and $10.1 million (2022: $0.5 million) is
held within trust funds against reinsurance
arrangements.
19. Employee retirement benefit obligations
The table below provides a
reconciliation of the movement in the Group's net defined benefit
(surplus)/liability recognised in the Group's balance
sheet:
|
2023
|
2022
|
|
$m
|
$m
|
Group defined benefit
(surplus)/liability at beginning of year
|
(20.9)
|
35.1
|
Third-party Names' share at
beginning of year
|
(4.3)
|
(12.3)
|
Net defined benefit
(surplus)/liability at beginning of year
|
(25.2)
|
22.8
|
Defined benefit (income)/expense
included in the income statement
|
(1.7)
|
0.4
|
Contribution by
employer
|
(24.8)
|
(13.5)
|
Total remeasurements included in
other comprehensive income
|
4.1
|
(34.9)
|
Other movements
|
(1.8)
|
-
|
Net defined benefit surplus at end
of year
|
(49.4)
|
(25.2)
|
Third-party Names' share at end of
year
|
5.0
|
4.3
|
Group defined benefit surplus at
end of year
|
(44.4)
|
(20.9)
|
Remeasurements include changes in
actuarial assumptions, predominantly the application of a lower
discount rate (2022: higher discount rate) being applied to the
scheme liabilities and the increase (2022: reduction) in the fair
value of the scheme assets. There was a
contribution paid by the company of $24.8 million
in 2023 (2022: $13.5 million).
Other movements include the
defined benefit cost recognised in operating expenses and exchange
gains/losses.
20. Post balance sheet events
There are no material events that
have occurred after the reporting date.
Additional performance
measures
The Group uses, throughout its
financial publications, additional 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, net 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 further 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.
|
2023
$m
|
2022
$m
|
Insurance contract written
premium
|
4,598.2
|
4,355.4
|
Change in unearned premium
included in the liability for remaining coverage
|
(115.0)
|
(82.1)
|
Insurance revenue
|
4,483.2
|
4,273.3
|
|
2023
$m
|
2022
$m
|
Net insurance contract written
premium
|
3,555.8
|
3,225.5
|
Change in unearned premium
included in the liability for remaining coverage
|
(115.0)
|
(82.1)
|
Change in reinsurance provision
for unearned premium included in the asset for remaining
coverage
|
(77.0)
|
(134.9)
|
Net insurance revenue (Insurance
revenue less allocation of reinsurance premiums)
|
3,363.8
|
3,008.5
|
Additional performance measures (continued)
-
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.
It 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 and is
disclosed in note 13. 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.