Hiscox Ltd interim results

Hiscox Ltd interim results

For the six months ended 30 June 2024

"Solid delivery. Executing on our commitments."

Highlights

·      Insurance contract written premium (ICWP) grew by $89.6 million or 3.3% to $2,812.9 million (H1 2023: $2,723.3 million) with sustained retail growth and additional capital deployed in big-ticket property.

·      Profit before tax grew 7.1%, to $283.5 million (H1 2023: $264.8 million), underpinned by:

o  insurance service result of $240.7 million (H1 2023: $221.4 million);

o  investment result of $152.4 million (H1 2023: $121.8 million).

·      Undiscounted combined ratio of 90.4% (H1 2023: 90.2%) in a more active loss environment.

·      Group ROE of 16.5% (H1 2023: 19.9%).

·      Excellent tangible NAV per share growth of 23.2%.

·      Over 85%^[2] of the $150 million buyback completed; interim dividend of 13.2 cents per share, an increase of 5.6% from last year.

·      Strong balance sheet and reserves; estimated Bermuda Solvency Capital Ratio (BSCR) of 206%.

·      Our diversified portfolio is well placed to deliver sustainable returns and growth for the Group through the insurance cycle.

Aki Hussain, Group Chief Executive Officer, Hiscox Ltd, commented:

"Our business has built on the momentum from 2023 and delivered strong profits and robust growth in the first half. We are focused on deploying capital to generate profitable growth and investing in underwriting and technology capabilities to build out our competitive advantages. This has delivered a strong and increased underwriting result of $241 million, despite a more active loss environment, and positions us well to deliver high-quality growth through the insurance cycle."  

ENDS

A conference call for investors and analysts will be held at 10:00 BST on Wednesday, 7 August 2024.

Participant dial-in numbers:

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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

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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, the 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.

CEO's statement

The Group has continued to deliver strong profitability and sustained growth in the first six months of the year, building on the momentum achieved in 2023. In our big-ticket businesses, positive market conditions have persisted, although more variable than in 2023. Into this market we have proactively, yet selectively, deployed capital and we are managing the various stages of the cycle across different parts of our portfolio. Combining this with continued profit and growth momentum in Retail has resulted in strong profits and an annualised return on equity of 16.5%.

In the first six months the Group has added $90 million of premiums, with the majority of this ($77 million) coming from growth momentum in Retail. Our focus on profitable growth and underwriting discipline ensured that losses are within our expectations, despite a more active loss environment. The strong profit before tax of $283.5 million, up 7.1% year-on-year, is the combined effect of an insurance service result of $240.7 million, up 8.7%, and an improving investment result of $152.4 million.

In Retail, profitability is robust, with the business achieving an undiscounted combined ratio of 93.8%. The actions we have taken over the last few years are leading to strong growth momentum in US DPD, Europe and the UK. In our target customer segments, new business formation and digital adoption trends remain robust, underpinning significant long-term structural growth opportunities. We continue to invest in our retail capabilities, including improving broker service, to build market share and realise the full growth potential of our business.

As the best property market conditions in a decade have mostly persisted into 2024, we deployed more capital early in the year into our reinsurance business, to lock in advantageous pricing and terms when market conditions were most certain. In our London Market business, we remain disciplined, growing where we see profitable opportunities and continuing to manage the cycle in cyber and D&O.

Our diversified portfolio is well placed to deliver attractive and sustainable returns and growth for the Group through the insurance cycle. In line with our strategy we are continuing to invest in the long-term opportunity in Retail to grow the market and capture share. At the same time, we see opportunities to generate strong returns in our London Market and Re & ILS businesses and, as a result, have put more capital to work.  

Our balance sheet remains strong, with the confidence level of our reserves stable at 82% and solid capital generation leading to an estimated Bermuda Solvency Capital Ratio (BSCR) of 206%. Over 85% of the $150 million share buyback announced in March was completed at the balance sheet date. The Group's capital management approach is to invest in the many attractive growth opportunities available from our diversified business model while maintaining balance sheet strength and efficiency. Following the first six months of the year, I am pleased to announce that the Board has approved an interim dividend of 13.2 cents per share, an increase of 5.6% from last year.

