YearEnd22
Hiscox Ltd
Report and Accounts 2022
Hear from senior leaders about
the energy at Hiscox and the
opportunities ahead.
Read about how Hiscox is using
technology to work differently.
2
2
4
6
Chapter 1
Performance and purpose
Our purpose, values,
culture and vision
Our key performance
indicators (KPIs)
Our strategy and
how we operate
Key risks
8
12 Business priorities for 2023
14 Why invest in Hiscox?
Chapter 2
20 A closer look
20 Chairman’s statement
24 Chief Executive’s report
42 Capital
44 Risk management
48
54
Stakeholder engagement
Environmental, social and
governance (ESG)
Task Force on Climate-related
Financial Disclosures (TCFD)
60
Chapter 3
72 Governance
72 Board of Directors
75 Board statistics
76
Group Executive
Committee (GEC)
Chairman’s letter
to shareholders
83 Corporate governance
88
82
Compliance with the UK
Corporate Governance
Code 2018
Nominations and Governance
Committee report
99 Audit Committee report
94
Chapter 4
106 Remuneration
106 Annual statement from the Chair
of the Remuneration Committee
110 Remuneration summary
112 Annual report on
remuneration 2022
122 Implementation of remuneration
policy for 2023
126 Other remuneration matters
132 Remuneration policy
Chapter 5
148 Shareholder information
148 Directors’ report
151 Directors’ responsibilities
statement
151 Advisors
Chapter 6
157 Financial summary
158 Independent auditor’s report
166 Consolidated income statement
166 Consolidated statement of
comprehensive income
167 Consolidated balance sheet
168 Consolidated statement of
changes in equity
169 Consolidated statement of
cash flows
170 Notes to the consolidated
financial statements
231 Additional performance
measures (APMs)
232 Five-year summary
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.
As a Bermuda-incorporated company, Hiscox is
not subject to the UK Companies Act. However,
the material provisions of Section 172 of the UK
Companies Act are substantively covered by the
Bermuda Companies Act, which is the applicable
legislation that the Company is required to comply
with under Bermuda law. 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 UK
Financial Conduct 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.
Q&
A:Writing the future
Q&A with Joanne Musselle
Group Chief Underwriting Officer
16
Opportunity knocks
Q&A with Paul Cooper
Group Chief Financial Officer
38
Tech savvy
Q&A with Stéphane Flaquet
Group Chief Operations and
Technology Officer
50
Brand ambassador
Q&A with Regine Fiddler
Chief Marketing Officer,
Hiscox USA
68
Going places
Q&A with Jon Dye
Chief Executive Officer,
Hiscox UK
78
People person
Q&A with Nicola Grant
Group Chief Human
Resources Officer
102
Re invention
Q&A with Matthew Wilken
Chief Underwriting Officer,
Hiscox Re & ILS
144
Network news
Q&A with Markus Niederreiner
Managing Director,
Hiscox Germany
152
Energy in collaboration
Here at Hiscox, we’re working differently. How we
collaborate to serve our customers and work with
our business partners is changing.
We’ve created what we call team charters: these
are co-created agreed ways of working with each
other that balance time in the office with time at home,
with the overarching principle of being there for our
customers. We’re also investing in and using technology
in new ways – making it easier for our customers to do
business with us, and using data to deliver intelligent
underwriting. Although technology can bring our global
teams even closer together, we also love connecting
in person to share our ideas and energy on moving the
business forward – just like some of our Hiscox Re & ILS
team featured on the cover of this report.
In the following pages, you’ll find a selection of Q&A
interviews from senior leaders right across our
business. Not only do they talk about what happened
in the business in 2022 and what’s coming up in
2023, they also talk about what brings them energy.
Hiscox Ltd Report and Accounts 2022
1
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Our purpose, values, culture and vision
Nelson Mandela famously said that ‘a
good head and a good heart are always a
formidable combination’ and I’m pleased
to say that both feature heavily in our
culture. But having a great culture is
not a destination – it takes a continuous
commitment to creating and maintaining
an environment where people do their
best work and quite frankly where they
enjoy coming to work. We reflect on our
culture regularly, we consider how we
listen and respond to feedback from
colleagues and we’re not afraid to explore
new ways of doing this. People recognise
the uniqueness of the Hiscox culture and
that makes me really proud.”
Aki Hussain
Group Chief Executive Officer
2
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
Our purpose, values,
culture and vision
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Our purpose
We give people and businesses the
confidence to realise their ambitions.
To do this we need differentiated
products and services, great talent
and energised and connected teams.
Success is measured in our reputation
and financial performance.
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, by our
employees as a great place to work
and grow for those who are ambitious
and talented, and as an industry leader
in growth, profits and value creation.
Our values
We have had a strong set of values
for decades and they are incredibly
important to us; we talk about
them often and they guide our
decision-making. We want our values
to differentiate us, which is why they
play an important part in our strategy
and how we operate, in being a business
our customers can relate to, and in
providing all employees with a work
environment in which they can flourish.
We periodically review our purpose,
values, culture and vision to ensure
they are still true to the business and
fit for the future.
In our 2022 annual global employee
engagement survey, which was
completed by 88% of employees:
84%
said they felt proud to work for Hiscox.
During 2022, we:
645
attracted 645 new talented
permanent employees.
81%
said they would recommend Hiscox as a
great place to work.
390
promoted 390 existing employees.
76%
said they believe Hiscox has an
outstanding future.
70,000
delivered over 70,000 hours of staff
training worldwide.
Our values
Courage
Dare to take
a risk
Human
Clear, fair
and inclusive
Our purpose
We give people
and businesses the
confidence to realise
their ambitions.
Ownership
Passionate,
commercial and
accountable
Connected
Together,
build something
better
Integrity
Do the right thing,
however hard
Hiscox Ltd Report and Accounts 2022
3
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Our key performance indicators (KPIs)
Financial KPIs
Gross premiums written
$4,424.9m
Net premiums earned
$2,928.2m
Profit/(loss) before tax
$44.7m
2022
2021
2020
2019
2018
4,424.9
4,269.2
4,033.1
4,030.7
3,778.3
Combined ratio
90.6%
2022
2021
2020
2019
2018
90.6
93.2
114.5
106.8
94.4
2022
2021
2020
2019
2018
2,928.2
2,919.9
2,752.2
2,635.6
2,573.6
Basic earnings/(loss)
per share
12.1¢
2022
2021
2020
2019
2018
44.7
190.8
(268.5)
53.1
135.6
Ordinary dividend
36.0¢
2022
2021
2020
2019
2018
12.1
55.3
(91.6)
17.2
41.6
2022
2021
2020
2019
2018
36.0
34.5
0.0
13.8
41.9
Net asset value per share
701.2¢
Tangible net asset value
per share
608.2¢
Return on equity
1.7%
2022
2021
2020
2019
2018
701.2
739.8
689.0
768.2
798.6
2022
2021
2020
2019
2018
608.2
648.6
601.5
670.6
726.2
2022
2021
2020
2019
2018
1.7
8.1
(11.8)
2.2
5.3
4
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
Our key performance
indicators (KPIs)
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Non-financial KPIs
UK gender pay gap
16.0%
We measure and monitor the gender pay gap
globally so that, by understanding it, we can
continue to find ways to reduce it. In the UK, we
have been annually disclosing our UK gender pay
gap since 2017, and have seen a steady reduction
over time in our UK gender pay gap on a mean
basis. Improving diversity, equity and inclusion
at Hiscox is a high priority, and this year we have
also enhanced our ethnicity reporting to disclose
all-staff ethnicity data for the first time (see page 59).
London Market broker
satisfaction 79%
UK customer satisfaction
92%
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.
2022
2021
2020
2019
2018
16.0%
19.1%
21.2%
26.1%
28.8%
2022
2021
2020
2019
2018
79%
71%
69%
78%
76%
2022
2021
2020
2019
2018
92%
92%
92%
89%
90%
0.0
12.5
25.0
37.5
50.0
62.5
75.0
87.5
100.0
Employee engagement
82%
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. Improving our
employee engagement scores was a strategic
priority in 2022 as part of our work around
building connected teams with shared values
and we are pleased to report our highest score
in ten years.
Germany customer
satisfaction 96%
US customer reviews
using Feefo 4.6/5
Germany is our largest operation in Continental
Europe, and here we ask all customers that
purchase a policy to provide feedback on their
experience so that we can continue to improve
our service. This includes quantitative analysis
on their experience with us and qualitative
insight on what they were satisfied with, whether
they would recommend Hiscox, and any areas
for improvement, so we are pleased to have
maintained consistently high 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.
2022
2021
2020
2019
2018
82%
64%
68%
71%
74%
2022
2021
2020
2019
2018
96%
95%
90%
99%
99%
2022
2021
2020
2019
2018
4.6
4.8
4.8
4.8
4.7
Hiscox Ltd Report and Accounts 2022
5
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Our strategy and how we operate
Over the years, we have built a strong
reputation as a specialist insurer in our
chosen segments. In our big-ticket
businesses – Hiscox London Market
and Hiscox Re & ILS – we focus on
building balanced portfolios through
controlled growth and with an emphasis
on leading the business we write.
In Retail, where more stable returns
have typically offset the greater volatility
of our big-ticket businesses, we focus
on building a differentiated brand and
product offering that customers value.
Volatility exists in every part of insurance,
but through a focus on building and
maintaining balanced portfolios we
create more manageable volatility
across the Group and are well
positioned to maximise both the
profitable, cyclical growth and the
structural growth opportunities ahead.
A strategy focused on high-quality growth
The Hiscox Group comprises four businesses facing different opportunities and challenges, but with a common set of capabilities
and the capital support required for success.
Balanced portfolio of large and
complex risks
SME and personal lines
k e t
r
a
Hisco
x R
ox Lon d o n M
c
His
People
and culture
Brand
Underwriting
Technology
Capital
H
i
s
c
o
x
R
e & ILS
o
c
s
H i
e
t
a
il:
d
i
g
i
t
a
l
l
a
n
x R etail: traditio
• Small and micro businesses
• Digitally traded, with
low-cost distribution and
auto-underwriting
• Partnership management
capability through
digital connectivity
Significant structural
growth opportunity
• Focus on SMEs,
not traded digitally
• Leadership in specialist lines
• Long-term broker
partnerships
Delivers stable profit
generation and growth
• Global risks through
Lloyd’s platform
• Heritage of deep
technical expertise
• Leading the market in
applying technology to
distribution and underwriting
Delivers profits and capital
generation for reinvestment
• Specialist reinsurance
capability
• Holistic risk insights
• Expert alternative
capital manager
Delivers underwriting profit
and capital-light fee income
6
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
Our strategy and how
we operate
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Our strength lies in our
mix of business, our brand
and culture, our people
and specialist expertise
underpinned by investments
in technology. These hard
won attributes, combined
with a clear strategy and
focus on execution, position
us well for the road ahead.”
Aki Hussain
Group Chief Executive Officer
Our strategy in practice
Opportunity
There is an abundance of opportunity
ahead for Hiscox. In many of our
chosen lines and markets, our market
shares remain small, giving us plenty
of headroom for growth. This is
where our specialist knowledge
and multi-year investments in digital
trading differentiate us.
Innovation
The insurance industry consists of an
ecosystem of different types of business;
there are the ‘wave surfers’ for example,
who enter the market on the upside of
opportunity and retreat when it recedes.
Hiscox aims to be a ‘game changer’
and here for the long term: innovating
through long-held market experience
and underwriting acumen, embracing
technology, taking risks to evolve with
and lead market change and being
there for our customers.
Growth
Growth is important to us, but not at the
expense of profitability. That’s why our
focus is on maximising the structural
growth opportunities ahead as we
see them in Retail, and in building out
balanced portfolios in our bigger-ticket
businesses where we currently see
exceptional market conditions.
Volatility
Our business is naturally exposed to
volatility. We manage this through our
underwriting experience and expertise,
our investment in data, and our risk
management processes, and we work
hard to ensure the risks we take are
commensurate with the premium that
is paid.
A differentiated offering
Global reach
We are a truly international business, with
over 3,000 employees across 14 countries.
We invest in local market knowledge
and experience to truly understand
the markets we operate in and provide
relevant products and services. This
gives us a unique breadth of expertise,
serving customers from sole traders to
multinational companies and ILS investors.
Specialist products
In every part of the Hiscox Group, we
focus on providing products and services
that differentiate us. These range from
high-value home insurance and fine art
– areas where we have deep foundations
to build on – to small business, flood and
kidnap and ransom – where innovative
products and service set us apart.
Claims experience
Being true to our word is the cornerstone
of our claims service. We know that each
customer and each claim is different, which
is why we have embedded experienced
claims teams with specialist product
knowledge in every part of our business.
Talented people
The quality of our people is a crucial factor
in our continuing success. Their expertise,
energy and commitment drive our
reputation for quality and professionalism.
In return, we aim to provide a work
environment that brings out the best
in everybody and rewards hard work.
Powerful brand
We have invested significantly over
many years to build a recognised and
renowned brand. Our distinctive
marketing campaigns are developed
from a deep understanding of our
customers and positively contribute
to consumer buying decisions.
Hiscox Ltd Report and Accounts 2022
7
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Key risks*
The risk
As an insurance group, specific risks related to our
business include:
Risk landscape and how we manage the risk
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, and considers emerging external
risks such as climate, geopolitical and changing
customer trends.
* The key risks to which we refer here, and elsewhere in this
document, also constitute the emerging and principal risks
required under the UK Corporate Governance Code 2018.
8
Hiscox Ltd Report and Accounts 2022
We consider strategic risks in a holistic way, to better prepare
our business for emerging threats, shifting trends, and
opportunities in the environment in which we operate. During
2022, we have remained vigilant to potential adverse impacts
of economic, geopolitical, social, technological and regulatory
developments on our Group strategy. Our Group strategy
was refreshed during 2022 under new Group Chief Executive
Officer Aki Hussain, with a clarity of focus on consistent delivery
from our big-ticket businesses, accelerated growth in Retail
digital and balanced growth in Retail traded, and has been
communicated across the business throughout the year.
The external environment remains complex, uncertain and
changeable but our robust strategy means that despite the
external headwinds there remains tremendous opportunity
for Hiscox in each of our chosen segments.
We continue to improve the quality and balance of our portfolios,
strengthening our pricing and risk selections, and growing
where the opportunities are commensurate with the risk.
In 2022, we navigated a set of complex external conditions
which amplified underwriting risks. These ranged from
geopolitical tensions (notably, the Russia/Ukraine conflict),
macroeconomic shifts (particularly increased inflationary
pressures in most Western economies), emerging societal
trends (such as increased propensity to litigation), and the
continued potential impact of climate change. Our active
monitoring and enhanced view of economic and social inflation,
impact from supply chain disruptions, heightened threat of
cyber attacks, and emerging litigation trends, allowed Hiscox
to respond promptly, ensuring our pricing keeps pace with
costs. We have updated and evolved our view of property
exposure risks from natural catastrophes influenced by
climate change through our set of realistic disaster scenarios
(see pages 46 to 47). Our underwriting exposure remains
well within our Board-approved risk appetite levels.
We are also investing in the underwriters of the future with
the roll-out of our innovative and award-winning faculty of
underwriting training academy, helping manage and
mitigate underwriting talent risks.
