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First American FinancialHiscox Ltd
Report and Accounts
2020
Ownership
Passionate,
commercial and
accountable.
Ownership means
making it your business..
Why ownership is so important to us
Taking ownership means making it
your business. It means being
passionate, curious and restless,
always looking for a better way of
doing things. We strive to be the kind
of people who take responsibility, are
ambitious, accountable, pragmatic,
tenacious and proudly high-achieving.
In a growing business like ours, taking
initiative is something we expect of
everyone, regardless of their role.
It shows itself in a willingness to speak
up, to confront problems, to avoid easy
excuses, and to embrace hard work.
These are qualities we have always
valued and nurtured. But in 2020,
Covid-19 meant that instinct to step
up and take ownership was more
vital than ever before.
It is in difficult times that our values are
tested, but it is also in difficult times
that they prove the greatest guide.
Throughout this report, you will find
some examples of how we showed
ownership in 2020.
Hiscox is a diversified international insurance group
with a powerful brand, strong balance sheet and
plenty of room to grow.
We are headquartered in Bermuda, listed on
the London Stock Exchange, and currently have
over 3,000 staff across 14 countries and 35 offices.
Our products and services reach every continent,
and we are one of the only insurers to offer
everything from small business and home insurance
to reinsurance and insurance-linked securities.
Chapter 1:
A balanced business
Chapter 2:
A closer look
Chapter 3:
Governance
Chapter 4:
Remuneration
3
51
Owning the Hiscox view
of risk
52 Board of Directors
54 Senior management
56
Chairman’s letter
to shareholders
57 Corporate governance
63
Compliance with the UK
Corporate Governance
Code 2018
Nominations and Governance
Committee report
71 Audit Committee report
68
1
3
4
6
8
10
12
Showing ownership
in claims
Our key performance
indicators (KPIs)
Our response to Covid-19
Our purpose, values, culture
and vision
Our strategy and
how we operate
Key risks and business
priorities
14 Why invest in Hiscox?
2
17
Owning our understanding
of the cyber risk
18 Chairman’s statement
21 Chief Executive’s report
34 Capital
36 Risk management
40
42
Stakeholder engagement
Environmental, social and
governance (ESG)
Chapter 5:
Shareholder information
Chapter 6:
Financial summary
5
107
Owning our contributions
to the local community
108 Directors’ report
111
Directors’ responsibilities
statement
Advisors
111
6
113
114
122
122
123
124
125
126
187
Owning our adoption of
big-ticket digital trading
Independent auditor’s report
Consolidated income
statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of
changes in equity
Consolidated statement of
cash flows
Notes to the consolidated
financial statements
Additional performance
measures (APMs)
188 Five-year summary
4
75
76
78
80
88
Taking ownership of
employee well-being
Letter from the Chair of the
Remuneration Committee
Remuneration summary
Annual report on
remuneration 2020
Implementation of
remuneration policy
for 2021
90 Other remuneration matters
Remuneration policy
94
As a Bermuda–incorporated
company, Hiscox is not subject
to the UK Companies Act. As a
company listed on the London
Stock Exchange, we comply with
the requirements set out in the
UK Corporate Governance Code
2018 and the Listing Rules and
Disclosure & Transparency Rules
of the of the UK Listing Authority.
Our remuneration report is
consistent with UK regulations.
Any additional disclosures over
and above these requirements,
have been made for the benefit of
shareholders, on a voluntary basis.
Hiscox Ltd Report and Accounts 2020
1
22
Hiscox Ltd Report and Accounts 2020
Chapter 1:
A balanced business
1
Hiscox Ltd Report and Accounts 2020
3
3
Be passionate, curious,
restless and always
look for a better way.
Showing ownership in claims
Among the many life-changing impacts
of Covid-19, a postponed concert,
deferred sports event or cancelled flight
may seem trivial. But for businesses that
rely on events for revenue, or individuals
unable to return home or be reunited
with family members, these cancellations
can be devastating. Travel disruption was
one of the earliest impacts of Covid-19,
and required immediate ownership from
our claims teams. In the first month of the
UK lockdown, we processed over 200
travel claims, including repatriation costs
for customers who were abroad when
the Foreign & Commonwealth Office
advised all British nationals to return
home immediately.
Travel bans and restrictions were
soon followed by event cancellations.
Our UK team worked with small- to
medium-sized businesses to provide
support and find solutions. One
example was Motorcycle Live 2020, a
Birmingham-based show representing
the best of the British motorcycle
industry. With a global audience,
cancelling the November show was not
taken lightly, but as a result of our prompt
claims resolution they were able to make
an announcement in June, provide
significant notice for attendees, and shift
their efforts to promoting the 2021 event.
Our key performance indicators (KPIs)
The global pandemic impacted on profitability in 2020, but
digitisation and exceptional commitment from our employees
helped to deliver good underlying performance and our usual
service levels.
Financial KPIs
Gross premiums written
$4,033.1m
Net premiums earned
$2,752.2m
(Loss)/profit before tax
$(268.5)m
2020
2019
2018
2017
2016
4,033.1
4,030.7
3,778.3
3,286.0
3,257.9
Combined ratio
114.5%
2020
2019
2018
2017
2016
114.5
106.8
94.4
98.8
90.6
2020
2019
2018
2017
2016
2,752.2
2,635.6
2,573.6
2,416.2
2,271.3
Basic (loss)/earnings
per share
(91.6)¢
2020
2019
2018
2017
2016
(91.6)
17.2
41.6
8.1
159.0
Net asset value per share
689.0¢
Tangible net asset
value per share
601.5¢
689.0
768.2
798.6
817.1
792.5
2020
2019
2018
2017
2016
4
2020
2019
2018
2017
2016
601.5
670.6
726.2
751.5
737.7
2020
2019
2018
2017
2016
(268.5)
53.1
135.6
37.8
480.0
Ordinary dividend
0.0¢
2020
2019
2018
2017
2016
0.0
13.8
41.9
39.8
35.0
Return on equity
(11.8)%
2020
2019
2018
2017
2016
(11.8)
2.2
5.3
1.0
22.5
Hiscox Ltd Report and Accounts 2020Chapter 2 17 A closer lookChapter 1 3 A balanced businessChapter 3 51 GovernanceChapter 4 75 RemunerationChapter 5 107 Shareholder informationChapter 6 113 Financial summary
Chapter 1
A balanced business
Our key performance
indicators (KPIs)
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Non-financial KPIs
UK gender pay gap
21.2%
London Market broker
satisfaction 69%
UK customer satisfaction
92%
As a UK company with 250 or more employees,
we are required to disclose our gender pay gap for
UK employees, which we have done since 2017.
Improving diversity and inclusion at Hiscox is a high
priority, and we continue to focus on finding ways
to reduce our gender pay gap.
Each year, we survey our London Market broker
partners to understand more about their
experience of working with Hiscox throughout
the year. Their feedback is a reflection of our
products and service levels, so receiving
consistently good scores matters to us.
In the UK, customers who speak to one of our
insurance experts in our customer experience
centre in York are asked to rate their experience
of Hiscox at the end of the call. Whether they have
phoned for advice, a quote, to purchase a new policy
or make changes to an existing one, their feedback
helps us to constantly improve our service.
2020
2019
2018
2017
21.2%
26.1%
28.8%
31.1%
Data only available from 2017.
2020
2019
2018
2017
2016
69%
78%
76%
66%
76%
2020
2019
2018
2017
92%
89%
90%
90%
Data only available from 2017.
Employee engagement
68%
UK claims net promoter
score 72
US customer reviews
using Feefo 4.8/5
Our annual global employee engagement survey
looks at how connected we feel to Hiscox, our
managers, teams and roles. The results are shared
widely and heavily influence our people strategy.
We measure and monitor the satisfaction of our
customers at critical points during the policyholder
journey, and especially in the event of making a
claim. Our UK claims net promoter score is based
on customers’ responses as to the likelihood
they would recommend Hiscox following a claims
experience with us, on a scale where ten is very
likely and zero is unlikely, and we are pleased with
the stability of these scores over time.
In the USA, we ask customers to review their
experience of Hiscox post-purchase. We do this
using Feefo, which has a five-star rating system,
and are pleased to maintain such high scores
year after year even as the business grows.
2020
2019
2018
2017
2016
68%
71%
74%
77%
78%
2020
2019
2018
2017
72
75
76
67
Data only available from 2017.
2020
2019
2018
2017
2016
4.8
4.8
4.7
4.7
4.8
Hiscox Ltd Report and Accounts 2020
5
Our response to Covid-19
Coronavirus affected us all in 2020 and as the situation evolves,
so has our response. Our efforts are focused on four key areas;
our customers, our employees, our operations, and our
contribution to the communities in which we live and work.
Our
customers
Our
employees
“Hiscox extended my travel
cover free of charge while
I was stranded abroad and
trying to get back to the UK.
Your quick response and
high level of communication
helped ease an extremely
stressful situation.”
“The mental health training
made you reflect about your
own well-being, as well as
the well-being of your team,
and gave me tools that I can
have confidence will work.”
Set up dedicated Covid-19
claims telephone lines, as well
as an online claims portal to
process and pay business
insurance claims as quickly
as possible.
Extended cover in some lines
such as home and motor,
provided premium refunds for
event insurance customers,
waived 30-day cancellation
periods for commercial
insurance policyholders, and
offered a range of financial
concessions including
payment holidays.
Retained all current roles
during 2020; did not furlough
staff or access any UK, USA
or European government
support schemes.
IT home-working tips,
additional training and
drop-in sessions quickly
upskilled employees on safe
and secure remote working
– from setting up new
devices to using new tools
for video conferencing and
staying connected.
Reserved $475 million in
Covid-19-related claims
around the world across our
travel, events and business
insurance lines.
Transitioned successfully
to home-working, with over
95% of our 3,000 employees
working remotely.
Took a ‘pay it forward’
approach to contract staff
and suppliers by continuing
to pay them during national
and local lockdowns and
office closures.
22
Provided new ways to quote,
negotiate, bind and endorse
within our London Market
business, with over 90% of
risks bound online using the
Lloyd’s Placing Platform
Limited (PPL) during the
third quarter of 2020.
Participated in an insurance
industry test case with seven
other insurers to provide
clarity and certainty on the
business interruption cover
available to customers as
quickly as possible.
Delivered mental health
training to over 1,000
employees and provided
access to over 30 webinars
led by mental health experts
on topics such as sleep,
resilience, home-schooling
and living alone.
113
6
22
75
Hiscox Ltd Report and Accounts 2020Chapter 2 17 A closer lookChapter 1 3 A balanced businessChapter 3 51 GovernanceChapter 4 75 RemunerationChapter 5 107 Shareholder informationChapter 6 113 Financial summary Chapter 1
A balanced business
Our response to
Covid-19
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“Being in the business of risk
means managing claims surges.
Whether those surges are the result
of a flood, a hurricane, or as we saw
this year, a global pandemic, we have
established and repeatable structures
and processes for handling claims
during large loss events.”
Grace Hanson
Chief Claims Officer
Our
operations
“We began preparing our IT
systems in January 2020 for
the potential transition from
our usual c.600 remote
workers per week to over
3,000, and it paid off – with
little to no systems downtime.”
Our
communities
“We are grateful to Hiscox
USA for helping us nourish
our frail-aged neighbours
during this difficult time.”
Citymeals on Wheels
New York
Led the Bermuda reinsurance
market in supporting the
Bermuda Education Network
by providing computers for
home-schooling for over 300
children, and in raising more
than $550,000 for Bermuda’s
King Edward VII hospital.
Enabled 630 meals to be
delivered to isolated elderly
New Yorkers, 91,300 meals for
Londoners facing food poverty
and almost 10,000 meals for
hard-working NHS staff.
Redeployed 27 employees
to provide additional frontline
support to ensure we could
continue to effectively serve
our customers at a time of
increased demand.
Set up small and focused
working groups to cover very
specific operational elements,
including return to office
working groups and future
ways of working teams.
Established four distinct
workstreams, led by Executive
Committee members, to
manage our response, focused
on operating effectively,
underwriting exposure and
customer service through
claims, financial flexibility and
resilience, and working with
regulators and governments.
Donated over $9 million to a
range of good causes, helping
some of those most affected
by the global pandemic.
Additional Board meetings
were held during the year,
covering specific topics
such as the approval of
May’s capital raise, the
Company’s response to
Covid-19 and the insurance
industry test case.
48
Founding supporter of the
ABI’s Covid-19 Support
Fund, the largest UK
non-government fundraise
to date, with over £100 million
in voluntary contributions
from the insurance and
long-term savings industry
pledged so far.
Established new partnerships
with organisations that aim
to improve SME access to
funding and critical business
resources, including Business
in the Community in the UK
and The Women’s Business
Development Center in
the USA.
Set up a ‘donate your
commute’ initiative to
encourage employees to use
their commuting time to work
to practically support a cause
close to their heart.
107
Gave US employees $100 to
spend at a local small business
of their choice, to support
struggling businesses at a
time of need.
Hiscox Ltd Report and Accounts 2020
7
Our purpose, values, culture and vision
We have had a strong set of values for decades which, along
with our purpose, culture and vision, connect us to the business,
our customers and each other.
Our values
We periodically review our purpose,
values, culture and vision to ensure
they are still true to the business and fit
for the future. Our values are incredibly
important to us; we are guided by them
and we work hard to make sure they are
lived, not paid lip service to. By doing
so, we become a business that our
customers can relate to, and we provide
employees with a work environment
in which they can flourish. In our 2020
annual global employee engagement
survey, which was completed by almost
2,500 employees, 90% said they believe
in our corporate values, 83% said
employees are treated fairly regardless
of disability, age or professional
background, and 77% said they
felt proud to work for Hiscox.
Our purpose
As experts in risk, we give people and
businesses the confidence to realise
their ambitions.
We want to give our customers, whether
they are a small business, a risk manager
for a large corporate, a homeowner or a
collector, the confidence to pursue their
ambitions. We exist to offer them peace
of mind, by providing advice, expertise,
a safety net or simply an arm around
them when they need it most.
8
Hiscox Ltd Report and Accounts 2020Chapter 2 17 A closer lookChapter 1 3 A balanced businessChapter 3 51 GovernanceChapter 4 75 RemunerationChapter 5 107 Shareholder informationChapter 6 113 Financial summary Chapter 1
A balanced business
Our purpose, values,
culture and vision
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“I have worked at Hiscox for almost 20
years, and in all of the roles I have held
– from Hiscox UK to Group functions,
in claims, underwriting or operations –
I have felt a strong and consistent culture.
Our values are our common lexicon, no
matter which part of the business you
work in. They are lived and breathed,
they are talked about often, and they
inform decision-making at every level.”
Hiscox’s Bermuda office.
Joanne Musselle
Group Chief Underwriting Officer
Artist impression of Hiscox’s new London office
at 22 Bishopsgate.
Hiscox Ltd Report and Accounts 2020
9
Our culture
We work hard to nurture our culture,
and it is something we regularly
measure and monitor to ensure
we keep it alive. In 2020, we began
designing new office space with
our distinctive culture in mind and
embodying our values of ownership,
connected and human. Examples of
this from our Bermuda and London
offices can be seen in the images to
the right. We are also establishing
exciting new ways of working
that balance both flexibility and
collaboration and support our desire
to attract and retain the best talent.
Our vision
For Hiscox to be the leading specialist
insurer in material markets – not the
biggest, but the most respected.
We want to be known by customers
for being true to our word, as a great
place to work and grow for those who
are ambitious and talented, and to be
seen as an industry leader in attitude,
sales growth, profits and value creation.
Read more about how we
measure and monitor culture.
48
Our strategy and how we operate
Our long-held strategy has delivered throughout the insurance
cycle. Central to this is a simple business model.
A strategy of balance
Hiscox’s long-held strategy ensures
we are not overly reliant on any one of
our divisions for the Group’s overall
profits. We maintain a balance between
big-ticket business – the larger premium,
globally traded and catastrophe-exposed
lines written through Hiscox London
Market and Hiscox Re & ILS – and the
smaller premium, locally traded, relatively
less volatile business written through
Hiscox Retail. In our big-ticket businesses,
we shrink and expand according to the
pricing environment. In retail, where our
specialist knowledge differentiates us,
we target growth of 5-15% per annum
and invest in brand-building to continually
strengthen our market position.
A truly international business
As the nature of risk evolves, we
want to be diversified in both the
range of insurance we write and its
geographical spread. Our business is
truly international, with over 3,000 staff
across 14 countries and 35 offices and
a portfolio of products and services that
reach every continent. We are one of
the few insurers to cover every size of
business, from one-man-bands right
up to the largest multinationals; an
approach which means we can adapt
to market conditions and which gives
us opportunities for profitable growth
throughout the insurance cycle.
A specialist product approach
We seek to excel in our chosen markets,
such as small business, flood or kidnap
and ransom insurance. In some, such
as fine art, we have deep foundations
to build on; in others we are relative
newcomers. To be successful in any of
these fast-moving sectors, we invest
in the right people, infrastructure and
technology to give us the flexibility
and nimbleness to respond quickly to
changes. The common thread is our
focus on niche products and services
that differentiate us.
View a breakdown of our big-ticket
and retail business for 2020.
Read more about our performance
by product and geography in our
Chief Executive’s report.
29
10
21
Hiscox Ltd Report and Accounts 2020Chapter 2 17 A closer lookChapter 1 3 A balanced businessChapter 3 51 GovernanceChapter 4 75 RemunerationChapter 5 107 Shareholder informationChapter 6 113 Financial summary Chapter 1
A balanced business
Our strategy and how
we operate
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“I have admired Hiscox for 20 years
as both a reinsurance partner and a
competitor. For me, Hiscox is synonymous
with underwriting acumen and product
innovation, and its brand is iconic in our
industry. The selection process was
refreshingly clear and with a candour
that you don’t often find, which really
appealed to me. I am joining at an exciting
moment – not only in the Company’s
growth, but also as conditions in the
reinsurance market improve and new
opportunities present themselves.”
A strategy built around our business model, customers, people and other
stakeholders such as shareholders, regulators and communities
Business model
– a diversified
portfolio, focused
on organic growth
People
– a great place
to work for the
hard-working,
ambitious
and talented
Annual and
long-term plans
– disciplined
– commercial
– deliverable
Customers
– true to our word
Stakeholders’
expectations
– a respected
specialist insurer
Kathleen Reardon
Chief Executive Officer, Hiscox Re & ILS
Business model – a diversified
portfolio, focused on organic growth
We aim to be industry leaders in
material markets. We use our
underwriting expertise in Bermuda
and London to write larger premium,
volatile or complex risks while
building distribution and operational
effectiveness in the UK, Europe,
USA and Asia for our specialist
retail products.
Customers – true to our word
We invest in creating a customer-focused
ethos and a powerful differentiated brand
that our target customers identify with.
Our people – a great place to work
for the hard-working, ambitious
and talented
The quality of our people is a crucial
factor in our continuing success.
Their expertise, courage and dedication
drive our reputation for quality and
professionalism. In return, we strive to
provide them with a work environment
in which they can flourish.
Stakeholders’ expectations – a
respected specialist insurer
We constantly adapt to the evolving
regulatory environment in each of our
regions. We are accountable to our
communities and responsible in how
we operate.
Read more about our
stakeholder engagement.
40
Hiscox Ltd Report and Accounts 2020
11
Key risks and business priorities
As an insurance business, understanding and managing risk is
part of our DNA. This is how we will balance risk and opportunity
in 2021.
Key risks
As an insurance group,
specific risks related to
our business include:
Strategic risk
The possibility of adverse outcomes
resulting from ineffective business
plans and strategies, decision-making,
resource allocation or adaptation to
changes in the business environment.
The Group’s continuing success
depends on how well we understand
our clients, markets and the various
internal and external factors affecting
our business, and having a strategy
in place to address risks and
opportunities arising out of this.
Not having the right strategy could
have a detrimental impact on
profitability, capital position,
market share and reputation.
Underwriting risk
The risk that insurance premiums
prove insufficient to cover future
insurance claims and associated
expenses. Likely causes include failing
to price policies adequately for the risk
exposed, making poor risk selection
decisions, allowing insurance
exposures to accumulate to an
unacceptable level, or accepting
underwriting risks outside of agreed
underwriting parameters. This includes
people, process and system risks
directly related to underwriting, such
as human error in paying invalid claims
or misquoting premium prices.
12
Reserving risk
The Group makes financial provisions
for unpaid claims, defence costs and
related expenses to cover liabilities
both from reported claims and from
‘incurred but not reported’ (IBNR) claims.
Reserving risk relates to the possibility
of unsuitable case reserves and/or
insufficient outstanding reserves being
in place to meet incurred losses and
associated expenses, which could affect
the Group’s future earnings and capital.
Credit risk
The risk of a reinsurance counterparty
being subject to a default or downgrade,
or that for any other reason they may
renege on a reinsurance contract
or alter the terms of an agreement.
The Group buys reinsurance as a
protection, but if our reinsurers do not
meet their obligations to us, this could
put a strain on our earnings and capital
and harm our financial condition and
cash flows. Similarly, if a broker were
to default, causing them to fail to pass
premiums to us or pass the claims
payment to a policyholder, this could
result in Hiscox losing money.
Market risk
The threat of unfavourable or unexpected
movements in the value of the Group’s
assets or the income expected from them.
It includes risks related to investments – for
example, losses within a given investment
strategy, exposure to inappropriate assets
or asset classes, or investments that
fall outside of authorised strategic asset
allocation or tactical asset allocation limits.
Liquidity risk
This relates to the risk of the Group being
unable to meet cash requirements from
available resources within the appropriate
or required timescales, such as being
unable to pay liabilities to customers or
other creditors when they fall due. It could
result in high costs in selling assets or
raising money quickly in order to meet
our obligations, with the potential to have
a material adverse effect on the Group’s
financial condition and cash flows.
Operational risk
The risk of direct or indirect loss
resulting from internal processes,
people or systems, or from external
events. This includes cyber security risk,
which is the threat posed by the higher
maturity of attack tools and methods
and the increased motivation of cyber
attackers, in conjunction with a failure
to implement or maintain the systems
and processes necessary to protect the
confidentiality, integrity or availability of
information and data. Operational risk
also covers the potential for financial
losses, information and cyber security
risks which have implications from
a legal, regulatory, reputational or
customer perspective, for example,
major IT, systems or service failures.
Regulatory, legal and tax governance
This relates to the business failing to act in
accordance with its applicable regulatory
requirements in all its applicable
jurisdictions, or a deterioration in the quality
of our relationship with one or more
of our regulators. Legal risk is the risk
of acting contrary to the relevant legal
requirements in any of the jurisdictions in
which we operate, while tax governance
risk covers the consequences of any failure
to act in accordance with relevant taxation
laws or adapt to changes in taxation.
Read more on how we manage
key risks in note 3.
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Chapter 1
A balanced business
Key risks and business
priorities
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
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107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“The past year has only accelerated
the pace at which the insurance market
is going digital, and Hiscox is uniquely
placed to seize the moment. Our
multi-year technology investments
have given us the tools to deliver superb
digital experiences for customers,
brokers, partners, and employees
alike. The opportunity is huge.”
Ben Walter
Chief Executive Officer, Hiscox Retail
Business priorities for 2021
Underwriting portfolio
optimisation
Digitising and
streamlining our
operating model
Nurturing talent in
new ways
In 2021, we will build on last year’s
progress in optimising our underwriting
portfolios and improving loss ratio
performance through a continued
focus on active portfolio management.
This means addressing poor-performing
lines, investing in top quartile business
and taking decisive action when needed.
We will examine where we can simplify
underwriting processes, products and
services; boost existing product and
pricing controls; and formalise the
flow of data and insight between
underwriting, claims and actuarial.
We are becoming a more digital
business, having invested $500 million
in technology over the last five years.
In 2021, we will look to realise these
efficiencies in order to seize the
significant digital opportunity ahead,
and begin our claims transformation
journey. We will also focus on rigour in
execution; rebalancing our global versus
local capabilities to ensure we have
the right knowledge in the right place,
embedding consistent and repeatable
processes, and pooling resources to
benefit from our growing scale. This
will result in some simplification within
the business to improve the speed of
decision-making and delivery.
After a year of lockdowns and
home-working, 2021 is about unleashing
potential and investing in talent. This will
include embedding new working styles
and supporting policies that balance
the ability to work remotely with the
culture, collaboration and energy of
our office environments. It will also mean
establishing robust plans in every part
of the business for developing talent,
more talent sharing across the Group,
and focusing on our diversity as well
as our succession pipeline at all levels.
Read more on performance against
our 2020 business priorities.
83
Hiscox Ltd Report and Accounts 2020
13
Why invest in Hiscox?
A balanced business which provides opportunities throughout
the insurance cycle.
A focus on creating sustainable and
compounding shareholder returns
We aim to achieve this by balancing
consistent capital returns to our
shareholders with reinvesting excess
capital into our business to ensure
sustainable growth in the medium to
long term. The challenging operating
environment over the past 12 months
has resulted in the Board’s decision to
suspend dividend payments. However,
the Board believes that as our business
delivers the 2021 business plan and
as profits flow through, it may be in a
position to consider paying a dividend
with the 2021 interim results.
A balanced business achieving
sustainable growth
By running a well-balanced business,
underpinned by a clear set of values
and characterised by a disciplined
approach to underwriting, our aim is
to consistently grow the business in a
way that is organic, sustainable and
profitable. Covid-19 presented some
unique challenges in 2020, but as the
chart opposite shows, over the past 28
years the Group’s controlled income has
broadly risen in a steady manner, despite
the industry’s innate volatility. That
growth has been fuelled by progress
across all our divisions and regions.
Total Group controlled income
($m)
Big-ticket business
Hiscox Re & ILS
Hiscox London Market
Retail business
Hiscox UK
Hiscox Europe
Hiscox Special Risks
Hiscox USA
Hiscox Asia
* Hiscox Retail includes $1.5m GWP
of fully reinsured run-off portfolios.
190%
8%
total shareholder return over the last ten
years, well above the FTSE All-Share
of 72%.
compound GWP growth over the last
ten years in Hiscox Retail.
$1.6bn
4%
returned to shareholders since 2010.
compound GWP growth over the last
ten years in big-ticket business.
$32bn
gross premiums written over the
last ten years.
14
Hiscox Ltd Report and Accounts 2020Chapter 2 17 A closer lookChapter 1 3 A balanced businessChapter 3 51 GovernanceChapter 4 75 RemunerationChapter 5 107 Shareholder informationChapter 6 113 Financial summary Chapter 1
A balanced business
Why invest in Hiscox?
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“We are an A-rated, well capitalised
business, with the financial flexibility,
operational strength and talent to drive
sustainable long-term growth. In our
Retail businesses, our established
digital platforms are benefiting from the
global shift to digital. In our big-ticket
lines, our expertise and underwriting
discipline positions us well as the rating
environment improves.”