Hiscox Retail[3]

Hiscox Retail comprises our retail businesses around the world: Hiscox UK, Hiscox Europe, Hiscox USA and DirectAsia. In this segment, our specialist sector and class of business knowledge, ongoing investment in the brand, distribution (including broker relations) and technology reinforce our strong market position in an increasingly digital world.

Retail ICWP of $1,335.3 million (H1 2023: $1,258.3 million) increased by 5.0% in constant currency, as growth returned to the target range. We continue to see strong momentum in Europe and US DPD and a pleasing step up in UK growth momentum. US broker premiums continue to contract due to a combination of both external and internal factors, albeit at a slower pace in the second quarter. We are taking targeted action to reverse this trend and expect to see the benefit in the second half of the year.

Rates in Retail increased 3% across the markets, as inflation moderates.

On an undiscounted basis, Hiscox Retail's combined ratio was 93.8% (H1 2023: 94.0%). This is a 2.6 percentage point improvement on the full year 2023 undiscounted combined ratio of 96.4% and within the target combined ratio range. We have continued to invest in our retail capabilities, including people, marketing and technology to build momentum for growth. Our intention remains to run our Retail business within the 89-94% combined ratio range for the long-term benefit of our shareholders.

Hiscox UK

Hiscox UK provides commercial insurance, locally traded specialty insurance, as well as personal lines cover, including high-value household, fine art and luxury motor.

Hiscox UK ICWP grew 4.3%, on a constant currency basis, to $427.4 million (H1 2023: $399.3 million). The underlying growth, excluding the impact of some non-recurring income in June 2023, was 6.4% in constant currency, which is the highest since 2018 and is more reflective of the current momentum in the UK.

This underlying positive business momentum in the UK is broad based. The UK commercial business is growing well and our art and private client business delivered low double-digit growth, benefitting from favourable market dynamics and the launch of the high-value household product on the e-trade platform.

The first half of the year also marked a significant milestone for Hiscox UK, which now has over half a million customers. Proactive management of distribution and improving broker sentiment have resulted in strong new business flows complemented by high retention rates. The business also signed six new distribution deals, which will help sustain growth momentum going forward.

Our brand campaign continues to attract significant attention and was awarded Gold at both the 2024 Outdoor Media Awards for the 'best multi-format campaign' and the 2024 Creative Circle Awards in the 'best use of outdoor medium' category, beating a number of well-known financial and non-financial brands. Spontaneous brand awareness has improved significantly as a result of the brand campaign and has had a positive impact on our acquisition metrics, with strong double-digit growth in branded search.  

Catherine Frost joined our business during the first half as UK Chief Operating Officer, after 22 years at RSA where she was most recently Managing Director for UK Commercial Lines.

Hiscox Europe

Hiscox Europe provides commercial insurance, and personal lines cover, including high-value household, fine art and classic car.

Our European business achieved strong growth of 8.5% in constant currency for the first six months of the year, with ICWP of $400.4 million (H1 2023: $365.6 million). Growth in Europe has been broad based with the strongest momentum in France, our second largest market in Europe, where premiums are growing at a strong double-digit rate. We expect the momentum in Europe to build further in the second half of the year, sustained by continued product and distribution innovation as well as the signing of new distribution deals.

The roll-out of our new core technology continues on schedule, with Germany's commercial business now live and activity focused on Germany's art and private client business and France's commercial business. Hiscox Europe is also progressing with the build of broker and customer portals, across our markets, wrapped around our single core technology, as we are digitalising more and more of our customer and broker interactions. This will support sustained growth and drive greater efficiencies in our European business.

Hiscox USA³

Hiscox USA focuses on underwriting commercial risks with distribution through brokers, partners and direct-to-consumer using a wide range of trading models - traditional, service centre, portals and application programming interfaces (APIs). Our aspiration is to build America's leading small business insurer.

Hiscox USA's ICWP grew by 2.9% to $476.5 million (H1 2023: $463.1 million) with sustained growth in US DPD and continued but slowing contraction in US broker. 

US DPD grew ICWP by 8.8% to $284.2 million (H1 2023: $261.2 million), sustaining the momentum built over 2023. Our US direct business delivered strong double-digit growth boosted by increased investment in marketing spend and strong retention. The first half of the year saw the full digital launch of our workers' compensation partnership, which extends our range of products and brings us a step closer towards meeting the full range of insurance needs of small businesses. In US digital, partnerships growth was more variable, as some established partners' production momentum slowed in the second quarter. This is partially offset by growth from the 29 new partners onboarded over the last 12 months.