Chapter 1
Performance
and purpose
Key risks
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
The market landscape
remains complex and
changeable and we have
utilised our good risk
management practices to
protect and create value for
customers, employees, our
business and investors.”
Hanna Kam
Group Chief Risk Officer
The risk
Risk landscape and how we manage the risk
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.
Our consistent and prudent reserving philosophy serves to
manage the risk of insufficient reserves to cover claims cost
and associated expenses. The Group’s reserve levels continue
to be resilient, and we have completed two legacy portfolio
transactions in 2022, which will further limit the potential
for reserve volatility. We have responded to the heightened
inflationary environment with a detailed review of our key
inflation assumptions against emerging experience
and explicitly allowed further reserve margins for uncertainty.
Close monitoring of developments will continue in 2023.
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.
In 2022, many of our counterparties have faced the same
external conditions as we have, and there remains an
increased threat of global recession, which would in turn
increase default risk. We have closely monitored our
counterparty exposures during the year, and while the risk
factors have increased, our credit exposures remain within
the Group’s risk appetite. We have taken into account the
potential economic outlook in our decision-making on
outwards reinsurance purchasing for 2023.
Market risk
The threat of unfavourable or unexpected
movements in the value of the Group’s assets
or the income expected from them. This 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 or tactical asset allocation limits.
The volatile economic environment during 2022, with sharp
rises in inflation and accelerated interest rate increases, has
enhanced risk in our asset portfolios. Investment losses in the
year are largely due to mark-to-market adjustments to the value
of bond portfolios, which are unrealised. These have potential
for significant upside for 2023. Active decisions over 2022 have
made a positive contribution to the investment result, offsetting
some of the losses, and the outlook for market (asset) risk is
expected to improve.
Hiscox Ltd Report and Accounts 2022
9
Chapter 1
Performance
and purpose
Key risks
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
The risk
Risk landscape and how we manage the risk
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.
Regulatory, legal and tax governance
This relates to the risk that the business fails
to act, or is perceived to have failed to act, in
accordance with applicable legal, regulatory,
and tax requirements in all of the jurisdictions
where the Group operates. The regulatory, legal
and tax environment continues to be complex,
with frequent changes in rules and expectations
which increase complexity in this area.
We have refreshed our liquidity stress testing during 2022
and the Group remains in a strong liquidity position, with
around $1 billion of fungible liquidity, sufficient to cover
expiring debt obligations, business plan liquidity requirements,
and working capital headroom. Liquidity risk is monitored
through the use of a detailed Group cash flow forecast
which is reviewed by management quarterly, or more
frequently as required.
We monitor the regulatory, legal and tax compliance landscape
for emerging changes to local and international laws and
regulations in the jurisdictions we operate.
The regulatory landscape in 2022 was dominated by the
rapid application of a large volume of international sanctions
against Russian interests following the invasion of Ukraine,
which applied at different points throughout the year across
all of our operations worldwide. Our embedded sanctions
management processes enabled the compliance team to
support the business in quickly responding to the complex and
fast-changing sanctions landscape and we also supplemented
our sanction-screening processes with additional reviews of
the ultimate beneficial owners of a large number of insured
risks across multiple business lines.
The most significant tax compliance development in 2022
has been the continued movement towards implementation
of the OECD’s Global Anti-Base Erosion Model Rules (Pillar
Two) at a local level. As well as maintaining a watching brief
on the evolution of this initiative, we have also worked with
expert advisors and industry bodies such as the Association of
Bermuda Insurers and Reinsurers and the Association of British
Insurers to ensure industry-specific issues are identified and
addressed. We seek to work transparently and collaboratively
with our key tax authority stakeholders to anticipate the tax
impact of both commercial and legislative changes.
We invest in proactive engagement with all of our regulators,
including through our participation in the annual college of
supervisors, hosted by the Bermuda Monetary Authority,
which is an opportunity to update all of our regulators
together on strategic developments across the Group.
10
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
Key risks
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
44
180
Read more on risk management in
chapter 2 and note 3.
The risk
Risk landscape and how we manage the risk
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, and implications from a legal,
regulatory, reputational or customer perspective,
for example, major IT, systems or service failures.
Risks from people, process, systems and external events are
closely monitored by senior executives across the business.
Ongoing competition and retention of talent, heightened threat
of cyber attacks and continued growth in hybrid working
practices is affecting the operational risk landscape.
Our approach to monitoring operational risk has been
adapted to enable the business to monitor the risks with a
focus on promoting risk awareness and proactive reporting of
operational incidents. We continue to embed our operational
risk management including our defences against, and response
to, cyber threats. During 2022, we reviewed the Group-wide
set of crisis management response plans and performed a
series of cyber crisis simulations to give our teams first-hand
experience of dealing with a situation, and to test our response
plans against potential operational disruption.
Talent risk is also being actively managed as part of a continued
focus on our employee proposition, which has included the
introduction of our all-staff share ownership initiative, HSX:26,
and which in 2023 will include new ways to develop and map
talent across the Group.
In addition, in 2022 mandatory monthly all-staff training
was supplemented with additional topical modules such as
sanctions, cyber security and risk culture throughout the year.
We also delivered additional training to underwriting and claims
teams on the sanctions developments referred to under the
regulatory, legal and tax governance section (see page 10).
Climate change related risk
This relates to the range of complex physical,
transition and liability risks arising from climate
change. This includes the risk of higher claims as
a result of more frequent and more intense natural
catastrophes; the financial risks which could arise
from the transition to a lower-carbon economy;
and the risk that those who have suffered loss from
climate change might then seek to recover those
losses from others who they believe may have been
responsible. Climate change related risk is not
considered a stand-alone risk, but a cross-cutting
risk with potential to amplify each existing risk type.
We monitor climate change related risk through a number
of lenses, including underwriting selection, pricing,
multi-year view of natural catastrophe risk, asset types, and
developments in potential climate litigation. Every year we
run a range of realistic disaster scenarios, updated with our
in-house climate research (see pages 46 to 47), and we
participate in regulatory stress testing exercises.
We have introduced investment environmental, social and
governance (ESG) dashboards for each of our insurance
carriers and we continue to embed our greenhouse gas targets
for the Group, which in 2023 will include the development of a
supporting action plan.
Hiscox Ltd Report and Accounts 2022
11
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Business priorities for 2023
Business priorities for 2023
We will balance risk and opportunity in 2023 through a focus on five core priorities.
Getting the balance right
between risk and opportunity
is crucial. Our business
priorities for 2023 build on
our 2022 achievements, and
I’m particularly excited about
what technical excellence
means for us in the year
ahead and how that plays
out against a backdrop
of retail growth and huge
big-ticket opportunity.”
Joanne Musselle
Group Chief Underwriting Officer
1
Realising the
retail opportunity
2
Managed volatility
during big-ticket growth
Following multi-year investments in
technology, in 2023 we will focus on
realising the opportunities that exist
across Hiscox Retail. This means
further leveraging our head start in
digital small business insurance by
building an SME ecosystem through
which to serve this high-growth segment
of the economy, and investing in brand.
Having finalised systems transformation
in the USA, and as new systems
continue to come on board across
Europe, we are well positioned to cater
to changing buying behaviours with
efficient customer-focused processes.
Hiscox London Market and Hiscox
Re & ILS continue to enjoy favourable
market conditions in many lines.
As in 2022, we will remain focused on
leveraging our unique combination of
underwriting and digital expertise to grow
profitably – particularly in those areas
where we have market-leading expertise
and experience – while also managing
volatility. In addition, we will sharpen
our focus on potential new emerging
opportunities, for example, around
supporting the economy to transition
to low-carbon intensity industries.
12
Hiscox Ltd Report and Accounts 2022
Business priorities for 2023
We will balance risk and opportunity in 2023 through a focus on five core priorities.
Chapter 1
Performance
and purpose
Business priorities
for 2023
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
3
Technical excellence
4
Operational leverage
5
Connected and
energised teams
Technical excellence is a multi-year
priority thanks to a long-held focus
on active underwriting portfolio
management. We continue to focus
on portfolio optimisation – addressing
lower decile lines through careful
management, and clearing the path for
growth in top quartile lines, as well as
those areas experiencing favourable
market conditions. During 2023, we
will continue to develop our technical
capabilities, insights and tracking
mechanisms, and further define our
sustainable underwriting strategy.
Steps taken to evolve our operating
model during 2022 are already
enhancing ownership and speed
of decision-making, and we will have
a similar focus on operational leverage
in 2023. Beyond the rebalancing of our
global versus local capabilities, this will
mean further establishing technology as
a competitive advantage, particularly in
Hiscox Retail. It will also mean enhancing
our process management capabilities
to improve efficiency and effectiveness
and increase the speed of execution, to
support the Group not only through its
next phase of growth, but also as we look
to realise economies of scale through a
sharpened focus on expense efficiency.
We will build on the strong progress
made in 2022 to embed hybrid
working and develop new employee
benefits such as an enhanced
sabbatical policy, the introduction
of Hiscox days and HSX:26 – our
all-staff share ownership initiative.
The next stage of employee proposition
development will happen during 2023,
in line with our ambitions to be an
employer of choice within our sector.
In addition, we will look to find new
ways to develop and map talent across
the Group that can support the delivery
of our strategy.
Hiscox Ltd Report and Accounts 2022
13
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Why invest in Hiscox?
A focus on generating sustainable and
compounding shareholder returns
We aim to balance consistent and
progressive shareholder cash returns
with reinvestment into the business
to support long-term growth and
value creation, and as we face into
favourable market conditions in our
big-ticket businesses, we have
sufficient capital to realise the
attractive opportunities ahead.
A unique structural growth opportunity
We aim to grow the business in a way that
is organic, sustainable and profitable,
and the abundance of opportunity we
see ahead supports this continued
trajectory. In Hiscox Retail, where we are
focused on building scale, our market
shares remain modest and the size of
the addressable market is huge, giving
us plenty of headroom for growth. In our
big-ticket businesses, where we now
lead on more open market risks, our
combination of underwriting and digital
expertise differentiates us.
155%
total shareholder return over the last
ten years.
Over 1.5m
total number of retail customers across
the Group.
$1.7bn
returned to shareholders over the last
ten years*.
Two-thirds
Hiscox London Market currently leads
over two-thirds of the business it writes.
A rated
over ten years of S&P A rating.
90%
Hiscox London Market combined ratio
below 90% for three consecutive years.
50m SMEs
size of the addressable SME market
across the UK, USA and Europe.
$1bn
Over $1 billion in premium delivered by
Hiscox Re & ILS for the first time in 2022.
$269.5m
underwriting profit† in 2022, the best in
seven years.
* Based on special, ordinary and Scrip Dividends
paid to shareholders since 1 January 2013.
Excludes the final dividend proposed for 2022.
† Underwriting profit is defined as segment income less
expenses, excluding investment result, for Retail,
London Market and Re & ILS. See note 4 on page 194.
We are facing some of the
most attractive market
conditions we’ve seen in
years, with tremendous
pricing opportunities in
big-ticket lines and a chance
to substantially grow our
market share in retail.
Every part of our business
is structurally and financially
well positioned to contribute
to our continued growth,
with solid foundations that
can support the weight of
our ambitions.”
Paul Cooper
Group Chief Financial Officer
14
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
Why invest in Hiscox?
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Big-ticket business
Hiscox Re & ILS
Hiscox London Market
Retail business
Hiscox UK
Hiscox Europe
Hiscox Special Risks
Hiscox USA
Hiscox Asia
* 2020 restated for Hiscox Special Risks.
4,935
4,795
4,530 4,532
4,224
S
L
I
&
e
R
x
o
c
s
H
i
,
t
e
k
r
a
M
n
o
d
n
o
L
x
o
c
s
H
i
3,625
3,652
3,268
3,310
l
i
a
t
e
R
x
o
c
s
H
i
Total Group controlled premium
($m)
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
2,951
3,008
2,839
2,587
2,570
2,585
2,690
2,669
2,033
1,928
1,901
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020*
2021
2022
Hiscox Ltd Report and Accounts 2022
15
Q&
A:
with Joanne Musselle
Group Chief Underwriting Officer
Writing the future
Shaping the future of underwriting
means embracing risk, investing in
data and analytics, and taking a fresh
approach to training underwriters. >
16
Hiscox Ltd Report and Accounts 2022
Hiscox Ltd Report and Accounts 2022
17
Joanne Musselle has been with
Hiscox since 2002 and held a number
of senior positions in both claims and
underwriting. In 2019, she became
Group Chief Underwriting Officer,
driving rigorous standards and
using data and analytics to meet
the challenges of the future.
Q&
A:
with Joanne Musselle
Group Chief Underwriting Officer
Q: You’ve been with Hiscox for over
two decades now – what was it that
drew you here in the first place?
A: I’d been busy working for some of the
big corporates, always in the technical
areas, whether it be on the reserving
side, pricing, underwriting or claims.
I’d been in Asia for about five years,
working for big global insurers, when I
got a call about a role at Hiscox. I knew
Hiscox from the syndicate side, but
back then the retail company was tiny,
with premiums of just over £200 million.
And there was something in it that really
struck a chord. It was like a green-field
site. So when I met some of the team,
the idea of helping build out the retail
side sounded really exciting. And
unlike the big global insurers it was
already customer-centric rather than
product-centric, which really appealed
to me. What I didn’t know then was that
I would be coming for 20 years!
with your own. And then it’s the people.
There is just this rare quality to the people
I work with: professional, brilliant at what
they do, experts, collaborative. I don’t
find it hierarchical either. It’s genuinely
‘best answer wins’. We want to get to the
best answer, and that can come from
anyone at any time. I love that courage is
one of our values, because it gives you
license to say: “I know everybody wants
to turn left, but I want to turn right. Can
we discuss why...”
Q: For the past couple of years, you’ve
been the Group Chief Underwriting
Officer. What does that involve?
A: It’s all about the technical side –
the risk selection, pricing, exposure
management, reinsurance, product
development, wording. We have
six business-unit-focused Chief
Underwriting Officers around the Group
who are responsible for the day-to-day
execution of our strategy, but my job is
to set that strategy with the Board. It’s
big things like how much risk we want
to take, what new areas we may want
to move into, how we structure our
propositions and how we think about
emerging risks.
I always think that no matter what role
you’ve got, it has three parts to it. The
first part is just doing the job well, doing
those things I’ve just mentioned. The
second is evolving the role for the future,
investing in things like data and analytics.
And then the final part, which is the most
important, is people: making sure we’re
engaging, attracting and developing the
people around us.
Q: So what is it that’s kept you here
so long?
A: Lots of things, but first and foremost
the values – you can’t stay somewhere
for that long if the values don’t chime
Q: How has Hiscox’s approach to
underwriting evolved in recent years?
A: It’s obviously been a complex
period for everyone, and like the rest
of the world we’ve had to navigate our
18
Hiscox Ltd Report and Accounts 2022
way through some unprecedented
situations. Our focus on data and
analytics is definitely giving us a better
understanding of how a book of business
is performing. But I’ve been really keen
not just to respond to the here and now,
but really think about where we want
to take the organisation. We’ve spent
a huge amount of time and energy on
something we’re calling ‘underwriting
evolution’. Part of this is around critically
assessing our portfolios. Are we in the
right lines? Are our portfolios structurally
profitable? How are we assessing
emerging risk? Do we need to develop
new propositions, new products? I think
our portfolios are probably now in their
best shape for a long time, but there’s
always more we can do.