Aki Hussain
Group Chief Financial Officer
4,530 4,532
4,224
S
L
I
&
e
R
x
o
c
s
H
i
,
t
e
k
r
a
M
n
o
d
n
o
L
x
o
c
s
H
i
3,625 3,652
3,310
3,268
2,951
3,008
2,839
2,690
2,669
2,587
2,570
2,585
2,033
1,928
1,901
1,506
1,131
892
799 828
666
630
677
569
579
*
l
i
a
t
e
R
x
o
c
s
H
i
Total Group controlled income
($m)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Hiscox Ltd Report and Accounts 2020
15
16
Hiscox Ltd Report and Accounts 2020
Chapter 2:
A closer look
2
Hiscox Ltd Report and Accounts 2020
17
We are a growing
company and
you need to grow
with us.
Owning our understanding of the
cyber risk
The cyber risk landscape is constantly
changing, as new risks appear and
known risks evolve, but it is vital that
we stay ahead in this area. That means
taking ownership of developing technical
abilities and responding to industry
trends. The Hiscox Technical Cyber
Training Programme, which launched this
year with industry-leading cyber security
qualifications CompTIA Security+ and
CompTIA Pentest+, ensures a consistent
and repeatable approach to underwriter
cyber training. This training, along with
our cyber efforts around the world, are
coordinated by our CyberClear Centre,
which provides cyber-related education
and advisory services to our cyber teams
in every business unit, enabling them to
deliver real-time information and external
insights to our brokers and customers.
The Hiscox Cyber Insight Dashboard is
an example of this melding of information
and insight, as it combines third-party
cyber security ratings with our own
claims data analysis to create a profile of
a business’s cyber exposure. As well as
allowing our underwriters to get a valuable
overview of what could be a complicated
risk and make informed pricing decisions,
it also gives brokers and customers
a unique insight into their cyber risk.
Chairman’s statement
The pandemic has also affected the way we work and how
we interact with each other. In the field of business processing,
our response to the pandemic has significantly accelerated
our digital progress. For example, in 2020 our London Market
business bound over 90% of its business digitally, which
is a phenomenal change in the way business is written in
the market. Our investment in IT systems and the superb
dedication of all our employees meant that the transition to
working from home was almost seamless. We all long for a
return to more normal working but it is unlikely we will return
to exactly the way it was.
Gross written premiums are stable at $4,033.1 million
(2019: $4,030.7 million) and the combined ratio increased
to 114.5% (2019: 106.8%). Excluding Covid-19 the combined
ratio decreased to 97.0% (2019: 106.8%).
Our long-term strategy has been to build a balanced book of
business. We have grown our small-ticket Retail business in
the UK, Europe, USA and Asia to balance the big-ticket London
Market and Re & ILS businesses written through Lloyd’s
and in Bermuda. We have seen strong profitable growth in
Hiscox London Market as rates continue to surge ahead in
the wholesale markets. Disciplined underwriting over the last
three years as we weeded out underperforming business
has meant that we are very well placed to take advantage
of the improving conditions. In Retail, Hiscox Europe and
the US direct and partnerships business, in particular, had
good results, notwithstanding the pandemic.
In all segments we have benefited from our multi-year
investment in new technology and digital tools. These
include new underwriting platforms, quote and buy systems,
robotics and APIs to connect us with business partners.
Global lockdowns have accelerated our customers’ adoption
of online systems and this has driven a good underlying
performance in Hiscox Retail which delivered growth of
3%. Customer numbers in our Retail business have grown
by 10% to 1.3 million over the period.
For Hiscox UK, Covid-19 brought about a dispute with a
number of our customers over the wording in some commercial
property policies. Our commitment to putting things right
for our customers has long been the cornerstone of the
Hiscox brand. But for the first time, our reputation for paying
claims quickly and without fuss came under intense scrutiny.
We regret any dispute with a customer, but particularly where
2020 got off to a good start and then
came the global pandemic. Over
my 48 years in the business, I have
experienced most of the challenges
that Mother Nature and mankind have
thrown at the insurance industry,
but Covid-19 and its repercussions
have been one of the most testing.
As a result, we expect to pay
$475 million in Covid-related claims
net of reinsurance, the majority for
event cancellation and the remaining
for business interruption and other
claims. These are large sums and
disappointingly means that we will
make a pre-tax loss for the year of
$268 million. Without Covid-19
we would have produced a profit
of $207 million.
18
Hiscox Ltd Report and Accounts 2020
Chapter 3 51GovernanceChapter 4 75RemunerationChapter 5 107Shareholder informationChapter 6 113Financial summaryChapter 1 3 A balanced businessChapter 2 17 A closer look Chapter 1
A balanced business
3
Chapter 2
A closer look
Chairman’s statement
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“Disciplined underwriting
over the last three
years as we weeded
out underperforming
business has meant that
we are very well placed
to take advantage of the
improving conditions.”
the policy wording was not as clear as it should have been.
That is why we willingly agreed to be one of the group of
insurers that assisted the FCA with the test case and we
welcome the finality and certainty the Supreme Court
Judgment has brought. We are now paying covered
claims as quickly as possible.
In the face of unprecedented economic uncertainty,
prudent capital management is critical to ensure we are
able to continue to serve our customers, pay valid claims
and grow where opportunity permits. We have taken a range
of proactive actions, both before the onset of the pandemic
and since, to further strengthen Hiscox’s robust balance
sheet and position us for growth.
In our first quarter 2020 trading statement, we announced
an equity placing for up to 19.99% of our issued share
capital to support growth opportunities and rate
improvements in the US wholesale and reinsurance
markets. This placement was successful and we raised
£375 million. I would like to thank our shareholders for their
support during a challenging time.
In April, we announced the decision not to pay the 2019
final dividend and that the Group would not propose an
interim dividend payment. The Board has also decided not
to declare a final dividend for 2020. The decision was not
taken lightly by the Board, who are acutely aware of the
importance of dividends as a source of income for our
shareholders, including private shareholders many of whom
own shares through pension funds. The Executive Directors
will not be taking any cash bonuses until the dividend is
reinstated. The Board believes that as our business delivers
the 2021 business plan and as profits flow through, it intends,
subject to Board approval, to resume paying dividends with
the 2021 interim results.
The Group remains strongly capitalised against both our
regulatory and rating agency requirements, and we are able
to withstand a combination of severe downside scenarios
including an active hurricane season.
People
Without the resilience of our 3,000 employees across the
globe, we would not have overcome this challenging year.
I would like to take this opportunity to thank everyone for
their dedication, flexibility and, most of all, their hard work.
Over the years, we have employed some of the best minds
in the industry, but like any business we must work hard to
continue to attract and retain good people. I am immensely
proud that in 2020 we welcomed over 300 new talented and
ambitious individuals across the Group. Starting a new job
during lockdown cannot be easy, and we have found new
ways to welcome them.
One of our recent senior joiners has been Kathleen Reardon,
our new Hiscox Re & ILS CEO. Kathleen has spent the
last six years as CEO of Hamilton Re, where she built a
reinsurance business from the ground up. She replaces
Mike Krefta, who made an immense contribution to Hiscox
during his 17-year tenure, most recently developing our ESG
framework. We look forward to benefiting from Kathleen’s
depth of knowledge and presence in global reinsurance,
and her experience of building businesses through the
reinsurance cycle.
Diversity and inclusion
We are committed to creating a diverse and inclusive
workplace and an environment where all employees are
supported and can thrive. Under the leadership of
Kate Markham, Hiscox London Market CEO and Group
Executive Sponsor for D&I, we are improving the gender
balance at all levels through a combination of key
performance indicators, training, networking, mentorship
and partnerships such as the Insurance Supper Club
and the Independent Women in Insurance Network.
This progress is reflected in our improved gender pay
gap for the UK, and more diverse succession pipelines
with at least one female successor for every leadership
team role.
This work will continue in 2021, along with a sharpened
focus on ethnicity and race as we look to make further
progress against the action plans put in place this year
in support of the #WeStandTogether movement.
Culture and values
We have been on the defensive in 2020 as our values have
been tested and the trust we have painstakingly built over
many years between us and our customers has been
challenged to our dismay. It has been a particularly tough
year, but during times like these we have to dig deep,
go back to our core values, recognise where we need to
improve and learn from the past.
Hiscox Ltd Report and Accounts 2020
19
Chapter 1
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3
Chapter 2
A closer look
Chairman’s statement
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“In all segments we
have benefited from our
multi-year investment
in new technology and
digital tools, including
new underwriting
platforms, quote and
buy systems, robotics
and APIs.”
Last year we shared the outputs of our most recent culture
review; our refreshed values of courage, ownership, integrity,
connectedness and being human. This year I was pleased to
see them become embedded in our business and being lived.
As it turned out, the timing of this exercise was fortuitous,
and during a year of remote working at our kitchen tables
and home offices, it is our values that have served as a golden
thread throughout the Company.
Outlook
The challenges of a global pandemic have not withered the
green shoots of a hardening market. Rates are rising across
all three of our business areas, and the market is turning.
Together with our multi-year investments in technology and
digital tools, we have the infrastructure, talent and financial
firepower to realise the significant opportunities ahead.
We can look forward with confidence as some normality returns
globally in 2021 and we continue to focus on providing excellent
service during these difficult times in all our markets.
Robert Childs
3 March 2021
20
Hiscox Ltd Report and Accounts 2020
Chief Executive’s report
2020 is a year few of us will forget
as we all adapted to the impact
of Covid-19 on our societies,
our businesses and our lives.
Adaptability and resilience were
core to weathering the storm and
few of us are untouched by the
human tragedies it has caused.
Like many others, Hiscox adjusted well to the challenges
of working from home, operating effectively to serve our
customers and brokers, and contributing to our local
communities. We established new partnerships to increase
small business access to essential services and funding in
both the UK and the USA, and supported a number of
charitable endeavours – donating over $9 million to good
causes around the world. These included foodbanks, mental
health and well-being charities, hospitals, and the Association
of British Insurers’ Covid-19 Support Fund. Our ability to do
all of this was due to the hard work and dedication of our
staff, who were all the while dealing with their own personal
Covid-19 challenges. I would like to thank them all for their
tremendous efforts this year.
In 2020, Hiscox reported a pre-tax loss of $268.5 million
(2019: profit of $53.1 million). The Group combined ratio
was 114.5% (2019: 106.8%). Excluding the impact of
Covid-19 claims, Hiscox’s combined ratio was 97.0%,
reflecting the underlying improvement in performance in
many parts of the Group and the benefit of circa $80 million
in expense savings.
Against a backdrop of sharp economic contraction across
the markets in which we operate, the Group has maintained
its revenues at $4.0 billion. Hiscox London Market has had
a stellar year, growing its revenues by 5.7% to $1.0 billion,
delivering a 93.7% combined ratio and profits of $97.2 million.
Hiscox Retail grew by 3.2% to $2.3 billion and, excluding
Covid-19 claims, delivered a combined ratio, within our
guidance, of 97.7% and profits of $162 million. Including
Covid-19, Hiscox Retail’s combined ratio is 120.0% and
it made a pre-tax loss of $237.6 million. Our direct and
partnerships business across the world grew by 15% with
total revenues approaching $600 million as we benefited from
the ongoing structural shift to digital. Hiscox UK maintained
its revenues at $756.1 million. The good performance in these
segments offset the reduction in revenue in Hiscox Re & ILS
as it showed discipline at last January’s renewals, before
benefiting from price rises in the rest of the year.
Hiscox’s 2020 performance, while understandable, is not
satisfactory. We have worked hard to address underperforming
segments in our business through our Decile 10 action plans,
and equally to grow our top-performing lines through our
quartile 1 focus. The performance of Hiscox London Market
shows the positive impact of these plans.
Hiscox Ltd Report and Accounts 2020
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Chapter 3 51GovernanceChapter 4 75RemunerationChapter 5 107Shareholder informationChapter 6 113Financial summaryChapter 1 3 A balanced businessChapter 2 17 A closer look
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Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“To adapt to changing
demands we created
a talent exchange
which saw a number
of colleagues moving to
new roles, temporarily or
permanently, particularly
to support our frontline.”
As we look into 2021, we see two trends which will benefit
Hiscox. The first is the dramatic digital acceleration which will
benefit our direct and partnerships business, as well as our
London Market business where we bound over 90% of our
risks through Lloyd’s PPL platform in 2020 and already
trade $75 million through digital means with brokers and
coverholders not located in London. The second is the rating
environment that will drive strong return to profit by our London
Market and Re & ILS businesses. This, in turn, will allow us to
drive growth in our Retail division, making use of the inherent
strength of our balanced business. It is this strategy that will
position Hiscox to benefit from the generational shift to digital
trading. This will allow us to serve more customers more
effectively and the whole of Hiscox to prosper.
Global pandemic
As the pandemic spread across the countries in which we
operate, we rapidly shifted to different ways of working.
Our Chief Information Officer described it as instantly going
from 35 offices to over 3,000. It was a smooth transition made
simpler by past IT investments and the willingness of all staff
to adapt, juggling roles as parents, carers and volunteers
alongside their work. We committed to our staff that no one
would leave the business in 2020 due to the economic impact
of the pandemic. To adapt to changing demands we created a
talent exchange which saw a number of colleagues moving to
new roles, temporarily or permanently, particularly to support
our frontline.
Paying claims in a fair and fast manner is part of our DNA.
We have reserved $475 million for Covid-19 claims across all
lines. Claims teams across the Group mobilised and delivered
for our clients. The Group’s largest share of Covid-19 losses
is for event cancellation and abandonment, where Hiscox
proactively sold communicable disease cover, and many of
these claims have already been paid.
The Group’s second largest share of Covid-19 claims is from
UK business interruption cover in commercial property
policies. Unsatisfactorily for both our policyholders and
ourselves, there was disagreement over whether the Hiscox
policy wordings responded to the steps taken by the UK
government to manage Covid-19. Our claims paying philosophy
is deep-rooted: to pay claims quickly, fairly and in line with
the intention of the policy. The underwriting intention of these
property policies is to respond to local events affecting a
firm’s premises and not to nationwide steps taken to manage
22
Hiscox Ltd Report and Accounts 2020
the pandemic. When a claims decision is challenged it is the
wording which determines the coverage in law, and there was
room to question whether the Hiscox wording reflected this
underwriting intent. We, of course, regret the impact of this
disagreement on affected policyholders, and the adverse
publicity we received as a result of it has been difficult for all
of our stakeholders.
Similar disagreements occurred across the industry, and
the Financial Conduct Authority recognised this by bringing
an expedited industry test case before the UK courts on
behalf of policyholders. Their ambition was to bring clarity to
approximately 370,000 policies with over 50 insurers which
were subject to dispute. In May, we agreed to participate in
the industry test case process, along with seven other insurers
and two customer action groups.
After the High Court decision in September, all parties involved
had the option to appeal some or all of the Judgment to a higher
court. Although Hiscox was ready to implement the High Court
Judgment, once others appealed, we felt we had no option but
to appeal and participate in the Supreme Court Hearing.
In January 2021, the Supreme Court Judgment largely
confirmed the outcome of the High Court’s ruling in respect of
Hiscox that, except in rare circumstances, cover is restricted
to Hiscox policyholders who were mandatorily closed.
Approximately one third of Hiscox’s 34,000 UK business
interruption policies may respond as a result. The Supreme
Court Judgment represents the final outcome of the industry
test case, and there can be no further appeals. A process that
would normally take a number of years was completed within
nine months; almost lightning speed for any legal process of
this complexity. We have begun paying claims in line with the
Supreme Court Judgment. We have increased our claims
handling capacity and the process of collecting information
from customers who have cover and settling their claims is
well under way.
Hiscox’s exposure to potential business interruption claims
arising from further UK government restrictions to contain
the spread of Covid-19 has been running off at approximately
8% per month from June 2020, with residual exposure to be
largely run off by the end of June 2021. Following the Supreme
Court Judgment, the Group estimates exposure to restrictions
already announced in 2021 to be less than $40 million if
restrictions extend to the end of June.
Chapter 1
A balanced business
3
Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
An actively managed business mix
Total Group controlled premium 31 December 2020: $4,532 million
(Period-on-period in constant currency) 2020 GWP
Small
commercial
Reinsurance
Property
Art and
private client
Specialty
Global
casualty
Marine
and energy
+3%
-14%
-6%
-1%
-2%
+21%
+27%
$1,627m
Professional liability
Errors and omissions
Private directors
and officers’ liability
Cyber
Commercial
small package
Small technology
and media
Healthcare related
Media and
entertainment
$845m
Property
Marine
Aviation
Casualty
Specialty
$540m
Commercial
property
$456m
Onshore energy
Home and contents
USA homeowners
Fine art
Flood programmes
Classic car
Managing
general agents
International
property
Luxury motor
Asian motor
$441m
Kidnap and ransom
Contingency
Terrorism
Product recall
Personal accident
$333m
Public directors and
officers’ liability
Large cyber
General liability
$290m
Cargo
Marine hull
Energy liability
Offshore energy
Marine liability
Hiscox Ltd Report and Accounts 2020
23
Chapter 1
A balanced business
3
Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Hiscox Retail
Gross premiums written
Net premiums written
Underwriting profit
Investment result
Profit before tax
Combined ratio (%)
† See note 4 to the financial statements.
2020
$m
2,266.3
1,986.8
(343.6)
107.3
(237.6)
120.0
2019
$m
2,196.3
1,957.5
36.5†
133.9
169.2†
99.3†
We clearly regret the uncertainty and anguish that the dispute
has caused to our customers, so it is important that we learn
from this experience. The most important lesson is the need for
clarity in wordings, to ensure intent is properly reflected in the
policy detail. In addition, the customisation of policies has to
be restricted to ensure that there is not a long tail of wordings
serving very small numbers of customers. In 2021, we have
commenced a series of initiatives aimed at addressing
these issues.
Hiscox has undoubtedly suffered some brand damage this
year. While I was reassured that net customer numbers in the
UK remained stable in 2020, the route to restoring our brand
is the same one which created it; providing flexible insurance
cover to meet each customer’s needs, paying each claim
fairly and quickly, and doing this all with good customer
service. Our reputation was built one risk, one claim, and
one customer at a time, and with that same focus, in time,
the brand will strengthen.
Hiscox Retail
Hiscox Retail comprises our retail businesses around the world:
Hiscox UK, Hiscox Europe, Hiscox USA, Hiscox Special Risks
and Hiscox Asia. In this segment, our specialist knowledge
and retail products differentiate us and our ongoing investment
in brand, distribution and technology helps us build a strong
market position in an increasingly digital world.
Hiscox Retail wrote $2.3 billion of premiums globally in 2020,
representing more than half of our Group’s gross premiums
and almost three-quarters net of reinsurance. In the face
of extremely challenging operating conditions, our Retail
business grew its top line by 3.2% and delivered growth in
four of its five business units even as the pandemic spread
across the globe and caused economic havoc.
Hiscox Retail’s 2020 result is a loss of $237.6 million
(2019: profit of $169.2 million) and a combined ratio of 120.0%
(2019: 99.3%). This result has been materially impacted by
Covid-19. Excluding the impact of Covid-19 claims, Hiscox
Retail delivered profits of $162 million, the combined ratio
is at 97.7%, which is in line with our guidance.
At the end of 2020 and in 2021, we are making two
changes to improve the focus of Hiscox Retail. In late 2020,
we restructured our Special Risks division, integrating
its activities with Hiscox Europe, Hiscox USA and Hiscox
24
Hiscox Ltd Report and Accounts 2020
London Market. As a result, in 2021, $100 million of Special
Risks premium income from Retail will be reported within
Hiscox London Market.
Over the past five years the digitally traded direct and
partnerships segment has grown to be an increasing and more
attractive part of Hiscox USA’s business and it is where we
see long-term growth opportunity. To accelerate this strategic
shift, we have taken a decision to reshape our broker channel
book, by exiting liability business for customers with revenues
over $100 million as well as all broker channel stand-alone
general liability business. We will also reshape our cyber book
to respond to adverse ransomware trends. These actions will
result in a reduction of up to $100 million in the USA broker
channel which will be partially offset by continued strong
growth in digital direct and partnerships business.
The combined effect of these changes will result in a one-time
circa $200 million reduction in Retail premiums. In addition,
these changes together with more cautious loss picks adopted
for 2021 to reflect the uncertain economic environment, and
the inevitable time taken to address fixed costs as a result of
this premium reduction, will mean our goal of reaching 90% to
95% Retail combined operating ratio range is expected to take
to 2023. For 2021, we expect the Hiscox Retail combined ratio
to be broadly in line with the 2020 result, excluding Covid-19
claims. We then expect an improving trajectory to 2023 as
higher rates are recognised and the portfolio and expense
management actions start to earn through.
The outlook for our Retail business is good and we are
beginning to enjoy some positive rate momentum. We anticipate
that 2021 Retail gross premiums will grow at the low end of
our medium-term target range of 5%-15% on a like-for-like
basis after allowing for $200 million reduction in premiums.
Thereafter the business is expected to return to a high single
digits growth expectation as our direct and partnerships
business becomes a bigger contributor to the top line. One
of the accelerating trends during the pandemic has been the
shift to digital. Approaching $600 million of our 2020 Retail
revenues came from our digitally traded direct and partnerships
businesses, which now serves over 800,000 customers
globally. Continuing historical growth trends, this business
grew by 15% in 2020 with considerable room to grow further
into an estimated 50 million target market of small, micro and
nano businesses. We see this as a long-term opportunity for
future growth and value creation.
Chapter 1
A balanced business
3
Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“Approaching
$600 million of our 2020
Retail revenues came
from our digitally traded
direct and partnerships
businesses, which now
serves over 800,000
customers globally.”
Hiscox UK
Hiscox UK provides commercial insurance for small- and
medium-sized businesses, media, events and entertainment
as well as high net worth personal lines, fine art and
luxury motor.
Hiscox Europe
Hiscox Europe insures high-value household, fine art and
classic cars and commercial insurance for small- and
medium-sized businesses.
Hiscox UK delivered a resilient performance in 2020.
Gross premiums written grew by 1.3% to $756.1 million
(2019: $746.4 million), which is a good performance given
the challenges of 2020.
Hiscox UK’s commercial business, both direct and through
the broker channel, has been the key driver of this
performance. The business had strong growth in the first
two months of the year, despite the headwinds caused by
the IR35 tax changes which affect our direct commercial
client base. We shrank between March and June due to the
reduced level of business activity during the first lockdown.
As the economy started to re-open over the summer period,
we saw signs of recovery in July and August which has
continued, and our direct commercial business had some of
the strongest months in its history in November and December.
Our high net worth personal lines and fine art business has
proven resilient. Revenues have been challenged as the
team showed discipline on broker commissions. We also
faced losses from Storms Dennis and Ciara in February as
well as a large, individual fine art loss. We simplified our
business by selling RH Specialist vehicle insurance as
the cross-sell opportunities were fewer than expected.
Our media, entertainment and events lines have faced
real challenges; not only due to pandemic-related losses,
but also as a result of dwindling media production and
events activity.
We have modest growth ambitions for the year ahead given
the broader economic uncertainties. We expect to see
continued headwinds from the implementation of IR35 in
April and ongoing subdued activity in media and events.
Offsetting this will be growth in new start-ups, either
voluntary or forced, which is a pattern we have seen in
previous tough economic conditions. We remain convinced
that this entrepreneurial activity and the shift to digital
will power Hiscox UK’s medium-term growth ambitions.
In 2021, we will focus on service quality, operational efficiency
through automation and simplification, reviewing our policy
wordings, and investing in our broker relationships.
The business delivered a strong performance, growing gross
premiums by 9.5% to $447.1 million (2019: $408.4 million),
against the reduction in economic activity across European
markets as the pandemic hampered growth. It was profitable
after providing for the Covid-19 losses it faced.
Germany remains the key engine of Hiscox Europe. Our German
business was the largest contributor to premiums in the region
and delivered very healthy growth of 15%, thanks to a strong
performance in commercial lines, technology and cyber.
Benelux also delivered strong double-digit growth, supported
by a strong performance in Belgium, which grew 16%.
Our operations in France have undergone a major transformation
over the last two years. To improve underwriting performance,
particularly in high-value household and commercial property, we
have exited some unprofitable lines in the portfolio. This resulted
in subdued top line growth but improved bottom line profitability.
Spain and Ireland both experienced mid-single digital
premium growth. In Spain, we continue to focus on
successful partnerships with banks and other carriers,
as well as technology and insurtech companies.
In Ireland, where our commercial lines book was a strong
growth driver early in the year, we have seen a material decline
in new business in line with the economic impact of Covid-19.
Alongside other local insurers, the team has been supporting
customers affected by Covid-19 with extended credit terms,
premium adjustments and other financial measures.
Hiscox Europe expects to implement the first phase of a new
technology platform during 2021, starting in Germany. This will
then roll out to other territories in subsequent years. This new
infrastructure will help us capture the growth opportunities we
see in both the traditional broker and digital channels.
Hiscox USA
Hiscox USA underwrites small- to mid-market commercial
risks through brokers, other insurers and distribution partners
and directly to businesses online and over the telephone.
Gross written premiums grew by 2.6% to $887.1 million
Hiscox Ltd Report and Accounts 2020
25
Chapter 1
A balanced business
3
Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Hiscox London Market
Gross premiums written
Net premiums written
Underwriting profit
Investment result
Profit before tax
Combined ratio (%)
†See note 4 to the financial statements.
2020
$m
1,023.4
570.9
40.7
56.6
97.2
93.7
2019
$m
967.9
504.6
(26.3)†
50.6
23.3†
105.6†
(2019: $865.0 million). Planned reductions were made in
the broker channel in private company D&O and media
to improve our book, and these were offset by continued
strong growth in our direct and partnerships small commercial
business. This channel grew revenues by 22.7% in the year
to $337.7 million and now insures approximately 430,000
customers. Our operations have proven to be robust in the
face of the pandemic. Despite the lockdown we continued
to deliver excellent uninterrupted service, taking nearly one
million calls with 80% answered within 20 seconds.
We have built this digital business since 2010 through ongoing
investment in our brand, technology and operational know-how.
Hiscox USA is now over half-way through a platform upgrade
which will support future growth. We have pursued an
omni-channel approach since we began, and so are less
constrained by the channel conflict which affects some of
our competitors. Our customers have a choice of buying our
policies online end-to-end, by speaking to a Hiscox agent over
the telephone, or alternatively through a third-party broker or
insurance carrier partner. We follow an ‘all roads lead to Hiscox’
philosophy, ensuring we are available to do business with
our target customers whichever way they choose, and it has
served us well.
Our core target market are small, micro and nano businesses.