US broker ICWP decreased by 4.8% to $192.2 million (H1 2023: $201.9 million). The business is rotating back to growth, having been decisively re-underwritten in 2021 and impacted by challenging conditions in the cyber market. The rate of decrease has slowed in the second quarter to 1.9%, having been 7.5% over the first three months of the year. Growth is now being seen across architects and engineers, terrorism and entertainment, with other lines of business showing improving trends. Nonetheless, we anticipate the US broker business will continue to contract, albeit at a more measured rate, in the second half of the year.

We are excited to welcome Mary Boyd, who has joined Hiscox USA as our new Chief Executive Officer. Mary joins from Plymouth Rock Assurance where she served as CEO of its independent agency business since 2018. She began her career in actuarial roles before moving into leadership positions at The Hartford Insurance Company, ACE, Explorer Insurance, and Chubb. This appointment further underlines our ambition to build America's leading small business insurer and to take the business to scale.

Hiscox Asia

DirectAsia delivered ICWP growth of 3.6% in constant currency to $31.0 million (H1 2023: $30.3 million) with strong double-digit growth in Singapore partially offset by more moderate growth momentum in Thailand. The Group previously announced its agreement to sell DirectAsia to Ignite Thailand Holdings Limited, subject to customary conditions and regulatory approvals. These conditions have not been met within the agreed time period and the agreement to sell has now been terminated. The Group is exploring other options.

Hiscox London Market³

Hiscox London Market uses the global licences, distribution network and credit rating of Lloyd's to insure clients throughout the world.

Hiscox London Market has continued to deliver excellent underwriting results, through diligent risk selection and underwriting, combined with proactive, yet selective, deployment of capital. This has led to strong profits of $108.1 million and an undiscounted combined ratio of 86.9%, despite a more active claims environment.

ICWP decreased by 2.8% to $648.3 million (H1 2023: $667.1 million) and net ICWP decreased by 3.2% to $439.1 million (H1 2023: $453.8 million). This is driven by three factors: the decision to non-renew certain large binder deals; our proactive management of the underwriting cycle in casualty lines; and a reduction in space premiums, as there were fewer risks in the market and we took a decision to reduce line size due to heightened recent loss activity. As expected, in the second quarter the business delivered a four percentage point improvement in growth compared to the first quarter of 2024, on a discrete quarterly basis.

Hiscox London Market achieved an average rate increase of 4% during the first half, with cumulative rate increases of 77% since 2018.

Property continues to enjoy a strong rating environment, particularly in property binders and flood. Competition in major property has increased, causing rate to begin to flatten after the strong growth achieved last year. Property premiums grew in the period, although the trend was impacted by strategic non-renewals. The Group utilises its broad market access to deploy capital flexibly across both London Market and Re & ILS, to capture the best opportunities, and we will continue to be agile as the market evolves.

Cycle management activities in cyber and D&O are ongoing, as rates decreased by 9% and 8% respectively. ICWP reduced at a double-digit rate in both of these lines, as we reflect the transitioning markets.

The core marine and upstream energy lines are experiencing an increase in competition, although we continue to see attractive structural growth opportunities in power and renewables and aim to lead more in this space. Upstream construction is also seeing a good flow of new business, where Hiscox is well placed with excellent engineering and underwriting expertise.

Our collaboration with Google Cloud continues in 2024. Our AI solution for terrorism risk is about to be implemented into the live environment following the 2023 proof of concept, which successfully demonstrated that we could reduce the time taken to quote a terrorism risk from three days to three minutes. In parallel, we are extending the core proof of concept capabilities to major property, a more complex class, where we are also aiming to reduce the time to quote. Over time, we aim to roll out AI capabilities to all relevant lines of business to support both our growth and efficiency ambitions.

We continue to proactively pursue new business in our ESG sub-syndicate, Syndicate 3033, and have included liability, D&O, carbon offset and product recall risks for the first time.

The first half of the year saw a number of uncorrelated small- to mid-size loss events across non-casualty divisions of Hiscox London Market. These losses have included the Francis Scott Key Bridge collision near the US Port of Baltimore. Despite this more active loss environment, Hiscox London Market delivered an insurance service result of $74.2 million (H1 2023: $77.8 million) and an undiscounted combined ratio of 86.9% (H1 2023: 83.2%). This marks the fourth consecutive half year of an undiscounted combined ratio in the 80-90% range.