Q: So where else do you think the
portfolio should go?
A: Like others in the industry, our
commitment to sustainable underwriting
means we’ve got an exclusion strategy
– that’s focused on eliminating our
underwriting exposure to some of the
worst carbon emitters, like coal plants,
by 2030. But exclusion isn’t enough.
We’ve always invested heavily in climate
and climate research and we’re a big
natural catastrophe underwriter, so
we’ve got a lot of technical expertise
in that space, and we can utilise that
expertise to help build out products
around changing risks such as flood.
We can also help our customers to
navigate the low carbon transition,
for example, in big-ticket lines
where we’re providing liability cover
for decommissioning fossil fuel
infrastructure or where we’re supporting
the installation of renewables. We’re a
niche and specialist insurer, so we’re not
going to be able to play everywhere, but
we need to be challenging ourselves on
our role in the transition as best we can.
If you have a house, there’s a risk your
house might flood. You buy insurance
to transfer that risk. But if we can
mitigate that risk, if we can help you
as a homeowner prevent a flood
taking place, that’s good for you, it’s
good for us and it’s good for society.”
There is just this rare quality to the
people I work with: professional,
brilliant at what they do, experts,
collaborative. I don’t find it
hierarchical either. It’s genuinely
‘best answer wins’. We want to get
to the best answer, and that can
come from anyone at any time.”
Another thing that plays into this, and it’s
going to be a big focus of mine in 2023, is
what I call ‘risk mitigation’. It’s something
I’m really passionate about. If you have
a house, there’s a risk your house might
flood. You buy insurance to transfer that
risk. But if we can mitigate that risk, if we
can help you as a homeowner prevent a
flood taking place, that’s good for you,
it’s good for us and it’s good for society.
Reducing that risk also feeds back into
our pricing. We’ve done a couple of
things already, like LeakBot – a device
that we’ve given to our homeowners
which shuts off the mains if there’s a
leak. We’ve also spent a huge amount
of time looking at cyber resilience for
small businesses, putting in place really
practical tools that can empower them
to mitigate their cyber risk.
Q: What kind of opportunities are
being opened up by advances in
data and analytics?
A: One of my jobs is risk selection and
making sure that we really understand
the risks we underwrite, so we need
to utilise data for that to improve our
performance. But we’re also thinking
about how we utilise data to improve the
customer experience. For example, you
might ask a customer tens of questions
when they buy insurance from you,
but if some of those answers already
exist externally, then can you pull that
information together in such a way that
results in you asking the customer less
questions? And then, also thinking
about how to use data and technology
to reduce our costs. That’s really
important, because if we’ve got lower
costs, we can reflect that back to our
customers in terms of pricing.
Q: What’s your approach to training
and developing underwriters?
A: Recently, we’ve been building out
what we call the ‘faculty of underwriting’.
We spent a lot of time coming up with
the capabilities that we think an
underwriter of the future will need, but
we spent just as much time thinking
about how we deliver those capabilities.
I’ll give you an example. The old model
was to sit in training sessions for days
on end, staring at PowerPoints. But
people these days don’t learn like that.
They want to learn in quick, bite-sized
bursts, so we’ve partnered with a gaming
company to develop training apps that
tap into the psyche of competition,
presenting underwriting questions
in a really addictive way. We hadn’t
anticipated quite how competitive our
people would be, and we’ve got people
doing these modules eight, nine, ten
times to keep improving their score
which is brilliant.
Q: Outside of work, what gives
you energy?
A: My family and friends for sure. I’m a
mum of two teenagers, so it’s like living in
student accommodation at the moment!
More personally, I just get a buzz out of
a run. I am not an Olympic runner, I’m
never going to win a race, but for me,
for my mental health, just to clear my
mind, I absolutely love it. You don’t need
anybody else and you can do it anywhere
in the world – just put on your trainers
and off you go.
Hiscox Ltd Report and Accounts 2022
19
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Chairman’s statement
It has been a pivotal year for Hiscox, with new
leadership and an evolved strategy being
tested by a turbulent operating environment,
and I am very pleased with our performance.”
Robert Childs
Chairman
Before I provide my usual commentary
on the business, we have announced
with our 2022 results that I will be
stepping down as Chairman during
2023, and the Board has commenced
the search for my successor.
After 37 years at Hiscox and 50 in the
industry I am very happy that I will be
passing the baton when the business
is in such a good place – excellent
leadership, strongly capitalised, with
favourable market conditions and
huge opportunities ahead.
Aki in this, his first year as Group Chief
Executive Officer. Aki has brought new
insights and developed a strong talented
Executive team, and when the time
comes, I will retire a happy shareholder.
And now for the balance of my report.
Performance
It has been a pivotal year for Hiscox, with
new leadership and an evolved strategy
being tested by a turbulent operating
environment, and I am very pleased
with our performance.
An important job for any Chairman is
overseeing a Chief Executive transition
and I have been glad not only to ensure
a seamless transition from Bronek to
Aki, but also to work more closely with
Although it has been an active year
for catastrophes, both man-made
and natural, we have made a strong
underwriting profit of $269.5 million
thanks to the discipline of our teams.
20
Hiscox Ltd Report and Accounts 2022
This good performance has been offset
by unrealised investment losses on our
bond portfolios, but we expect these
to unwind as our bonds mature.
An important job for any Chairman is
overseeing a Chief Executive transition
and I have been glad not only to ensure
a seamless transition from Bronek to
Aki, but also to work more closely with
Aki in this, his first year as Group Chief
Executive Officer. Aki has brought
new insights and developed a strong,
talented Executive team. Aki has
embedded a refined strategy that is
reducing the volatility profile for the
Group. He has also assembled an
impressive team who are delivering
technological and operational changes
that are being well received by both
business partners and our people.
People
We had to navigate a challenging
employment market during the year,
as the war for talent continued. I am
therefore pleased that we have not
only maintained top talent, but also
attracted many more.
Aki’s first key appointment was Paul
Cooper, our Group Chief Financial
Officer, who joined the business in May.
He has over 25 years of financial services
experience across both the retail and
Lloyd’s insurance markets and is already
bringing valuable external perspectives
to our organisation. I remember Paul
from his previous time at Hiscox, when
he was Finance Director for Hiscox UK
and Europe, and have enjoyed working
with him again.
After 15 years with the Group, Amanda
Brown, our Chief Human Resources
Officer retired during 2022, and I would
like to thank her for her sage counsel and
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chairman’s statement
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Hiscox Ltd Report and Accounts 2022
21
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chairman’s statement
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
I am extremely proud that
we are reporting our best
employee engagement score
for ten years. Not only do the
overwhelming majority of our
people feel proud to work
at Hiscox (84%), they would
also recommend Hiscox as
a great place to work.”
clarity of thought over the years, which
I have personally valued and so too has
our Board. She has been succeeded by
Nicola Grant, who joined us from ING
Group and brings a wealth of experience
in engaging and leading large workforces
across multiple markets.
At the same time, Jon Dye joined as
Hiscox UK Chief Executive Officer.
Jon is a recognised industry leader with
solid CEO experience and a fantastic
track record of building profitable
businesses. His broker relationships,
leadership and energy are already
making a difference.
These appointments, along with the
promotion of Stéphane Flaquet to Group
Chief Operations and Technology Officer,
have resulted in a very capable new
Group Executive Committee formed
under Aki’s leadership.
Beyond the top team, I am extremely
proud that we are reporting our best
employee engagement score for ten
years. Not only do the overwhelming
majority of our people feel proud to
work at Hiscox (84%), they would also
recommend Hiscox as a great place to
work (81%) and believe that Hiscox has
an outstanding future (76%). Aki has to
take a lot of credit for this, along with his
leadership team.
Environmental, social and
governance (ESG)
In a year of pronounced geopolitical
and macroeconomic challenges,
ESG has not been far from our minds
and conversations. Aki will cover in
his Chief Executive’s report the
environmental and governance
aspects that the business has been
thinking about, and the huge amount
of work that has been done to support
22
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chairman’s statement
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
our colleagues on the ‘social’ side
of ESG. But as Chair of the Hiscox
Foundation in the UK, our charitable
foundation, I am especially proud that
we have donated $1.8 million to good
causes this year.
This has included one-off support and
multi-year partnerships, in line with
our three strategic pillars of charitable
giving, as well as targeted donations
that recognise the Russia/Ukraine
conflict, floods in Pakistan, and the
rising cost of living where – to reflect
the rising costs that charities are
facing – we increased our donations
to multi-year partners in line with
inflation for the current financial year.
It is also why we are working with
MyBnk for an extended period to
support their delivery of expert-led
financial education to school children
and young people across the UK,
recognising the importance of
learning financial capability skills
from a young age.
I know that playing an active part in our
communities matters to our people too
because they spent over 1,400 hours
volunteering during 2022, supporting
not only some of our office charity
partners such as Spear Bethnal Green
and Colchester Foodbank, which are
chosen by employees, but also causes
that are personally important to them.
Outlook
We live and work in turbulent geopolitical
times and this is where the insurance
market can come into its own. As a
specialist insurer offering coverage
across classes that include political
violence, kidnap and ransom, cyber,
the full range of professional indemnity
and property damage, we are well
placed to help customers manage their
risks. The opportunities in our big-ticket
businesses are huge and the rating
environment is with us in a way that
you could argue we haven’t seen for
decades. We will still be trimming the
sails in various places, recognising our
lower volatility profile, but there is nothing
like a price rise to reduce volatility.
The opportunities are equally huge in our
retail businesses, where the hard work
over the last three years to replace core
systems is reaching a point where they
can propel these businesses in their next
growth phase. With new leadership in
Hiscox UK and strengthened leadership
in Hiscox USA and Hiscox Europe, each
business is attractively positioned for
what lies ahead.
In concluding this, my last Chairman’s
statement, I truly believe we are on the
cusp of something great – ready to
make the most of the excellent markets
before us.
Robert Childs
Chairman
8 March 2023
Hiscox Ltd Report and Accounts 2022
23
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Chief Executive’s report
I am very pleased with the progress made
across the Group during 2022, as we delivered
the strongest underwriting result in seven years.
We have a refined strategy, a new experienced
and energetic leadership team, we have
made significant progress in rolling out new
generation technology in the USA and Europe
and we are enjoying our highest employee
engagement scores in ten years.”
Aki Hussain
Group Chief Executive Officer
In my first year as Group Chief Executive
Officer, I am pleased to report the
Group delivered a strong result during
a year of heightened geopolitical
uncertainty, economic unpredictability
and natural catastrophe losses. An
underwriting profit of $269.5 million
(2021: $215.6 million) and a combined
ratio of 90.6% (2021: 93.2%) is a
testament to the disciplined execution
of our strategy of building more
balanced portfolios to drive reduced
earnings volatility. The current complex
underwriting environment presents
opportunities for businesses like ours,
with underwriting excellence at the
core, backed by a strong balance sheet.
I am excited about the hard market in
reinsurance, which is a necessity to
reverse multi-year losses suffered by the
24
Hiscox Ltd Report and Accounts 2022
industry. These are the best conditions
we have seen in over a decade and our
talented and experienced underwriters
have the financial flexibility to deploy
capital to make the most of the
opportunities ahead.
2022 has been a year of delivery for
our Retail business with many key
milestones achieved. In the USA, our
largest retail market, we completed the
strategic repositioning of the broker
channel business and substantially
delivered the technology transformation
programme of our digital partnerships
and direct (DPD) business, setting us up
for growth acceleration in 2023. In the
UK we transitioned to new leadership
under Jon Dye, an industry veteran with
huge ambition for our business, and in
Europe we passed the milestone of half a
billion Euros of gross premiums written.
Importantly, we have achieved our target
of returning the Retail combined ratio
to within the 90% to 95% range a year
ahead of schedule, which is a testament
to the decisive actions we have taken.
The business is in great shape and it
is at this juncture that after 37 years
of committed service, Robert Childs,
Hiscox Chairman, has announced his
intention to step down. I have personally
greatly valued his ability to drive clarity
in our decision-making, his advice and
human approach, and the support he
has given me ever since I joined the
business and particularly now as Group
Chief Executive Officer. He has been
instrumental in transforming Hiscox
into a successful global business
and I wish him all the best in his
well-earned retirement.
Rates
2022 performance benefitted from a
favourable rate environment across
all Hiscox businesses, with rates in
reinsurance now exhibiting all the signs
of a hard market. This is underpinning
continued rate strengthening in primary
insurance, mainly wholesale.
Hiscox Re & ILS benefitted from an
average risk adjusted rate increase
of 13% in the period, above our
expectations. This is driven primarily
by North American property and
retrocession, with rates up 14% and
16% respectively, with Florida exhibiting
particularly hard market conditions.
Specialty lines also experienced
double-digit increases, driven by cyber
and terrorism, with rates up 42% and 26%
respectively. Since 2017, this business
has achieved cumulative rate increases
of over 50% across the portfolio.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Hiscox Ltd Report and Accounts 2022
25
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
The reinsurance marketplace
is undergoing a seismic shift,
with 2022 rates above the
2012 level, and we anticipate
material improvement across
nearly all lines for 2023.”
The reinsurance marketplace is
undergoing a seismic shift, with 2022
rates above the 2012 level, and we
anticipate material improvement across
nearly all lines for 2023. Hurricane Ian
served as a catalyst, among other
factors, following many years of
losses across the sector, leading to
significant improvement in the rating
environment. Capacity continued to
reduce during 2022 both in the traditional
arena and the ILS space, as a result
of another year of industry losses and
volatility in the investment markets.
This is leading to a true hard market
for catastrophe-exposed risks. We
are witnessing the best market
conditions in over a decade and have
deployed additional capital at January
renewals, achieving risk-adjusted rate
increases of 45% in property and 26%
in specialty.
In 2022, Hiscox London Market
benefitted from an average rate
increase of 6%, which was ahead
of our expectations. Since 2017, this
business has achieved cumulative rate
increases of 70%. Rate growth remained
positive for all classes of business except
D&O, which is already very attractively
priced, having achieved cumulative
rate increases of over 240% since the
end of 2017. Overall the rate outlook
for 2023 is positive, underpinned by
the macroeconomic environment and
reinsurance costs, with the strongest
growth expected in terrorism and
property lines.
While pricing in Hiscox Retail is
generally less cyclical, in 2022 it
benefitted from an average rate increase
of 7%. This was led by Hiscox Europe
where on average rates were up 8%,
underpinned by double-digit rate
increases in cyber, commercial property
26
Hiscox Ltd Report and Accounts 2022
and traditional professional indemnity.
In Hiscox USA on average rates were
up 7%, with strong rate growth in cyber
and allied health. Hiscox UK saw rate
increases of 5% on average, with strong
rate momentum in cyber, commercial
property and entertainment.
Overall, the premium growth achieved
by the Group through rate and indexation
in 2022 kept pace with our inflation
assumptions. As we look forward, the
rate outlook for 2023 remains strong,
particularly in reinsurance.
Claims
2022 was another year with elevated
large losses, both natural catastrophe
and man-made, so it is pleasing to
see that in spite of these challenges
Hiscox maintained strong profitability,
delivering a Group combined ratio of
90.6%. There are no material changes
to previously announced net loss
estimates for Hurricane Ian and
the Russia/Ukraine conflict.