We estimate there are in excess of 30 million businesses in
the USA with revenues of less than $25 million. This market
is fragmented and these businesses are increasingly shifting
to digital ways of buying their insurance. Hiscox already has
approximately 430,000 customers in this segment, so we enjoy
customer and data insights as well as economies of scale that
are not available to others.
Over the past five years this segment has made up an
increasing and more attractive part of Hiscox USA’s business
and it is where we see our long-term future. To accelerate
this strategic shift, we have taken the decision to proactively
reshape our book by exiting liability business for customers
with revenues over $100 million turnover as well as all broker
channel stand-alone general liability business. Given the rising
ransomware claims facing the market, we will also pull back in
cyber until there is significant market re-rating combined with
changes in terms and conditions. These actions will result in
a reduction of up to $100 million in the USA broker channel
which will be partially offset by continued growth in our
digital direct and partnership business.
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Hiscox Ltd Report and Accounts 2020
Hiscox is already one of America’s leading digital small business
insurers. Our goal is to further cement our market position and
to continue capturing a leading share of over 30 million small
businesses that represent the market opportunity ahead of us.
Hiscox Special Risks
Hiscox Special Risks underwrites kidnap and ransom, security
risks, personal accident, classic car, jewellery and fine art, with
teams in multiple locations.
Hiscox Special Risks wrote $127.8 million in premiums,
broadly in line with the prior year period (2019: $129.9 million).
Existing business retention has been strong and while we have
experienced heightened ransomware claims, this has been
mitigated by reinsurance.
Our Special Risks products are increasingly purchased by
our clients as part of a broader suite of crisis management
products and to reflect this shift, we are moving to a
geographic distribution-led approach. Under the new
structure, locally-written kidnap and ransom business in
the USA and Europe will be written through the respective
Retail businesses, while a newly-created crisis management
division within Hiscox London Market will handle business
written in Guernsey, Miami and London. All business units
will continue to work closely with long-time partner and
market-leading response firm Control Risks.
The successful reorganisation of the Special Risks business was
completed in the fourth quarter of 2020 and as a result Special
Risks ceased to exist as a stand-alone unit from 1 January 2021.
The Group’s financial reporting in 2021 will reflect this change,
resulting in $100 million of premium from the Retail segment
now being reported within Hiscox London Market.
Hiscox Asia
Our brand in Asia, DirectAsia, is a direct-to-consumer business
operating in Singapore and Thailand that sells predominantly
motor insurance.
In this challenging year, DirectAsia grew its written premiums by
26% to $48.2 million. Thailand posted an exceptional 58% growth,
with Singapore delivering a respectable 10% increase, despite
the extended Covid-19 lockdowns which seriously impacted
its travel and partnerships business. Thanks to this growth,
underwriting discipline and diligent management, DirectAsia
has seen a significant improvement in its combined ratio.
Chapter 1
A balanced business
3
Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Hiscox Re & ILS
Gross premiums written
Net premiums written
Underwriting profit
Investment result
Profit before tax
Combined ratio (%)
†See note 4 to the financial statements.
2020
$m
743.4
192.7
(67.7)
33.6
(35.1)
131.8
2019
$m
866.5
216.7
(144.7)†
38.5
(107.6)†
169.9†
Hiscox London Market
Our London Market business is the star performer of 2020.
It continues to use the global licences, distribution network
and credit rating of Lloyd’s to insure clients throughout the
world. The team’s focus over the past several years has
been on improving portfolio quality in a rising market so
growth is modest at 5.7%, taking gross written premiums
to $1,023.4 million (2019: $967.9 million). A focus on
quality has been rewarded with profits of $97.2 million
(2019: $23.3 million) and a net combined ratio of 93.7%,
a 11.9% improvement on 2019. More importantly, we
have delivered an underwriting profit of $40.7 million
(2019: loss of $26.3 million), even after including $13 million
of Covid-19-related losses.
This improvement reflects the hard work under a ‘3-1-1’ plan.
Here, we have sought to reduce the loss ratio by 3%, reduce
commissions by 1% and reduce the expense ratio by 1%.
This was initiated several years ago and its implementation
has steadily become more rigorous, requiring a combination
of organisational and orchestration skills and effective
risk by risk negotiations. This has seen us drive rate
improvements of 20% in 2020, with 16 of our 17 lines enjoying
price rises and ten lines benefiting from double-digit rate
increases. This is now the fourth year of rate increases with
cumulative increases of 43% since 2017.
The most significant rate improvement continues to be seen
in casualty lines such as US public company D&O and US
general liability, alongside terms and conditions improvements,
and reduced line sizes. In the marine and energy book
trends are positive, with rates increasing by 24% in cargo,
and 20% in hull.
In our property lines we saw rate growth of 20% in major
property where we grew our average line size over the
year. We have reduced exposure in household and
commercial binders through non-renewal of contracts,
increased rates and by restricting aggregate in certain
counties. These will flow into our results in 2021 and 2022
as new terms and increased rates feed into the portfolios.
As part of this optimisation, we undertook a large data
project which allowed us to match historic policies and
claims at a risk level. Going forward, we will aim to do this
on a quarterly basis, so we can target rate changes and
aggregate management to use our capital in the most
effective way.
Hiscox London Market is also making steady progress in its
own digital initiatives. These plans have two strands. The first
is through supporting the Lloyd’s market initiatives, where we
bound over 90% of our risks through PPL, the Lloyd’s market
digital platform. The second involves digital trading with
brokers and coverholders not located in London. FloodPlus
allows us to price risks in real-time with US coverholders,
managing aggregate and pricing on a day-to-day basis,
especially important when a river is in flood. Across all lines we
traded almost $75 million of business through non-traditional
digital means. Our medium-term ambition is to grow this
steadily to $250 million. We see this as a critical step to allow
Hiscox London Market to concentrate most of its underwriting
talent in London, while using digital tools to unlock growth
opportunities around the world.
In 2021, Hiscox London Market will benefit from the continuing
hardening market. Thanks to Syndicate 33’s stamp capacity
of £1.7 billion we have sufficient headroom to do this. We will
judiciously increase our aggregate exposures, with most
growth coming from rates. As a result, we expect London
Market growth in 2021 in mid to high single digits delivered
at improving margins. The compounding impacts of rate and
portfolio improvements in recent years will, we believe, drive
attractive multi-year profitability.
Hiscox Re & ILS
The Hiscox Re & ILS segment comprises the Group’s reinsurance
activities in London and Bermuda and insurance-linked
security (ILS) activity through our family of funds in Bermuda.
2020 saw gross written premiums reduce by 14.2%, to
$743.4 million (2019: $866.5 million), driven by a disciplined
approach to price inadequacy at the start of the year.
This includes $15.1 million of reinstatement premiums
(2019: $87.2 million). Hiscox Re & ILS made a loss of
$35.1 million (2019: loss of $107.6 million). Excluding Covid-19
claims it made a profit of $28.4 million; this is a good
result considering the high frequency of North American
catastrophe and weather-related events in 2020 and adverse
developments in exited healthcare and casualty business.
After a cautious start at the January renewals, we returned
to growth as the market began to harden from April
onwards. Overall, we have achieved a 12% average rate
increase, with positive rate momentum carrying through to
January 2021 renewals.
Hiscox Ltd Report and Accounts 2020
27
Chapter 1
A balanced business
3
Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“We have made strides
towards a data-based
operating model for
claims by quadrupling
the data analytics team,
driving deployment of
machine learning tools
and launching a fraud
mitigation tool in the UK.”
During the year we have been reshaping the book to focus
where we see the most opportunity. In US property
catastrophe and excess of loss, we adjusted the portfolio
away from the more capital-intensive nationwide covers and
Florida programmes. In the international catastrophe book,
we secured rate increases of 16% in Japan, in line with an
updated view of typhoon risk which reflects two active
years for Japanese windstorm losses. Net exposure in
our retrocession book was up 65% as we sought to take
advantage of rate improvements of over 20%.
In 2020, Hiscox ILS assets under management declined
slightly to $1.4 billion (2019: $1.5 billion). The slight reduction
on the previous year is mostly due to redemptions we
reported last year.
In 2021, Hiscox Re & ILS will benefit from the deployment of
some of the proceeds from the Group’s equity raise earlier
in the year. We expect that our net written premium
growth will exceed growth in gross written premiums as
Hiscox Re & ILS retains more risk in the strongest reinsurance
market in several years.
Claims
Claims experience in the year has been mixed. We have
benefited from some frequency reduction due to the lower
levels of activity during the lockdowns. At the same time, we
saw a number of large marine liability losses, exposure to
the Beirut explosion, floods in the UK, some US tax-related
professional liability claims as well as claims from multiple
Atlantic hurricanes. All of these claims, and our normal
attritional and large losses, together with Covid-19-related
claims in all territories, have been handled by our claims teams
in their usual award-winning manner. I would like to thank them
all for their professionalism in very challenging circumstances.
Our claims teams took the lead in managing our participation
in the UK industry test case, and now that it is over, are
managing our claims settlement processes. We have created
significant surge capacity, drawing on resources in the UK,
USA and Australia to make sure we have the capacity to deal
with all claims fairly and quickly.
During the year we made material progress in claims
transformation. In the USA we completed the insourcing of
some of our legal work, and where we do rely on external
lawyers, we have renegotiated hourly rates and consolidated
28
Hiscox Ltd Report and Accounts 2020
vendors to make this more cost-effective. This is part of our
global initiative to create a single vendor management
platform integrating all external providers across our markets,
which has already led to significant panel cost savings in the
USA and Europe.
We have also made strides towards a data-based operating
model for claims by quadrupling the data analytics team,
driving deployment of machine learning tools to analyse
our loss portfolios and launching a fraud mitigation tool in
the UK. In 2020, we built a quality assurance portal to automate
the claims control environment which is already live in the
USA and will be deployed to the rest of the business in 2021.
The high quality of the Hiscox claims experience has been
recognised by brokers in the London Market and across
the UK. The Lockton Claims Survey ranked Hiscox as the
number one performer out of 37 peer insurers. AON’s 2020
‘Voice of the Client Claims Insights Global’ rated Hiscox’s net
promoter score as 15th best out of 475 participating insurers.
Hiscox was also one of just two insurers to be awarded five
stars in Insurance Times’ 2020 Personal Lines Ratings.
Information technology and major projects
Over the past five years we have progressively been
replacing our core systems which has allowed us to
benefit from the digital shift accelerated by the pandemic.
In the USA we implemented the first two phases of our new
technology platform in the direct and partnerships business.
We expect to complete the programme by the end of the
third quarter in 2021 allowing us to continue marching
towards the significant digital SME opportunity. In the UK,
we have steadily improved our portfolio underwriting
capability and 90% of our new and renewal business is now
handled through automated underwriting rules. In Europe
we are working on our technology replacement programme,
with implementation beginning in Germany during 2021.
We have also been working on interfaces to connect our
partner’s systems to ours. Across the world we are now
connected to 158 partners in this way.
In addition to systems supporting our frontline teams, we
are close to the end of our finance transformation programme.
This programme has replaced many legacy systems and
processes allowing our finance team to keep pace with
the scale of business we are now, and the growth to come.
The next finance focus is preparing for IFRS 17.
Chapter 1
A balanced business
3
Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“We are close to the end of
our finance transformation
programme, which will
allow our finance team
to keep pace with the
scale of business we
are now, and the growth
to come.”
Strategic focus
Total Group controlled income for 2020
100% = $4,532 million
Big-ticket business
A Larger premium, globally traded, catastrophe-exposed
business written mainly through Hiscox London Market
and Hiscox Re & ILS.
A Shrinks and expands according to pricing environment.
A Excess profits allow further investment in retail
Retail business
A Smaller premium, locally traded, relatively less volatile
business written mainly through Hiscox Retail.
A Growth between 5-15% per annum.
A Pays dividends.
A Specialist knowledge differentiates us and investment
development.
Reinsurance
20%
Large property
11%
Casualty
7%
Specialty – terrorism, product recall
5%
Marine and energy
6%
in brand builds strong market position.
A Profits act as additional capital.
Small commercial
29%
Tech and media casualty
6%
Art and private client
10%
Specialty – kidnap and ransom,
contingency, personal accident
4%
Small property
2%
Hiscox Ltd Report and Accounts 2020
29
Chapter 1
A balanced business
3
Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“We manage our
investment portfolio
to provide sufficient
liquidity to pay claims,
and capital to support
the underwriting
business, while
generating strong
risk-adjusted returns.”
Portfolio – asset mix
Investment portfolio $7,630 million as at 31 December 2020
71.7
20.7
7.6
19.9
7.5
15.7
29.0
26.0
1.9
68.9
18.1
8.8
4.2
Asset allocation
Bonds
Cash and cash equivalents
Risk assets
Bond credit quality
Gvt
AAA
AA
A
BBB
BB and below
Bond currency split
USD
GBP
EUR
CAD and other
30
Hiscox Ltd Report and Accounts 2020
Chapter 1
A balanced business
3
Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“Our current capital
position is sufficient
to support our 2021
business plan, allowing
us to take advantage
of the hardening
market in our big-ticket
businesses.”
As Hiscox has grown organically, we have often introduced
complexity to win every piece of business and handle every
customer need. This means we have too many legal entities,
too many wording variations, too many sub-scale business
relationships and too many suppliers. Under the rubric of
the Hiscox simplification programme we are addressing
these and other unnecessary complexities in 2021.
We expect the savings generated will help deliver on our
plan to reduce our expense ratio by 1% a year over the next
two-to-three years. It will also ensure our business is easier
to manage and control.
Investments
We manage our investment portfolio with two main
objectives in mind: providing sufficient liquidity to pay
claims and providing capital to support the underwriting
business, while generating strong risk-adjusted
returns. Despite the turbulence of 2020, the portfolio
strategy helped us navigate the volatile markets well.
The investment returns for 2020 were very robust
at $198 million (2019: $223 million) after investment
expenses, a return of 2.8% (2019: 3.6%).
After a difficult start to 2020 we saw a significant
improvement in market sentiment in the second half
of the year. Incremental additions to risk assets during
the depths of the crisis have performed well and helped
boost returns for the year. Encouraged that the end of
the pandemic is in sight, the assets of the most affected
sectors of the economy surged on the expectation
that economic activity may improve markedly in 2021.
We have subsequently taken profits in some of our risk
asset positions.
Corporate bond spreads have now retraced much of the
Q1 2020 widening given the backdrop of ongoing fiscal and
monetary policy support. Given the high quality of corporate
bonds held, we remain comfortable maintaining our current
credit exposures. While equity markets have rebounded
generally, we have seen significant divergence in valuations
between regions and sectors and so maintain modest
exposure to selected risk assets.
While the full year 2020 investment return is well ahead of
the original forecast, more meagre investment returns should
be expected for 2021. Government bond yields are close to
zero, while credit spreads for high-quality bonds are now at
pre-Covid levels, reducing yields materially. The current yield
to maturity on the bond portfolio is at its lowest ever at just
0.4% (December 2019: 1.6%).
We continue to look through ongoing volatility to steadily
invest into positions where valuations present attractive
long-term risk and capital adjusted outcomes.
Capital and balance sheet strength
Hiscox’s approach to capital management is to ensure our
balance sheet is sufficiently robust to absorb large shocks,
whether due to insurance losses or economic stress, while
maintaining the financial flexibility to seize opportunities as
they arise.
Our capital position during the year was bolstered by
a £375 million non-pre-emptive equity placement.
I would like to thank our shareholders for the support
they provided to our business during a very challenging
time. The capital raised externally was supplemented
by action taken internally during the year to generate
around $65 million of capital saving by combining our
two Bermuda-based reinsurance carriers.
At the end of the year, the Hiscox Group estimated a
regulatory solvency ratio of 190%, after absorbing our
2020 loss and the second stage of the Bermuda Monetary
Authority’s strengthening of its solvency regime.
Over the period 2019 to 2021 the Bermuda Solvency
Capital basis is being strengthened, resulting in higher
capital requirements; to the end of 2020 this has had a
zero percentage point impact on the Hiscox coverage ratio.
The final stage of basis strengthening will occur in 2021
and is expected to reduce the coverage ratio by
10-15 percentage points. This basis strengthening is
expected to be funded by organic capital generation.
We remain A-rated by S&P and A.M. Best and A+ by Fitch.
We have a toolset of proactive capital management
measures at our disposal which can help provide capital
relief, reduce volatility and bolster our balance sheet strength
further. In 2020, ahead of the North America hurricane season,
we purchased approximately $100 million of additional
catastrophe reinsurance in the form of industry loss warranties.
We are also looking at legacy reinsurance solutions and may
execute one or more of these in 2021 if the cost and capital
efficiency they provide is attractive.
Hiscox Ltd Report and Accounts 2020
31
Chapter 1
A balanced business
3
Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“Hiscox London Market’s
stellar performance
supported by profits
in Hiscox Europe and
Hiscox Special Risks and
better-than-expected
investment returns,
mitigated the impact
of the pandemic.”
Our current capital position is sufficient to support our 2021
business plan, allowing us to take advantage of the hardening
market in our big-ticket businesses. These businesses already
have scale, and as can be seen from Hiscox London Market’s
2020 result, a judicious balance of exposure increases,
portfolio optimisation and compounding rate rises leads to
attractive returns. We anticipate that the strong return to profit
of our big-ticket businesses will allow us to drive growth in
our retail business. This makes use of the inherent strength
of our balanced business and allows us to position Hiscox to
benefit from the generational shift to digital trading in the small
business sector around the world.
In the face of the uncertainty arising from Covid-19 and the losses
it generated, the Board took the decision not to pay a 2019 final
or 2020 interim dividend. In view of the full year loss and a desire
to have capital to deploy into a strong market, the Board has also
taken the decision not to pay a 2020 final dividend. The Board
believes that as our business delivers the 2021 business plan
and as profits flow through, it will, subject to approval at the
time, resume paying dividends with the 2021 interim results.
Environmental, social and governance
Across the world there has been heightened scrutiny and
expectations on companies to consider environmental,
social and governance factors in their day-to-day business.
As insurers we are keenly aware of the impact of climate trends
and volatility on the risks that we face and take them into active
consideration in the pricing and management of our exposures.
In the 2020 update of the Hiscox view of risk, we adjusted it
to account for recent trends in severe typhoon activity and
will keep reviewing climate-related activity on a peril-by-peril
basis. We also have taken proactive steps to support those
at risk from climate impacts through insurance products like
FloodPlus, and in reinsurance, FloodXtra.
Hiscox has long sought to reduce its own carbon footprint,
targeting a 15% real-term reduction in our Scope 1, 2 and 3
carbon emissions per FTE by the end of 2020, relative to
2014. We have achieved this target, completing a 45%
real-term reduction in Scope 1, 2 and 3 carbon emissions
per FTE over that period. Covid-19 has had a one-off positive
impact by driving down business travel, currently one of the
biggest contributors to our emissions, and we will assess what
level of business travel is right for us going forward, though as
a global business it cannot be eradicated completely. We will
also set new near- to medium-term carbon emission reduction
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Hiscox Ltd Report and Accounts 2020
targets in 2021, aligned to the Science Based Targets initiative,
and define our action plan for limiting emissions. This will
support our established carbon offsetting programme which
ensures we operate in a carbon-neutral manner, having been
carbon neutral through offsetting since 2014.
With the publication of these results Hiscox has announced
its commitment to steadily reduce and eliminate by 2030 the
insurance and reinsurance of coal-fired power plants and coal
mines; Arctic energy exploration, beginning with the Arctic
National Wildlife Refuge; oil sands; and controversial weapons
such as land mines. These commitments are aligned with
the Lloyd’s ambitions announced in December and will take
effect from 1 January 2022, though their implementation has
already begun.
Hiscox is a member of ClimateWise, a constituent of CDP,
the Dow Jones Sustainability Index and FTSE4Good, and
our assets are managed by firms that are aligned with the
UN-supported Principles for Responsible Investment.
We are committed to being a sustainable business and will
ensure that our business practices continue to evolve to
support the transition to a net-zero world.
Our staff are involved in a myriad of environmentally-focused
activities. These include beach clean-ups in Bermuda, creating
virtual reality experiences that allow our brokers to experience
a Category 5 hurricane, promoting recycling initiatives in our
offices, and establishing new partnerships that detect water
leaks early; thereby reducing water wastage in customer’s
homes. I am proud of these efforts, and more information on
them is available in our 2020 climate report on our corporate
website. This complies with our Task Force on Climate-related
Financial Disclosure obligations.
In a year of significant trauma for the communities in which
we operate, Hiscox increased its social support significantly.
We supplied meals to NHS staff at The Royal Marsden Hospital,
together with one of our UK catering partners; supported
small businesses in the USA by giving staff $100 each to
spend locally; funded ventilators at hospitals in Guernsey
and Bermuda; provided 4,000 nights of emergency
accommodation for vulnerable young people; and
contributed to the Association of British Insurers’
Covid-19 Support Fund. We supported good causes
in every country where we operate during the year and
donated over $9 million in total.
Chapter 1
A balanced business
3
Chapter 2
A closer look
Chief Executive’s report
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
We also took additional steps to support our employees this
year. WeMind, Hiscox’s mental health and well-being employee
network, has been very active, providing new mental health
training and expert webinars and promoting the services of
our in-house mental health first aiders. Our other employee
networks, such as our Parents and Caregivers network,
have also found new ways to connect and collaborate.
Finally, in 2020, we launched an updated Hiscox Group
Governance Framework which clarified interactions,
expectations and decision making across Hiscox Ltd,
the Group and business units. This structure will prove
useful to ensure that the Group acts in concert and clear
prioritisation can be taken, with individual Boards having
ownership and accountability for critical decisions in a
challenging time and ensuring compliance with local
regulatory expectations.
People
2020 has been a truly tough year and it is our people who
have persevered against all odds, showing resilience,
adaptability and determination. Thanks to the individual
and collective efforts of over 3,000 staff, Hiscox has
weathered the storm and I can only thank each and every
one of them.
One of the signs of a hardening market is increasing
competition for talent. Hiscox has invested in both new
and experienced underwriters and we have been nurturing
expertise across all ranks of the organisation. This has
helped create our culture and reputation in the market.
We are, and want to continue to be, a great place to work
for the ambitious and talented, so it is no surprise that we
are on occasion targeted by others. Hiscox has business
maturity and market presence, so the market conditions
that make start-ups attractive investments, apply equally
to us on a larger scale. Rewards will follow as our business
delivers on its plans.
In October, the Group announced that Kathleen Reardon
had been appointed as CEO of Hiscox Re & ILS. Kathleen
has spent the last six years as CEO of Hamilton Re and she
brings a deep understanding of the market, a huge amount
of underwriting expertise, a proven ability to build a business
across the cycle and develop talent. She succeeded Mike
Krefta who decided to take a career break after 17 years
at Hiscox and leaves with our thanks and good wishes.
Mike rose through the Hiscox ranks from an entry-level
position in a career which spanned both Retail and big-ticket,
operations, analytics and underwriting and London and
Bermuda. In addition, Mike was our ESG Executive Sponsor
and we owe him a debt of gratitude, for leading and at times
cajoling our response to inform the proactive, forward-looking
approach we have today.
We continue to attract talent at all levels, including through
our graduate scheme in the UK, USA and Germany and
our UK summer intern programme which changed to a virtual
programme in 2020. We are pressing ahead with similar
programmes for 2021, with a focus on reaching new and
diverse talent pools. Hiscox has a diverse set of leaders
at the Executive Committee, business unit CEO and
functional leader level, but this wanes in the middle ranks.
We are committed to addressing this both through adapting
our internal processes and through partnerships in the UK
with The Bright Network, The Brokerage, Afro Caribbean
Insurance Network, and targeted recruitment in the USA,
Bermuda and Europe with our existing recruitment partners.
We also have internal schemes to continue to train and
develop mid-ranking staff to reach our target of filling
50% of all promotions with internal candidates.
All these efforts will ensure that Hiscox remains a desirable
and fulfilling place to work.
Outlook
In 2021, we expect to see the benefits of our balanced business
strategy asserting itself in a proactive manner after the past
four years where the benefits have been mostly defensive.
In 2017-2019, profits in our Retail business offset the pressures
of the bottom of the cycle faced by Hiscox London Market
and Hiscox Re & ILS. In 2020, Hiscox London Market’s stellar
performance supported by profits in Hiscox Europe and Hiscox
Special Risks and better-than-expected investment returns,
mitigated the impact of the pandemic.
In 2021, I expect our big-ticket businesses to perform well,
thanks to the increased capital allocated to them, their
judiciously positioned portfolios, and the benefit of compound
rate increases. Hiscox London Market and Hiscox Re & ILS are
in their best markets for almost half a decade and their focus is
on driving profits over maximising scale. This will provide good
returns for shareholders and allows our Retail businesses to
navigate the economic uncertainties within their respective
countries of operation.
I also expect that we will see good growth of our Retail digital
endeavours, focused as they are on the one-to-ten person
firms which grow in number as people leave larger firms and set
up in business themselves. Hiscox Retail will face headwinds
from the 10-250 person firms who are likely to be most affected
by the uncertainty of a post-pandemic economy and our own
portfolio improvement activity.
Where we see opportunities we will use some of the big-ticket
profits to drive our Retail businesses forward with investments
greater than they can afford alone, making sure we can capture
more than our fair share of the structural shift to digital in the
small business segment.
Our priorities next year are to ensure we maintain the strict
discipline of underwriting for profit, streamlining our model to
simplify the business and, most importantly, energising our
teams. 2021 has started well and our sense of ownership and
connectedness will allow us to thrive as we capitalise on the
opportunity that lies ahead of us.
Bronek Masojada
Chief Executive Officer
3 March 2021
Hiscox Ltd Report and Accounts 2020
33
Capital
The Board monitors the Group’s capital strength, ensuring
Hiscox remains suitably capitalised for regulatory and rating
purposes, and to fund future growth opportunities.
Monitoring of the Group’s capital requirements is based on
both external risk measures, set by regulators and rating
agencies, and our own internal guidelines for risk appetite.
Group’s capital strength and financial flexibility following this
scenario means we would be well positioned to take advantage
of any opportunities that might arise as a result.
3.0
The Group measures its capital requirements against its
available capital, which is defined by the Group as the total
of net tangible asset value and subordinated debt. The
subordinated debt issued by the Group is hybrid in nature,
which means it counts towards regulatory and rating agency
capital requirements. At 31 December 2020 available capital
was $2,431 million (2019: $2,276 million), comprising net
tangible asset value of $2,055 million (2019: $1,912 million)
and subordinated debt of $376 million (2019: $364 million).
The Group can source additional funding from its borrowing
facilities which comprise a revolving credit and Letter of
Credit facility as well as a Tier 1 Funds At Lloyd’s facility.
Standby funding from these sources comprised $946 million
(2019: $800 million), of which $524 million was utilised
as at 31 December 2020 (2019: $50 million).