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.

Hiscox Re & ILS grew net ICWP by 10.5% to $381.2 million (H1 2023: $345.1 million) as the business deployed additional capital early to successfully capture the attractive market conditions. ICWP grew by 3.9% to $829.3 million in the first half (H1 2023: $797.9 million), with a majority of the growth achieved during the January renewals when market conditions were most attractive. The overall growth rate has reduced at subsequent renewal periods, as additional quota share capacity and own capital deployed were offset by a reduction in ILS capital.

The market has remained disciplined at mid-year renewals, with attachment points and terms and conditions broadly holding firm. While market capacity has increased, this has been largely offset by growth in demand from cedants. As anticipated, there have been some rate reductions in the upper layers of structures and on higher-quality business, however, these were from generationally high levels. Overall, rate is flat for the first six months of the year with the market remaining attractive, after cumulative rate increases of 90% since 2018.

As a result of gross capital inflows of $300 million into our side car and ILS funds from a number of new and existing investors in the first six months of the year, Hiscox ILS assets under management were $1.7 billion as at 30 June 2024 (31 December 2023: $1.8 billion). Following a planned return of capital to investors, these reduced to $1.4 billion at 1 July 2024. The third-party capital strategy we have executed in Re & ILS over many years adds scale to the business, enabling more meaningful relationships with our cedants, and allowing Hiscox to manage net retentions within volatility parameters consistent with our ambitions, and also creates a fee-based income stream for risk origination and subsequent profit commissions. In the first six months of this year, fee income increased by 57.7% to $44.3 million (H1 2023: $28.1 million) due to a rise in performance fees reflecting underwriting performance.

Hiscox Re & ILS delivered a strong insurance service result of $43.5 million (H1 2023: $32.7 million) at an undiscounted combined ratio of 77.3% (H1 2023: 81.2%), and an excellent profit before tax of $86.5 million (H1 2023: $55.1 million). Due to the seasonal nature of the risks underwritten by Hiscox Re & ILS, the majority of premium is earned in the second half of the year.

Claims

The first half saw several natural catastrophe loss events occur around the world, including flooding in Dubai and Germany, an earthquake in Taiwan and severe convective storms in the USA. The total net loss reserved for these events for the Group is in line with our expectations.

The Group reserved $28 million net for the events relating to the MV Dali collision with the Francis Scott Key Bridge in Baltimore, causing the bridge to collapse and a number of tragic fatalities. The majority of this loss has been recognised within Hiscox London Market, with the remainder booked in Hiscox Re & ILS. Additionally, there have been a number of uncorrelated, small- to mid-size man-made losses within Hiscox London Market impacting the crisis management and marine, energy and specialty divisions.

The Group loss experience has been within our expectations.

Strong foundations

Reserves

As at 30 June 2024, the Group's net reserves are at the 82% confidence level (FY 2023: 83%, HY 2023: 77%) in line with our conservative reserving philosophy, with the risk adjustment above the best estimate of $262.0 million[4] (FY 2023: $272.9 million, HY 2023: $211.1 million).

Net reserve releases of $50.8 million demonstrate the effectiveness of our reserving philosophy, which is evident in the consistently positive reserve development we have reported over many years.

Over recent years we have been proactive in executing legacy portfolio transactions (LPTs) to protect certain lines of business, in particular those lines we have exited. These LPTs continue to provide protection, covering 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 periodically pursue similar transactions to manage volatility and optimise capital.

Capital

The Group remains strongly capitalised from both a regulatory and a ratings agency perspective. Capital generation has been strong in the first half, lifting the estimated Group BSCR ratio to 206% at 30 June 2024 after payment of the final dividend and with over 85% of the share buyback completed at the balance sheet date. The BSCR ratio excludes any benefit from the $150 million Bermuda deferred tax asset, consistent with our year-end quoted figure.