As previously communicated, the
Group reserved $135 million net of
reinsurance including reinstatement
premiums for Hurricane Ian, based
on an insured market loss of $55 billion.
The majority of our exposure is in
big-ticket lines: $90 million net in
Re & ILS and $40 million net in London
Market. This represents a modest
exposure for Hiscox London Market,
as the business had pulled back from
under-priced Florida business in the
preceding years. Estimated net losses
for the Retail portfolio are modest at
$5 million.
The Russia/Ukraine conflict tragically
continues to be a live event. The human
cost of this event is immense and
long-lasting and our thoughts are with
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
An actively managed business
Total Group controlled premium 31 December 2022: $4,935.4m
Period-on-period in constant currency
Small
commercial
Reinsurance
Property
Art and
private client
Specialty
Global
casualty
Marine
and energy
+5%
+25%
-17%
+4%
-5%
+9%
+12%
$1,705m
Professional liability
Errors and
omissions
Private directors
and officers’ liability
Cyber
Commercial
small package
Small technology
and media
Healthcare related
Media and
entertainment
$1,145m
Property
Marine
Aviation
Specialty
$466m
Commercial
property
Onshore energy
USA homeowners
Flood programmes
Managing
general agents
International
property
$458m
$451m
Home and contents
Kidnap and ransom
Fine art
Classic car
Luxury motor
Asian motor
Contingency
Terrorism
Product recall
$388m
Public directors and
officers’ liability
Large cyber
Personal accident
General liability
$322m
Cargo
Marine hull
Energy liability
Offshore energy
Marine liability
Hiscox Ltd Report and Accounts 2022
27
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Hiscox Retail achieved
a combined ratio of
94.8%, returning to the
90%-95% combined
ratio range a year ahead
of the stated target,
despite the complex
macroeconomic
environment.”
Hiscox Retail
Gross premiums written
Net premiums written
Underwriting profit
Investment result
(Loss)/profit before tax
Combined ratio (%)
2022
$m
2,272.1
1,976.8
101.9
(98.9)
(3.4)
94.8
2021
$m
2,290.0
1,969.3
34.9
26.9
54.9
98.9
all those who are directly or indirectly
impacted. Hiscox’s estimated ultimate
loss from all risks in the Ukraine and
Russia remains unchanged at $48 million
net of reinsurance1, with just under
three quarters of it attributable to
Hiscox London Market. The majority of
London Market’s and all of Re & ILS’s
reserves comprise incurred but not
reported (IBNR) losses. Hiscox London
Market exited the aviation hull insurance
business in 2018 and political risk/trade
credit business in 2017.
While inflationary pressures continue
to persist across our markets, the
impact on our business is relatively
contained due to the short-tail nature
of our book, with the average duration
of our liabilities at 1.9 years. Hiscox has
a conservative reserving philosophy;
continuously monitoring claims inflation
trends and evaluating reserve adequacy
to ensure we maintain profitability
and a robust balance sheet position.
In the first half of the year we proactively
strengthened our best estimate by
$55 million as a precautionary net
inflationary load, and this remains
unchanged after undertaking a
similar review at the full year.
Throughout the course of 2022 we
continued to proactively take action to
manage volatility from the back-book,
in particular in longer-tail lines where
we have either exited portfolios or
refined our underwriting strategy. In
March, our Hiscox Re & ILS business
executed an LPT, buying protection
for our casualty reinsurance portfolio
that is in run-off. Following that, in July,
Hiscox London Market undertook an
LPT to reinsure circa $116 million
of reserves for 1993 to 2018 year of
1Including impact of reinstatement premiums.
28
Hiscox Ltd Report and Accounts 2022
accounts. These deals, together
with the two LPTs completed in 2021,
mean that 23% of 2019 and prior years’
gross reserves are reinsured up to a
1-in-200 downside risk.
At a Group level we also hold margin
above best estimate as an additional
buffer to compensate for the uncertainty
in timing and cost of claims. At the end
of 2022, the margin stood at 8.9%,
down from 11.0% in the first half of
the year. Through a combination of
executing a number of LPTs and
proactive action on addressing inflation,
uncertainty on prior-period losses
is reducing, consequently we have
moderated the margin to be more in
line with our target range of 5%-10%,
although remaining at the upper
end of the range. Furthermore the
favourable prior-period run-off is
reflected in reserve releases of
$239 million in 2022, which are
from all business segments.
With regards to the new business we
are writing, we mitigate inflationary
pressures through a combination of
exposure indexation and rate increases.
Our current pricing and reserving
assumptions incorporate expected
inflation which is a multiple of experience
in recent times. Therefore, the increased
premium we are collecting across the
Group is keeping pace with inflation
and our view of risk assumptions.
Hiscox Retail
Hiscox Retail comprises our retail
businesses around the world: Hiscox UK,
Hiscox Europe, Hiscox USA and Direct
Asia. In this segment, our specialist
knowledge and ongoing investment in
the brand, distribution and technology
reinforce our strong market position in
an increasingly digital world.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Hiscox Retail grew gross premiums
written by 5.1% in constant currency to
$2,272.1 million (2021: $2,290.0 million)
and added over 55,000 net new
customers. Our commercial lines,
which constitute over three quarters
of Retail gross premiums written,
grew 6.7% in constant currency, with
strong momentum across the UK and
Europe. We moderated our growth
in Hiscox USA as we completed the
US broker portfolio repositioning and
substantially delivered the US DPD
technology implementation. On a
go-forward basis, Hiscox Retail grew
6.6% in constant currency. With these
programmes complete, Hiscox Retail
growth is expected to trend towards
the middle of the 5%-15% range in 2023.
Hiscox Retail achieved a combined
ratio of 94.8%, returning to the
90%-95% combined ratio range a year
ahead of the stated target, despite the
complex macroeconomic environment.
We expect to operate within this range2
going forward.
Our Retail business has been
undergoing a multi-year technology
transformation programme. The UK
is developing next-generation e-trade
capabilities for less complex broker
intermediated business, complementing
the direct-to-consumer digital platform.
In 2022 we migrated the vast majority
of the US DPD business onto the new
technology stack, and core platform
replacement is also underway in
Germany and France, with Benelux
to follow in 2023. Convenience for
the customer is at the heart of our
distribution philosophy. Whether our
customers want to connect to a Hiscox
employee or complete the customer
2 Under IFRS 4.
journey entirely online, our combination
of talented people, supported by these
technology investments, creates the
platform and opportunity to serve
millions of customers. The technology
enables greater levels of algorithmic
underwriting, process automation,
improved efficiency and will create
operating leverage over time.
We will invest incrementally in brand
across our Retail business in 2023.
The Hiscox brand already has a strong
market position, and it is the right time
to bolster it further to drive growth over
the long term.
Hiscox UK
Hiscox UK provides commercial
insurance for small- and medium-sized
businesses, as well as personal lines
cover, including high-value household,
fine art and luxury motor.
Hiscox UK gross premiums written were
up 2.8% on a constant currency basis,
but reduced by 6.4% to $778.0 million
(2021: $831.1 million) in US Dollars due
to the depreciation of the Sterling. The
business delivered a solid performance,
with commercial lines showing strong
growth of 8.5% in constant currency,
boosted by rate improvements and
excellent retention rates.
2022 marked strong growth in the
number of online sales for UK direct
commercial and we expect this trend
to continue. The pace of our digital
capability development, including
e-trading for brokers, has significantly
picked up this year and we continue
to drive several strategic initiatives to
improve our core digital capabilities.
The impact of the UK weather has
been within our expectations.
Hiscox Europe
Hiscox Europe provides both personal
lines cover, including high-value
household, fine art and classic car, and
commercial insurance for small- and
medium-sized businesses.
Hiscox Europe is the strongest growing
business segment in the Hiscox Retail
portfolio. Gross premiums written
were up 13.6% in constant currency to
$543.7 million (2021: $532.0 million),
surpassing the €500 million milestone
for the first time. All five markets in Europe
delivered double-digit growth in constant
currency, demonstrating our attractive,
differentiated position and underpinned
by strong growth in commercial lines
of 16.2%.
Hiscox Germany, Europe’s largest
market, grew gross premiums written
by 11.3% in constant currency to
cross the €150 million mark. Hiscox
Germany is a market leader in cyber,
and continues to innovate and develop
products that meet changing customer
needs. In 2022, our German business
launched a modular cyber product for
businesses with less than €2.5 million
in revenue. The modular approach
allows customers to add cover as their
needs change, and delivers a more
efficient claims service should the need
arise. After some early success, we plan
to roll-out this new product in our other
European markets.
The introduction of new core technology
in our European businesses remains on
track. This multi-year project is being
implemented in phases with efficiencies
gained as it progresses. Germany and
France are already well underway and
with Benelux to follow in 2023. The
implementation is less complex than in
the USA, as it is a country-by-country
Hiscox Ltd Report and Accounts 2022
29
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
In the first half of 2023 we will
launch a new ESG-focused
Lloyd’s sub-syndicate. It will
be complementary to Hiscox
London Market’s existing
portfolio and will provide
access to additional capacity
for qualifying clients with
positive ESG credentials,
such as renewable power
generators and energy
storage providers.”
roll-out, and the digital business in
Europe is nascent, although the potential
is significant. We look forward to seeing
significant benefits upon completion
of the project not only for the business,
in areas such as automation and
efficiencies in policy administration,
but also for customer experience in
terms of market connectivity.
Hiscox USA
Hiscox USA focuses on underwriting
small commercial risks distributed
through brokers, partners and
direct-to-consumers using both
traditional and digital trading models.
Our aspiration here remains to build
America’s leading small business insurer.
2022 was a year of transition for
Hiscox USA, as the business delivered
on two major change initiatives – the
broker portfolio repositioning, through
which we have exited circa $160 million
of business since 2019, and the
re-platforming of the US DPD business,
which is now substantially complete.
Hiscox USA’s gross premiums
written grew 2.1% to $897.9 million
(2021: $879.2 million), up from 1.2%
at the half year, as the effect of the
broker business repositioning was
weighted towards the start of
the year.
While the overall growth of the US
broker business was impacted by the
tail of planned actions, in the second
half, we have seen green shoots as
our regional underwriting teams are
back on the front foot, re-engaging
with brokers to write profitable
business in our go-forward lines.
Our refreshed US senior leadership
team and an enhanced business
development function will strengthen
the momentum behind this.
30
Hiscox Ltd Report and Accounts 2022
In the US DPD business, all
direct-to-consumer customers have
been on the new technology platform
since June. Direct to consumer growth,
as expected, was lower during the
peak period of migration in the first half
of 2022, but has started to accelerate
notably since the end of the third quarter
as the combination of new technology,
a focused marketing drive and improved
conversion rates take effect.
The migration of our partnership business,
which represents two-thirds of US DPD,
commenced in the second half of 2022,
with the vast majority of partners now live
on the new platform. Mirroring the direct
experience, growth slowed during the
peak migration period in the latter part of
2022. The partnerships business is now in
the embedding phase which is expected
to extend into the second half of 2023, as
over 50,000 agents and producers who
have access to the new portals, need time
to develop familiarity with the technology
and for partners to begin re-marketing
the Hiscox platform. Consequently,
we anticipate the production from new
and existing partners to gradually ramp
up through 2023, after a subdued first
quarter 2023. We therefore expect US
DPD to grow towards the middle of 5%
to 15% range in 2023. Once embedding
of partnership business is complete,
growth is expected to accelerate.
Our partnerships team has already
started to take actions to increase
activity, at both the partner and agency
level, to encourage the marketing of
our platforms and to increase usage
as we emerge from this period of
technology migration. Following a
two-year hiatus to the onboarding
of new partners, in January 2023
we added 15 new partners to our
digital platform and expect them to
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Hiscox London Market
Gross premiums written
Net premiums written
Underwriting profit
Investment result
Profit before tax
Combined ratio (%)
2022
$m
1,114.9
735.1
110.0
(54.4)
53.0
84.8
2021
$m
1,171.4
711.5
89.6
15.8
104.8
89.1
commence production in the second
and third quarter.
The near- and long-term market
opportunity is incredibly attractive.
I expect momentum to build through
the year as marketing takes effect;
as new and existing partners and
agents ramp up production and as
technology benefits such as the
potential for higher conversion rates
begins to have a discernible impact.
Hiscox Asia
DirectAsia grew gross premiums
written by 12% in constant currency
to $52.5 million (2021: $47.7 million).
Momentum picked up markedly in
Singapore with the top line growing
19.5% due to the opening up of
international travel, boosting travel
insurance sales and motor partnerships.
Thailand’s premium growth was
underpinned by partnership business.
Hiscox London Market
Hiscox London Market uses the global
licences, distribution network and
credit rating of Lloyd’s to insure
clients throughout the world.
Hiscox London Market delivered a
strong result in 2022, despite another
active year of large losses. Our focus
on building balanced portfolios
delivered strong growth in selected
lines, namely public D&O, general
liability, upstream energy, terrorism
and cargo; and at the same time
reduced our exposure to what was
under-priced catastrophe-exposed
business in the binder portfolio.
Overall, gross premiums written
declined 4.8% to $1,114.9 million
(2021: $1,171.4 million), with 3.3
percentage points due to planned
reductions in property binder
portfolios and the impact of Russian
sanctions, which mainly affected our
upstream energy and space portfolios.
In addition, flood growth was tempered
as competitive dynamics changed with
National Flood Insurance Programme
(NFIP) reducing prices, while we
maintained our risk-based pricing
approach. We expect competitive
dynamics to improve following
Hurricane Ian and as the demand for
a flood-specific product continues to
grow in the US market given recent
events. Net premiums written increased
3.3%, as strong rate momentum made
retaining more premium attractive.
Hiscox London Market delivered a
$110.0 million underwriting profit,
up 22.8% on the prior period. The
combined ratio of 84.8% showed a
4.3 percentage point improvement
year-on-year, despite a $40 million
net loss from Hurricane Ian and
$34 million net loss from the
Russia/Ukraine conflict. This is the
third consecutive year in which Hiscox
London Market’s combined ratio
has been below 90%, which is a
testament to the underwriting focus
on creating more balanced and
profitable portfolios.
Since 2018 we have reduced our
property binder exposure by just under
a half, non-renewing business which
did not meet our profitability hurdles.
The positive impact is clear to see in the
robust underwriting result. I am pleased
to report that the multi-year major
changes in the property binder book
are now substantially complete and
we consider the remaining book to
be rate adequate. On completion
of this activity and in light of the
ongoing attractive market conditions,
we expect Hiscox London Market
to grow gross premiums written in
2023, while continuing to maintain
a disciplined approach.
We are also investing in our digital
capabilities. Advances have been
made in the digitalisation of pricing and
underwriting models across general
liability and terrorism. Throughout
2022 and into 2023 we have also been
redesigning our FloodPlus and BindPlus
systems so that they can be deployed
in the Cloud, an important step which
will make them scalable for future
growth. At the same time, we have
continued to make underwriting and
pricing changes to maintain profitable
growth in both lines. We will continue
to drive further automation across
our business to enhance our ability
to select and price risks more effectively.