In order to take advantage of opportunities for profitable
growth in wholesale and reinsurance markets, as a result
of capital contraction and rate improvement across the
market following the uncertainty caused by Covid-19, the
Group raised £375 million in capital in May 2020 in the
form of an equity placement. This has provided additional
flexibility throughout the year to respond to growth
opportunities and rate improvement, particularly in
big-ticket lines.
Our key rating agencies, A.M. Best, S&P and Fitch, calculate
capital adequacy by measuring available capital, after
making various balance sheet adjustments, and comparing
it with required capital, which incorporates charges for
catastrophe, premium, reserve, investment and credit risk.
Our interpretation of the results of each of these models
indicates that we are comfortably able to maintain our
current A ratings. Being an A-rated business is important to
us, and our intention is to maintain our current strong ratings.
The Group manages the underwriting portfolio so that in a
1-in-200 aggregate bad year it will lose no more than 12.5%
of core capital plus 100% of buffer capital ($135 million),
with an allowance for expected investment income.
A market loss of this magnitude would be expected to
bring about increases in the pricing of risk, and the
34
Hiscox Ltd Report and Accounts 2020
$2.43 billion available capital
Economic
Regulatory
The Group is regulated by the Bermuda Monetary Authority
(BMA) under the Bermuda Group Supervisory Framework.
The BMA requires Hiscox to monitor its Group solvency and
provide a return in accordance with the Group Solvency Self
Assessment (GSSA) framework, including an assessment of
the Group’s Bermuda Solvency Capital Requirement (BSCR).
The BSCR model applies charges for catastrophe, premium,
reserve, credit and market risks to determine the minimum
capital required to remain solvent throughout the year.
2.5
The GSSA is based on the Group’s own internally-assessed
capital requirements and is informed by the Group-wide
Hiscox integrated capital model (HICM) that, together with the
BSCR, forms part of the BMA’s annual solvency assessment.
The HICM provides a consistent view of capital requirements
for all segments of the business and at Group level.
The Group’s estimate for the year-end 2020 BSCR solvency
coverage ratio is 190%, which includes the second stage of
changes to the BSCR standard formula being phased in by
the BMA over a three-year period, which began in 2019.
The changes are expected to reduce the Group’s BSCR
solvency coverage ratio by an estimated ten percentage
points over the next year.
The Group expects to further mitigate the impact of
the changes to the BSCR standard formula through
ongoing capital generation over the remaining year of
the transition period.
2.0
1.5
1.0
The Group continues to operate with a robust solvency
position and expects to maintain an appropriate margin of
solvency after these changes have taken effect. In addition,
each of the respective insurance carriers holds appropriate
capital positions on a local regulatory basis.
0.5
0.0
A.M. Best
S&P
Fitch
Hiscox
integrated
capital model
(economic)
Hiscox
integrated
capital model
(regulatory)
Bermuda
enhanced
solvency
capital
requirement
Chapter 3 51GovernanceChapter 4 75RemunerationChapter 5 107Shareholder informationChapter 6 113Financial summaryChapter 1 3 A balanced businessChapter 2 17 A closer look Chapter 1
A balanced business
3
Chapter 2
A closer look
Capital
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
147
Read more about our financial condition
in our financial condition report
hiscoxgroup.com/about-hiscox/
group-policies-and-disclosures
The Hiscox businesses are rated
‘A’ by A.M. Best and S&P and
A+ by Fitch. Read more in note 3
to the financial statements.
3.0
2.5
Projected capital requirement
$2.43 billion available capital
Economic
Regulatory
Estimated BSCR post new formula
Rating agency assessments shown are internal
Hiscox assessments of the agency capital
requirements on the basis of projected year-end
2020 results. Hiscox uses the internally developed
Hiscox integrated capital model to assess its own
capital needs on both a trading (economic) and
purely regulatory basis. All capital requirements
have been normalised with respect to variations
in the allowable capital in each assessment for
comparison to a consistent available capital figure.
The available capital figure comprises net tangible
assets and subordinated debt.
A.M. Best
S&P
Fitch
Hiscox
integrated
capital model
(economic)
Hiscox
integrated
capital model
(regulatory)
Bermuda
enhanced
solvency
capital
requirement
Hiscox Ltd Report and Accounts 2020
35
2.0
1.5
1.0
0.5
0.0
Risk management
We seek to maximise return on equity by taking risk where it is
adequately rewarded, within a defined risk appetite.
The Group’s core business is to take risk where it is adequately
rewarded, guided by a strategy that aims to maximise return
on equity within a defined risk appetite. The Group’s success
is dependent on how well we understand and manage our
exposures to principal risks.
Our risk appetite is set out in risk appetite statements, which
outline the level of risk we are willing to assume, both by type
and overall, and define our risk tolerances: the thresholds
whose approach would represent a ‘red alert’ for senior
management and the Board.
Risk strategy
Our robust risk strategy positions us to capture the upside of
the risks we pursue and effectively manage the downside of the
risks to which we are exposed. It is based on three key principles:
s we maintain underwriting discipline;
s we seek balance and diversity through the
underwriting cycle;
s we are transparent in our approach to risk, which
allows us to continually improve awareness and
hone our response.
Risk management framework
The Group takes an enterprise-wide approach to managing
risk. The risk management framework provides a controlled
system for identifying, measuring, managing, monitoring and
reporting risk across the Group. It supports innovative and
disciplined underwriting across many different classes of
insurance by guiding our appetite and tolerance for risk.
Exposures are monitored and evaluated both within the
business units and at Group level to assess the overall level
of risk being taken and the mitigation approaches being used.
We consider how different exposures and risk types interact,
and whether these may result in correlations, concentrations
or dependencies. The objective is to optimise risk-return
decision-making while managing total exposure, and in
doing so remain within the parameters set by the Board.
The risk management framework is underpinned by a system of
internal control, which provides a proportionate and consistent
system for designing, implementing, operating and assessing
how we manage our key risks. This framework is regularly
reviewed and enhanced to reflect evolving practice on risk
management and governance. Over 2020, we continued to
embed and strengthen our system of internal control.
Risk appetite
The risk appetite sets out the nature and degree of risk the
Group is prepared to take to meet its strategic objectives and
business plan. It forms the basis of our exposure management
and is monitored throughout the year.
36
Hiscox Ltd Report and Accounts 2020
Risk appetites, which are set for each of our insurance
carriers and for the Group as a whole, are reviewed annually,
enabling us to respond to internal and external factors
such as the growth or shrinkage of an area of the business,
or changes in the underwriting cycle that may have an
impact on capacity and rates. In addition, in 2020 we
continued work to enhance and strengthen our risk appetite
statements across the Group.
Risk management framework
Our continuing success depends on how well we understand
and manage the significant exposures we face.
Risk governance
Risk definition
Risk owner
Risk reporting
R S A proces
s
O
Risk appetite
Risk monitoring
Risk measurement
Risk mitigation
Chapter 3 51GovernanceChapter 4 75RemunerationChapter 5 107Shareholder informationChapter 6 113Financial summaryChapter 1 3 A balanced businessChapter 2 17 A closer look Chapter 1
A balanced business
3
Chapter 2
A closer look
Risk management
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“Given the rapid pace of change during
2020, I am pleased that the robust
risk management and governance
framework we have established over
the years – along with the discipline
we have embedded in the business
– served us well. This meant we were
able to respond and adapt quickly,
maintaining resilient operations and
making timely risk-based decisions
even in such unusual circumstances.”
Hanna Kam
Group Chief Risk Officer
Risk management across the business
The Group coordinates risk management roles and
responsibilities across three lines of defence. These are
set out in the table below. Risk is also overseen and
managed by formal and informal committees and working
groups across the first and second lines of defence.
These focus on specific risks such as catastrophe,
reserving, investments and credit, as well as emerging
risks. The Group Risk and Capital Committee and the
Group Underwriting Review Committee make wider
decisions on risk.
The Own Risk and Solvency Assessment (ORSA) process
The Group’s ORSA process involves a self-assessment
of the risk mitigation and capital resources needed to
achieve the strategic objectives of the Group and relevant
insurance carriers on a current and forward-looking
basis, while remaining solvent, given their risk profiles.
The annual process includes multi-disciplinary teams
from across the business, such as capital, finance and
business planning.
Three lines of defence model
First line of defence
Owns risk and controls
Responsible for ownership and management of risks on a
day-to-day basis. Consists of everyone at every level in the
organisation, as all have responsibility for risk management
at an operational level.
Second line of defence
Assesses, challenges and advises on risk objectively
Provides independent oversight, challenge and support to
the first line of defence. Includes the Group risk team and the
compliance team.
Third line of defence
Provides independent assurance of risk control
Provides independent assurance to the Board that risk control
is being managed in line with approved policies, appetite,
frameworks and processes, and helps verify that the system of
internal control is effective. Consists of the internal audit function.
Hiscox Own Risk and Solvency Assessment
(ORSA) framework
The Group’s ORSA process is an evolution of its long-standing
risk management and capital assessment processes.
ORSA governance
ORSA
documentation
Business
planning
Assurance
Risk
assessment
Capital
and solvency
assessment
Hiscox Ltd Report and Accounts 2020
37
Chapter 1
A balanced business
3
Chapter 2
A closer look
Risk management
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
More information on our approach to
risk management can be found at
hiscoxgroup.com/about-hiscox/
risk-management
12
Read more about our key risks.
2020 has seen a continued focus on improving the efficiency
of the risk management framework, mainly through the
streamlining and automation of repeatable cycles and
further development and embedding of the risk and control
self-assessment process. This drive for efficiency allows for
an increase in risk deep-dives and for more support to be
available to the portfolio of Group-wide change programmes,
as well as ensuring appropriate support and challenge is
provided to the first-line in assessing, understanding and
responding to risks emerging out of Covid-19.
The role of the Board in risk management
The Board is at the heart of risk governance and is
responsible for setting the Group’s risk strategy and
appetite, and for overseeing risk management (including
the risk management framework). The Risk Committee of
the Board advises on how best to manage the Group’s risk
profile by reviewing the effectiveness of risk management
activities and monitoring the Group’s risk exposures, to
inform Board decisions.
The Risk Committee relies on frequent updates from
within the business and from independent risk experts.
At each of its meetings during the year, the Risk Committee
reviews and discusses a risk dashboard and a critical risk
tracker which monitors the most significant exposures to
the business, including emerging risks and risks that have
emerged but are evolving. The Risk Committee also
engages in focused reviews. Stress tests and reverse
stress tests (scenarios such as those shown in the chart
opposite, which could potentially give rise to business
failure as a result of a lack of viability or capital depletion)
are also performed and reported on to the Risk Committee.
During 2020, the Risk Committee actively tracked the
changing risk landscape and potential impacts to the
Group’s risk profile.
In light of these arrangements, the Directors are satisfied
that a robust assessment of the emerging and principal
risks facing the Company, including those that would
threaten its business model, future performance, solvency
or liquidity, has been carried out during the year and no
material changes to the principle risks are required.
The role of the Group risk team
The Group risk team is responsible for designing and
overseeing the implementation and continual improvement
of the risk management framework. The team is led by
the Chief Risk Officer who reports to the Chief Executive,
the Risk Committee of the main Board and to those of the
relevant subsidiary boards.
The team works with the first-line business units to
understand how they manage risks and whether they
need to make changes in their approach. It is also
responsible for monitoring how the business goes
about meeting regulatory expectations around
enterprise risk management.
38
Hiscox Ltd Report and Accounts 2020
Chapter 1
A balanced business
3
Chapter 2
A closer look
Risk management
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Property extreme loss scenarios
Boxplot and whisker diagram of Hiscox Ltd net loss ($m) for certain modelled losses
January 2021
700
600
500
400
300
200
100
0
Upper 95%/lower 5%
Modelled mean loss
Hiscox Ltd loss ($m)
700
600
500
400
300
200
100
0
Industry loss return
period and peril
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JP
EQ
JP
WS
EU
WS
US
EQ
US
WS
JP
EQ
JP
WS
EU
WS
US
EQ
US
WS
JP
EQ
JP
WS
EU
WS
US
EQ
US
WS
JP
EQ
JP
WS
EU
WS
US
EQ
US
WS
JP
EQ
JP
WS
EU
WS
US
EQ
US
WS
5–10 year
10–25 year
25–50 year
50–100 year
100–250 year
Mean industry loss US$bn
02
05
06
02
24
07
10
12
06
49
21
19
19
18
89
32
30
26
36 135
44
45
33
64 195
This chart shows a modelled range of net loss the Group might expect from any one catastrophe event.
The white line between the bars depicts the modelled mean loss.
The return period is the frequency at which an industry insured loss of a certain amount or greater is likely to occur.
For example, an event with a return period of 20 years would be expected to occur on average five times in 100 years.
JP EQ – Japanese earthquake, JP WS – Japanese windstorm, EU WS – European windstorm, US EQ – United States earthquake, US WS – United States windstorm.
Hiscox Ltd Report and Accounts 2020
39
Stakeholder engagement
We have a diverse range of stakeholders whose engagement is
critical to our continued success. We engage with, consider and
respond to our stakeholders’ needs at various levels of the Group,
up to and including Board level.
Shareholders
Our shareholders value our consistent strategy,
successful track record of delivery, strong
underwriting discipline and sound capital
management, and we maintain ongoing
engagement with them.
Employees
We want to build teams that are as diverse as our
customers and create a vibrant work environment
where all employees can thrive.
Brokers
The risks we write through brokers account for
around 85% of our business so it is essential
that we build strong and lasting relationships
with those brokers that share our values.
Regular investor dialogue
We maintain regular dialogue with our shareholders
beyond the financial reporting cycle, predominantly
via our Chief Financial Officer and investor relations,
who meet with existing shareholders, potential
investors and research analysts, and participate
in industry conferences and roadshows. During
2020 they conducted over 300 meetings and met
with over 130 investors.
Financial reporting
We report to the market on Company performance
four times per year, which provides shareholders
with a quarter-by-quarter overview of business
performance and trading conditions. These are
published on our corporate website, and available
as an email alert for subscribers.
Annual Report and Accounts
Our Annual Report and Accounts gives
shareholders a more detailed view of the
business. It also includes some additional
corporate governance disclosures beyond
our statutory requirements, where we think
that doing so improves our narrative reporting.
Investor roadshows
Our Chairman and Executive Directors maintain
a programme of investor roadshows to give
investors an opportunity to learn more about
Company strategy, strategic priorities, trading
conditions and other factors affecting our
operations. In 2020, our Chairman and Executive
Directors met with investors representing over
70% of our issued share capital.
Annual General Meeting (AGM)
Our AGM provides another regular investor
touchpoint. At the 2020 AGM all resolutions
were passed, with votes in favour ranging
from 88% to 100%.
Workforce engagement
Our annual employee engagement survey gives all
our employees the opportunity to provide honest
feedback on how they feel about Hiscox. We also
have an employee engagement network, led by
our Employee Liaison and Non Executive Director,
Anne MacDonald. For more, see page 48.
Chartered Insurer status
Hiscox UK and Hiscox London Market have
Chartered Insurer status from the Chartered
Insurance Institute, which recognises the
professionalism and expertise of staff, and is
a marker for attracting high-quality business
partners including brokers.
Training and development
All employees have access to internal and
external resources to help drive their own
learning and development, as well as two
formal opportunities each year to discuss
development needs and potential.
Employee networks
Over 1,700 employees are actively engaged in
at least one of our 12 employee networks.
From WeMind (mental health and well-being)
and Pan-African to Women at Hiscox and LGBT+,
each network provides focused discussion,
practical activities and support.
Communication updates
Employees receive regular updates on business
plans and performance through emails and
newsletters, intranet articles, team meetings
and Company-wide ‘connected’ events.
Annual ‘launch’ events and ‘box’ meetings
Business unit leaders hold regular all-staff
meetings to align on strategy and objectives,
share news and celebrate those marking ten
or 20 years at Hiscox with long-service awards.
Partners’ meetings
Hiscox Partner is an honorary title given to
employees who make significant contributions
to the development and profitability of the
Group. Up to 5% of the total workforce are
Hiscox Partners, and have the opportunity
to influence the direction of our business
through regular formal and informal Partners’
meetings, which Board members also attend.
UK Living Wage
We believe a hard day’s work deserves a fair day’s
pay, which is why we are an accredited UK Living
Wage employer.
Annual preferred broker summit and
broker academy
For the last ten years we have held an annual
preferred broker summit for our UK brokers, to
share insight and expertise. Our London Market
business also hosted its fourth annual broker
academy to educate and inform in 2020.
Broker satisfaction survey
Each year we measure broker satisfaction
with our products and services. In 2020, this
involved surveying over 1,000 UK, US and
London Market brokers.
Attending key broker events
We participate in key broker events in every
part of our broker-facing business. This includes:
BIBA, a UK insurance and broker conference;
the CIAB, a US marketplace meeting for
commercial property and casualty brokers
and insurers; and, in our big-ticket business,
Monte Carlo, Baden Baden, and RIMS.
Educational seminars
Throughout the year we hold educational events
and roadshows for brokers to improve knowledge
of complex or unusual risks. In 2020, this included
events on cyber, claims trends, professional
indemnity and navigating market conditions.
Broker newsletters and thought leadership
In the UK, our broker newsletter of claims stories,
product updates and events is enjoyed by over
5,000 brokers, while our London Market business
produces regular thought-leadership content. In
2020, this included a ‘MarketTalk’ video series
on topics such as the state of the market, market
modernisation and the future of the London
insurance marketplace.
40
Hiscox Ltd Report and Accounts 2020
Chapter 3 51GovernanceChapter 4 75RemunerationChapter 5 107Shareholder informationChapter 6 113Financial summaryChapter 1 3 A balanced businessChapter 2 17 A closer look Chapter 1
A balanced business
3
Chapter 2
A closer look
Stakeholder
engagement
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“We have built strong relationships with
our distribution partners, and this year
we found new ways to work and engage
with them. Virtual meetings, social and
educational events proved popular, with
more than 25,000 participants attending
our webinars across Europe during 2020.
Our technology investments in recent
years, including in broker extranet sites,
also made it easier for our brokers to do
business with us, and resulted in more
than 60% of small commercial business
being traded online.”
Stéphane Flaquet
Chief Executive Officer, Hiscox Europe
Customers
We have over 1.3 million retail customers worldwide
and providing each of them with products they can
rely on is what we are here for.
Regulators
We are a global business with a responsibility to
engage with regulators in all jurisdictions where
we operate. The Group is regulated in Bermuda,
and has regulated subsidiaries worldwide.
Research and insight
We talk to thousands of customers each year,
through surveys, focus groups and other
qualitative research, which helps us to continually
improve our offering. We also measure our
customer service by collecting feedback after
they have contacted our service centre, bought
a product or made a claim. For more, see page 5.
Sharing useful content
We share news, opinion pieces and tips with
some of our core customer groups through
newsletters and blog content. This includes our
US ‘side hustle to small business’ campaign
which showcased how individuals turned their
side hustle into a fully-fledged small business.
Vulnerable customers
We have an established team of 20 vulnerable
customer champions in the UK, whose work is
supported by tailored policies and procedures for
those customers that are identified as vulnerable.
Piloting new technologies
We work with our customers to pilot new
technologies that aid risk prevention. This includes
leak prevention technology, Leakbot, which we
have so far provided to almost 2,000 of our UK
home buildings insurance customers.
Educational tools
We have developed tools to help customers
better understand their risk exposure – for
example, our cyber exposure calculator
helps businesses of different sizes in different
jurisdictions to estimate the value of their
company’s data.
Cover during Covid-19
In response to Covid-19, we extended cover in
some lines such as home and motor, provided
premium refunds for event insurance customers,
waived 30-day cancellation periods for commercial
insurance policyholders, and offered a range
of financial concessions including payment
holidays. These changes resulted in more frequent
communications with our customers in 2020.
Regular dialogue
Our Chief Compliance Officer and central compliance
team lead our relationships with regulators worldwide
and maintain regular dialogue with them. In 2020,
the team engaged with our various regulators,
with involvement from senior management and
the Board when required, including on the impact
of Covid-19. Discussions included the initial and
ongoing operational impact of remote working,
customer support initiatives, and the potential
solvency impact of different types of claims arising
from the pandemic. We also participated in an
insurance industry test case organised by the UK
Financial Conduct Authority. For more, see page 22.
Regulatory change
We contribute to the regulatory change process,
both directly and through active membership
of trade associations, such as the Association
of Bermuda Insurers and Reinsurers and the
Association of British Insurers. In 2020, subjects
covered included the proposed UK operational
resilience regime, potential changes to the EU
Solvency II Directive, and changes to privacy
requirements in Bermuda and the USA.
Supervisory co-operation
In 2020, our Group supervisor the Bermuda
Monetary Authority (BMA) hosted a supervisory
college, which included nearly all of the Group’s
regulators worldwide. This is an important annual
opportunity for us to present a consistent message
to our regulators on issues of common interest, so
seven members of our senior management team
participated in the session.
Scenario analysis and stress testing
We maintain a regular cycle of stress testing and
scenario analysis to ensure we manage risk well
and evolve at the same pace as the risks we cover.
We also continue to participate in regulator-led
exercises such as the biennial General Insurance
Stress Test (GIST) – facilitated by the UK’s
Prudential Regulation Authority – which was
last completed in 2019.
Regulatory reporting
The Group and its subsidiaries met all material
regulatory reporting obligations for 2020.
Hiscox Ltd Report and Accounts 2020
41
Environmental, social and governance (ESG)
We take our role in the world seriously and want to play a
responsible part in society.
Hiscox ESG framework
ESG issues touch many different parts of our business and the Hiscox ESG framework helps us stay focused and make an
impact. It ensures we are pragmatic and consistent, teaming Group-wide themes with local market relevance. We also evolve
as regulation changes and public interest in emerging issues grows.
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42
Hiscox Ltd Report and Accounts 2020
Chapter 3 51GovernanceChapter 4 75RemunerationChapter 5 107Shareholder informationChapter 6 113Financial summaryChapter 1 3 A balanced businessChapter 2 17 A closer look
Chapter 1
A balanced business
3
17
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“ESG really matters to me, and it
matters to Hiscox. We made great
progress this year through pragmatism
and focus, and in 2021 we will build
on this – embedding our divestment
policies and setting new carbon
reduction targets which are aligned to
the Science Based Targets initiative.”
James Millard
Chief Investment Officer
and ESG Executive Sponsor
ESG measurement
Our ESG efforts are measured both internally and externally.
Externally, we participate in a number of key ESG indices
and we report against Task Force on Climate-related
Financial Disclosures (TCFD)-aligned principles in our
annual climate report.
Internally, we set key performance indicators for ESG issues
which are periodically reviewed and refined.
ESG oversight
Our ESG Executive Sponsor is responsible for overseeing
our ESG efforts, working with the Executive Committee and
the Board to ensure our practices and policies continue to
evolve. Facilitated discussions on ESG took place at both an
Executive Committee and Board level during 2020, and these
sessions focused on approving the Group’s new responsible
investment policy and our approach to ESG-related exclusions,
developing our internal KPIs and agreeing the ESG plan
for 2021.
Oversight in action:
Non Executive Director focus groups on ESG
During 2020, we held a number of focus groups with our Non
Executive Directors to explore a range of ESG issues with
them outside of the main Board meetings. These sessions
covered issues including our exposure to fossil fuels and other
contentious industries in underwriting and investments, ESG
measurement and assessment, ESG risks and opportunities,
and future ESG training requirements. The outputs from these
sessions have proven valuable, informing our 2021 ESG plans,
and similar focus groups will now become a regular feature of
our annual ESG planning process.
Latest ESG disclosure scores
ESG oversight in the business
Hiscox Ltd Board
s Oversight of ESG strategy and priorities.
s Discusses ESG twice-yearly.
s Provides challenge and approval of key
ESG matters.
Executive Committee
s Approves ESG strategy and priorities.
s Oversight of ESG delivery.
s Regularly reviews plans and progress.
ESG working group
s Drives day-to-day efforts on the ground.
s Chaired by ESG Executive Sponsor.
s Meets at least monthly.
s Includes representatives from underwriting,
investments, risk and corporate affairs.
2020: C grade
2019: C grade
2020: 66%
2019: 46%*
2020: 35/100
2019: 31/100
2020: 4.1/5
2019: 4.2/5
2020: 25.6
2019: 28.0
* Change of methodology
in 2019.
Hiscox Ltd Report and Accounts 2020
43
Chapter 1
A balanced business
3
17
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Our ESG framework in action
Environmental
Understanding climate
risk and helping our
customers to adapt.
GHG emissions 2020
Activity
Scope 1 total
Natural gas
Company cars
Scope 2 total (location-based)
Electricity (location-based)
Scope 3 total
Personal vehicles
Energy
(kWh)
1,710,200
560,441
5,176,116
899,189
Emissions
(tCO2e)
467
316
151
1,565
1,565
231
231
Total
8,345,946
2,263
We carefully manage our environmental impact and work
with our customers, suppliers and business partners to
respond to the changing climate. For Hiscox, this means
looking at our operations and how we can reduce waste
– water, electricity and other consumption – helped by our
growing network of green teams. It also means investing
in areas such as research, catastrophe modelling and new
technologies that improve our underwriting capabilities
and benefit our brokers and customers.
Key developments from the year
Exposure reduction commitments to support move to
low-carbon economy
(Re)insurers have a role in ensuring an orderly transition to a
low-carbon economy and we want to play our part. Our aim
is to reduce steadily and eliminate by 2030 our insurance,
reinsurance and investment exposure to coal-fired power
plants and coal mines; Arctic energy exploration, beginning
with the Arctic National Wildlife Refuge; oil sands; and
controversial weapons such as land mines. These ambitions
form our new Group-wide ESG exclusions policy, which aligns
with the Lloyd’s ESG ambitions published in December 2020.
Embedding rhythm and accountability in our approach
to climate change
We take a strategic, holistic and long-term approach
to managing the risks arising from climate change,
considering the potential impact to all aspects of the
Group’s risk profile and balance sheet. During 2020, we
further formalised our approach; ensuring that physical,
transition, liability and reputational risks arising from
climate change, and their potential impacts, are monitored,
managed and owned across the business via repeatable
cycles of activity and considered over a range of business
planning time frames, while also taking into account wider
market and regulatory trends. We have established a
cycle of reporting to the Executive Committee and Board
on climate-related issues, and appointed two senior
managers with regulatory responsibility for managing
the financial risks from climate change onto our relevant
UK boards. We have also held a number of Board
informational sessions on climate change during 2020,
where current exposure to – and management of – climate
change risks were discussed. We will continue to develop
and embed our approach and legal-entity specific plans
further in 2021.