Having considered the capital requirements of the business, the Board has approved the payment of an interim dividend of 13.2 cents per share, an increase of 5.6%. The record date for the dividend will be 16 August 2024 and the payment date will be 24 September 2024. The Board proposes to offer a Scrip alternative, subject to the terms and conditions of the Group's 2022 Scrip Dividend Scheme. The last date for receipt of Scrip elections will be 2 September 2024 and the reference price will be announced on 10 September 2024. Further details on the dividend election process and Scrip alternative can be found on the investor relations section of our corporate website, www.hiscoxgroup.com.

Liquidity

The Group, at the holding company level, continues to retain a significant level of liquidity with fungible assets in excess of $1 billion, comprised of liquid assets and undrawn borrowing facilities. The leverage position as at 30 June 2024 for the Group is 16.4%[5], comfortably within the range that the Group chooses to operate in.

Investments

The investment result for the first six months of 2024 was $152.4 million (H1 2023: $121.8 million), or a return of 1.9% year to date (H1 2023: 1.7%) as the interest and coupons from cash, debt and fixed income portfolios increased by 48% year-on-year[6]. Assets under management at 30 June 2024 were $8.0 billion (FY 2023: $8.0 billion).

Bond markets continued to fluctuate on statements from central banks as they assess the inflation outlook. Although the inflationary trend was down, pricing pressures did not ease as quickly as expected. While the European Central Bank and Bank of Canada did cut rates, other central banks did not, with expectations for policy changes pushed further into the second half of the year. Market yields remaining at current levels is favourable for our portfolio reinvestment, despite being a mark-to-market headwind in the short term. The reinvestment yield on the bond portfolio was 5.2% at 30 June 2024, up from 5.1% at year-end, with a book yield of 4.8%. Duration is now 1.9 years.

We continue to look to incrementally improve long-term risk and capital-adjusted outcomes through diversification.

Outlook

Our priority remains profitable growth delivered through disciplined underwriting and proactive capital allocation across our divisions. We will continue to invest capital and drive growth where we believe the returns are attractive and will step away from the business which in our view is not rate adequate. The Group's diversified business portfolio is well positioned to deliver high-quality earnings in 2024 and over the long term.

In Retail, we expect growth momentum to continue to build gradually in the second half as management initiatives take effect and we capture more of the structural growth opportunity, although growth momentum is not expected to be linear. In our London Market business, moderate growth is expected to return in the second half, as we write more business to replace non-renewed binders. In Re & ILS, we wrote over three-quarters of this year's reinsurance premiums in the first half, with a greater share of these premiums to be earned in the second half in line with the risk profile of the business. For the full year we expect to continue to see strong net growth in line with the first half, which will exceed top-line growth as we continue to anticipate ILS fund outflows. We face into the US wind season well capitalised and with a high-quality portfolio written at attractive rates.

Our portfolio of businesses and our talented and ambitious teams position us well to continue delivering high-quality disciplined growth and earnings.

Aki Hussain

Group Chief Executive Officer

7 August 2024

Condensed consolidated interim income statement

For the six month period ended 30 June 2024

 The notes to the condensed consolidated interim financial statements are an integral part of this document.

Condensed consolidated interim statement of comprehensive income

For the six month period ended 30 June 2024

The notes to the condensed consolidated interim financial statements are an integral part of this document.

Condensed consolidated interim balance sheet

As at 30 June 2024

 The notes to the condensed consolidated interim financial statements are an integral part of this document.

Condensed consolidated interim statement of changes in equity

For the six month period ended 30 June 2024 (reviewed)

* This represents the buyback of ordinary shares by the Company as part of buyback programme commenced on 5 March 2024.

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 six month period ended 30 June 2023 (reviewed)

 The notes to the condensed consolidated interim financial statements are an integral part of this document.

Condensed consolidated interim cash flow statement

For the six month period ended 30 June 2024

 The notes to the condensed consolidated interim financial statements are an integral part of this document.

Notes to the condensed consolidated interim financial statements

1. General information

Hiscox Ltd (the 'Company') is a public limited company registered and domiciled in Bermuda. The condensed consolidated interim financial statements for the Company as at, and for the six months ended, 30 June 2024 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interest in associates. The CEO's statement accompanying these condensed consolidated interim financial statements forms the Interim Statement for the half year ended 30 June 2024.

The Directors of Hiscox Ltd are listed in the Group's 2023 Report and Accounts. A list of current Directors is maintained and available for inspection at the registered office of the Company located at Chesney House, 96 Pitts Bay Road, Pembroke HM 08, Bermuda.