We also continue to innovate. For
example, as economies across the
globe are looking to transition to more
sustainable energy production models,
we are developing our strategy of
participating in this shift. In the first half of
2023 we will launch a new ESG-focused
Lloyd’s sub-syndicate. At its early stage
it will be nested within Syndicate 33
and lean on its existing stamp capacity.
It will be complementary to Hiscox
London Market’s existing portfolio
and will provide access to additional
capacity for qualifying clients with
positive ESG credentials, such as
renewable power generators and energy
storage providers. To further enhance
the scale of this ESG syndicate, we
will partner with third-party capital on
our specialist ESG positive portfolio to
supplement Syndicate 33’s capacity.
To build the portfolio we will utilise our
existing underwriting talent and broker
relationships to access clients while
continuing to develop deep in-house
expertise in the specialist sectors
Hiscox Ltd Report and Accounts 2022
31
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Hiscox Re & ILS
Gross premiums written
Net premiums written
Underwriting profit
Investment result
Profit before tax
Combined ratio (%)
2022
$m
1,037.9
268.1
57.6
(34.0)
21.5
81.6
2021
$m
807.8
274.2
91.1
8.8
98.5
68.0
focused on the transition to the green
economy, such as electric vehicles
and renewables.
The outlook for 2023 is positive, as we
are looking to broaden out in specialty
and casualty lines through disciplined
growth in attractively priced business.
We will do this by working with our
key broker relationships to seek and
support attractive and profitable
growth opportunities on their merit,
and driving the entrepreneurial spirit
of our talented underwriters.
Hiscox Re & ILS
The Hiscox Re & ILS segment comprises
the Group’s reinsurance businesses
written in London and Bermuda and the
insurance-linked security (ILS) activity
written through Hiscox ILS.
Hiscox Re & ILS gross premiums written
increased by 28.5% to $1,037.9 million
(2021: $807.8 million) crossing the
$1 billion milestone for the first time, as
we benefitted from further hardening
market conditions. Much of the growth
was supported by ILS inflows in the first
half of the year, while broadly maintaining
our net written premium position.
Excluding reinstatement premiums,
gross premiums written grew 34.4%.
The business delivered a particularly
strong performance in retrocession
and North American and international
property catastrophe lines, underpinned
by increased demand and continued
pressure on the supply of capacity in
both the traditional and ILS space.
ILS assets under management (AUM)
was $1.9 billion as at 31 December 2022
($1.4 billion at 31 December 2021).
During the first half of the year we
secured net AUM inflows of $511 million.
32
Hiscox Ltd Report and Accounts 2022
This was partly offset by $79 million net
outflows in the second half. Despite the
positive inflows of AUM in 2022, there is
uncertainty within the market regarding
the availability of new or replacement
ILS capital in the near term, as a result of
multiple years of significant loss events,
latterly combined with economic volatility
in the form of rapidly rising rates and
decade-high inflation. In part, it is this
uncertainty that drove improved rates
and tightening of terms and conditions
during the January 2023 renewals.
It is into the resulting highly attractive
market that Hiscox is deploying its own
organically generated capital to fill the
gap in the market that has been left by
a combination of third-party capital
contraction and retrenchment by
some reinsurers.
Hiscox Re & ILS delivered a strong
combined ratio of 81.6%, despite the
$90 million net loss from Hurricane Ian.
We continued to drive underwriting
discipline by further reducing our exposure
in the risk excess class. We have also
successfully reduced our participations
on aggregate excess of loss deals and
will continue this disciplined underwriting
action in 2023 designed to reduce
exposure to secondary perils.
Investments
The total investment result was a
loss of $187.3 million (2021: profit of
$51.2 million), or a negative return of 2.6%
(2021: positive return of 0.7%). Assets
under management as at 31 December
2022 were $7.1 billion (2021: $7.3 billion).
Concern over inflation dominated the
economic picture during 2022, as it
remained at the highest levels in decades
and proved persistent, exacerbated
by disruptions to the global supply
chain, lockdowns in China and the
Russia/Ukraine conflict. Central banks
responded with sharp rises in interest
rates, pushing rates to levels last seen
before the 2008 financial crisis. Despite
high inflation and tightening monetary
policy, unemployment remained low and
economic growth was resilient across
many regions. However, having seen
interest rates rise sharply in developed
markets, the focus shifted from inflation
to the impact of higher interest rates
on the economy. Growth expectations
were revised down across the globe,
and expectations of recession rose in
key economies.
The upward move in risk-free rates,
along with a weakening growth outlook,
led to a repricing across a wide range of
markets. Diversification was of limited
help to portfolios given the broad spread
of losses affecting most asset classes.
Bond markets sold off as risk-free rates
rose, leading to some of the weakest
bond returns in decades. Credit spreads
widened leading to losses on corporate
bonds. Global equity indices ended the
year down almost 20%, albeit a rally into
year-end moderated the losses. Against
this backdrop, the investment loss of
$187.3 million was not unexpected.
However, with 93% of our fixed income
portfolio in investment grade bonds, most
of the losses were mark-to-market. Our
risk asset portfolios fell, though some
exposures made absolute gains helping
to alleviate the losses at the margin.
The reinvestment yield on the bond
portfolio rose again in the final quarter to
reach 5.1% as at 31 December 2022, up
from 4.8% at the end of September 2022.
The change during 2022 from the
starting yield of just 1.0% is
transformational for forward-looking
returns. The short-dated nature of
our portfolio means reinvestments
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Strategic focus
Total Group controlled premium for 2022
100% = $4,935.4 million
Big-ticket business
Larger premium, globally traded, catastrophe-exposed
business written mainly through Hiscox London Market
and Hiscox Re & ILS.
Retail business
Smaller premium, locally traded, relatively less volatile business
written mainly through Hiscox Retail.
Reinsurance
23%
Large property
8%
Casualty
8%
Specialty – terrorism, product recall
5%
Marine and energy
7%
Small commercial
27%
Tech and media casualty
7%
Art and private client
9%
Specialty – kidnap and ransom,
contingency, personal accident
4%
Small property
2%
Hiscox Ltd Report and Accounts 2022
33
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Portfolio – asset mix
Investment portfolio $7.1 billion as at 31 December 2022
Asset allocation (%)
Debt and fixed income holdings
Cash and cash equivalents
Equity and investment funds
Debt and fixed income holdings credit quality (%)
Gvt
AAA
AA
A
BBB
BB and below
Debt and fixed income holdings currency split (%)
USD
GBP
EUR
CAD and other
34
Hiscox Ltd Report and Accounts 2022
76.3
18.9
4.8
19.6
9.3
8.9
29.0
26.6
6.6
72.5
15.1
8.8
3.6
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
The Board believes that
paying a dividend is one
important indicator of the
financial health of the
Group. Having carefully
considered the capital
requirements of the
business, the Board
has recommended to
shareholders for approval
the payment of the final
dividend at 24.0 cents
per share.”
are quickly raising the cash coupon
component of returns. The portfolio
has much improved prospects for
investment returns in 2023 and beyond.
We have maintained a relatively
defensive portfolio coming in to 2023.
Duration remains short and credit quality
remains high. Risk asset exposures
are modest, with no direct exposure to
UK commercial real estate, giving us
room to add risk should opportunities
arise. Otherwise we continue to look to
incrementally improve long-term risk
and capital-adjusted outcomes through
further diversification.
Dividend, capital and
liquidity management
In the continuing uncertain
macroeconomic and geopolitical
environment, Hiscox remains strongly
capitalised against both regulatory
and rating agency requirements.
The Hiscox Group Bermuda Solvency
Capital Requirement (BSCR)
ratio is estimated at 197%, as at
31 December 2022. The slight reduction
to prior year follows an increase in
capital allocation to Hiscox Re & ILS at
January 2023 renewals as we deployed
capital in a highly attractive market,
in line with expectations. We remain
comfortably above the S&P ‘A’ rating
threshold and significantly above the
regulatory capital ratio requirement.
As the year progresses, we will
continue to assess the opportunity
and may deploy further capital if
the market conditions persist.
As we write the vast majority of our
reinsurance business in the first half,
there is an element of seasonality in
the half-year solvency position which
is smoothed out at the year-end
due to continued capital generation,
currently underpinned by
improved underwriting conditions
and investment result outlook.
The Group’s available liquid resources
are sufficient to execute against the
business plan and act as a buffer to
cover opportunities or market events,
with fungible liquidity of around
$1 billion. During September 2022,
the Group issued £250 million of
five-year unsubordinated unsecured
notes3. The transaction was in excess
of three times oversubscribed,
demonstrating strong sentiment
and market confidence in the Group.
The issuance of the notes was timed
to coincide with the redemption of
£275 million unsubordinated debt4
during December 2022. The funds
raised mean that the Group continues
to have strong liquidity and appropriate
leverage of 20.6%.
The Board believes that paying a
dividend is one important indicator
of the financial health of the Group.
Having carefully considered the
capital requirements of the business,
the Board has recommended to
shareholders for approval the payment
of the final dividend at 24.0 cents per
share. This brings our total dividend
for the year to 36.0 cents per share.
The record date for the dividend will
be 5 May 2023 and the payment date
will be 13 June 2023. The Board
proposes to offer a Scrip alternative,
subject to the terms and conditions of
Hiscox’s 2022 Scrip Dividend Scheme.
The last date for receipt of Scrip
elections will be 22 May 2023 and the
reference price will be announced on
31 May 2023. Further details on the
3Fixed rate of 6.00 per cent paid annually in arrears.
4Fixed rate of 2.00 per cent paid annually in arrears.
Hiscox Ltd Report and Accounts 2022
35
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
dividend election process and Scrip
alternative can be found on the investor
relations section of our corporate
website, www.hiscoxgroup.com.
People
During the year I took important steps
to refresh our leadership team – the
Group Executive Committee (GEC)
– and the full team is now in place.
Jon Dye, our new UK Chief Executive
Officer, and Nicola Grant, our new
Group Chief Human Resources Officer,
joined the GEC in September; as well as
Stéphane Flaquet who was appointed
to the newly created role of Group Chief
Operations and Technology Officer. Paul
Cooper also joined the Executive team
earlier in the year as our new Group Chief
Financial Officer. The GEC contains a
wealth of experience and knowledge
combined with energy and passion and
I look forward to working with them to
deliver on the many opportunities that
lie ahead of us.
At the forefront of my mind is always that
people are our greatest asset. The future
success of Hiscox depends on our ability
to attract, nurture and retain high-calibre
talent. A key focus this year has therefore
been to enhance our employee value
proposition to not only encourage these
behaviours but exceed our employees’
expectations. I am proud of the benefits
that are available at Hiscox such as
HSX:26, under which every permanent
employee owns a part of the Group
through the share grant we launched
earlier in the year, and our sabbatical
programme which entitles staff with
five years of continuous service to an
additional four weeks of paid leave.
We also refreshed our global diversity,
equity and inclusion (DEI) strategy and
vision across the Group and put in
place a new Group DEI policy to better
36
Hiscox Ltd Report and Accounts 2022
reflect our intent and approach. In
addition, in recognition of the difficult
economic circumstances currently
facing our workforce we also paid out
a cost of living lump sum to our UK,
European and Bermudian employees
most impacted by the rising costs of
energy, food and fuel.
The refined strategy, improving financial
performance and distinctive benefits
are having a positive effect; this
is captured in our 2022 employee
engagement scores which are our
highest in ten years. Our people believe
in the strategy and in our outstanding
future. Clearly an engaged employee
base bodes well for the drive and energy
needed to seize the opportunities ahead
and grow our business.
Finally, I want to highlight the completion
of our long-anticipated London office
move. On 31 October our London-based
team moved into new office space at
22 Bishopsgate. This is the location
where we have the largest concentration
of people and is a meaningful milestone
for Hiscox. The carefully thought out
space has been designed as a place for
us to carry out our business in a modern
and collaborative environment, enabling
new ways of working with each other
and with our business partners.
Environmental, social and
governance (ESG)
During 2022, we focused on further
embedding our ESG structures,
processes and policies and I was
particularly proud to see our efforts
to date recognised in an MSCI ESG
rating upgrade from A to AA.
We started the year with the publication
of our new greenhouse gas (GHG) targets
for the Group and since then, we have
made solid progress towards embedding
them in the business. We have started
to develop a low-carbon transition
plan for the Group to set out in more
detail the journey towards meeting our
ambitious targets, and intend to publish
more information on this in line with UK
regulatory requirements. We are also
making good progress towards the first
of our interim targets for transitioning our
investment portfolio, with approximately
20% of our corporate bond portfolio
having net-zero/Paris Agreement-aligned
targets as at year-end.
We are continuing to consider the
right approach for Hiscox when it
comes to sustainable underwriting
and investing, taking into account
both our ESG exclusions policy and
our responsible investment policy.
In big-ticket underwriting, we monitor
all risks according to their ESG
profile and continue to decline and
non-renew risks in line with our
exclusions policy. Through this same
tracking process we are able to monitor
the positive risks we are supporting
such as wind and solar energy, and
electric vehicles. In reinsurance, we
have exited from all business where 30%
or more of subject premium is derived
from restricted areas, and we continue
to monitor our portfolio composition
against our ESG focus areas, capturing
programmes declined for ESG
reasons in regular internal reporting.
We have also made strong progress
on the investment side where ESG is
fully embedded in our investment
processes: net-zero wording is now
in all segregated investment manager
mandates; we have enhanced the
ESG credentials of our emerging
market bond portfolio; and an
investments-focused ESG dashboard
is now a regular feature of Investment
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Chief Executive’s report
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Our people believe in
the strategy and in our
outstanding future. Clearly
an engaged employee base
bodes well for the drive and
energy needed to seize the
opportunities ahead and
grow our business.”
Committee reporting. Our sustainable
assets including green/ESG bonds
are now over $300 million, with over
5% of bond portfolios in green and
ESG-labelled bonds.
I am especially excited about the
potential for our ESG-focused
Lloyd’s sub-syndicate.
2023 outlook
I am very optimistic about the outlook
for 2023. Our Retail business is
primed to accelerate growth towards
the middle of 5%-15% range in 2023.
We have completed the necessary
underwriting actions in the US broker
business and substantially completed
the technology transition in US DPD; the
UK is reinvigorated under new leadership
and ambition, and Europe continues to
go from strength to strength. Marketing
spend has increased in all Retail markets
to support our growth efforts.
The reinsurance market conditions
are the best we have seen in over a
decade. Hiscox is a net beneficiary
of reinsurance rate hardening. The
scale and breadth of our business, as
well as the long-standing relationships
developed with our reinsurance
panel, have been an essential part
of ensuring we secured the required
retrocession protection to support our
2023 business plan.
Hiscox Re & ILS has the expertise, strong
balance sheet and financial flexibility
to capitalise on the current trading
conditions. As a result of deploying
our organic capital at 1 January 2023
renewals, our net premiums written in
January 2023 were up 49% year-on-year.
In 2023, net premium written growth
is expected to exceed gross premium
written growth.
Our London Market business is building
a solid and dependable track record
of profitability, and with the property
portfolio changes now mostly complete,
I expect to see the business grow as
we continue to deploy underwriting
aggregate with discipline in the improving
market conditions. In addition, with
the work underway to create leading
capabilities in digital trading and
underwriting the energy transition,
there is excitement in the business about
the coming years and the opportunity
to play a key role in the London Market.