44
Hiscox Ltd Report and Accounts 2020
Evolving the Hiscox view of risk for Japanese windstorm
Following several active years for Japanese windstorms,
which inflicted sizable market losses, in 2020 we undertook a
fundamental reappraisal of windstorm risk in the region. This
meant looking at our evolving knowledge of the peril and its
potential impact on catastrophe models – with a particular
focus on hazard, vulnerability, data quality, and climate change.
This is particularly important as the granularity of the available
exposure data in the region does not compare favourably to the
data available in other parts of the world – for example in the
USA, where it is customary to use location-level information.
This reappraisal enabled us to gain insights on model behaviour
at various scales, including the potential effects of ‘urban
canyons’ – the wind tunnels created in urban areas as a result
of tall buildings – and the role that climate change can play in
our understanding of current Japanese windstorm risk. Each
new event provides us with a new data point with which to
update the Hiscox view of risk and the 2018 and 2019 Japanese
windstorm events have – along with this reappraisal – enabled
us to evolve our modelling approach and as a result improve
underwriting performance in this line of business.
Strengthening our internal expertise and focus on
climate change
We continue to invest in our in-house capabilities around
climate change. We are creating a new climate change
research role to further our understanding of climate-related
threats and opportunities, which will contribute to the ongoing
development of the Hiscox view of risk from a climate change
perspective, and also to business and portfolio insights from a
risk management perspective. We are also establishing a new
climate implementation group to increase our focus on climate-
related developments and drive climate-related innovation
– particularly in our underwriting, research and modelling.
Current carbon reduction targets met and new targets
in development
Hiscox targeted a 15% real-term reduction in our Scope 1, 2
and 3 carbon emissions per FTE by the end of 2020, relative to
2014. While we have achieved this target, having completed a
45% real-term reduction in Scope 1, 2 and 3 carbon emissions
per FTE over that period, some of this achievement is as a result
of the positive impact that Covid-19 has had on reducing
business travel, which is currently the biggest contributor to
our emissions. We are in the process of setting new targets
which are aligned to the Science Based Targets initiative
(SBTi) and plan to publish these during 2021.
Chapter 1
A balanced business
3
17
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“We have a market-leading catastrophe
research and modelling team, including
climate scientists, whose expertise
– combined with the latest academic
insights and our own underwriting
and claims experience – enables us to
provide accurate coverage and pricing
of climate-related risks, even as these
risks evolve. We already consider climate
change for perils such as wildfire and
Japanese typhoon, and in 2021 our
work will focus on quantifying its impact
on flood and convective storms.”
2020 was our sixth year
as a carbon-neutral
business.
Robert Caton
Director of Underwriting Risk
and Reinsurance
Scope 1, 2 and 3
emissions reduced
by 45% in 2020 to
2.01 tCO2e per full-time
employee (FTE)
CO2
Our reappraisal of
Japanese windstorm
risk is improving
underwriting
performance in our
catastrophe-exposed
business.
We partnered with
Cycle2Work on a UK
cycle to work scheme to
make travelling to and
from the office in a more
environmentally-friendly
way more affordable.
We worked with Ghani
solar renewable
power project in
India to offset our
11,505 CO2e tonnes
of emissions in 2020.
We achieved a
20 percentage
point increase in our
ClimateWise score
for 2020, where we
disclosed against
TCFD-aligned principles.
Hiscox Ltd Report and Accounts 2020
45
Chapter 1
A balanced business
3
17
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Our ESG framework in action
Social
Global themes,
locally executed to
make an impact.
We strive to be a good employer, a trusted insurer and a
good corporate citizen, recognising that there is not a
‘one-size-fits-all’ solution to such matters; no claim, person
or plight is the same as another. We take our role in the
world seriously and so our claims philosophy, our strategy
for charitable giving and our employment practices all
contribute to our social narrative. It’s why we have had a
charitable foundation – The Hiscox Foundation – since
1987, and why we have Hiscox Gives, which creates
meaningful volunteering opportunities for employees.
Key developments from the year
Supporting ethnic diversity and social justice
We strive to be an inclusive employer and to create workplaces
where employees feel they can be themselves regardless of
their background. Following the death of George Floyd and the
ensuing protest movement, we responded with a number of
initiatives aimed at demonstrating our commitment to racial and
social justice. In the USA, we donated to noteworthy charities
like the Equal Justice Initiative and National Cares Mentoring
Movement, piloted a diverse talent development programme
specifically aimed at African-Americans, and enhanced our
unconscious bias training programme for managers. We also
empowered our US employees by giving them $100 each to
spend at a black-owned business of their choice. In the UK, we
launched a new chapter of our Pan-African employee network,
which led our inaugural celebration of UK Black History
Month with a keynote speaker and kickstarted a programme of
networking and educational opportunities for our UK employees.
Redeploying our people to best serve changing
customer needs
We have always been responsible stewards of our resources
and as Covid-19 took hold in the UK we swiftly reassessed
the needs of our customers and our people. Recognising
that the pandemic would generate increased customer queries
and claims, at the same time as some of our employees would
need to work fewer or less regular hours due to the demands
of juggling work and home life during lockdown, we launched
a talent exchange programme to draw more resource to
the frontline. This enabled 27 employees – from areas
including recruitment, internal audit and facilities management
– to be rapidly upskilled and temporarily redeployed to
customer-facing roles. The talent exchange programme
not only ensured that our customers enjoyed uninterrupted
service when they needed us the most, it also invigorated
46
Hiscox Ltd Report and Accounts 2020
those involved and gave them a host of new skills to take back
to their day jobs.
Enhancing small business’ access to essential services at
a time of need
Small businesses have been among those hit hard by the
global pandemic, but through new partnerships we have
endeavoured to increase their access to essential services,
such as access to finance. In the USA, we have teamed up with
Accion, which provides capital, coaching and connections to
entrepreneurs; the Women’s Business Development Center,
which offers technical assistance and financial advisory
services including micro-lending to women and underserved
communities; and the Women’s Business Enterprise Council,
which serves established businesses by providing networking,
programming, and financial consulting services. In the UK,
we are working with Swoop to improve small business access
to funding, and with Business in the Community as part of
their National Business Response Network which connects
business support with community need, and we have also
established the Hiscox Business Support Hub to give our
small business customers access to a range of free or
significantly discounted services during this time.
Taking the temperature with our global employee
engagement survey
Each year, we survey our global employee base to find out
more about how employees feel about Hiscox, its leadership,
their managers and their roles. In 2020, over 2,500 employees
responded; 77% told us they felt proud to work for Hiscox,
83% said employees are treated fairly regardless of disability,
age or professional background, 90% said they believe in our
corporate values, and 91% said they are given the flexibility
in their job to manage their work/life balance. In addition,
manager effectiveness scores improved six percentage points
year-on-year to 81% following a Group-wide effort to improve
in this area. Given the events of the year we also asked how
well we have managed the change in working environment and
supported employees through the pandemic, and 86% said
we have managed this well. All these scores will inform our
work in 2021 around nurturing talent in new ways, which is
one of our business priorities for the year ahead (see page 13).
Chapter 1
A balanced business
3
17
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“2020 marked my first year as Executive
Sponsor for diversity and inclusion
and what a year it’s been. We now have
12 employee networks with over 1,700
members, whose passion for progress
is fantastic to see. We’re also improving
diversity within our succession planning,
with at least one female successor
targeted for each leadership role;
kick-starting our race and ethnicity
agenda with new actions plans; and
broadening out where we search for
talent via new partnerships.”
We paid out $1.9 billion
in claims worldwide
in 2020.
We donated over
$9 million to good
causes in 2020, and
published a special
edition Covid-19
impact report.
We are active members
of Insuring Women’s
Futures, a Chartered
Insurance Institute
initiative aimed at evolving
our industry’s approach
to women and risk.
86% of employees said
we managed the change
in working environment
well in 2020, and that
they felt supported.
Kate Markham
Chief Executive Officer, Hiscox London
Market and D&I Executive Sponsor
Our three strategic pillars for
charitable giving
Social mobility and entrepreneurship
Protecting and preserving the environment
Causes our people are passionate about
This year we signed the
Race at Work Charter
in the UK, furthering
our commitment to
increase ethnic and
racial diversity across
our organisation.
27 of our UK employees
were redeployed to
frontline roles to support
our customers during
Covid-19.
Hiscox Ltd Report and Accounts 2020
47
Chapter 1
A balanced business
3
17
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Our ESG framework in action
Governance
Compliance with the
Bermuda Companies
Act, UK listing rules,
and local country laws.
As a global insurer, good governance practices are
essential to our day-to-day business of serving customers
and paying claims. Good governance encompasses not
just having the appropriate internal controls, policies and
procedures, and structures and oversight; it also requires
our 3,000+ staff to be accountable for their actions and
empowered to raise their hand if something goes wrong.
Naturally it also means complying with the laws and
regulations that are relevant to our operations, so as a
Bermuda-incorporated company with a UK listing, we
comply with the Bermuda Companies Act, UK listing
rules and local country laws.
Key developments from the year
Piloting culture dashboards in our subsidiary boards
During 2020, we began piloting culture dashboards across
a number of our subsidiaries to allow those boards and
leadership teams to create a rigorous and repeatable
process for measuring and monitoring culture. Through
this approach, we set out a number of culture standards
we wish to live by, around themes such as openness,
diversity and inclusion, customer-centricity, respectful
personal behaviour, operational focus, diligence in risk
management, and good leadership. We are then able to
assess whether the agreed standards are being met via
a list of pre-agreed culture metrics, which measure
everything from customer net promoter scores and
number of complaints received, to employee engagement
scores and gender diversity at every level of the business.
Our culture dashboards are reviewed monthly by business
unit leadership teams and shared with the relevant subsidiary
boards, and the findings are used to inform areas of focus
when it comes to maintaining the right culture. In the UK,
we also have a culture steering committee that helps drive
progress through their monthly meetings to discuss culture
indicators, culture strategies and new culture projects.
Establishing a rhythm with our employee
engagement network
In 2019, we formalised our existing approach to workforce
engagement by establishing an employee engagement
network, led by Non Executive Director Anne MacDonald in her
capacity as Employee Liaison. While the Board has historically
engaged with the workforce and continues to leverage the
pre-existing infrastructure to ensure that Hiscox is motivating
and engaging employees in an effective way, the employee
48
Hiscox Ltd Report and Accounts 2020
engagement network ensures workforce views are considered
in its decision-making process. The Employee Liaison
facilitated eight meetings in 2020 with a representative group
of 30 employees from across the business, supported by
our Head of Diversity and Inclusion and Group Company
Secretary. These sessions explored some of the key themes
from our most recent employee engagement survey – such
as the communication of business plans, how the updated
values have been embedded in the organisation, manager
effectiveness, and personal development tools and support
for career paths – as well as the impact of Covid-19 on
home-working and our ability to achieve business objectives.
Anne has provided regular Board updates on these sessions,
enabling the Board to get even closer to employee engagement
and culture trends, and the workforce feedback received has
informed Board discussions in areas such as remuneration.
Where appropriate, outputs from the network are also raised
and addressed at Executive Committee level – allowing course
corrective action to be taken swiftly if needed.
Monthly cycle of employee training
In 2020, employees received a range of mandatory new and
refresher training across regulatory issues, information security
and learning and development. The 2020 training programme
built on the regime introduced in 2019, with modules including
cyber security, financial crime, underwriting controls, working
in a regulated environment, privacy and reporting regulatory
incidents. Given the move to remote working in response to
Covid-19, new modules included taking security home, safe
web browsing, and staying secure in a connected world.
Governance in a Covid-19 world
During a turbulent year, it was important for us to engage more
with our shareholders to update them on the evolving situation
and reassure them of our response. We held over 30 meetings
with shareholders, representing over 70% of our share
register. The Board also met more frequently in 2020, with 17
informational sessions to assess our exposures and responses.
Their sessions covered all aspects of the pandemic, and
updates to the Board included potential loss exposures,
our reinsurance programmes, reputation and engagement
with regulators. The Board also carefully considered our
remuneration approach for such an extraordinary year. Given
our remuneration policy is designed to focus on long-term
performance and drive long-term shareholder value, no
bonuses were paid to Executive Directors in 2020, however
personal performance bonuses were paid to frontline staff.
Chapter 1
A balanced business
3
17
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Read more about our approach to
ESG online at
hiscoxgroup.com/responsibility
“As Employee Liaison I have been very
pleased with the broad representation
and views received through the employee
engagement network. I have found the
conversations open and honest – a
testament to Hiscox’s culture – and the
direct communication has served as a
valuable tool to give the Directors insight
into what people are thinking, and to
validate or contribute to matters that,
as a Board, we are considering.”
The Board held 17
informational sessions
in 2020, meeting more
frequently to assess
Covid-19 exposures
and responses.
Ten climate-related
disclosures to
regulators and global
independent ESG
standards completed.
Anne McDonald
Independent Non Executive Director
and Employee Liaison
Over 43,000 training
hours completed
in 2020.
Five new phishing
campaigns tested
our internal responses
to IT threats in 2020,
alongside new
information security
training modules.
Hiscox Ltd Report and Accounts 2020
49
50
Hiscox Ltd Report and Accounts 2020
Chapter 3:
Governance
3
Hiscox Ltd Report and Accounts 2020
51
We’ll get there by
learning and
improving just a
little bit every day.
Owning the Hiscox view of risk
When it comes to natural catastrophes,
understanding how these risks evolve
over time is vital when it comes to
coverage levels and contract pricing.
For three consecutive years (2017-2019),
the industry experienced significant loss
activity as a result of Japanese typhoons,
US hurricanes and California wildfires,
and Hiscox Re & ILS was not immune
to this. These types of large loss events
indicated a trend towards more intense
natural catastrophes over time, leading
to higher claims frequency and severity
– and addressing them required an
ownership approach.
Our Re & ILS team worked to review and
refine what we call ‘the Hiscox view of
risk’ for both Japanese windstorm and
California wildfire. Their work meant
examining existing catastrophe models
and research, proprietary claims insight
and key factors such as hazard level,
vulnerability, data quality and climate
change. There is complexity in this
kind of data analysis, and each natural
catastrophe event provides a new
data point to challenge, refine and
advance our understanding. The
team’s work has enabled us to evolve
our modelling approach and improve
underwriting performance in our
catastrophe-exposed business.
Board of Directors
Non Executive Chairman
Robert Simon Childs (Aged 69)
Appointed Chairman: February 2013
Appointed to the Board: September 2006
Executive Director
Bronislaw Edmund Masojada (Aged 59)
Group Chief Executive
Appointed to the Board: October 2006
Executive Director
Hamayou Akbar Hussain (Aged 48)
Group Chief Financial Officer
Appointed to the Board: September 2016
Relevant skills, experience and contribution
s Extensive knowledge of Hiscox, having
worked for the Group for over 30 years.
s Significant expertise in insurance cycle
management, having worked through
unprecedented large loss events
such as 9/11 and Hurricanes Katrina,
Rita and Wilma.
Robert joined Hiscox in 1986 and has held a
number of senior roles across the Group, including
Active Underwriter for Syndicate 33 and Group
Chief Underwriting Officer, before becoming Non
Executive Chairman in February 2013. Robert is
also Chair of the Nominations and Governance
Committee, the Investment Committee, and the
Hiscox Syndicates Limited Board. He joined the
Council of Lloyd’s in 2012 and served as Deputy
Chairman of Lloyd’s from 2017 to 2020.
External board appointments
The Bermuda Society.
Relevant skills, experience and contribution
s Strong track record of building long-term
value, helping guide the Group from initial
listing to a $4 billion revenue business.
s Wide-ranging capability in business
planning and executing strategy.
Bronek joined Hiscox in 1993 as Group Managing
Director and became Chief Executive in 2000.
Bronek also sits on the Board of a number of
Hiscox subsidiary companies. Prior to that he
worked with McKinsey & Company, where he
advised Lloyd’s on its renowned Reconstruction
and Renewal plan. Bronek also previously served
as Deputy Chairman of Lloyd’s and Chairman of
the Lloyd’s Tercentenary Research Foundation,
and currently serves as a City of London Alderman.
External board appointments
Association of British Insurers; Pool Reinsurance
Company Limited; Policy Placement Limited.
Relevant skills, experience and contribution
s Considerable experience of providing
strategic, financial and commercial
management and in-depth knowledge of
the regulatory and compliance environment.
s Significant expertise in leading major
change programmes.
Aki joined Hiscox in 2016 as Group Chief
Financial Officer and also sits on the Board
of a number of Hiscox subsidiary companies.
Aki came to Hiscox from Prudential, where
he was Chief Financial Officer of its UK and
Europe business. Before that, he held a number
of senior roles across a range of sectors,
including Finance Director for Lloyds Banking
Group’s consumer bank division until 2009.
Aki is a Chartered Accountant, having trained
with KPMG.
External board appointments
Visa Europe Limited.
Executive Director
Joanne Musselle (Aged 50)
Group Chief Underwriting Officer
Appointed to the Board: March 2020
Relevant skills, experience and contribution
s Considerable underwriting expertise,
including experience of managing
underwriting portfolios in our key markets.
s Significant knowledge of Hiscox,
particularly Hiscox Retail, having
worked for the Group for 18 years.
Joanne joined Hiscox in 2002 and has held a
number of roles across the Group, including
Head of UK Claims, Chief Underwriting Officer
for Hiscox UK & Ireland, and Chief Underwriting
Officer for Hiscox Retail. Joanne also sits on
the Board of a number of Hiscox subsidiary
companies. Prior to Hiscox, Joanne spent
almost ten years working in a variety of actuarial,
pricing and reserving roles at Axa and Aviva in
both the UK and Asian markets.
External board appointments
Realty Insurances Ltd.
52
Senior Independent Director
Colin Keogh (Aged 67)
Appointed to the Board: November 2015
Independent Non Executive Director
Caroline Foulger (Aged 60)
Appointed to the Board: January 2013
Relevant skills, experience and contribution
s Valuable financial services experience.
s Significant knowledge of how to run an
international financial business.
Colin has spent his career in financial services,
principally at Close Brothers Group plc where
he worked for 24 years and served as CEO for
seven years until 2009. Colin is also Chair of the
Remuneration Committee and of the Hiscox
Insurance Company Limited Board.
External board appointments
Ninety One Plc and Premium Credit Limited.
Relevant skills, experience and contribution
s Extensive accounting and financial
reporting expertise.
s Deep understanding of Bermuda as a
reinsurance centre.
Caroline is a resident of Bermuda and led PwC’s
insurance and reinsurance practice in Bermuda
until her retirement in 2012. With a strong
background in accounting, she is a Fellow of the
Institute of Chartered Accountants in England and
Wales, a member of the Institute of Chartered
Accountants of Bermuda and a member of the
Institute of Directors. Caroline also serves on the
Hiscox Insurance Company (Bermuda) Limited
and Hiscox Syndicates Limited Boards as a
Non Executive Director and is Chair of the
Audit Committee.
External board appointments
Oakley Capital Investments Limited; Catalina
Holdings (Bermuda) Ltd; Generation Life Ltd;
General Two Ltd; Atlas Arteria; Ocean Wilsons.
Hiscox Ltd Report and Accounts 2020Chapter 2 17A closer lookChapter 4 75RemunerationChapter 5 107Shareholder informationChapter 6 113Financial summaryChapter 1 3 A balanced businessChapter 3 51 Governance
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
Board of Directors
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Member of the Audit Committee
Member of the Nominations and
Governance Committee
Member of the Remuneration Committee
Member of the Risk Committee
Member of the Investment Committee
Chair of Committee is highlighted in solid.
Independent Non Executive Director
Michael Goodwin (Aged 62)
Appointed to the Board: November 2017
Independent Non Executive Director
Thomas Hürlimann (Aged 57)
Appointed to the Board: November 2017
Independent Non Executive Director
Anne MacDonald (Aged 65)
Appointed to the Board: May 2015
Relevant skills, experience and contribution
s Significant knowledge of the Asian
Relevant skills, experience and contribution
s Considerable experience of leading a
s Deep understanding of risk management
s Extensive knowledge of the European
insurance market.
as a trained actuary.
global business.
insurance market.
Michael has over 25 years’ experience in the
insurance industry, having worked in Australia
and the Asia Pacific region for QBE Insurance
Group for over 20 years. Michael started his
career as an actuary, is a Fellow of the Institute
of Actuaries of Australia and served as Vice
President of the General Insurance Association
of Singapore between 2006 and 2012.
Michael also serves on the DirectAsia Board
as a Non Executive Director.
External board appointments
Partner Reinsurance Asia Pte Ltd; Steadfast
Distribution Services Pte Ltd; NCI Brokers (Asia)
Pte Ltd; Galaxy Insurance Consultants Pte Ltd;
Enya-Lea Pte Ltd; Werombi Pte Ltd.
Thomas has 30 years’ experience in banking,
reinsurance and insurance. He was CEO
Global Corporate at Zurich Insurance Group,
a $9 billion business working in over 200
countries. Prior to that, he held senior positions
at Swiss Re Group and National Westminster
Bank. Thomas also serves on the Hiscox SA
Board as a Non Executive Director.
External board appointments
None.
Independent Non Executive Director
Constantinos Miranthis (Aged 57)
Appointed to the Board: November 2017
Independent Non Executive Director
Lynn Pike (Aged 64)
Appointed to the Board: May 2015
Relevant skills, experience and contribution
s Deep understanding of Bermuda’s
Relevant skills, experience and contribution
s Strong background in the US financial
(re)insurance industry.
s Senior leadership experience in the
reinsurance sector.
Costas served as President and CEO of
PartnerRe Ltd, one of the world’s leading
reinsurers, until 2015 and prior to that was a
Principal of Tillinghast-Towers Perrin in London,
where he led its European non-life practice.
A trained actuary, he is a member of the UK
Institute and Faculty of Actuaries and a resident
of Bermuda. Costas also serves on the Hiscox
Insurance Company (Bermuda) Limited Board
as a Non Executive Director.
External board appointments
None.
services sector.
s Significant knowledge of providing
commercial solutions for small
businesses, particularly in the USA.
Lynn worked in the US banking industry for
nearly four decades, most recently as President
of Capital One Bank. Before that, she was
President of Bank of America’s small business
banking division, a multi-billion-Dollar business
with 110,000 clients and over 2,000 employees.
Lynn also serves on the Hiscox Insurance
Company Inc. Board as a Non Executive
Director and is Chair of the Risk Committee.
External board appointments
American Express Company (NYSE: AXP);
American Express National Bank.
Relevant skills, experience and contribution
s Extensive marketing expertise,
particularly in the USA.
s Sizable experience in developing
well-known global brands.
Anne has served as Chief Marketing Officer at
four Fortune 100 companies, and been in charge
of some of the most recognised brands in the
world, including Citigroup, Traveler’s, Macy’s
and Pepsi. Anne also serves as the Employee
Liaison for Hiscox.
External board appointments
Boot Barn Holdings, Inc.; Zeotap; Tuckerman
& Co.; Chops Snacks; IGNITE National;
Visiting Nurse & Hospice of Litchfield County.
Group General Counsel
and Company Secretary
Marc Wetherhill (Aged 48)
Group General Counsel
and Company Secretary
Marc has significant legal and
governance experience, and
is the Principal Representative
to the Bermuda Monetary
Authority for the Hiscox Group.
He previously served as
Chief Legal Counsel and
Chief Compliance Officer at
PartnerRe Ltd, having trained
as a solicitor in London, and is
a member of the Bermuda Bar.
Hiscox Ltd Report and Accounts 2020
53
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Senior management
Attracting and retaining top talent is important to us, and
at a senior management level we have a diverse team whose
combination of experience and fresh-thinking provides
challenge and drives progress.
Amanda Brown
Chief Human Resources Officer
Joined Hiscox: October 2006
Stéphane Flaquet
Chief Executive Officer, Hiscox Europe
Joined Hiscox: March 2010
Grace Hanson
Chief Claims Officer
Joined Hiscox: January 2019
Relevant skills, experience and contribution
s Deep expertise in developing and
implementing HR strategy across
multiple geographies.
s Global compensation management
including executive compensation
policy and shareholder consultation.
Amanda leads our team of 90 HR professionals
around the world, overseeing our HR policies and
procedures, employee rewards and benefits,
recruitment, learning and development, and our
approach to remuneration to ensure our continued
ability to attract and retain talent at all levels.
Relevant skills, experience and contribution
s Strong financial services background.
s Sizable insurance industry
experience gained within a range
of European territories.
Stéphane originally joined Hiscox as Chief
Operating Officer for Europe, and has also
served as the Group’s Chief Information Officer
and latterly as Chief Executive Officer of Hiscox
Europe. In 2021, he will take on the newly created
role of Chief Transformation Officer, driving
critical change programmes including the
adoption of new technologies across the Group.
Hanna Kam
Group Chief Risk Officer
Joined Hiscox: February 2015
Relevant skills, experience and contribution
s Qualified actuary with in-depth enterprise
risk management and insurance expertise.
s International property and casualty
insurance industry experience gained
within corporate and consultancies
across the UK and Australia.
Hanna leads our global team of risk and
compliance experts, located in our key
geographies and jurisdictions. She has Group-
wide responsibility for Hiscox’s enterprise risk
management and regulatory compliance, and
manages our relationships with regulators.
54
Hiscox Ltd Report and Accounts 2020
Steve Langan
Chief Executive Officer, Hiscox USA
Joined Hiscox: October 2005
Relevant skills, experience and contribution
s Significant global expertise in growing
retail businesses throughout the
insurance cycle.
s Extensive experience of brand-building
and marketing, particularly across
Europe and the USA.
Steve has held a number of senior roles
throughout Hiscox; Chief Marketing Officer for
the Group, CEO of Hiscox UK & Europe, and
CEO of the DirectAsia Group. In his current
role he is now focused on building our retail
business and recognised brand in the USA.
Relevant skills, experience and contribution
s Considerable legal expertise as a
qualified US lawyer.
s Proven track record of building robust
global claims functions for retail and
big-ticket lines.
Grace leads our award-winning team of 340
claims specialists across 19 locations – the
standard-bearers for Hiscox’s customer
promise. In 2021, she will kick-start our claims
transformation programme, building on strong
foundations through investments in technology,
analytics, and operational capability.
Paul Lawrence
Chief Underwriting Officer, Hiscox London
Market and Active Underwriter for Syndicate 33
Joined Hiscox: March 1992
Relevant skills, experience and contribution
s Deep expertise in big-ticket and specialty
insurance underwriting.
s Extensive experience of underwriting
throughout the insurance cycle.
Paul has underwritten a range of insurance lines
at Hiscox including fine art, personal accident,
specialty, and property insurance. He has also
worked through large loss events such as 9/11
in 2001 and Hurricanes Katrina, Rita and Wilma
in 2005 and has valuable experience of
underwriting in both hard and soft markets.