2. Basis of preparation

These condensed consolidated interim financial statements for the six months to 30 June 2024 have been prepared in accordance with IAS 34 Interim Financial Reporting, the UK-adopted international accounting standards, and the Disclosure Rules Sourcebook and Transparency Rules issued by the Financial Conduct Authority.

The accounting policies applied, the significant judgements made, and the key sources of estimation uncertainty in the condensed consolidated interim financial statements are the same as those applied in Hiscox Ltd's 2023 consolidated financial statements.

The Group has applied the exception under the IAS 12 amendment to recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes.

These condensed consolidated interim financial statements are unaudited but have been reviewed by the auditor, PricewaterhouseCoopers Ltd. The comparative results for the year ended 31 December 2023 and 30 June 2023 have been taken from the Group's 2023 Report and Accounts, and the 2023 Interim Statements. They should be read in conjunction with the audited consolidated financial statements of the Group as at, and for the year ended, 31 December 2023.

The condensed consolidated interim financial statements have been prepared on a going concern basis. In adopting the going concern basis, management has reviewed the Group's current and forecast solvency and liquidity positions for the next 12 months and beyond. As part of this consideration, management uses scenario analysis and stress testing to assess the robustness of the Group's solvency and liquidity positions.

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence over a period of at least 12 months from the date of approval of the condensed consolidated interim financial statements. For this reason, they continue to adopt the going concern basis in preparing the condensed consolidated interim 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 interim financial statements are stated in US Dollars which is the Group's presentation currency. Except where otherwise indicated, all amounts presented in the financial statements are in US Dollars millions ($m) rounded to the nearest hundred thousand Dollars.

These condensed consolidated interim financial statements were approved by the Board for issue on Wednesday, 7 August 2024.

2.1 New and amended accounting standards adopted by the Group

The Group has not early adopted any new standards, interpretations or amendments that have been issued but are not yet effective. Several amendments and interpretations apply for the first time in 2024, but do not have a material impact on the condensed consolidated interim financial statements of the Group.

2.2 Significant accounting judgements and estimates

In preparing these condensed consolidated interim financial statements, management makes judgements, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to and disclosed in the Group's 2023 Report and Accounts.

3. Management of risk

Operational risk

The Group demonstrates continued operational resilience, underscoring the benefits of its business model, disciplined risk management and ongoing investment in technology and infrastructure.

Insurance risk

The insurance risks are consistent with those disclosed within the 2023 Report and Accounts on pages 192 to 195. The Group continues to assess, review and monitor its underwriting and reserving risk.

Financial risk

The Group continues to monitor all aspects of its financial risk appetite and the resultant exposure is taken with caution.

Reliability of fair value

As detailed in note 16, the Group's investment allocation is broadly comparable to that as at 31 December 2023. In order to assist users, the Group has disclosed the measurement attributes of its investment portfolio in a fair value hierarchy in note 17 in accordance with IFRS 13 Fair Value Measurement.

Price risk

The price risks are consistent with those disclosed within the 2023 Report and Accounts on page 196. The Group's equity and investment fund holdings are limited to a relatively small and controlled proportion of the overall investment portfolio. The equity and investment funds holdings are diversified over a number of companies and industries. The fair value of equities and investment fund assets in the Group's balance sheet at 30 June 2024 was $214 million (31 December 2023: $205 million).

Interest rate risk

The interest rate risks are broadly consistent with those disclosed within the 2023 Report and Accounts on pages 196 to 197. The fair value of the Group's investment portfolio of debt and fixed income holdings is normally inversely correlated to movements in market interest rates. When market interest rates decrease, the fair value of the Group's debt and fixed income investments would tend to increase and vice versa if credit spreads remained constant. The fair value of debt and fixed income assets on the Group's balance sheet at 30 June 2024 was $6,432 million (31 December 2023: $6,334 million).

One method of assessing interest rate sensitivity is through the examination of duration-convexity factors in the underlying portfolio. Duration is the weighted average length of time required for an instrument's cash flow stream to be recovered, where the weightings involved are based on the discounted present values of each cash flow. A closely related concept, modified duration, measures the sensitivity of the instrument's price to a change in its yield to maturity. Convexity measures the sensitivity of modified duration to changes in the yield to maturity.