We expect the investment result, which
has been a headwind over the last
12 months, to become a tailwind in
2023, as bond reinvestment yields
reached 5.2% at the end of February.
Last but not least, change in how we
present our numbers to the market is
coming in the form of IFRS 17; however,
this is purely a change in accounting
standard, which has no impact on our
business fundamentals. The strategy
and the economics of the business
are unchanged.
Finally, I would like to thank our
employees, business partners and
shareholders for their continued support.
Aki Hussain
Group Chief Executive Officer
8 March 2023
Hiscox Ltd Report and Accounts 2022
37
Q&
A:
with Paul Cooper
Group Chief Financial Officer
Opportunity knocks
Hiscox is financially sound and poised
for significant growth across its many
business units. The challenge for the
finance function is to help realise that
rich potential. >
38
Hiscox Ltd Report and Accounts 2022
Hiscox Ltd Report and Accounts 2022
39
Paul Cooper joined Hiscox as Group
Chief Financial Officer in May 2022,
after working in Chief Financial Officer
roles at M&G Plc, Arrow Global and
Canopius. Paul had previously served
as Finance Director for Hiscox UK and
Europe from 2006 to 2011 during a key
phase in the Company’s growth.
Q&
A:
with Paul Cooper
Group Chief Financial Officer
Q: You’re what’s known in the
business as a ‘boomerang’ – you
left Hiscox in 2011 before returning
a decade later. What were your
impressions of the Hiscox culture the
first time around, and has it changed
much in the interim?
A: The first time around, the business
seemed very entrepreneurial, very
ambitious, always trying new things. It
had a really strong vision for growing the
business, not only in the Lloyd’s space,
but also across retail and internationally.
The people here were a pleasure to
work with, and they all wanted to do the
best for the Company. There was a real
sense that people wanted to get on,
that they liked coming to work. I think
what’s very pleasing on my return is that
those aspects still prevail. If anything,
they’ve been reinvigorated under Aki’s
leadership. He’s got loads of energy,
and I think he’s employed people who
have the same vigour. We’re all here
to deliver on the potential that Hiscox
undoubtedly has.
Q: How would you characterise the
condition of the Group’s finances?
40
Hiscox Ltd Report and Accounts 2022
A: The business itself is really well
placed. It’s a diverse business with a
number of different business units and
what’s pleasing is that they all have very
strong potential, they’re all very well set in
terms of performance and capability. And
that’s against the background of a strong
rating environment. Pricing is going in the
right direction, and has been for four or
five years, and that looks set to continue.
So, the commercial aspect is strong,
the culture is strong, and the balance
sheet is really strong too. Liquidity is
good. With all that in place, my focus
can be on how I help the business grow
and drive more value, rather than – if
I were joining a company undergoing
turnaround – shoring up the balance
sheet and fixing things.
Q: Where do you see opportunities
for growth?
A: Everywhere – absolutely everywhere.
As I said, all of the business functions
are firing on all cylinders. If you take
the Re & ILS business, for example,
they’re going through one of the most
attractive rate environments they’ve
seen in decades. From their perspective,
the opportunity for growth is very
significant. There’s just a question of
risk appetite – while those rates are very
attractive, you don’t want to bet the
house on going after them and end up
with an unbalanced portfolio. Rates are
also continuing to harden in the London
Market, so we see real opportunities for
growth in that area too.
Then there’s our Retail business. Europe
is fantastically positioned – it’s been
growing in all of its six markets. The
UK has been re-energised under the
leadership of Jon Dye, who knows the
market well and has the pedigree to
deliver a really profitable business. And
then the US business has an amazing
opportunity in a significant market that
is currently fragmented, under-served
and ripe for disruption from a digital
perspective. I think we’ll see big gains
there over the coming years.
Q: Is much change currently required
within the finance function?
A: Finance is a function that demands
constant change – it’s always going to
be either a recipient of change because
the business itself is evolving, or it needs
to be proactively improving itself to help
drive developments elsewhere. As a
general philosophy, I’m always looking
at what we need to change in order to be
better. Right now, more specifically, there
are some major changes required for
the implementation of a new accounting
standard called IFRS 17, which is placing
an enormous demand on all finance
professionals in the insurance industry.
There’s a significant level of attention on
it, and its scale and complexity are not to
be underestimated.
Q: In layman’s terms, what is IFRS 17?
A: There are a number of elements, but
essentially it changes the way that
you measure some aspects of the
profit-and-loss account and the balance
sheet. The biggest part of that is that
you now discount your claims liabilities.
There’s also a lot more presentation and
disclosure required. From now on, we will
have to report on a much more granular
level. The biggest challenge in the short
term is that this has placed significant
demand on us to make changes to
systems and data, which in turn adds to
the demands being placed on the finance
function. IFRS 17 is a big deal, layered with
complexity. It will take time to bed in, but
it does mean that, in future, transparency
levels will be greater, so our performance
will be easier to understand and easier to
compare with other businesses.
The business itself is really well
placed. It’s a diverse business
with a number of different business
units and what’s pleasing is that
they all have very strong potential,
they’re all very well set in terms of
performance and capability. And
that’s against the background of
a strong rating environment.”
We’ve had quite a sizeable investment
in systems and processes in recent
years, so the question now is, how
do you maximise those? We have
more and more data available, and
I think there’s a competitive edge to
be gained by optimising its use and
understanding its dynamics.”
Q: Aside from that, what have your
other major priorities been in your
first year in the role?
A: One accomplishment has been to
engage more with capital markets
and develop a closer relationship
with equity analysts. We also
essentially refinanced our debt in
September, and that’s no small
exercise. In the grand scheme of
things, though, I would say that the big
priority is to do things faster: report in
a faster time, improve our forecasting
capability, improve our management
information so that we can better
understand performance. We’ve had
quite a sizeable investment in systems
and processes in recent years, so
the question now is, how do you
maximise those? We have more and
more data available, and I think there’s
a competitive edge to be gained by
optimising its use and understanding
its dynamics. We’ve made a good start
in that space, and it’s already showing.
There are aspects of performance that
we can measure now that we simply
wouldn’t have been aware of six
months ago.
Q: You’ve come back into the role at
an interesting time from a political
and macroeconomic perspective.
What has that meant for the business?
A: Clearly, the most notable thing has
been the Russia/Ukraine conflict. From
a reserving perspective, that’s all been
well covered off, and we’ve managed
our exposures very well. But on the asset
side of things, it has stoked inflation,
and that’s had an impact on central
banks, which have responded by driving
up interest rates. As a consequence,
we’ve had unrealised losses on bonds
in our investment portfolio, which
has obscured the strong underlying
insurance performance of the business.
In time, we’re confident that those losses
will be reversed. It’s clear that markets
understand and appreciate that this
situation is not permanent, so our share
price has not really been impacted.
Q: What will your approach be to
developing people within the
finance function?
A: That’s a really interesting question.
Traditionally, and I don’t ascribe this
only to Hiscox, finance people tend
to become technical experts in a
particular area – they become the
best reserving actuary, or the best
capital actuary, or the best financial
planning and analysis (FP&A) person.
The problem is that at a certain level
of seniority, you really need to have
a broader, more diverse experience.
By necessity, if you want to be a chief
financial officer, you’ve got to know how
things work across financial reporting,
actuarial, FP&A, capital, reserving, and
so on. A management position requires
not only a depth, but also breadth of
understanding. At the very least, you
need to know how to get the right people
in to give you the right insights and help
you get to the right judgements, and that
does require experience. I’d like to see
more emphasis placed on people moving
around within finance, so that they get
that greater breadth of understanding.
Q: Outside of work, what gives
you energy?
A: Loads. I love to run with the dog.
I socialise with good friends and family.
And I watch Arsenal play football –
although that creates a different stress!
I’m a season-ticket holder. They’ve been
very good recently, but that brings an
angst of its own – worrying about when
they’re going to fall from grace, rather
than why they’re doing so badly. It’s
almost worse!
Hiscox Ltd Report and Accounts 2022
41
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
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.
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.
At 31 December 2022, available capital
was $2,427 million (2021: $2,599 million),
comprising net tangible asset value of
$2,096 million (2021: $2,226 million)
and subordinated debt of $331 million
(2021: $373 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 $931 million
(2021: $941 million), of which $331 million
was utilised as at 31 December 2022
(2021: $331 million).
Our key rating agencies, A.M. Best,
S&P and Fitch, calculate capital
adequacy by measuring available
capital after making various balance
sheet adjustments. Available capital is
compared 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. In December 2021,
S&P published details of significant
proposed changes to the model used
to assess capital adequacy within the
insurance sector, for public consultation.
However, further rounds of industry
consultation with S&P have since been
required, and S&P is now expected to
publish the conclusions of their additional
consultation in the first quarter of 2023,
with the intention of introducing the new
framework for adoption later in the year
should no further rounds of consultation
be required. While some uncertainty
remains as to the final details of the new
S&P model, based on the information
which S&P has provided to the industry
so far, we expect the Group’s rating to
remain unchanged. We monitor our
capital positions from our rating agencies
very closely and factor them into our
capital management plans; 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 across all major risk types, it
will still be able to meet its regulatory
capital commitments. A market loss of
this magnitude would be expected to
bring about increases in the pricing of
risk, so the 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.
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
Our capital resilience is
the result of our long-held
active capital management
approach and, in light of
current and upcoming market
conditions, positions us well
for funding future growth.”
Gareth Jones
Interim Group Head of
Capital Management
42
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Capital
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
191
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.
Read more about our financial condition
in our financial condition report
hiscoxgroup.com/about-hiscox/
group-policies-and-disclosures.
Projected capital requirement
$2.43 billion available capital
$2.34 billion available capital (post-final dividend)
Economic
Regulatory
3.0
model applies charges for catastrophe,
premium, reserve, credit and market
risks to determine the minimum capital
required to remain solvent throughout
the year. 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.
2.5
The Group’s estimate for the year-end
2022 BSCR solvency coverage ratio
is 197% (2021: 202%). The Group
continues to operate with a robust
solvency position and expects to
maintain an appropriate margin of
solvency going forward. In addition,
each of the respective insurance
carriers holds appropriate capital
positions on a local regulatory basis.
1.5
2.0
1.0
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
Rating agency assessments shown are internal Hiscox assessments of the agency capital requirements
on the basis of projected year-end 2022. 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.
Hiscox Ltd Report and Accounts 2022
43
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Risk management
The Group’s core business is to take
risk where it is adequately rewarded
to maximise returns to shareholders.
The Group’s success is dependent on
how well we understand and manage
our exposures to key risks.
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. During
2022, we continued to further 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.
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 at an aggregate level, and define our
risk tolerances: the thresholds which
would represent a ‘red alert’ for senior
management and the Board.
Risk appetites, which are set for the Group
as a whole and for each of our insurance
carriers, 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.
Risk management across the business
The Group coordinates risk management
roles and responsibilities across three
lines of defence. These are set out
in the model on page 45. 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, cyber, casualty,
Our risk management
strategies and processes
continue to evolve with
our business, and we
work hard to ensure we
have a strong risk culture
throughout the organisation,
supported by regular and
robust internal training and
awareness campaigns.”
Hanna Kam
Group Chief Risk Officer
44
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Risk management
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Three lines of defence model
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.
Assesses, challenges and advises
on risk objectively
Provides independent oversight,
challenge and support to the first line
of defence. Consists of the Group risk
team and the compliance team.
Risk management framework
Understanding and managing the
significant exposures we face.
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.
Risk
definition
Risk
owner
ORSA
documentation
Business
planning
Risk
reporting
O
R
e
S A proc
Risk
governance
s
s
Risk
appetite
ORSA
governance
Assurance
Risk
assessment
Risk
monitoring
Risk
measurement
Risk
mitigation
Capital and
solvency
assessment
sustainability, reserving, investments
and credit, as well as emerging risks.
The Group Risk and Capital Committee
and the Group Underwriting Review
Committee are sub-committees of
the Risk Committee and make wider
decisions on risk. More information
on these Committees can be found
on pages 63 to 65.
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.
The role of the Board in risk management
and key developments during 2022
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
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.
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 continue to evolve. The
Risk Committee also engages in focused
reviews on our key risks and monitors
emerging risks throughout the year. In
2022, additional risks considered include
associated risks with Cloud provider
concentration, reversal of globalisation
trends impacting the complexity and cost
of regulatory compliance, and potential
disruptions arising from infectious
diseases outbreaks. An overview of
the processes for identifying emerging
risks through the Grey Swan Group is
described on page 65. Stress tests and
reverse stress tests (scenarios such as
those shown on pages 46 to 47, which
could potentially give rise to business
failure as a result of either a lack of
viability or capital depletion) are also
performed and reported on to the
Risk Committee.
The Risk Committee also provided
input into a number of important
risk management developments
during 2022:
s a risk management maturity
framework was introduced
during the year to help set the
organisation’s maturity goals
against six key dimensions of risk
management, as well as monitor
ongoing progress made against
these goals. The maturity model
has been introduced at both
Group and business unit level;
s maintaining a strong risk culture
across the organisation is
recognised as a key component
of effective risk management at
Hiscox Ltd Report and Accounts 2022
45
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Risk management
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Hiscox. During the year, the Group
risk team developed processes
to more systematically assess
risk culture across the Group
considering aspects such as tone
from the top, risk transparency,
the organisation’s use of lessons
learned and its ability to identify
and respond to uncertainty. As
part of this work, an 18-month plan
has also been developed to further
enhance the organisation’s risk
culture which will continue to be
monitored through the processes
developed during the year. These
processes now include a risk culture
survey for all staff to be completed
as part of annual risk management
training which has been rolled out;
s there has been a strong focus
during the year on performing
targeted risk reviews at both Group
and legal entity level (including those
driven by regulatory developments).
Particular emphasis has been
placed on performing reviews to
assess the risks for the organisation
associated with inflation given the
current macroeconomic conditions
being observed.
The Risk Committee also supports the
Board in its review of the effectiveness
of the Group’s risk management and
internal control systems as part of its
annual declaration of compliance with
the Bermuda Monetary Authority’s
Group Supervision Rules and via the
annual Group-wide risk and control
self-assessment and associated
second-line review.
The Board, through the Risk Committee,
has conducted a robust assessment of
the emerging and key risks facing the
Company, including those that would
threaten its business model, future
performance, solvency or liquidity, and
is satisfied that no material changes to
the key 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
Group Chief Risk Officer who reports
to the Group Chief Executive Officer
and the Risk Committee of the Board.
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
46
Hiscox Ltd Report and Accounts 2022
Casualty extreme loss scenarios
As our casualty businesses continue to grow, we develop extreme loss scenarios
to better understand and manage the associated risks. Losses in the region
of $75-$825 million could be suffered in the following extreme scenarios:
Event
Estimated loss
Multi-year loss
ratio deterioration
5% deterioration on three years’
casualty premiums
Economic
collapse
An event more extreme than witnessed
since World War II*
Casualty reserve
deterioration
Estimated 1:200 view of a casualty
reserve deterioration on current
reserves of c.$2bn
Pandemic
Cyber
Marine
scenarios
Offshore
platform
Terrorism
Global pandemic considering broader
and alternative impacts than Covid-19
A 1:200 cyber event, such as a
major Cloud outage or mass
ransomware attack. Includes
‘silent cyber’ exposures**
Range of events covering collision
and sinking of vessels and any
resultant pollution
Total loss to a major offshore
platform complex
$235m
$375m
$825m
$100m
$350m
up to $75m
up to $100m
Aircraft strike terror attack in a major city
up to $350m
Property
catastrophe†
1-in-200 year catastrophe event from
$280bn US windstorm
$500m
*Losses spread over multiple years.