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
Senior management
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Kate Markham
Chief Executive Officer, Hiscox London Market
Joined Hiscox: June 2012
James Millard
Chief Investment Officer
Joined Hiscox: January 2020
Ian Penny
Chief Information Officer
Joined Hiscox: May 2017
Relevant skills, experience and contribution
s Strong experience of building
customer-focused businesses.
s Track record of establishing
operational and digital infrastructures
that support growth.
Relevant skills, experience and contribution
s Significant investment
management expertise.
s Twenty years’ experience of
managing investment teams,
processes and portfolios.
Relevant skills, experience and contribution
s Deep expertise in IT strategy,
development, engineering, operations,
IT change and programme execution.
s Experience of designing platforms for
high-volume customer channels.
Kate originally joined Hiscox to run our UK
Direct business, and was promoted to
Chief Executive Officer of Hiscox London
Market in 2017. She leads our team of 300
London Market underwriters, analysts and
support functions in the UK, Guernsey and
the USA.
James is responsible for the Group’s investment
portfolios, implementing overall investment
policy and directing all portfolio management,
research, trading and strategy. He leads our
small in-house team, overseeing asset allocation
along with the selection and monitoring of our
externally appointed asset managers.
Ian leads the Group’s technology function,
overseeing a team of 700+ colleagues and
partners globally. His experience of designing
and safeguarding applications and infrastructure
in a regulated industry informs our work around
customer channels, software development,
automation, and information security.
Kathleen Reardon
Chief Executive Officer, Hiscox Re & ILS
Joined Hiscox: January 2021
Bob Thaker
Chief Executive Officer, Hiscox UK
Joined Hiscox: February 2010
Ben Walter
Chief Executive Officer, Hiscox Retail
Joined Hiscox: March 2011
Relevant skills, experience and contribution
s Extensive experience of building
reinsurance businesses throughout
the cycle.
s In-depth knowledge of the Bermuda
reinsurance market.
Kathleen joined Hiscox in 2021 from Hamilton
Re, where she was Chief Executive Officer.
She leads our reinsurance and ILS business,
based in London and Bermuda, and is
responsible for ensuring the team takes
advantage of the hardening market and
opportunities as they present themselves.
Relevant skills, experience and contribution
s Considerable experience of growing
retail insurance businesses, particularly
in Europe and Asia.
s Expertise in digital insurance distribution.
Bob originally joined Hiscox as Head of Group
Strategy and has held a range of roles since.
These include Group Chief Risk Officer, Head of
Claims for Hiscox UK and later, Hiscox Europe,
Group Chief Operating Officer for DirectAsia
– based in Singapore – and CEO of DirectAsia
Group before relocating back to the UK in 2019
as Hiscox UK’s Chief Executive Officer.
Relevant skills, experience and contribution
s Deep understanding of global retail and
digital insurance markets.
s Significant experience leading business
transformation programmes.
Ben originally joined Hiscox as Chief Operating
Officer for Hiscox USA before serving as its
Chief Executive Officer for six years. He became
Chief Executive Officer for Hiscox Retail – with
responsibility for our Retail operations in the UK,
Europe, and the USA – in 2018, with a focus on
product innovation and growth, leveraging scale
and driving digitisation.
Hiscox Ltd Report and Accounts 2020
55
Chairman’s letter to shareholders
Dear Shareholder
Each year, I talk to you about the continued evolution of our
governance structure as our business changes and grows,
and I am pleased that, despite Covid-19, 2020 saw us deliver
the same steady evolution. While Covid-19 was a dominant
discussion point for the Board during the year, and you will
find Covid-19-related Board activity outlined in the table on
page 61, we have also continued to progress with important
activity including employee engagement and climate change.
Evolving governance structures
We have continued to evolve our governance framework
and underlying governance structures to meet the needs
of our growing business. This year we focused on refining
our approach to Board composition reviews as well as the
succession planning process for our Non Executive Directors.
This supports the established and robust succession
processes we have in place for Executive talent reviews.
Additional work was undertaken to ensure the Group
governance model is also reflected in our largest subsidiary
boards. As a result, we have developed subsidiary-level
governance manuals and embedded a repeatable
process for updates to subsidiary board composition and
Non Executive Director succession planning which is in line
with the Group approach.
We continue to ensure our governance practices are in line
with the UK Corporate Governance Code (the Code) and
set out in detail how we have complied with the Code on
pages 63 to 67. This should be read in conjunction with
the corporate governance section on pages 57 to 62.
As with last year’s report, we have included some additional
disclosures beyond our reporting requirements, such as
our Chief Executive’s pay ratio, where we feel that doing
so would give shareholders a better understanding of our
governance structures.
Employee engagement and the Board
Last year I reported that, in light of the Code’s focus on
ensuring the views of the workforce have been considered
in Board discussions and decision-making, we had reviewed
the wide and varied, formal and informal engagement
mechanisms already in place and established a new
Employee Liaison role and employee engagement network.
In its first year, this approach has yielded new insights and
ideas, and the Board is benefiting from the information that
56
Anne MacDonald, as our Employee Liaison, is able to share.
More information on this is outlined on page 48.
Remuneration
Last year we made some changes to our remuneration policy to
rebalance the weighting of incentives towards the long term –
encouraging an ownership culture and increasing the focus on
long-term performance. We continue to evolve our approach,
and are proposing to introduce a second measure for the 2021
PSP awards to provide a broader view of our performance.
You can read more about this in the letter from the Chair of
the Remuneration Committee on pages 76 to 77.
Climate change
Addressing climate variability has always been a feature of our
business and in 2020 we are building on the foundations laid
through the Hiscox ESG framework with a Board-approved
responsible investment policy and ESG exclusions policy.
These policies support our pragmatic approach to ESG
issues and complement the Lloyd’s approach, published
in December, which as Lloyd’s participants we support.
2020 also saw the baton of responsibility for ESG pass from
Mike Krefta – who made an immense contribution to our
progress – to James Millard, our Chief Investment Officer and
new ESG Executive Sponsor for the Group.
Disclosure is almost as important as action when it comes to
ESG, and we completed additional disclosures this year which
are outlined on page 43. Our climate report, which generated
a 20-percentage-point increase in our ClimateWise score
year-on-year, ensures our alignment to the Task Force on
Climate-related Financial Disclosures (TCFD) and demonstrates
our readiness to meet the UK Government requirements for
mandatory TCFD-aligned climate reporting by the end of 2021.
I trust that the information set out in this report will give
you a strong understanding of our corporate governance
arrangements and assurance that Hiscox continues to be
focused on the importance of maintaining a robust corporate
governance framework.
Robert Childs
Chairman
Hiscox Ltd Report and Accounts 2020Chapter 2 17A closer lookChapter 4 75RemunerationChapter 5 107Shareholder informationChapter 6 113Financial summaryChapter 1 3 A balanced businessChapter 3 51 Governance Corporate governance
Our robust governance framework underpins our business
model and continues to serve us well, including during the
Covid-19 pandemic.
Board composition
The Board has responsibility for the overall leadership of the
Group and its culture.
Leadership of the Company
The Board as a whole is collectively responsible for the success
of Hiscox Ltd and the Group.
The Board comprises the Non Executive Chairman, three
Executive Directors, and seven independent Non Executive
Directors including a Senior Independent Director. The
operations of the Board are underpinned by the collective
experience of the Directors and the diverse skills which they
bring. Biographical details for each member of the Board are
provided on pages 52 to 53. Notable changes during 2020
include Joanne Musselle, Group Chief Underwriting Officer,
being appointed to the Board in March 2020. In accordance
with the Company’s Bye-laws and the Code, all Directors will
seek re-appointment at the 2021 Annual General Meeting and
no issues have arisen that would prevent the Chairman from
recommending the re-appointment of any individual Director.
More information on the role of the Board can be found on
pages 52 to 53.
The Hiscox Ltd Board of Directors:
s set the Group’s strategic direction, purpose and values
and align these with its culture;
s oversee competent and prudent management of internal
control, corporate governance and risk management;
s determine the sufficiency of capital in light of the Group’s
risk profile and business plans; and
s approve the business plans and budgets.
Director role responsibilities
To ensure that the Board operates efficiently, each Director has role responsibilities. The role of the Chairman,
Senior Independent Director and Chief Executive are distinct to demonstrate the segregation of responsibilities.
Chairman
Senior Independent Director (SID)
Chief Executive
s Leadership of the Board.
s Ensuring effective relationships
exist between the Non Executive
and Executive Directors.
s Ensuring that the views of all
stakeholders are understood
and considered appropriately
in Board discussions.
s Overseeing the annual performance
evaluation and identifying any
action required.
s Leading initiatives to assess the
culture of the Company and ensure
that the Board leads by example.
s Advisor to the Chairman.
s Leading the Chairman’s
performance evaluation.
s Serving as an intermediary to other
Directors when necessary.
s Being available to shareholders and
other stakeholders if they have any
concerns which are unable to be
resolved through normal channels,
or if contact through these channels
is deemed inappropriate.
s Proposing and delivering the
strategy as set by the Board.
s Facilitating an effective link
between the business and
the Board in support of
effective communication.
s Leading the Executive Committee,
which delivers operational and
financial performance.
s Representing Hiscox internally
and externally to stakeholders,
including shareholders, employees,
government and regulators,
suppliers and contractors.
57
Hiscox Ltd Report and Accounts 2020Chapter 2 17A closer lookChapter 4 75RemunerationChapter 5 107Shareholder informationChapter 6 113Financial summaryChapter 1 3 A balanced businessChapter 3 51 Governance
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
Corporate governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
The Board has delegated a number of its responsibilities to its Audit, Nominations and Governance, Remuneration
and Risk Committees
Audit Committee
s Advises the Board on
financial reporting.
s Oversees the relationship
with internal and
external audit.
s Oversees internal
controls including
reserving and claims.
Nominations and
Governance Committee
s Recommends Board
appointments.
s Succession planning.
s Ensures an appropriate
mix of skills and
experience on the Board.
s Promotes diversity.
s Manages any
potential conflicts.
Remuneration Committee
Risk Committee
s Establishes
remuneration policy.
s Sets Chairman,
Executive Director and
senior management
remuneration.
s Oversees workforce
remuneration-related
policies and practices
across the Group.
s Oversees alignment
of rewards, incentives
and culture.
s Advises the Board on
the Group’s overall
risk appetite, tolerance
and strategy.
s Provides advice,
oversight and challenge
to embed and maintain
a supportive risk
culture throughout
the Group.
The Audit Committee report
can be found on pages
71 to 73.
The Nominations and
Governance Committee
report can be found on
pages 68 to 70.
The remuneration report can
be found on pages 80 to 93.
More information on risk
management can be found
on pages 12 and 36 to 39.
This structure is supported by the Executive Committee, Investment Committee and a number of other management committees.
Certain administrative matters have been delegated to a committee comprising of two Directors and the Company Secretary.
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Hiscox Ltd Report and Accounts 2020
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
Corporate governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
More information on our approach
to corporate governance, including
the Board and Committee terms
of reference can be found at
hiscoxgroup.com/investors/
corporate-governance
108
Read about our going concern
and viability statements in our
Directors’ report.
Board statistics
Board diversity at 3 March 2021
Gender
Female
Male
4
7
Age
46-55
56-65
66-75
2
7
2
Location
USA
Bermuda
Europe
Asia
Tenure
0-3 years
3-6 years
6-8 years
8+ years
2
2
6
1
4
4
1
2
Corporate governance oversight
The Board operates within an established governance
structure to ensure that through the delegations, strategy
can be implemented effectively and this is supported by
transparent, well informed and balanced decision-making.
The Board’s terms of reference include a schedule of matters
reserved for Board decision, a copy of which can be found
at hiscoxgroup.com/investors/corporate-governance.
Each Board committee operates within established written
terms of reference and each committee Chairman reports
directly to the Board. The matters reserved for Board decision
and the committee terms of reference were further reviewed
in late 2020 as part of the annual review of terms of reference.
The Board is responsible for the success of the Company
and the underlying Hiscox Group of companies and as part
of this the Board sets the governance framework and the
overarching principles which should be applied across the
Group. The framework is supported by a formal governance
manual which explicitly sets out our corporate governance
standards. The Group governance manual sets out the
overall Group structures, the division of responsibilities
between Group and principal subsidiary boards, operational
requirements for the Board and the principles applied to
subsidiary management. The Group governance manual and
supporting subsidiary governance manual ensures that the
underlying processes throughout the Group follow consistent
and effective governance procedures.
Hiscox Group governance model
The Hiscox Group governance model shows the relationship
between the Board exercising strategic direction and
oversight of the Hiscox Group, and the subsidiary boards’
delivery of their respective entities.
Hiscox Ltd Report and Accounts 2020
59
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
Corporate governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
An alert service is available on
hiscoxgroup.com to notify any
stakeholder of new stock
exchange announcements.
The model is divided into key themes, aligned to the division of
responsibilities, and translated into explicit terms of reference
for the principal subsidiaries – ensuring alignment to the overall
Group approach to values, purpose, culture of risk awareness,
ethical behaviour and Group controls.
The governance manual defines the Group-wide governance
standards required of all legal entities, and supports the
delivery of strategy and business objectives within a
framework of good corporate governance practice.
Board meetings and attendance in 2020
The Group has an effective Board which supports a culture
of accountability, transparency and openness. Executive
management and the Non Executive Directors continue to
work well together as a unitary Board and debate issues freely.
The Board culture is congenial; however, both Non Executive
Directors and Executive Directors continually challenge each
other in order to deliver our shared aim. In the context of unitary
Boards, Non Executive Directors provide Executive Directors
with support and guidance, not just challenge, and our Non
Executive Directors are close enough to the business to do this.
In line with the agreed meeting schedule, the Board held four
comprehensive meetings in 2020 (these meetings comprise
meetings of the Board and of each of the Committees of the
Board). There were additional Board meetings which covered
specific topics such as the approval of May’s capital raise, the
Company’s response to Covid-19 and the insurance industry
test case. During an unprecedented and rapidly evolving
period, we also held an additional 17 informational calls
between Board meetings. These informational calls provided
an opportunity to ensure the Board was kept informed of any
business developments and allowed the Directors to monitor
exposures, emerging issues and opportunities.
The Company’s Bye-laws prohibit any Director who is in the
UK or the USA from counting towards the quorum necessary
for the transaction of business at a Board meeting. This
restricts the ability of the Company’s Directors based in the
UK or USA to participate in Board meetings by telephone or
other electronic means. Although the Company’s February
2020 Board and Committee meetings were held in-person in
Bermuda as scheduled, from March 2020, in-person Board
activity was significantly disrupted due to government imposed
Covid-19-related travel restrictions and guidance. As a result, it
was not possible in many instances for our UK- and USA-based
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Hiscox Ltd Report and Accounts 2020
Directors to travel to Bermuda or join the meetings as a result
of restrictions on international travel and the airport in Bermuda
being closed for periods of time. In light of this, the Board
held an additional 17 informational calls which allowed for the
continued sharing of information and ensured that all Directors
had an opportunity to be apprised of all Board issues, even
when, through no fault of their own, they were not able to attend
the comprehensive Board meetings in person or, as a result of
the prohibition in the Bye-laws, by telephone.
All Directors were able to fulfil their fiduciary responsibilities
during 2020 and attended all Board and Committee meetings
that they were eligible to attend (that is, those Board and
Committee meetings that they were not precluded from
attending as a result of Covid-19-related travel restrictions and
guidance, and the Company’s Bye-laws). With respect to the
four comprehensive Board meetings in 2020, the Directors
attendance (and the number of meetings that they were eligible
to attend) is as follows: Caroline Foulger, Michael Goodwin,
Thomas Hürlimann, Costas Miranthis (4/4); Robert Childs;
Aki Hussain; Bronek Masojada; Joanne Musselle (3/3); Colin
Keogh (2/2); Anne MacDonald, Lynn Pike (1/1). Joanne Musselle
was appointed to the Board in March 2020 and, although not
required, attended the February 2020 Board meeting.
There were also four meetings of each of the Committees of
the Board during 2020. All of the Company’s Non Executive
Directors are members of each of the Audit Committee,
Nominations and Governance Committee, Remuneration
Committee, Risk Committee and Investment Committee
and their attendance (and the number of meetings that
they were eligible to attend) is as follows: Caroline Foulger,
Michael Goodwin, Thomas Hürlimann, Costas Miranthis (4/4);
Colin Keogh (2/2); Anne MacDonald, Lynn Pike (1/1).
Robert Childs is a member of the Nominations and Governance
Committee, Risk Committee and Investment Committee and
he attended all three of the meetings that he was eligible to
attend. Aki Hussain, Bronek Masojada and Joanne Musselle
are members of the Investment Committee and attended all
three meetings that they were eligible to attend.
All Directors intend to attend future Board and Committee
meetings in person when circumstances allow.
Outside of the formal Board and Committee meetings and
informational calls, Non Executive Directors have unfettered
access to employees at all levels of the business, regularly
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
Corporate governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
“I have been very pleased with how
our governance processes have stood
up to the exceptional challenges that
presented themselves in 2020. They have
proven to be robust and effective. We
made use of technology and additional
informational sessions to ensure that we
were not only able to understand how
the challenges were impacting Hiscox,
but were also able to contribute to the
process by sharing thoughts and ideas.”
Colin Keogh
Senior Independent Director
Board activity and key themes
The Board receives appropriate and timely information to enable Directors to review business strategy, trading performance,
business risks and opportunities. Executive Directors and senior management from the business are invited to present
on key items, allowing the Board the opportunity to debate and challenge initiatives directly with Executive Directors and
senior managers. Naturally, the impact of Covid-19 was a dominant feature in much of the Board’s discussion in 2020.
Key themes in 2020
Key activities and actions
Strategy, culture and
business performance
s Approval of the 2021 business plan.
s Agreement on business priorities and review of these within the context of Covid-19.
s Oversight of work on the development of a robust and open culture. Ongoing monitoring
and assessment of culture has been an area of focus for 2020, thanks to the piloting
of a number of ‘culture dashboards’ within some of the subsidiary Boards, as detailed
on page 48.
s Continued review of the strategy development.
Engagement
s Board members met throughout the year with the Group regulator, the Bermuda Monetary
Authority, in addition to key regulators in the principle subsidiaries, as part of an ongoing
focus on cultivating open and transparent relationships with all key regulators.
s The Board regularly considered the Group’s relationship with various stakeholder groups.
It discussed shareholder matters, employee engagement, customers, and the Group’s
impact on, and relationship with, wider society as detailed on pages 40 to 41 and 46 to 47.
s The Board received regular updates on workforce engagement, via the Employee Liaison
role (Anne MacDonald, Non Executive Director). Further details can be found on page 48.
Governance
s Approval of financial measures taken as a result of Covid-19 including: withdrawal of the
Risk, compliance and
internal controls
2019 final dividend, the 2020 interim dividend payment and 2020 share buybacks; the
purchase of more than $100 million of additional catastrophe reinsurance in the form of
industry loss warranties; and a £375 million equity raise.
s Appointment of the external facilitator for the 2020 Board evaluation and discussion of the
outcomes of the Board evaluation review. Further details can be found on pages 68 to 70.
s Approval of the Hiscox Responsible Investment Policy, the ESG exclusions policy and
ongoing engagement with the ESG framework.
s Oversight of all key risk, compliance, internal control and governance matters as detailed
in the Audit Committee report on pages 71 to 73 and in the risk management section on
pages 36 to 39.
s Review of the changed control environment in the move to remote working due to Covid-19,
which was found to be satisfactory.
s Updates on key underwriting exposures (Hiscox view of risk), taking into account Covid-19.
Hiscox Ltd Report and Accounts 2020
61
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
Corporate governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
liaise with management on activities aligned to their key skills,
and attend appropriate management strategy and training
events. They also have the opportunity to attend briefings with
Executive Committee members and senior management, to
understand key issues and conduct ‘deep dives’ on specialist
subjects. In 2020, among other things, this included: marketing
and branding; strategic assessment; workforce engagement;
and digitisation. Specific sessions are held for succession
planning and strategy.
Board evaluation 2020
The externally facilitated Board evaluation in 2020 was
facilitated by Lintstock, further details of which can be found
in the Nominations and Governance Committee report on
pages 68 to 70.
Board agenda planning in action
The Board agenda is set by the Chairman following discussion
with the Chief Executive and Company Secretary, taking
into consideration feedback from the individual Directors.
Board agendas focus on strategically important issues and
regular reports from key business areas.
Board papers are circulated in advance of each meeting to
ensure Directors have appropriate time to review them, and
to seek clarification where necessary. The quality of Board
papers is kept under regular review.
The scheduled meetings follow an agreed format; agendas
are developed from the Board’s annual plan of business, with
flexibility built in to ensure the agendas can accommodate
relevant upcoming issues.
The Chairman and Non Executive Directors usually meet at
the start or end of each Board meeting without the Executive
Directors, creating an opportunity for Non Executive Directors
to raise any issues privately.
Each agenda is typically divided between special strategy
items (‘deep dives’), and management reports. Deep dive
sessions are selected for a variety of reasons, including
identified actions from previous meetings, issues escalated
from management, and items requested either formally or
informally by Non Executive Directors. Any issues highlighted
will be addressed either at the Board, during Committee
discussions, or during informal informational sessions,
depending on the nature of the matter. The management
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Hiscox Ltd Report and Accounts 2020
reports follow a short standard format which aids discussion
and understanding. At each meeting the Board receives an
update from the Committee Chairs to keep them abreast of
the items discussed, the outcomes agreed, and to summarise
recommendations for Board approval from the Committees.
Board agendas are also set out in line with the Committee
agenda setting to ensure that the most appropriate method of
progressing an item is utilised.
The agenda planner was refreshed during the year to
ensure it covered the appropriate strategy, performance
and governance items. The agenda planning also includes
the review of external influences on the Board including
ongoing regulatory review throughout the Group.
Director duties
As a company incorporated under the laws of Bermuda,
Hiscox complies with the Bermuda Company Law and as
such the UK Companies Act 2006 and associated reporting
regulations do not apply. Although there is no prescription of
statutory duties in Bermuda, Directors are bound by fiduciary
duties to the Company and statutory duties of skill and
care. This includes exercising care, diligence, and skill that
a reasonably prudent person would be expected to exercise
in comparable circumstance. The Directors act in a way
that they consider in good faith would be most likely to
promote the success of the company for the benefit of its
members as a whole.
Compliance with the UK Corporate Governance Code 2018
As a company listed on the London Stock Exchange, the UK
Corporate Governance Code (the Code) is applicable to Hiscox.
The Code sets out a set of ‘comply or explain’ provisions.
This section, along with the corporate governance section
on pages 57 to 62, provides meaningful disclosure on our
application of the principles of each section of the Code
in turn, and explains the rationale for any deviation from
its provisions. A copy of the Code is available at frc.org.uk.
place are robust and take into account the principal and
emerging risks faced by the Company. The Board delegates
certain matters to the Risk Committee, whose work is
outlined on pages 37 to 38, and the Audit Committee, whose
work is outlined on pages 71 to 73. The Committees provide
updates to the Board on matters discussed at each meeting.
Section 1 of the Code:
Board leadership and Company purpose
The Board is collectively responsible for the stewardship and
long-term success of the Company and for setting the strategic
direction for the Group. In the corporate governance section
on pages 57 to 62, we have set out the governance structure
which supports the Board in setting and overseeing the delivery
of the Company’s strategy. We have also described some of the
key decisions taken by the Board during the year and how the
Board’s view of emerging risks influenced those decisions to
ensure the focus remains on delivering long-term, sustainable,
good performance.
Purpose and values have always been important at Hiscox,
and the Board reviews and refines them every five or so
years to ensure they remain relevant as the business
evolves, with the last comprehensive review undertaken
in 2019. The Board believes that the Company’s purpose
and values act as a barometer by which the Board and
the wider workforce can hold each other to account.
For more information on our purpose and values see page 8.
The Board operates within a Group-wide governance framework
which was also explicitly set out in a Board-approved governance
manual during 2019. The governance framework complements
the Company’s internal controls which are designed to enable
risk to be properly assessed and managed. To support this,
the Board has a formal schedule of matters reserved for the
Board’s determination that covers areas including: setting the
Group’s purpose and strategic vision; monitoring performance
of the delivery of the strategy; approving major investments,
acquisitions and divestments; risk oversight and setting the
Group’s risk appetite; and reviewing the Group’s governance.
The Company’s terms of reference explicitly state that the Board
and its Committees shall have unfettered access to the resources
they determine as being necessary to fulfil their obligations.
The Board is kept aware of major shareholder issues and
concerns through reports from a variety of sources, including
the Chairman, Chief Executive, Chief Financial Officer, senior
management and external consultants. Other ways in which
the Board maintains dialogue with shareholders include
general meetings, investor roadshows and interim and full-year
results presentations, ensuring shareholder engagement is
not limited to the period following the publication of financial
results or other significant announcements. Dialogue with
shareholders has adapted throughout the period to respond to
communicating remotely where needed.
In 2019, the Company formalised its approach to workforce
engagement by establishing an Employee Engagement
Network, which is led by Non Executive Director Anne
MacDonald, who also now holds the role of Employee Liaison.
The Board continues to engage with the workforce through
both the pre-existing infrastructure and via the employee
engagement network, to ensure that Hiscox is motivating and
engaging employees in an effective way. The Employee Liaison
is responsible for providing a summary of findings at Board
meetings, and more information on the work of the employee
engagement network during 2020 can be found on page 48.
Having a supportive and inclusive culture is important to us,
and we track how employees feel about working at Hiscox
through our annual global employee engagement survey.
More information on our 2020 results can be found on page 46.
The Board, at least quarterly, assesses and monitors culture
via a culture dashboard; wide metrics are used to ensure
that the Board can have oversight of any issues and seek
corrective action where it is not satisfied that policy, practices
or behaviour throughout the business are aligned with the
Company’s purpose, values and strategy. More information
on the culture dashboards can be found on page 48.
The Board is ultimately responsible for our risk management
and internal controls, and for ensuring that the systems in
Diversity and inclusion remains as important as ever to our
business, and we have policies and processes to ensure there
is a balanced workforce and an appropriately diverse pipeline.
Hiscox Ltd Report and Accounts 2020
63
Chapter 2 17A closer lookChapter 4 75RemunerationChapter 5 107Shareholder informationChapter 6 113Financial summaryChapter 1 3 A balanced businessChapter 3 51 Governance Chapter 1
A balanced business
3
Chapter 2
A closer look
17
51
Chapter 3
Governance
Compliance with the UK
Corporate Governance
Code 2018
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Data from Lloyd’s of London shows that our efforts in gender
diversity planning have delivered above market gender ratios
and we continue to evolve our efforts, with a specific focus on
improving our ethnic diversity.