The Group has used a duration-convexity-based sensitivity analysis for the debt and fixed income holdings, and recalculated the discounting impact for the reinsurance contract assets and insurance contract liabilities, to estimate that a movement in interest rates may affect the Group equity and profit after tax for the period/year as follows:

The liability for incurred claims, reinsurance assets for incurred claims and certain reinsurance assets for remaining coverage are calculated by discounting expected future cash flows at a risk-free rate, plus an illiquidity premium where applicable. Risk-free rates were derived using swap rates available in the market denominated in the same currency as the insurance contracts being measured. When swap rates are not available, highly liquid sovereign bonds with the highest credit ratings (for example, AAA/AA) are used. The following discount rates were applied for the currencies and periods presented below:

3. Management of risk

Financial risk

Interest rate risk (continued)

Credit risk

The credit risks are consistent with those disclosed within the 2023 Report and Accounts on pages 197 to 198.

The Reinsurance Credit Committee assesses the creditworthiness of all reinsurers by reviewing credit grades provided by rating agencies and other publicly available financial information detailing their financial strength and performance as well as details of recent payment history and the status of any ongoing negotiations between Group companies and these third parties. As at 30 June 2024, 99.3% (31 December 2023: 99.6%) of the Group's reinsurance assets are rated BBB or higher, or are fully collateralised. Individual operating units maintain records of the payment history for significant brokers and contract holders with whom they conduct regular business. The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset, where counterparties are both debtors and creditors of the Group, and are obtaining collateral from unrated counterparties.

The Group mitigates credit risk by investing predominantly in high-quality debt and fixed income instruments. As at 30 June 2024, 92.9% (31 December 2023: 92.6%) of the Group's investments are rated BBB or higher.

Liquidity risk

The liquidity risks are consistent with those disclosed within the 2023 Report and Accounts on pages 199 to 200.

The available headroom of working capital is monitored through the use of a Group cash flow forecast which is reviewed by management quarterly, or more frequently as required.

Strong treasury management has ensured that the Group's balance sheet remains well funded and its operations are financed to accommodate liquidity demands, together with a high level of undrawn funds that are sufficient to meet future catastrophe obligations even if difficult investment market conditions were to prevail for a period of time.

The Group is exposed to daily calls on its available cash resources, mainly from claims arising from insurance and reinsurance contracts.

Liquidity risk is the risk of being unable to meet customer or other third-party payments as they fall due. This could result in
high costs in selling assets or raising money quickly to meet our obligations. The Group's liquidity risk appetite is designed to ensure that appropriate cash resources are maintained to meet obligations as they fall due, both in business-as-usual and stressed circumstances. This is measured using a liquidity coverage ratio, which compares liquidity sources to stress-tested liquidity requirements.

A significant proportion of the Group's investments is in highly liquid assets which could be converted to cash in a prompt fashion and at minimal expense. The Group's exposure to equities is concentrated on shares and funds that are traded on internationally recognised stock exchanges.

The main focus of the investment portfolio is on high-quality, short-duration debt and fixed income securities and cash. There are no significant holdings of investments with specific repricing dates. Notwithstanding the regular interest receipts, and also the Group's ability to liquidate these securities and the majority of its other financial instrument assets for cash in a prompt and reasonable manner, the contractual maturity profile of the fair value of these securities is presented below.

3. Management of risk

Liquidity risk (continued)

Fair values at balance sheet date analysed by contractual maturity:

The Group's equities, equity funds, hedge funds and credit funds and other non-dated instruments have no contractual maturity terms but predominantly could be liquidated in an orderly manner for cash in a prompt and reasonable time frame within one year of the balance sheet date.

The following is an analysis by liability type of the estimated timing of net cash flows based on the liability for incurred claims. The estimated phasing of settlement is based on current estimates and historical trends and the actual timing of future settlement cash flows may differ materially from the disclosure below.

Liquidity requirements to settle the estimated profile of the net undiscounted liability for incurred claims on balance sheet:

Currency risk

The currency risk is consistent with the disclosures in the 2023 Report and Accounts on pages 200 to 202. The Group remains susceptible to fluctuations in rates of foreign exchange, in particular between US Dollars, Euros and Sterling.