**‘Silent cyber’ refers to losses incurred from non-cyber product lines from a cyber event.
†As a point of comparison.
monitoring how the business goes about
meeting regulatory expectations around
enterprise risk management.
2022 has seen a continued focus on
improving the efficiency of the risk
management framework, mainly through
the streamlining and automation of
repeatable cycles. This creates further
capacity for risk reviews and deep-dives
and for more support to be available
to change programmes across the
Group, as well as ensuring appropriate
support and challenge is provided to
the first line of defence in assessing,
understanding and responding to risks
associated with the current geopolitical
and economic environment.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Risk management
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
More information on our approach to
risk management can be found at
hiscoxgroup.com/about-hiscox/
risk-management.
8
Read more about our key risks.
Property extreme loss scenarios
Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) January 2023.
Stress tests and reverse stress tests are regularly performed and reported on to the Risk Committee of the Board. These include
climate-related scenarios such as those shown in the chart below.
800
700
600
500
400
300
200
100
0
Upper 95%/lower 5%
Modelled mean loss
Hiscox Ltd loss ($m)
800
700
600
500
400
300
200
100
0
Industry loss return
period and peril
s
s
o
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e
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7
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9
1
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o
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1
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 $bn
02
04
07
02
36
05
07
14
08
70
12
13
22
24 127
21
19
30
48 193
34
28
39
86 277
This chart shows a modelled range of net loss the Group might expect from any one catastrophe event.
The white on the red 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 2022
47
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Stakeholder engagement
Shareholders
Our shareholders value our clear
strategy, 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 we look to build strong and lasting
relationships with those that share
our values.
Regular investor dialogue
We maintain regular dialogue with capital
markets stakeholders, predominantly via
our Group Chief Executive Officer, Group
Chief Financial Officer and Director
of Investor Relations, who meet with
existing shareholders, potential investors
and research analysts regularly to
discuss our strategy, trading conditions,
business performance and other factors
affecting our operations.
We run several comprehensive investor
roadshows a year in the UK and USA
and participate in a range of investor
conferences. During 2022, the
Company conducted around 370
meetings and met with around 150
investors, representing approximately
76% of our issued share capital.
Financial reporting
We report to the market on Company
performance four times per year,
providing shareholders with an overview
of recent business performance and
trading conditions. These are available
on our corporate website and as an
email alert for subscribers.
Annual Report and Accounts
Our Annual Report and Accounts gives
shareholders a more detailed view of the
business and includes some additional
corporate governance disclosures
beyond our statutory requirements.
Annual General Meeting (AGM)
Our AGM provides another regular
investor touchpoint. At the 2022 AGM,
all resolutions were passed with a
significant majority.
Annual employee engagement survey
Our annual employee engagement
survey gives all our employees the
opportunity to provide honest feedback
on how they feel about Hiscox, with the
results discussed at all levels including
Board level and informing future plans.
Board-level Employee Liaison
Non Executive Director, Anne
MacDonald, also serves as the Group’s
Employee Liaison, working with the
Group’s employee engagement network
to ensure that workforce views are
considered in Board decision-making.
Employee networks
Many of our employees are actively
engaged in at least one of our 18
employee network chapters, including
WeMind, Pan-African, parents and
carers, and Pride. These networks
are supported by our Directors, who
contribute to panel debates and other
employee events.
Communication updates
Employees have access to
Company-wide ‘connected’ events,
annual ‘launch’ events and ‘box’
meetings, many of which are led or
attended by our Directors to share
news, align on strategy and objectives
and celebrate successes.
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 Directors also attend.
48
Hiscox Ltd Report and Accounts 2022
Annual Hiscox broker events
We hold an annual preferred broker
summit for our UK brokers, to share
insight and expertise, and a London
Market broker academy to educate
and inform. These events are
supported and often attended
by our Executive Directors.
Broker satisfaction survey
Each year we measure broker
satisfaction with our products and
services, including through qualitative
broker interviews, with the results
shared and discussed at Board level
and informing future plans.
Attending key industry events
We participate in key industry events in
every part of our broker-facing business,
including at Executive Director level.
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
businesses, Monte Carlo, Baden Baden,
and RIMS.
Thought leadership
We produce thought leadership that
enhances our broker relationships and
our position as experts in our chosen
areas. In 2022, this included cyber
security trends and mitigation strategies,
the insurance implications of self-driving
cars, the importance of passion in
building a small business and the
latest online art buying trends.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
Stakeholder
engagement
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Customers
We have over 1.5 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.
Suppliers
Our suppliers are an important extension
of our in-house expertise, which is
why we aim to work with like-minded
businesses that share our purpose.
Customer satisfaction
We talk to thousands of customers each
year, through both quantitative surveys
and qualitative research – including
feedback after they have bought a
product or made a claim – which are
reviewed by our leadership teams and
help to continually improve our offering.
Consumer awareness
We also measure the health of our
brand through regular brand tracking
surveys which assess consumer brand
awareness and perception. These are
shared with senior management and
inform marketing and sales activities.
Informing our marketing
and communications
Marketing and communications activity
across our markets is informed by the
qualitative and quantitative research we
carry out with both existing and potential
customers. For example, a current focus
in the UK is reviewing our marketing and
communications in line with the FCA’s
new Consumer Duty regulations, where
we will also take into account customer
insights and feedback.
Customer-focused products and tools
We use a combination of customer
insight and claims experience to develop
not only our risk transfer products,
but also risk mitigation tools. These
include our cyber exposure calculator
and the Hiscox CyberClear Academy,
a NCSC-approved cyber training
programme for customers.
Regular dialogue
Our Chief Compliance Officer and
compliance teams worldwide lead
our relationships with our regulators
and maintain regular dialogue with
them, with involvement from senior
management and the Board when
required. Regulatory dialogue includes
the annual supervisory college, hosted
by the Bermuda Monetary Authority as
our Group supervisor, which gives an
important annual opportunity for us to
present a consistent message to all of our
regulators on issues of common interest,
and in 2022 was attended by members
of the Group’s senior management team,
including all of the Executive Directors.
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 (ABIR) and the
Association of British Insurers (ABI).
Our Executive Directors are important
contributors to this work.
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.
In 2022, this included participation in
the Prudential Regulation Authority’s
market-wide General Insurance Stress
Test (GIST) in the UK.
Regulatory reporting
The Group and its subsidiaries met all
material regulatory reporting obligations
for 2022.
Robust procurement processes
We want to work with businesses
that align with our values and support
our goals, and we reflect this in our
robust procurement processes. These
processes ensure we assess suppliers
against a wide range of criteria,
encompassing financial stability, culture
and ethics, as well as innovation and
development. For larger contracts,
these processes also include a degree
of Executive Director involvement
or oversight.
Supplier code of conduct
We expect our suppliers to adhere to
high standards in areas such as risk
management and compliance, in line
with our regulatory requirements,
and when it comes to environmental,
social and governance issues, such as
diversity, equity and inclusion (DEI) and
environmental practices.
Active dialogue
We maintain active dialogue with our
suppliers to ensure our expectations,
ambitions and ways of working remain
aligned. This dialogue is often driven
by the relationship managers for each
contract and supported or facilitated
by our Group procurement experts,
and for larger contracts will include
senior management or Executive
Director involvement.
Hiscox Ltd Report and Accounts 2022
49
Q&
A:
with Stéphane Flaquet
Group Chief Operations and Technology Officer
Tech savvy
The future of technology at Hiscox will see
a growing focus on business outcomes,
a convergence of approaches between
retail and big-ticket and a change of
mindset around the management of data. >
50
Hiscox Ltd Report and Accounts 2022
Hiscox Ltd Report and Accounts 2022
51
After building a career in operations
and change leadership, Stéphane
Flaquet joined Hiscox in 2010 as Chief
Operating Officer for Europe, before
moving to London in 2012 to head
up the Group technology function.
After time as Managing Director for
Hiscox Europe, Chief Transformation
Officer for the Group and Interim CEO
of Hiscox UK, he took on the newly
created role of Group Chief Operations
and Technology Officer during 2022.
Q&
A:
with Stéphane Flaquet
Group Chief Operations and
Technology Officer
Q: How has the role and profile of
technology at Hiscox changed in
recent years?
A: It’s been a massive change. Key to
this is that the technology function has
emerged as a core function across all
business areas. Technology can be a
source of competitive advantage, but
for that to happen you need to have
close proximity between the technology
team and the rest of the business.
If you’ve got the IT leader in the room
for most of the conversation, they’ll be
able to do a better job of enabling the
business. We now have technology
leaders sitting within all our business unit
leadership teams, which is a big change.
You can see it in the way our business
unit CEOs now talk about IT in their
communications, in their operating
plans. It’s no longer acceptable for a
leader to say: “I don’t understand tech”.
A decent understanding of technology
is as important as people leadership,
business economics, financial
management, and so on. Our leaders
are willing to learn because they realise
the potential of technology to transform
their business in so many ways.
52
Hiscox Ltd Report and Accounts 2022
Q: How do you ensure you’re delivering
effective technology change?
A: In IT, delivery times can be quite
long, so you need to plan ahead. But as
we know, the pace of innovation in tech
is increasing and the pace of adoption
is increasing even faster, so you also
need to be able to iterate super quickly.
Getting the balance between the two
is really tricky. If you’re too short term,
you’re always on the back foot, trying to
respond to business demands. If you’re
too long term, by the time you deliver
something, you’re delivering what the
business needed three years ago. We
need to be having different conversations
and using different delivery mechanisms.
There is business transformation that
requires multi-year planning, but there is
other change delivery that can be done
in two-week iterations. And this is not
a tech conversation, this is an overall
business agility ambition.
What those two levels of delivery have
in common is the need to always have in
mind what the business outcome is that
you want to get to. In IT, it’s so easy to
get caught in the buzz. But the role of IT
leaders is not just finding the next cool
piece of kit and spending a lot of Hiscox’s
money on it. It’s about using tech in a way
that makes our business better – that is
the really cool thing. That’s where the
proximity between the technology team
and the rest of the organisation is so key.
IT is a means to an end. It’s not a goal in
itself. So focusing on tangible business
outcomes is critical. That has been front
of mind as we successfully re-platformed
our retail businesses in the UK, the USA
and now Europe.
Q: Is there a difference in your
approach between retail and
big-ticket business?
A: Historically, technology was more
important in retail than in big-ticket –
high-volume, low-margin business is
where tech traditionally had a key role to
play. But what we’ve seen over the past
few years is a convergence in the use of
technology between retail and big-ticket.
For example, one of the great successes
is how the London Market is now
distributing some of its products directly
to the local producers using the kind of
application programming interface (API)
and pricing capability you would expect
in retail. Historically, in big-ticket it’s all
about technical excellence, pricing,
analytics, modelling, and you now see
a lot more of that going into the retail
space. I think we’re seeing a real meeting
in the middle where these previously very
different business types are using the
same core capabilities. Having a strong
enterprise architecture function that is
able to connect the dots, drive re-use
and economies of scale is even more
critical in that context of convergence.
Q: What is your vision for how the
use of data should change in the
coming years?
A: Insurance has always been about
What we’ve seen over the past few
years is a convergence in the use
of technology between retail and
big-ticket. For example, one of the
great successes is how the London
Market is now distributing some
of its products directly to the local
producers using the kind of API and
pricing capability you would expect
in retail.”
IT is a means to an end. It’s not a
goal in itself, so focusing on tangible
business outcome is critical. That has
been front of mind as we successfully
re-platformed our retail businesses in
the UK, the USA and now Europe.”
data and will always be about data,
but technology transformation can
dramatically impact the way we use it
and the value we get from it. We currently
have lots of pockets of good practice
all across the organisation, so now
we’re focusing on connecting the dots
between them. So rather than looking
at underwriting data, or claims data, or
marketing data, or brand awareness
data, we want a 360° view of all those
different components. That is only going
to be achieved if we start treating data as
a product, rather than as a by-product of
any particular activity. We need people to
own that product, take responsibility for
its integrity and accuracy and then make
it available to other data owners. That’s a
completely different mindset and is one
of the capabilities that we are building.
Q: How do you see technology in the
workplace evolving?
A: It’s obvious to say, but our
relationship to technology, both personal
and professional, has fundamentally
changed in the last few years. I think
one of the few good things about
the pandemic is how the adoption of
technology has accelerated. During
2022 we moved into our new office here
in London, and now I enter the building
using my phone, book a desk using an
app, order lunch using an app. We don’t
have phones on our desk, I hardly have
papers anymore, I just carry my laptop
and my iPhone and this is my life and I
can do everything that I want with this.
But I still think there is more we can do.
We need to recreate the same simplicity
and convenience for our people that
we all have in our personal life, and
we need to offer our customers the
same seamless experience. This
is a never-ending journey because
our expectations as customers are
constantly rising, and rightfully so.
Q: Beyond your technology brief,
what are your other priorities?
A: One major priority is to strengthen
our operational capabilities in retail.
Retail is the fastest growing part of our
organisation, and to support that growth
we’re focused on making sure we have
all the right capabilities in place, dialled
up to the appropriate level: from the
voice of the customer, to management
information, strategy leadership,
automation, process management,
technology enablement, all of that. We
also currently have very distinct retail
businesses, and they’re all operating
slightly differently, so an element of
operating model convergence is needed
and I think technology can play a really
exciting role in that.
Q: Outside of work, what gives
you energy?
A: Now that my kids have mostly left the
nest, the best thing that happened to
me over the last three years is that I got
a dog for the first time, a chocolate
Labrador called Mosey. He has changed
my life completely. I can’t believe that I’ve
lived for almost 47 years of my life without
a dog. What a waste!
Hiscox Ltd Report and Accounts 2022
53
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Environmental, social and governance (ESG)
We will continue to build on this progress
during 2023, through a combination
of one-off programmes of work and
ongoing engagement on key issues.
This will include:
s publishing a low-carbon
transition plan in line with UK
regulatory requirements;
s further defining the Group’s ESG
risks and opportunities through
ESG materiality mapping;
s continued industry collaboration
on issues including the measuring
of underwritten emissions.
Our approach to environmental,
social and governance standards
(ESG) is shaped by a clearly stated
ambition: to be here for the long
term, for our customers, colleagues
and communities, operating in a
sustainable way for the future.
We take our role in the world seriously
and want to play a responsible part in
society, but we are pragmatic about
what that looks like. The language of
ESG is rapidly evolving, but the issues
it encompasses are not new, and in
many cases our responses to them are
already embedded in our business. For
example, having a deep understanding
of climate change through catastrophe
modelling and research is a fundamental
part of our business and an area
where we want to be market leading.
In other areas, progress comes through
regulation or public interest, but we also
see future opportunities to innovate and
serve our customers.
To achieve our ambition, we focus
on making positive and persistent
improvements to our approach across
ESG. For example, during 2022, we
established an ESG data provider within
our London Market business, which over
time will support underwriting decisions in
big-ticket lines and help us factor ESG into
our future exposures. We also saw a 28%
decrease in our operational greenhouse
gas (GHG) emissions in 2022 against
our 2020 baseline year, and realised the
fifth year of incremental improvement in
closing our UK gender pay gap, which is
now at 16.0% on a mean basis.