The Company’s whistleblowing policy ensure that employees
feel empowered to raise concerns in confidence and without
fear of unfair treatment. The structures and processes in place
allows for the proportionate and independent investigation of
any such matters, and for appropriate follow up action to be
taken where necessary. The Board and the Audit Committee
– whose Chair also who serves as the Group’s whistleblowing
champion – has oversight of whistleblowing and routinely
receives reports arising from its operation.
Each year, the Directors are required to provide a complete
list of all third-party relationships that they maintain. This is
analysed to determine if there is any actual or potential conflict
of interest. The Nominations and Governance Committee
review the findings and determine if there is any conflict of
interest. With respect to 2020, the Committee determined that
there are no conflicts which could cause an actual or potential
conflict, and additionally there are no concerns regarding
overboarding by Directors with adequate time available by all
to carry out their duties.
Where Directors took on additional Board positions during the
year, these were reviewed as part of our corporate governance
processes and were not deemed to be significant to the extent
that they would overburden Directors’ time. There is no issue
with the time commitments or availability of these Directors; this
has been demonstrated throughout 2020 where all Directors
have given additional time to the Company due to increased
meetings regarding the pandemic response.
Hiscox’s response to section 1 of the Code
The Board has complied with all of the applicable provisions
of section 1. Provision 5 states that, in the context of how
the Board understands the view of key stakeholders, the
Board should describe in the Annual Report how the matters
set out in section 172 of the Companies Act 2006 have been
considered in Board discussions and decision-making.
Section 172 applies only to companies incorporated in the
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Hiscox Ltd Report and Accounts 2020
UK, therefore as a Bermuda-incorporated company the
Board is not subject to section 172 statutory duties.
Nevertheless, where appropriate the Board as a matter of
good governance has set out how we deliver comparable
Director duties against the Bermuda Companies Act 1981.
More information on Director duties can be found on pages
108 to 110, while stakeholder engagement is covered on
pages 40 to 41 and ESG on pages 42 to 49.
Section 2 of the Code:
Division of responsibilities
The Chairman is responsible for the leadership and overall
effectiveness of the Board. He recognises the importance of
creating a boardroom culture which encourages openness
and debate and ensures constructive relations between
Executive and Non Executive Directors. There is a clear division
of responsibilities between the Chairman, Chief Executive and
Senior Independent Director to ensure that no individual has
unfettered powers of decision, which is outlined on page 57.
The Non Executive Directors provide constructive challenge
and help develop proposals on strategy. They are also
responsible for scrutinising management performance and
ensuring that financial information, risks and controls, and
systems of risk management are robust. The Board ensures,
through the Nominations and Governance Committee, that
Board composition is kept under review, that appropriate
succession plans are in place, that the independence of
Non Executive Directors is not compromised and that they
have the time and resources necessary to devote to the role.
The Remuneration Committee ensures that appropriate
remuneration structures are in place on behalf of the Board,
more information of which is outlined on pages 76 to 105.
Colin Keogh, the Senior Independent Director, provides
a sounding board for the Chairman and serves as
intermediary for other Directors when necessary.
His other role responsibilities are outlined on page 57.
The General Counsel and Company Secretary acts as
a trusted adviser to the Board and its Committees, and
ensures there are appropriate interactions between
senior management and the Non Executive Directors.
He is responsible for advising the Board on all governance
matters and all Directors have access to him for advice.
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
51
Chapter 3
Governance
Compliance with the UK
Corporate Governance
Code 2018
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Hiscox’s response to section 2 of the Code
The Company complied with all of the provisions of section 2
with the exception of Provision 9. As previously disclosed, the
Chairman, Robert Childs, was not deemed to be independent
upon his appointment as Chairman in 2013.
At that time, major shareholders were consulted ahead of
Robert’s appointment and the Board set out its reasons for
his appointment.
The Board continues to believe that the Chairman’s experience
and expertise in underwriting and risk management remain
a valuable asset in the performance of its functions. In 2019,
following the introduction of the new provision of the Code,
a more robust annual process was introduced which allows
the question of the Chairman’s tenure on the Board to be
discussed by the Non Executive Directors (without the
Chairman being present). This meeting happened in November
2020 and the meeting concluded, having taken soundings
from all other Directors on the Board, that the Board continues
to highly value the Chairman’s skills and experience, and that
he demonstrates independence, constructive challenge and
engagement in the Board as well as valuable guidance to
Executive management. The Board is therefore satisfied that
the Chairman continues to show the independence of character
and judgement necessary to chair the Board effectively.
Separately, there are a number of further measures to
ensure the robustness of these arrangements. There is
a strong Senior Independent Director in place; an annual
review of independence of mind as part of the effectiveness
review, and oversight of this at the Nominations and
Governance Committee; the Chairman is not a member of
the Remuneration Committee or the Audit Committee; and
a majority of Board Directors are independent Directors.
A key focus of the 2020 externally facilitated Board evaluation
was an assessment of the independence of the Board, the
role of the Chairman and the robustness of the Non Executive
Director succession plan; the results of which were positive
and are detailed on pages 68 to 70.
The Board therefore retains complete confidence in the
Chairman’s ability to act independently, and unanimously
supports his re-election at the Annual General Meeting (AGM).
Section 3 of the Code:
Composition, succession and evaluation
The current composition of the Board is set out on pages
52 to 53 and is considered to be an appropriate size
for the business, with the right balance of Executive and
Non Executive Directors. The Board is satisfied that it has
the appropriate balance of skills, experience, independence,
and knowledge of the Company to enable it to discharge
its duties and responsibilities effectively, and that no
individual or group dominates the Board’s decision-making.
Any changes to the Board during the period are outlined
on page 57.
Diversity of thought, which is vital at every level of the
business including at Board level, remains vital and we are
guided by both our diversity and inclusion policy and our
Board diversity statement, which are available to view at
hiscoxgroup.com/about-hiscox/group-policies-and-
disclosures. Details of our diversity activities are detailed
on pages 46 to 47 and 70.
The Nominations and Governance Committee also
assesses the independence of each Non Executive Director,
taking into account, among other things, the circumstances
set out in the Code that are likely to impair, or could appear to
impair, their independence. The Committee remains of the
view that the most important factor is the extent to which
they are independent of mind. All Non Executive Directors,
other than the Chairman, were considered to be independent
when appointed to the Board, and the Nominations and
Governance Committee has determined that they all
continued to be independent in 2020. In line with good
governance practice, a particularly rigorous independence
review was conducted for Caroline Foulger as she has served
on the Board for more than six years, and concluded that
she continues to demonstrate independence. The Board
approved that Caroline Foulger could continue in office until
May 2022, to allow for the completion of the 2021 financial
statement process, as at this point Caroline continues to
be independent.
The Nominations and Governance Committee plays a vital
part in ensuring a formal, rigorous and transparent procedure
for the appointment of new Directors and is responsible for
Board succession planning, regularly assessing the balance
of skills, experience, diversity and capacity required to
oversee the delivery of the Company’s strategy.
Hiscox Ltd Report and Accounts 2020
65
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
51
Chapter 3
Governance
Compliance with the UK
Corporate Governance
Code 2018
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
More information can be found in the Nominations and
Governance Committee report on pages 68 to 70.
Each Non Executive Director’s letter of appointment
outlines the commitments expected of them throughout
the year. Each Director has undertaken to allocate
sufficient time to the Group in order to discharge their
responsibilities effectively, and this is kept under review
by the Nominations and Governance Committee.
Executive Directors are prohibited from taking more than
one Non Executive Directorship in a FTSE 100 company,
or the Chairmanship of such a company. Information
on Board members’ other appointments are listed on
pages 52 to 53.
On joining the Board, all Non Executive Directors take
part in a full, formal induction programme which is
tailored to their specific requirements. Board members
can also participate in training and development
opportunities throughout the year. These typically include
visits to Hiscox offices, specific sessions on key business
areas and upcoming developments, and inclusion at
the annual Hiscox Partners event, attended by those
employees who make significant contributions to the
development and profitability of the Group, and which
this year took place as an online event. These visits
provide an opportunity to meet employees and
other key stakeholders, and to develop a deeper
understanding of the challenges and opportunities
at operational sites and in the business areas more
generally. The Chairman holds annual appraisal
meetings with all Directors to review their performance,
and to discuss their training and development needs.
The Board also enjoys a full programme of informal
meetings that support the Board meetings; this helps
to ensure that the Non Executive Directors in particular
have wide access to all levels of the business. A number
of Non Executive Directors also serve on the subsidiary
boards of the major insurance carriers in the Group, which
serves as an additional control with respect to subsidiary
oversight of the Group.
All Directors stand for re-election by shareholders each
year at the AGM. The Board considers that all Directors
continue to perform effectively and demonstrate
appropriate levels of commitment. The biographical
details of the Board on pages 52 to 53 summarise each
Director’s relevant skills and experience as well as the
specific reasons why each Director’s contribution is
important to the Company’s long-term sustainable
success. As recommended by the Code, this
information will also be included in the Notice of Annual
General Meeting.
A Director, Board and Committee effectiveness evaluation
is carried out each year and results in effectiveness
reviews, which are discussed by the Board and each of the
Committees. The Nominations and Governance Committee
was central to these reviews. Every third year, the Board
evaluation is externally facilitated and this was the case in
2020. The external evaluation confirmed a strong, positive
dynamic which fosters constructive discussion and
decision-making. More information on the findings can
be found in the Nominations and Governance Committee
report on pages 68 to 70.
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Hiscox Ltd Report and Accounts 2020
Hiscox’s response to section 3 of the Code
The Company complied with all of the provisions of section 3
with the exception of Provision 19. The Chairman has been
in post since 2013, and has served less than nine years as
Chair, however, the Chairman has served as a Director prior
to that and continues in that post for reasons outlined in
Hiscox’s response to section 2 of the Code.
Section 4 of the Code:
Audit, risk and internal control
A key part of the Audit Committee’s and Risk Committee’s
responsibilities is to provide oversight, on behalf of the
Board, of the Company’s internal financial controls, control
and risk management systems, and to monitor the integrity
of the financial statements of the Company. A report from
Caroline Foulger, Chair of the Audit Committee, on the
work of the Committee during the year can be found on
pages 71 to 73. The risk management framework is set out
on page 36.
The Board is responsible for the preparation of the Annual
Report and Accounts and for stating whether it considers
the Annual Report and Accounts, taken as a whole, to be fair,
balanced and understandable, and to provide the information
necessary for shareholders to assess the Company’s
position, performance, business model and strategy.
The Directors’ responsibilities statement, going concern
and viability statements are set out on pages 108 to 111.
Hiscox’s response to section 4 of the Code
The Company complied with all of the provisions of section 4.
Section 5 of the Code:
Remuneration
The remuneration policy is developed by the Remuneration
Committee in consultation with shareholders and is designed
to support the Company’s strategic aims and promote the
long-term sustainable success of the Company while also
being aligned with the Company’s purpose, values and culture.
The remuneration policy was reviewed in 2019 ahead of its
renewal in May 2020. The Code stipulates the importance
of clarity, simplicity, risk, predictability, proportionality and
alignment to culture in remuneration, and how we address
this for Hiscox is outlined in the table on the opposite page.
The remuneration report also contains details of the procedure
that has been established for developing the Company’s
policy on Executive pay and determining Director and senior
management remuneration outcomes. No Director is involved
in deciding their own remuneration.
Hiscox’s response to section 5 of the Code
The Company complied with all of the provisions of section 5.
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Chapter 2
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Chapter 3
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Compliance with the UK
Corporate Governance
Code 2018
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
How we have addressed the following factors in the UK Corporate Governance Code 2018
Factor
Consideration of how this is addressed for Hiscox
Clarity – remuneration
arrangements should be
transparent and promote
effective engagement
with shareholders and
the workforce.
s Shareholders’ views on the key changes to the policy are sought.
s Although the Committee did not consult directly with the broader workforce on Executive
Directors’ remuneration policy, there is a process by which employees’ views are gathered
on a range of topics and reflected in Board discussion. The Remuneration Committee also
receives information on broader workforce remuneration policies and practices during the
year which informs its consideration of the policy for Executive Directors.
Simplicity – remuneration
structures should avoid
complexity and their rationale
and operation should be easy
to understand.
s Hiscox’s remuneration framework is simple, comprising three main elements:
i) fixed pay (base salary, benefits and pension);
ii) annual bonus; and
iii) performance share awards.
s The remuneration philosophy is a simple one: to reward performance. For over a decade,
the foundation of the Group’s remuneration strategy has been the belief that the best way
to foster a high-performance culture across the Group is to ensure that pay reflects our
results, not just effort.
s The remuneration policy’s operation, including form of awards, time horizons, and
performance measures, is designed to avoid complexity and is fully disclosed in the
Directors’ remuneration report on page 80.
Risk – remuneration
arrangements should ensure
reputational and other risks
from excessive rewards, and
behavioural risks that can
arise from target-based
incentive plans, are identified
and mitigated.
s Incentive awards are capped and are not considered excessive.
s Executive Directors’ annual bonus awards are judgement-based to ensure they reflect
their overall performance rather than being measured according to a formulaic outcome.
Risk is also taken into consideration as part of this.
s The Committee has the ability to apply independent judgement to ensure that the vesting
outcome of performance share awards is a fair reflection of both the Company’s performance
and that of the individual over that period.
s Part of the annual bonus is subject to deferral, and share awards are subject to a holding
period following vesting. Deferred bonus and share grants are subject to malus
and clawback.
Predictability – the range of
possible values of rewards
to individual Directors and
any other limits or discretions
should be identified and
explained at the time of
approving the policy.
Proportionality – the link
between individual awards,
the delivery of strategy and
the long-term performance of
the Company should be clear.
Outcomes should not reward
poor performance.
Alignment to culture –
incentive schemes should
drive behaviours consistent
with Company purpose,
values and strategy.
s The range of possible values are set out in the performance scenario charts in the
remuneration policy on page 104.
s Limits and ability to exercise discretion are also set out in the policy.
s Historic variable incentive pay-outs have had a strong link to the Company’s actual
performance. There is a track record of payment for performance, with evidence of zero
bonuses where ROE performance has been below the predetermined hurdle.
s The variable incentive schemes, including quantum, time horizons, form of award and
performance measures are all designed with the Company’s purpose, values and strategy
in mind.
s The pay arrangements for the Executive Directors are aligned with those of the broader
workforce and senior team.
Hiscox Ltd Report and Accounts 2020
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A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Nominations and Governance Committee report
The work of the Nominations and Governance Committee is
wide-ranging, with a specific focus on the appointment and
succession of Directors and Executive management, the
Board evaluation, and Company strategy relating to diversity
and inclusion and the gender balance of both the Board and
senior management. The Nominations and Governance
Committee also carries out several other Group activities,
including a review of governance compliance, a review of
conflicts and the approval of Group policies. The Committee
is comprised of eight members (seven independent
Non Executive Directors). The Chair of the Board is also
Chair of the Nominations and Governance Committee.
Board structure – appointment and succession
The Nominations and Governance Committee leads in the
delivery of formal, rigorous and transparent procedures on
appointments and succession, ensuring the development
of a diverse pipeline of Board members and senior managers.
This includes an annual review of succession plans for
Executives and Non Executives, a process which is guided
by the appointment and succession principles set out in the
Group governance manual, and which was again carried out
in 2020 across the Group.
As part of the Board succession planning process, the
Nominations and Governance Committee reviewed the
composition of the Board in 2020. This included a skills and
experience review – encompassing independence, length of
service, the balance of skills and experience, diversity, and the
capacity required to oversee the delivery of the Company’s
strategy – and Board succession planning on an immediate and
longer-term basis for the Chair and all members of the Board. As
part of this Board review, an appointment process was initiated
for the replacement of Caroline Foulger as Director and Chair
of the Audit Committee. Caroline’s nine-year term completes
in January 2022. However, the Nominations and Governance
Committee approved that Caroline could continue in office until
May 2022 so that the financial cycle may be completed prior
to the formal handover, as changing the Audit Chair mid-cycle
could be detrimental to the process. The recruitment process
for an Audit Committee Chair has been initiated, and the
selection of an external search company is in progress.
The Nominations and Governance Committee also leads on
Executive succession planning. There is an established and
robust process which reviews the key talent plans throughout
the Group across three time horizons; zero-to-two years,
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Hiscox Ltd Report and Accounts 2020
two-to-five years and the watch list. The Group talent review
is assessed by the Nominations and Governance Committee
annually and fed into senior management performance
development plans. This process is replicated at a business
unit level to ensure they too have a sufficient pipeline of talent.
Talent plans are also reviewed when vacancies arise; for
example, in 2019, Joanne Musselle was identified as part of the
talent plan for her predecessor and, following an open market
exercise, was appointed as Group Chief Underwriting Officer.
Board evaluation
The Board and its Committees have a culture of continuous
improvement and as part of this undertake a formal and
rigorous annual evaluation of Board and Committee
performance; the results of which help to inform appropriate
action and development. Board and Committee effectiveness
evaluations are carried out each year and the results are
reviewed and discussed at the Board and each of the
Committees. Every third year, the Board evaluation is
undertaken by an external evaluator, as was the case in 2020.
2020 external Board effectiveness review
A market review of third-party Board evaluation providers was
carried out in early 2020, with Lintstock selected as the external
Board evaluation facilitator for 2020. Lintstock is confirmed as
independent; it provides no other services to the Company,
and has no other connection with the Company or individual
Directors, aside from having carried out the external Board
effectiveness review in 2017 and the internal review in 2018.
Lintstock engaged with key project sponsors to set the context
for the evaluation and carried out the review in the fourth quarter
of 2020 with a formal report to the Board in early 2021. All
Board members were invited to complete a survey addressing
the performance of the Board, the Chair and each of the
committees, after which each of the Directors were interviewed
by Lintstock representatives. The anonymity of the respondents
was ensured throughout the process in order to promote an
open and frank exchange of views. The key areas highlighted
in the scope of the review included Lintstock’s assessment of
the independence of the Board, the role of the Chair, and the
robustness of Non Executive Director succession plans.
2020 outcomes
Lintstock presented the findings of their review, confirming
that the findings were positive on the whole. 2020 has been
a challenging year for all organisations but the fact that the
Board has maintained a strong, positive dynamic that fosters
Chapter 1
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Chapter 2
A closer look
17
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Nominations and
Governance
Committee report
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
The Board evaluation process: assessing Board, Committee Chair and individual Director performance*
Stage 1
Stage 2*
Stage 3*
Stage 4*
Stage 5
Director review
Committee review
Board review
Outputs shared
One-to-one interviews
between the Chairman and
the Directors to assess
Director effectiveness.
Detailed questionnaire
completed to assess
the effectiveness of
the Committees.
Senior Independent
Director meets with the
Non Executive Directors
to assess the effectiveness
of the Chairman.
*Stages 2 to 4 were delivered as part of the external Board evaluation for 2020.
Detailed
questionnaire
completed
to assess the
effectiveness
of the Board.
Results
presented and
discussed at
Board and
Committee
meetings.
Action plan
agreed
Action plan
overseen to
completion.
constructive discussion and decision-making was highlighted
as being particularly noteworthy. The review was weighted
towards a few particular themes, including:
s the independence of the Board, as currently composed,
which was deemed satisfactory;
s the role of the Chair, who was seen to have demonstrated
strong leadership over the past year; and
s the robustness of Non Executive Director succession
plans, which continue to be given active consideration
and are the subject of ongoing discussion as a part of
the usual process of Director rotation.
The review included a number of key priorities for the
Board to consider during the coming year, alongside a
schedule of detailed recommendations to assist with the
formulation of a robust action plan. As a result of the exercise,
the Board agreed to focus on the following actions:
s maintaining its focus on the succession of Executive
Directors and other key leadership positions below
the Board;
s transitioning back to in-person meetings when
Covid-19-related restrictions reduce, while retaining the use
of video-conferencing for interim Board calls and updates;
s driving accountability and excellence in execution,
including in the continued monitoring of progress against
the Company’s business priorities and key projects;
s continuing discussions on strategy, including business
mix and capital allocation;
s devoting more time to considering changes in the
external environment and their impact on Hiscox,
including competitor activity in key markets; and
s maintaining its focus on talent management, employee
engagement and the retention of high performers.
All Directors were fully engaged with the Board evaluation
process. The Board welcomed the review’s findings with
the actions above feeding directly into ongoing succession
planning discussions. The Chair is leading the implementation
of these actions and will report on their delivery in the 2021
Annual Report and Accounts.
Hiscox Ltd Report and Accounts 2020
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A balanced business
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A closer look
17
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Nominations and
Governance
Committee report
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Individual Director reviews
Individual Director reviews are an opportunity to discuss
individual skills, training requirements, succession and any
other issues. No significant issues were raised in 2020.
However, the Nominations and Governance Committee
will continue to review the overall skills, succession and
rotation of Directors.
Gender diversity at 31 December 2020
Board
Executive Committee
Direct reports to the Executive Committee
All employees
Male
64%
60%
57%
50%
Female
36%
40%
43%
50%
We have also complied with the target of having at least one
ethnic minority Director on the Board by 2021, as set out in
the Parker Review.
In addition, we have fulfilled our UK obligations to report our
gender pay gap ratios with respect to our UK subsidiaries,
and published our fourth annual gender pay report during the
year. This report sets out in detail the D&I programmes and
initiatives we pursued during 2020, and can also be found on
our corporate website.
Robert Childs
Chair of the Nominations and Governance Committee
Review of the prior year outcomes
In 2019, our internal annual evaluation of Board and
Committee performance was updated to deliver an even
more robust evaluation of Board, Committee Chair and
individual Director performance. As part of this, the Committee
reviewed the action plan to completion. Overall the prior year’s
Board and Committee effectiveness was rated as good or
extremely good with no fundamental issues highlighted. The
following themes of improvement were progressed throughout
the year: additional development of strategy with a focus
on competitor analysis; revised plans for focusing deeper in
the organisation; continued engagement with management
information to deliver better Board oversight; further review
of the remuneration policy (see page 94); and enhancing the
Executive succession planning process with an explicit Board
and Non Executive Director succession planning process.
Diversity and inclusion
Diversity and inclusion (D&I) has been a strategic priority for a
number of years and remains important to us. We have a Head
of Diversity and Inclusion and a D&I Executive Sponsor for the
Group who together drive our progress, a diversity and inclusion
policy that applies to all employees, and a Board diversity
statement that applies to our Executive and Non Executive
Directors. Our Board diversity statement, which is available
on our corporate website, reflects the ethos of the Company
in that opportunity should be limited only by an individual’s
ability and drive. Our Board diversity statement focuses on
key requirements for appointments; it is also central to the
preparation of Board appointments via the Board succession
planning process which monitors skills, knowledge and
experience in additional to diversity (both gender and ethnicity).
In 2020, we complied with the provisions of the
Hampton-Alexander Review, which set a minimum target
for FTSE 350 companies to achieve 33% representation of
women on FTSE 350 boards and in the two layers of leadership
below the Board (the Executive Committee and the direct
reports to the Executive Committee) by the end of 2020.
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Hiscox Ltd Report and Accounts 2020
Audit Committee report
In relation to financial reporting, the primary role of the
Audit Committee (the Committee) is to monitor the integrity
of the financial statements of the Group and any formal
announcements relating to the Group’s financial performance,
and review significant financial reporting judgements contained
within them. Working with both management and the external
auditor, the Committee reviewed the appropriateness of the
half-year and annual financial statements, concentrating on,
among other matters:
s the quality and acceptability of accounting policies
and practices;
s the clarity of the disclosures and compliance with
financial reporting standards and relevant financial
and governance reporting requirements;
s material areas in which significant judgements and
estimates have been applied or where there has
been discussion with the external auditor; and
s any correspondence from third parties in relation
to our financial reporting.
To aid the review, the Committee considered the key
judgements and estimates in the financial statements as
identified by the Chief Financial Officer, as well as reports
from the external auditor on the outcomes of its annual
audit and half-year review. The Committee supported
the external auditor, PwC, in displaying the necessary
professional scepticism its role requires. The primary
areas considered by the Committee in relation to the
2020 Annual Report and Accounts were:
i) Going concern assessment and longer-term
viability statements
The Committee reviewed and advised the Board on
the Group’s going concern and longer-term viability
statements included in this Annual Report and the
assessment reports prepared by management in
support of such statements. As part of this review, the
Committee assessed the methods, assumptions and
judgements underpinning the going concern assessment
in particular around the consideration of the impact of
and the uncertainties due to Covid-19 on the Group’s current
and projected capital and liquidity position. The Committee
was satisfied by the level of analysis presented during the
year, the related approach taken and statements made in
the Group’s key external reporting. More information on the
going concern and viability statements can be found on
pages 108 to 109.
ii) Reserving for insurance losses
As set out in our significant accounting policies on pages 134
to 135, the reserving for insurance losses, in particular losses
incurred but not reported, is the most critical estimate in the
Company’s consolidated balance sheet.
The Chief Actuary presents a quarterly report to the Committee
covering Group loss reserves which discusses both the
approach taken by management in arriving at the estimates
and also the key judgments within those estimates.
The Committee reviewed and challenged the key judgements
and estimates in valuing the insurance liabilities. During the
year, Covid-19 was the most significant loss event to impact
the Group. It is important that the Company can quickly, and
with a reasonable degree of reliability, estimate potential losses
and, in the case of Covid-19, the robust and established large
loss process was used to determine potential exposures and
associated loss estimates. The estimate of insurance claims
related to Covid-19 in 2020, after taking into account the
Supreme Court Judgment for the UK insurance industry test
case on the contractual interpretation of business interruption
policy wordings, is $475 million net of reinsurance. This loss
estimate, along with other insurance claims, are continually
evaluated, based on entity-specific historical experience
and contemporaneous developments observed in the wider
industry when relevant, and are also updated for expectations
of prospective future developments. The Committee received
presentations from the Chief Actuary and management on the
process undertaken and the judgements arrived at to establish
key estimates. While there remains uncertainty around the final
cost of these events to the Group, the Committee notes that the
Group continues to adopt a prudent approach where
uncertainty exists as to the final cost of settlement.
The Committee also reviewed the level of margin held within
the insurance liabilities in the Group’s balance sheet.