Capital risk management

The Group's capital risk management approach is consistent with the disclosures described within the 2023 Report and Accounts on pages 203 to 205. Prudent capital management is critical to ensure the Group is able to continue to serve its customers, pay valid claims and grow where opportunity permits. As a result, at 30 June 2024, the Group remains strongly capitalised against both our regulatory and rating agency requirements. The Group's available capital was $3,361.6 million (31 December 2023: $3,323.4 million), comprising net tangible asset value of $3,013.9 million (31 December 2023: $2,972.8 million) and subordinated debt of $347.7 million (31 December 2023: $350.6 million).

4. Seasonality and weather

The Group's material exposure to catastrophe losses on certain lines of business such as reinsurance inwards and marine and major property risk mainly in Re & ILS segment is greater during the second half of the calendar year, broadly in line with the most active period of the North Atlantic windstorm season.

In contrast, a majority of gross premium income written in these lines of business occurs during the first half of the calendar year. The Group actively participates in many regions and, if any catastrophic events do occur, it is likely that the Group will share some of the market's losses. Consequently, the potential for significant volatility in expected returns remains during the second half of the year.

5. Related-party transactions

Transactions with related parties during the period are consistent in nature and scope with those disclosed in note 30 of the Group's 2023 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)

*Total marketing expenditure for the period was $50.3 million (30 June 2023: $37.2 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.

6. Operating segments (continued)

*Following a change in management structure at the start of 2024, Hiscox Retail's Kidnap and Ransom business written in Syndicate 33 is now reported within the London Market segment. The comparative period has been reclassified to present on a consistent basis.

6. Operating segments (continued)

*Following a change in management structure at the start of 2024, Hiscox Retail's Kidnap and Ransom business written in Syndicate 33 is now reported within the London Market segment. The comparative period has been reclassified to present on a consistent basis.

7. Net asset value (NAV) per share and net tangible asset value per share

The NAV per share is based on 340,502,346 shares (31 December 2023: 346,612,554), being the shares in issue at 30 June 2024, less those held in treasury and those held by the Group Employee Benefit Trust. Net tangible assets comprise total equity excluding intangible assets.

8. Return on equity (ROE)

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, share buyback 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.

9. Net investment and insurance finance result

10. Other income and operational expenses

11. Finance costs

*Other interest expenses included interest on funds withheld which is included in insurance finance expenses under IFRS 17.

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:

The current tax charge of $24.6 million arises on taxable profits (i.e. after adjusting for non-deductible expenses) based on a forecast effective tax rate for the full year, and includes the adjustments in respect of prior year.

Multiple jurisdictions in which the Group operates have substantively enacted such legislation ('Pillar Two legislation') before the balance sheet date. 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 €750 million.

This legislation brings into effect the Income Inclusion Rule (IIR) and Qualified Domestic Minimum Top-Up Tax (QDMTT) from 2024, and the Undertaxed Profits Rule (UTPR) from 2025, meaning that 'top-up taxes' on profits in jurisdictions where the effective tax rate is below 15% may be payable in other jurisdictions across the Group with effect from 2025.

Based on historic trend and forecast analysis, the Group is not expected to incur top-up tax in 2024 and so no top-up tax has been provided for in the period ended 30 June 2024.

13. Insurance liabilities and reinsurance contract

Risk adjustment

For the incurred claim liabilities measurement purposes, the Group calculates the risk adjustment at each insurance undertaking entity in accordance with its risk profile using a combination of value at risk method and scenario analysis targeting an overall confidence level for the aggregate risk distribution. Scenario analysis is used to determine the level of compensation that the Group requires for bearing uncertainty about the large event-driven claims e.g. natural catastrophe. This element of the compensation for risk takes into consideration the range of potential outcomes from an event and the sensitivities of the loss positions in any modelled scenarios. Given the nature of the underlying business and losses it is normal for new risks to become apparent or for the magnitude of existing risks to change over time.

Group diversification benefit is not considered at the individual insurance undertaking entity level but is considered in determining the confidence level at a consolidated level for disclosure purposes. At 30 June 2024, the risk adjustment in respect of the liability for incurred claims (LIC) net of reinsurance is at the 82^nd percentile (31 December 2023: 83^rd percentile).

Detailed reconciliations of changes in insurance contract balances during the year are included below.

13. Insurance liabilities and reinsurance contract (continued)

Net insurance contract liabilities

Net insurance contracts - Analysis by remaining coverage and incurred claims