Management confirmed that they remain satisfied that the
claims reported and claims adjustment expenses, together
with claims incurred but not reported liabilities included in
the financial statements, provide an appropriate margin over
projected claims costs to allow for the risks and uncertainties
within the portfolio. As with the prior years, the Committee
also considers the report of the external auditor following its
re-projection of reserves using its own methodologies and the
independent actuary who reviews the estimates of insurance
liabilities for the Hiscox Syndicates. On the basis of this work,
Hiscox Ltd Report and Accounts 2020
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Chapter 5
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Financial summary
113
it reported no material misstatements in respect of the level of
reserves held by the Group at the balance sheet date. On the
basis of these assessments and the consistent application of
the Group’s reserving principles, the Committee was satisfied
that the valuation of insurance liabilities at 31 December 2020
were appropriate.
iii) The valuation of the investment portfolio
The Group values and reports its investment assets at fair
value. Due to the nature of the investments, as disclosed in
note 17, the fair value is generally straightforward to determine
for most of the portfolio which is highly liquid. For the element
of the portfolio held in risk assets, a small proportion relies
on a higher degree of estimation. The Committee, through
the Investment Committee, receives quarterly reports on the
portfolio valuation and is content with the process and the
estimates reported. Sensitivity analysis on valuation of assets
is captured within market risk section (note 3.3) of this report.
the report of the key judgements and estimates in the financial
statements from the Chief Financial Officer, and the results of
the independent pension valuation, and is satisfied that the
assumptions used to measure the net liabilities are reasonable.
vi) The recoverability of reinsurance assets
As a result of the large loss activity in the year predominantly
due to Covid-19, the level of credit risk exposure to reinsurers
has significantly increased. The Committee received an update
on the process to monitor the levels of recoverability, including
the level of collateral held, and the regular contact with
counterparties, the ratings of reinsurers and the concentration
of risk. The reinsurer panel and associated exposures appear
to be robust, and management are not aware of any material
issues regarding concentration risk, credit risk or default risk.
This view is supported by assessments provided by S&P and
the Group’s reinsurance brokers. The Committee is satisfied
with the approach taken and the recoverability of those assets.
iv) Recoverability of goodwill and other intangible assets
Judgements in relation to impairment testing relate primarily to
the assumptions underlying the calculation of the value in use of
the Group’s businesses, being the achievability of the long-term
business plans and the macroeconomic and related modelling
assumptions underlying the valuation process.
The Committee reviewed and discussed detailed reporting
with management and challenged the appropriateness
of the assumptions made, the consistent application of
management’s methodology and the achievability of the
business plans.
The Committee focused its attention on the updates made
to assumptions as a result of managements’ assessment of
the impact of Covid-19 on the forecast cash flows, the cash
generating units most impacted and the extent of sensitivity
analysis performed.
The impairment assumptions were reviewed and updated
where required for the potential impact of, and uncertainties
related to, Covid-19. The Committee is satisfied with the
approach taken and the recoverability of those assets.
v) Accounting for the defined benefit scheme
As explained in note 2.15, the Group recognises the present
value of the defined benefit obligation, less the fair value of plan
assets at the balance sheet date. The Audit Committee reviewed
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Hiscox Ltd Report and Accounts 2020
vii) The recoverability of deferred tax assets
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 which will be available to utilise
the tax losses. The deterioration in the economic environment
together with significant Covid-19-related claims in 2020 has
affected the results of the Group and its subsidiaries for the
period and changed assumptions around the timing of when
carried forward losses could be utilised. The Audit Committee
challenged the underlying assumptions for the recognition of
deferred tax assets, principally the availability of future taxable
profits and utilisation period.
viii) Estimated premium income
Another key estimate contained within the Group’s close
process is an estimate of gross premiums written during the
year. For certain contracts, premium is initially recognised
based on estimates of ultimate premium. This occurs where
pricing is based on variables which are not known with certainty
at the point of binding the policy. In determining the estimated
premium, the Group uses information provided by brokers
and coverholders, as well as past underwriting experience,
the contractual terms of the policy and prevailing market
conditions. Subsequently, adjustments to those estimates arise
as updated information relating to pricing variables becomes
available – for example, due to declarations obtained on binding
authority contracts, reinstatement premium on reinsurance
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Chapter 5
Shareholder information
Chapter 6
Financial summary
113
contracts or other policy amendments. The estimated gross
written premium is regularly reviewed and the movements
are sufficiently explained. The Committee is satisfied with the
approach taken.
Systems and process change projects
The various systems and process change projects under way
across the Group continued this year, particularly within the Retail
business units and in finance, where a multi-year Group-wide
finance transformation programme (FTP) has replaced outdated
finance IT systems and controls. The Committee received
quarterly updates on the status of the FTP which enabled it
to monitor progress and provide challenge where necessary.
This project successfully reached its conclusion this year,
with the deployment of the remaining four of the nine systems.
As is commonly the case, certain areas of finance continue
to require short-term manual workarounds. However, the
Committee is satisfied that the results of these are appropriate.
Internal audit
The Head of Group Internal Audit updates the Audit Committee
at least quarterly on the progress of the internal audit plan,
the outcomes of recent audits, the progress of related audit
actions, and any other relevant activities including its key
performance measures and the development of its resources.
The internal audit plan is derived using a risk-based approach.
In 2020, key themes included core operating controls,
the embedding of transformational change, the financial
control framework, data governance and controls, the risk
management framework, privacy and conduct risk.
External auditor
PwC has been the Company’s external auditor since 2016.
PwC is invited to attend all meetings of the Committee and
it is the responsibility of the Committee to monitor their
performance, objectivity and independence. The Committee
discusses and agrees with PwC the scope of its audit plan
for the full-year and the review plan for the interim statement.
The Audit Committee receives reports from PwC at each
meeting which include the progress of the audit, key matters
identified and the views of PwC on the judgements outlined
above. PwC also reports on matters such as their observations
on the Company’s financial control environment, developments
in the audit profession, key upcoming accounting and regulatory
changes and certain other mandatory communications.
To provide a forum in which any matters of concern could be
raised in confidence, the Non Executive Directors met with
the external and internal auditors throughout the year without
management present. The Committee also meets annually with
the auditor and finance team without management present.
Subsequent to the 2020 year-end audit, the UK lead audit
partner at PwC is required to rotate from the engagement,
and this succession planning is well under way.
In 2019, management, in consultation with the Committee,
updated its policy to ensure that no non-audit services will
be contracted with PwC unless it is clear that there is no
practical alternative and there are no conflicts of interest
or independence considerations.
Throughout the year, the Audit Committee assesses the
independence, effectiveness and quality of the external audit
process. This process forms the basis for its recommendation
to shareholders to reappoint the external auditor.
Fair, balanced and understandable
The Committee assessed whether the Annual Report, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
financial position and performance, business model and
strategy. The Committee reviewed the processes and controls
that underpin its preparation, ensuring that all contributors,
and senior management are fully aware of the requirements
and their responsibilities.
Caroline Foulger
Chair of the Audit Committee
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Chapter 4:
Remuneration
4
Hiscox Ltd Report and Accounts 2020
75
The onus is on each of
us to take responsibility.
Taking ownership of employee
well-being
At Hiscox we genuinely care for our
customers, for the business and for each
other. When Covid-19 emerged, our first
priority was the physical safety of our
employees and their families. Then, as it
became clear that lockdown measures
would be prolonged, we recognised the
need to further support employees who
were struggling with the uncertainty and
isolation of extended homeworking.
Enter WeMind, the mental health and
well-being employee network at Hiscox.
The members of this passion-led,
employee-driven network became
champions of well-being during
lockdown. In the UK and Europe,
their effective programme of activities
included training for managers and
employees on mental health for
homeworkers, a weekly newsletter on an
array of mental health topics, and a new
employee award focused on kindness.
In the US and Bermuda, WeMind’s work
ranged from a webinar series dealing
with racial trauma following the death of
George Floyd to the delivery of special
‘wellness kits’ to employees’ homes.
When we think about ‘owning the
moment’, we could not be more proud of
WeMind’s efforts to help employees look
after themselves during uncertain times.
Letter from the Chair of the Remuneration Committee
Dear fellow Shareholder
At Hiscox, our aim is to deliver strong returns across
the insurance cycle and create sustainable long-term
value for our shareholders. Our remuneration strategy
continues to be designed to attract and keep talented,
ambitious people, and foster a culture that encourages
sustainable high performance in which pay reflects results,
as well as effort.
The Committee believes that for all employees, basic pay
should be competitive but not excessive, with bonuses
reflecting personal performance, the profitability of their
business area and the performance of the whole Group.
We expect all employees to meet or exceed a series of
objectives based on our strategy and values, which are
essential to Hiscox’s business operations and reputation,
including delivering great customer service, complying
with regulation and managing risk.
For Executives across the Group to earn incentives, such as
an annual bonus or long-term share awards, they must have
helped to earn profits and deliver shareholder value above
and beyond demanding performance targets.
We believe this approach works well for both our employees
and shareholders, and I would like to thank shareholders
for the high levels of support for our remuneration policy
in 2020, when we made some important changes. These
changes rebalanced the weighting of incentives towards the
long term in order to encourage and support an ownership
culture, increased the focus on long-term performance,
and addressed our requirements under the UK Corporate
Governance Code.
Response to Covid-19
The impact of a global pandemic has been wide and varied,
and an overview of Hiscox’s response can be found on pages
6 to 7. We have supported our employees globally in the
transition to home-working and offered flexible working options
to help with the new demands of juggling work life and home
life. We have also provided socially distanced office working,
in line with local government guidelines, and increased the
provision of mental health and well-being services across the
workforce to ensure all employees have access to appropriate
support, advice and training. We have not furloughed any staff
or accessed any of the UK, US or European government’s
support schemes.
76
Following the AGM, and acknowledging the unprecedented
uncertainty caused by Covid-19, the Committee exercised
its discretion to reduce the actual 2020 Performance Share
Plan (PSP) award levels to approximately 160% of salary for
Executive Directors (from 250% of salary as communicated
in the 2019 Directors’ remuneration report). In addition, in
recognition of the withdrawal of the 2019 final dividend, we
committed that Executive Directors would not be paid a
bonus until the dividend has resumed.
Performance and remuneration outcomes
In 2020, the Executive Directors drove a resilient performance
in a turbulent year. The top line was stable with gross written
premiums of $4,033.1 million (2019: $4,030.7 million), despite
the economic challenges brought on by Covid-19. The Group
expects to pay $475 million in Covid-19-related claims and
as a result has delivered a pre-tax loss of $268.5 million and
a combined ratio of 114.5%. Excluding this impact, Hiscox’s
combined ratio was 97.0%, which reflects the underlying
improvement in performance in many parts of the Group and
the benefit of delivering around $80 million in one-off expense
savings – the result of a recruitment freeze and curtailment
of travel and entertainment expenditure, alongside existing
efficiency programmes already underway.
The Committee believes that the Executive Directors continue
to drive value for shareholders in the long term and have
achieved a number of key objectives during the year as
outlined on page 83. While the business has made good
progress against the priority areas set out in last year’s
report, it has not been immune to the external impacts of
Covid-19 and the resulting economic contraction, which
created some share price volatility during the period.
Therefore, as the pre-tax ROE hurdle rate of 6% was not
achieved, and taking into account the withdrawal of the
2019 final dividend, as well as the overall performance of
the business, no bonuses were paid in respect of 2020 to
Executive Directors.
The 2018-2020 Performance Share Plan was set against
stretching net asset value plus dividends per share targets.
The net asset value per share threshold of 7% over the
three-year performance period was not met. The Committee
assessed performance in the round and concluded that there
would be no exercise of discretion to override the outcome of
the performance conditions for 2020, therefore the awards
granted in 2018 will lapse in full.
Hiscox Ltd Report and Accounts 2020Chapter 2 17A closer lookChapter 1 3 A balanced businessChapter 3 51GovernanceChapter 6 113Financial summaryChapter 4 75 RemunerationChapter 5 107Shareholder information Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Chapter 4
Remuneration
Letter from the Chair
of the Remuneration
Committee
2021 remuneration
Executive Directors have been awarded a 2.0% salary
increase effective from 1 April 2021, in line with the average
UK employee increase.
There are no proposed changes to the award levels or structure
of annual bonus awards, which will continue to be based on
pre-tax ROE performance, alongside individual and strategic
performance, including non-financial factors, the shareholder
and wider stakeholder experience and consideration of risk.
Bonuses will not be paid unless the Group’s performance
exceeds a hurdle rate of return set taking into account
prevailing market conditions.
For the PSP, taking into account feedback received from
a number of our shareholders and their representatives,
we are proposing to introduce a second measure for the
2021 PSP awards to complement the growth in net asset
value plus dividends metric, and provide a broader view
of our performance. It is proposed that, for 2021 awards:
p 60% of the awards will continue to be based on
stretching growth in net asset value (NAV) plus dividends
targets. The Committee has reviewed the targets and
decided that these will remain the same as for the 2020
awards, as disclosed in the 2019 Directors’ remuneration
report. These are considered to be very stretching targets
in the current environment.
p 40% of the awards will be based on relative total
shareholder return (‘TSR’) against a group of global
insurance peers. The vesting schedule for the TSR
element will be in line with UK market norms, with
threshold vesting for median-ranked performance, and
full vesting of this element for upper-quartile performance.
The Committee believes that relative TSR aligns to our
strategy of generating long-term value for shareholders,
benchmarking those returns versus our closest listed peers.
Further detail on the 2021 PSP measures and targets are set
out on page 88.
The Committee has reviewed the 2021 PSP award levels
in the context of Company, individual, and share price
performance. As previously set out, the Committee was
proactive ahead of the 2020 PSP grant and, taking into
account shareholder guidance, exercised its discretion to
reduce the award levels up-front rather than wait to assess
whether there are any ‘windfall’ gains at the point of vesting.
Taking into account the increase in the share price since last
year, the Committee has decided that the 2021 PSP award
levels will revert back to the levels set out in the remuneration
policy as approved by shareholders at the 2020 AGM (i.e. 250%
salary). The Committee will review the PSP outcomes at the
end of the performance period and retains the ability to apply
independent judgement to ensure that the outcome is a fair
reflection of the performance of the Company, and individual,
over the performance period.
Wider workforce
During the year the Committee was updated on wider
workforce remuneration trends and policies to aid our
understanding of how Executive Director’s remuneration
aligns to employees.
from the Living Wage Foundation. This approach ensures
that everyone at Hiscox receives a wage that recognises the
actual cost of living in the UK.
Hiscox also operates an all-employee Sharesave Scheme
to foster a culture of ownership among the wider workforce.
The scheme provides all employees with the opportunity to
save over a three-year period and to purchase Hiscox shares
at a discounted price, and it is popular – with over 60% of
employees across the Group currently participating.
During 2020, remuneration arrangements across the
organisation were reviewed and, below Board level, a new
element has been introduced to the 2021 annual bonus
criteria to incentivise and reward individual contribution,
including individual contributions towards the delivery of
business area priorities for the year. The 2021 Group-wide
business priorities are outlined on page 13. The Committee
discussed whether this would also be appropriate for the
Executive Directors but determined that this was not the
right time to make such a change, although this will be kept
under review.
Executive Directors’ pension benefits have always been
consistent with the wider UK workforce, and Executive
Directors receive either a 10% of salary cash allowance
in lieu of the standard employer pension contribution or
a combination of cash and pension contribution, totalling
10% of salary.
UK gender pay reporting
In 2020, Hiscox published its fourth annual gender pay report
for the UK. The gender make-up of our business continues
to evolve, and these changes are reflected in this year’s
numbers. The mean pay gap of 21.2% (26.1% prior year)
shows our steady progress at getting more women into
senior (and higher-paid) roles and we are pleased to see
the year-on-year improvement since we started reporting.
The median figure of 25.0% (22.6% prior year) has been
impacted this year by the introduction of part-time teams
in our entry-level customer-facing roles. The majority of
these lower-paid positions were filled by females, which
has increased the proportion of women in our lower
quartile and naturally altered the midpoint pay gap
metric. Although its impact on our gender pay reporting is
disappointing, the part-time teams have been a success in
delivering our strategic objective of increasing tenure within
our customer experience centre in York, and embracing
flexible working opportunities has enabled new sources
of talent to join us.
Improving diversity and inclusion remains a priority, and while
our progress so far has been helped by the policies, processes
and partnerships we have established, we recognise there
is more to do. For more on our approach to D&I, and areas of
focus in 2020, see pages 46 to 47 and 70.
In summary
The Remuneration Committee is satisfied that the 2020
outcomes are aligned with the experience of shareholders and
reflective of performance in what has been a challenging year.
In the UK, Hiscox has been paying the living wage for a
number of years and in November 2019 received accreditation
Colin Keogh
Chair of the Remuneration Committee
Hiscox Ltd Report and Accounts 2020
77
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Remuneration summary
Key principles underpinning
remuneration at Hiscox
Summary of remuneration arrangements
The Hiscox remuneration policy is
designed to drive a culture of high
performance and create sustainable
long-term value for shareholders.
The policy follows three clear principles:
A simple and results-driven,
with variable rewards if Hiscox
delivers profits and shareholder
returns in excess of specified
return thresholds;
A incentivise Executive Directors
appropriately, over the short and
long term; and
A align Executive Directors’ interests
with those of our shareholders,
focusing on effective risk
management, return on equity
(ROE) and net asset value growth,
which drives total shareholder
return over time.
Remuneration outcomes for 2020
A summary of the remuneration
arrangements for Executive Directors
is provided opposite.
Base salary
Competitive but not excessive.
Benefits
Same as majority of employees.
Annual bonus
Aligned to shareholder interests.
Read our updated remuneration policy.
94
No bonus for Executive Directors following
suspension of the dividend and not
achieving the bonus performance hurdle.
Long-term performance impacted by
Covid-19 events and catastrophe claims.
PSP awards granted in 2018 will not vest.
Single figure of £717,243 for the CEO.
Performance Share
Plan (PSP)
Aligned to long-term shareholder
interests and performance.
Shareholding guidelines
Aligned to shareholder interests.
78
Hiscox Ltd Report and Accounts 2020
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
Remuneration summary
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Implementation of policy for 2020
Implementation for 2021
Salaries for 2020:
— Bronek Masojada: £654,000
— Aki Hussain: £503,500
— Joanne Musselle: £503,500
Salary increase of 2.75%, in line with average UK employee increase.
Salaries for 2021:
— Bronek Masojada: £667,000
— Aki Hussain: £513,500
—Joanne Musselle: £513,500
Salary increase of 2.0%, in line with
the average UK employee increase.
Executive Directors’ benefits can include health insurance, life insurance, long-term disability schemes and participation in
all-employee share schemes. Retirement benefits are delivered via a cash allowance of 10% of salary, paid in lieu of the standard
pension contribution, or a combination of pension contribution and cash allowance, totalling 10% of salary. These benefits mirror
those available to most other employees in the organisation.
Maximum opportunity:
— up to 300% of salary for CEO and CFO;
— up to 400% of salary for CUO.
Over the past ten years, the average bonus to the CEO has been equivalent to 25%
of the current maximum opportunity.
Performance metrics: combination of ROE and individual performance delivered
against set objectives approved by the Board. Disclosure of the ROE target ranges
and detail around the individual performance factors including specific risk-based
objectives used to determine outcomes for 2020 is provided on pages 82 to 83.
Deferral: part deferral of amounts in excess of £50,000.
2020 actual as percentage of salary:
— Bronek Masojada: 0%
— Aki Hussain: 0%
— Joanne Musselle: 0%
In recognition of the withdrawal of the 2019 final dividend, the Committee agreed
that Executive Directors would not be paid a bonus until the dividend has resumed.
Award subject to three-year performance period and two-year holding period.
Maximum opportunity: 250% of salary for all Executive Directors.
Vesting subject to: net asset value per share growth plus dividends.
20% of maximum vests for achievement of threshold performance.
2020 award as percentage of salary:
— Bronek Masojada: c.160%
— Aki Hussain: c.160%
— Joanne Musselle: c.160%
Maximum opportunity, performance
metrics and deferral unchanged.
Maximum opportunity and time
horizons unchanged. 2021 award as
a percentage of salary reinstated to
250% of salary, taking into account the
increase in share price since the 2020
PSP grants. Measures based on NAVPS
growth plus dividends (60% weighting)
and relative TSR (40% weighting).
Holding period: awards subject to a further two-year holding period following vesting.
Share ownership guidelines of 200% of salary for all Executive Directors,
after five years in role.
Share ownership and post-employment
shareholding guidelines unchanged.
2020 actual:
— Bronek Masojada: 4,580%
— Aki Hussain: 159%
— Joanne Musselle: 81%
Aki Hussain was appointed in September 2016.
Joanne Musselle was appointed in March 2020.
Post-employment shareholding requirement: retain a shareholding at the level of
the in-employment guideline for one year and half this amount for the following year.
Hiscox Ltd Report and Accounts 2020
79
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Annual report on remuneration 2020
This report explains how the remuneration policy was
implemented for the financial year ending 31 December 2020
and how it will be applied for the 2021 financial year.
PwC has been engaged to audit the sections in the annual report on remuneration 2020 below entitled ‘Executive Director
remuneration’ and ‘additional notes to the Executive remuneration table, ‘annual bonus’, ‘long-term incentives’, ‘Non Executive
Director remuneration’, ‘Directors’ shareholding and share interest’, ‘Performance Share Plan’ and ‘Sharesave Schemes’,
‘Payments to past Directors’, ‘Payments for loss of office’, to the extent that would be required by the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2013.
Executive Director remuneration
2020
Name
Bronek Masojada
Aki Hussain
Joanne Musselle2
2019
Name
Bronek Masojada
Aki Hussain
Richard Watson3
Salary
£
649,625
500,125
418,458
Benefits
£
10,533
7,532
7,637
Salary
£
632,375
486,750
486,750
Benefits
£
10,252
8,089
10,780
Bonus
£
0
0
0
Bonus
£
0
0
0
Long term
incentive
plan1
£
0
0
0
Long term
incentive
plan1
£
0
0
0
Retirement
£
57,085
45,464
38,404
Total
£
717,243
553,121
464,499
Fixed
remuneration
£
717,243
553,121
464,499
Retirement
£
55,569
44,248
44,248
Total
£
698,196
539,087
541,778
Fixed
remuneration
£
698,196
539,087
541,778
Total split
Variable
remuneration
£
0
0
0
Total split
Variable
remuneration
£
0
0
0
1 2020 long-term incentives relate to performance share awards granted in 2018 where the performance period ends on 31 December 2020. The award is due to
vest on 6 April 2021. Based on performance achieved, this award is due to lapse in full. As the award will lapse in full there is no part of the award attributable to
share price appreciation.
2 Joanne Musselle joined the Board 2 March 2020, following her appointment as Group Chief Underwriting Officer effective 1 January 2020. Details of Joanne’s
remuneration package on appointment were included in the 2019 Directors’ remuneration report. All aspects of the package are in line with the remuneration policy.
The figures in the 2020 table above relate to 2 March-31 December 2020.
3Richard Watson stepped down from the Board with effect from 31 December 2019.
Additional notes to the Executive Director remuneration table
Salary
Salary reviews take place in the first quarter of the year, effective from 1 April. As noted in last year’s remuneration report, Executive
Directors’ salaries were increased by 2.75% from April 2020, the same as the average UK-based employee salary increase.
Base salaries for Executive Directors from 1 April 2020 were as follows:
Bronek Masojada
Aki Hussain
Joanne Musselle
80
Hiscox Ltd Report and Accounts 2020
April 2020
£
654,000
503,500
503,500
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
Annual report on
remuneration 2020
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
Benefits
For 2020, benefits provided for Executive Directors included the healthcare scheme, Sharesave Scheme, life insurance, income
protection insurance and critical illness policies, as well as a Christmas gift hamper.
Retirement benefits
Bronek Masojada and Aki Hussain both receive a 10% of salary cash allowance (less an offset for the employer’s UK National
Insurance liability) in lieu of the standard employer pension contribution. Joanne Musselle receives a combination of cash allowance
and employer pension contribution totalling 10% of salary (less an offset for employer’s UK National Insurance on the cash
allowance). The value of these retirement benefits are shown in the Executive Director remuneration table on page 80. Executive
Director retirement benefits are consistent with those offered to the majority of UK employees. This has been the policy at Hiscox
for a number of years.
The table below details the legacy entitlements from the closed defined benefit pension plan.
Pensions
Bronek Masojada
Increase
in accrued
pension
during
the year
£000
3
Total accrued
annual pension
at 31 December
2020
£000
Increase in
accrued pension
net of inflation
£000
Transfer value
of accrued
pension
at 31 December
2019
£000
Transfer value
of accrued
pension
at 31 December
2020
£000
Increase/
(decrease)
in transfer value
of accrued
pension
during the year
£000
61
–
2,331
2,712
381
Normal
retirement
age
60
There are no further accruals under this plan. In the event of retirement prior to the normal retirement age, a reduced pension
would be payable (in accordance with the scheme rules) to reflect the earlier payment date.
Variable pay
To ensure that remuneration is aligned with Company performance and the shareholder experience, a significant proportion of pay
is delivered through incentive awards, consisting of an annual bonus and share awards under the Performance Share Plan, which
can vary significantly based on the level of performance achieved. Bonuses are only paid if results exceed a specified threshold set
taking into account prevailing market conditions.
Although the remuneration structure has naturally evolved over time to reflect market and best practice, the simple framework
has been in place for more than 15 years.
Annual bonus
As part of the policy renewal, the bonus opportunity was reduced to 300% of salary from 400% of salary for the Chief Executive
Officer and Chief Financial Officer and to 400% of salary from 500% of salary for the Chief Underwriting Officer.
The bonus is structured in a way that ensures significant variability in outcomes, including the possibility of no bonus being paid.
The Remuneration Committee believes that the most appropriate measure for the calculation of the bonus pool is pre-tax return
on equity (ROE), as this aligns management’s interests with those of shareholders, minimises the possibility of anomalous results,
and ensures that incentives for Executive Directors and other employees are tied to the Company’s profit performance.
The Executive Directors, along with other employees across the Group, participate in profit-related bonus pools, which are
calculated at a business unit level and for the Group as a whole. In determining the bonuses to be paid to Executive Directors,
the Remuneration Committee bases its judgement on both the performance of the Group and a robust assessment of individual
performance, including adherence to specific risk management objectives. The Remuneration Committee also seeks input from
the Chief Risk Officer and Chief Actuary to aid its assessment of whether bonus outcomes are appropriate.
Bonuses are not paid unless the Group’s performance exceeds a given threshold, irrespective of individual performance. Over
the past ten years there have been four occasions when the Group delivered a pre-tax ROE below the required threshold and no
bonuses were paid to Executive Directors. A commitment was made in 2020 that Executive Directors would not be paid a bonus
until the dividend had resumed, irrespective of the Group’s performance.
Hiscox Ltd Report and Accounts 2020
81
Chapter 1
A balanced business
3
Chapter 2
A closer look
17
Chapter 3
Governance
51
Chapter 4
Remuneration
Annual report on
remuneration 2020
75
107
Chapter 5
Shareholder information
Chapter 6
Financial summary
113
When setting targets, the Committee seeks to motivate strong performance while also encouraging sustainable behaviours, in line
with the defined risk appetite of the business. In determining the size of the Executive Director bonuses for 2020, the Committee
used the following framework. Actual bonus outcomes also take into account individual performance and risk management.
Pre-tax return on equity
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