Our progress over the past year was
reflected in our MSCI ESG rating, which
was upgraded from A to AA, and in
our CDP score, which improved from
a B- in 2021 to a B in 2022.
The challenges of ESG are
not easy to solve, which
is why I like the pragmatic
approach that Hiscox is
taking to address them.
That means operating
responsibly, but also
working with others to
drive meaningful progress.”
Jon Dye
Chief Executive Officer, Hiscox UK
and Sustainability Steering
Committee member
54
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
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.
Core themes
i s k
r
i v e
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m a n a g e m e n t
i g a t i o n
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environmental
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e a
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m unity
i n t h e c o m
Being an insure r o u r
customers can re l y o n
Hiscox Ltd Report and Accounts 2022
55
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Environmental
We carefully manage our environmental
impact and work with our customers,
suppliers and business partners to
respond to the changing climate.
This includes finding ways to limit our
own consumption of materials such
as energy and water and reducing
the amount of waste we generate. It
also means investing in areas such as
research, catastrophe modelling and
new technologies that improve our
underwriting capabilities and ensure we
are well placed to help our customers
when it comes to managing the risks
they face.
ESG exclusions policy
Our ESG exclusions policy officially came
into force at the start of 2022 and is an
important pillar of our environmental
ambitions. This policy sets out our
ambition 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 in the ANWR
region; oil sands; and controversial
weapons such as landmines.
Since then we’ve made solid progress
across underwriting, reinsurance
and investments:
s in big-ticket underwriting, we now
monitor all risks according to their
ESG profile and continue to decline
and non-renew risks in line with
our exclusions policy. Through
this same tracking, we are able to
monitor the positive risks we are
supporting such as wind and solar
energy, and electric vehicles;
s in reinsurance, we have exited
from all business where 30% or
more of subject premium derived
from restricted areas, and we
continue to monitor our portfolio
56
Hiscox Ltd Report and Accounts 2022
composition against our ESG
focus areas, capturing programs
declined for ESG reasons in regular
internal reporting;
s in investments, we have shared the
policy with our fund managers, to
ensure it is considered in relation
to pooled funds, and we have
eliminated our investment exposure
within all directly-held bonds that
fall outside of appetite. In addition,
we have now fully embedded ESG
into our investment processes:
net-zero wording is now in all
core bond investment manager
mandates; we have enhanced the
ESG credentials of our emerging
market bond portfolio; and
an investments-focused ESG
dashboard is now a regular feature
of Investment Committee reporting.
Our sustainable assets including
green/ESG bonds are now over
$300 million, with over 5% of
our bond portfolio in green or
ESG-labelled bonds.
GHG reduction targets
Central to our efforts to manage our
environmental impact is an ambitious
set of targets for the reduction of GHG
emissions. We announced our new
Group-wide GHG targets with our 2021
full-year results, and during 2022 we have
focused on embedding them. These
targets, which were developed using SBTi
methodologies and designed to align
with a 1.5°C net-zero world by 2050, are:
s reduce our Scope 1 and 2
emissions by 50% by 2030,
against a 2020 adjusted baseline*;
s reduce our operational Scope 3†
emissions by 25% per full-time
equivalent (FTE) by 2030, against a
2020-adjusted baseline*;
s transition our investment portfolios
to net-zero GHG emissions by
2050. The aim is that more than
25% of our corporate bond portfolio
by invested value will have net-zero
or Paris-aligned targets by 2025,
and more than 50% by 2030;
s engage with our suppliers, brokers
and reinsurers on our net-zero
targets and on their plans to adopt
Paris-aligned climate targets;
s monitor emerging standards
around underwritten emissions
and collaborate across our industry
on their development, aligning
with best practice in this area as
it emerges.
In 2022, we took some important first
steps in response to these targets:
s we completed a half-year footprint
in order to provide a mid-point
for assessing emissions and
further enhance our data
collection processes;
s we conducted a deep-dive on
renewable electricity usage across
the Group, and identified key sites
to focus on for continued adoption
of renewable electricity in support
of our Scope 1 and 2 target;
s we made good progress towards
the first of our interim targets
for transitioning our investment
portfolio, with approximately 20%
of our corporate bond portfolio
having net-zero/Paris-aligned
targets as at year-end.
We will build on this further with the
development of a low-carbon transition
plan for the Group, in line with UK
regulatory requirements.
* Baseline year adjusted in light of Covid-19-related
lockdown measures,to reflect a more normal year
in terms of business travel etc.
† Operational Scope 3 emissions predominantly
consist of purchased goods and services and
capital goods, and business travel (air, rail and
car travel).
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Water and waste
GHG emissions*
Water usage
Waste generated
2022
10
49
2021
20
34
Year-on-year
change
-50%
44%
Scope
Scope 1
Scope 2 (market-based)
Total Scope 1 and 2
Scope 3 (operational)
Scope 3 (operational) per FTE
Total operational footprint
Scope 3 (non-operational)
Investments
2022
(tCO2e)
786
927
1,713
19,298
5.83
21,011
9,862
127,497
2021
(tCO2e)
678
866
1,544
17,116
5.80
18,660
8,458
125,156
2020
(tCO2e)
615
1,111
1,726
27,461
8.91
29,187
7,046
135,275
2022 vs. 2020
baseline
28%
-17%
-0.8%
-30%
-35%
-28%
40%
-6%
Our Scope 1-3 emissions excluding investments are independently verified to a reasonable
assurance level, with investment emissions verified to a limited assurance level. A copy of
the verification statement can be found at hiscoxgroup.com/responsibility/environment.
Total GHG emissions inventory
We continue to focus on managing and
minimising our carbon footprint as a
Group. While we saw a 28% decrease in
our operational GHG emissions in 2022
against our 2020 baseline year, our total
operational footprint increased by 13%
in 2022 when compared to 2021.
While some of this increase relates to
emissions arising from one-off capital
goods spend – such as those generated
as a result of our London office move
– there are other areas where we have
seen an increase in emissions due
to continued improvements in data
accuracy as we continue to enhance
our data collection processes.
We also saw an increase in upstream
transport and distribution emissions, as
we have this year started to account for
transport emissions related to purchased
goods and services and capital goods as
part of our Scope 3 footprint.
Business travel emissions this year
also reflect the expected rebound
in travel-related emissions that we
reported last year, as work patterns
continue to normalise.
Environmentally-focused commitments
ClimateWise
Paris Agreement 2015
Principles for Responsible Investment
(PRI)
Principles for Sustainable Insurance (PSI)
Sustainable Markets Initiative
Task Force on Climate-related Financial
Disclosures (TCFD)
* GHG emissions are calculated according to
the Greenhouse Gas Protocol: A Corporate
Accounting and Reporting Standard (revised
edition). Hiscox uses market-based Scope 2
emissions for reporting in line with its new GHG
reduction target. Operational Scope 3 emissions
cover operational suppliers (office and other
related services), capital purchases, fuel and
energy related activities, waste generated in
operations, business travel, employee commuting
and remote working. Non-operational emissions
are those that do not directly contribute to the
emissions associated with daily business activity,
including non-operational purchased goods and
services and transportation and distribution.
An assessment across all categories of Scope 3
emissions has taken place and the material
categories are disclosed as part of our full GHG
inventory (above). Note some emissions totals
may not tally due to rounding.
The investment emissions are calculated using
the Enterprise Value Including Cash (EVIC-based)
method of attributing financed emissions to
investors, and calculations use MSCI’s carbon
data† as the ultimate source. Our 2020 operational
emissions baseline for business travel has been
restated to project pre-Covid travel patterns.
A copy of our Streamlined Energy and Carbon
Reporting (SECR) GHG emissions table can be
found on page 63.
† Although Hiscox’s information providers, including
without limitation, MSCI ESG Research LLC and its
affiliates (the ‘ESG Parties’), obtain information
(the ‘information’) from sources they consider
reliable, none of the ESG Parties warrants or
guarantees the originality, accuracy and/or
completeness, of any data herein and expressly
disclaim all express or implied warranties,
including those of merchantability and fitness
for a particular purpose. The information may
only be used for your internal use, may not be
reproduced or redisseminated in any form and
may not be used as a basis for, or a component of,
any financial instruments or products or indices.
Further, none of the information can in and of itself
be used to determine which securities to buy or
sell or when to buy or sell them. None of the ESG
parties shall have any liability for any errors or
omissions in connection with any data herein,
or any liability for any direct, indirect, special,
punitive, consequential or any other damages
(including lost profits) even if notified of the
possibility of such damages.
Hiscox Ltd Report and Accounts 2022
57
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Charitable giving and volunteering
Hiscox Foundation
Hiscox Gives
Social
In everything we do, we strive to be
a good employer, a trusted insurer
and a good corporate citizen. Our
social responsibilities help to inform
our customer and claims philosophies,
our strategy for charitable giving and our
employment practices.
Being a customer-centric business
Being an insurer our customers can rely
on is part of our reason for being, and
we continue to focus on providing
easy-to-understand products that suit
specific customer requirements. For
example, in Hiscox London Market
we enhanced our malicious attack
offering with resilience training during
the year; in Hiscox ILS we launched
a special opportunities portfolio in
response to market dynamics; and
in the UK we are adapting to the FCA’s
new customer-focused Consumer
Duty regulations.
Our approach is to consider not just the
transfer of risk through insurance, but
also how we can help our customers
mitigate the risks they face. In cyber,
we do this through the training and
education we offer as part of the Hiscox
Risk Academy, and in home insurance
we do it through our partnership with
LeakBot, an early leak detection system
that we’ve provided to over 8,000
Hiscox UK insured homes to date.
You can read more about our approach
to risk transfer and risk mitigation on
pages 18 to 19.
During the year we also reflected on the
impact on our customers of the rising
cost of living, leading to enhanced
vulnerable customer training in the UK
and the development of a cost of living
dashboard through which to regularly
monitor changing customer behaviours.
58
Hiscox Ltd Report and Accounts 2022
The work we do with customers is
recognised in our strong customer
satisfaction scores for the year (see
page 5).
Supporting our communities
Supporting the communities in which
we work has been part of our DNA for
decades, and our charitable foundation,
the Hiscox Foundation, dates back to
1987. We focus our charitable giving
around three strategic pillars:
s social mobility and entrepreneurship;
s protecting and preserving
the environment;
s causes our people are
passionate about.
During 2022, we donated over
$1.8 million to good causes and
our people spent over 1,400 hours
volunteering. This included targeted
donations that recognise specific events
such as the Russia/Ukraine conflict and
the floods in Pakistan. During the year,
in recognition of the rising cost of living
and the increasing costs that charities
are facing, we increased our donations
to our UK multi-year partners in line with
inflation for the 2022/23 financial year.
Being a great place to work
Building an engaged and inclusive
workforce was a strategic priority for us in
2022. We made great strides in reviewing
our employee proposition and introduced
new rewards for colleagues including our
share ownership scheme, HSX:26. We also
introduced ‘Hiscox days’ – an additional
two days for employees to do whatever
matters most to them. A new sabbatical
policy came into force, which provides
four weeks’ paid leave for every five years
of service. These changes were the result
of a renewed focus on listening to what
employees want, and most importantly
responding to it. The impact is reflected
in our 2022 employee engagement results
– our best in ten years (see page 3).
We also continue to progress our diversity,
equity and inclusion (DEI) efforts, as we
strive to build teams that are as diverse
as the customers we serve. We currently
have 18 employee network chapters,
including a new ‘global abilities’ network
focused on disabilities and neurodiversity,
which we introduced during 2022. More
information on our approach to DEI can
be found on page 95 to 97.
We have been an accredited Living Wage
employer in the UK since 2019, but in 2022
we recognised the additional challenges
of high inflation levels and an increased
cost of living on our people. As a result,
we made one-off cost of living lump sum
payments of £1,500/$1,500/€1,500 to the
lowest-earning portion of our workforce
– benefitting 38% of our people.
Governance
As a global insurer, good governance
practices are essential to our
day-to-day business of serving
customers and paying claims.
That means having appropriate internal
controls, policies and procedures, and
structures and oversight, but it also means
ensuring all employees are accountable
for their actions and empowered to raise
their hand if something goes wrong. As a
Bermuda-domiciled, UK-listed business,
we comply with the Bermuda Companies
Act, the UK listing rules and local country
laws in each of the locations where
we operate.
More information on our governance
practices – including as they relate to
ESG and climate-related issues – can
be found in the risk management, TCFD
and corporate governance sections of
this report.
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Environmental, social
and governance (ESG)
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Social commitments and partnerships
Black Insurance Industry Collective (BIIC) SEO London
Insuring Women’s Futures
UK Living Wage employer
Gender/sex diversity at 31 December 2022
Men
Women
Not specified/prefer not to say
Ethnic diversity at 31 December 2022
White British or other white (including minority-white groups)
Mixed/multiple ethnic groups
Asian/Asian British
Black/African/Caribbean/black British
Other ethnic group, including Arab
Not specified/prefer not to say
Number
of Board
members
Percentage
of the Board
7
4
–
64%
36%
–
Number
of senior
positions on
the Board
(CEO, CFO,
SID and Chair)
Number in
Executive
Management*
Percentage
of Executive
Management*
Percentage
of Executive
Management
and direct
reports†
Percentage
of all
employees
4
–
–
7
5
–
58%
42%
–
53%
47%
–
49%
50%
<1%
Number
of Board
members
Percentage
of the Board
Number
of senior
positions on
the Board
(CEO, CFO,
SID and Chair)
Number in
Executive
Management*
Percentage
of Executive
Management*
Percentage
of Executive
Management
and direct
reports†
Percentage
of all
employees
10
–
1
–
–
–
91%
–
9%
–
–
–
3
–
1
–
–
–
9
–
2
–
–
–
82%
–
18%
–
–
–
83%
1%
4%
6%
–
6%
74%
2%
9%
7%
3%
4%
* For the purposes of the UK Listing Rules, Executive Management includes the Group Executive Committee (the most senior executive body below the Board)
and the Company Secretary, excluding administrative and support staff.
† For the purposes of the UK Corporate Governance Code, senior management (which for consistency we refer to as Executive Management in the tables above)
includes the Group Executive Committee and the Company Secretary and their direct reports, excluding administrative and support staff.
Our approach to gender/sex and ethnicity data collection and reporting is consistently applied in the countries where we collect
this data, according to local law and custom. We use the Group’s online HR management system, Workday, to collect and
securely store this data.
In all countries, employees can choose to self-report their gender/sex or specify that they ‘prefer not to disclose’.
In the countries where we collect ethnicity data (currently UK, Bermuda, USA and Guernsey), employees can choose to
self-report their ethnicity, specify that they ‘prefer not to disclose’, or not provide an answer at all (leave blank).
The self-reported ethnicity options provided in each country are aligned to the options provided in that country’s government
census, and have been collated corresponding to the UK Listing Rules’ prescribed categories. Any ethnicities reflected in a country’s
census that do not align with one of the prescribed categories in the table were included in the ‘other ethnic group’ row data.
The data reported here includes the self-reported data provided by our employees in the countries where we collect the
data. For any data categories where an employee has not provided a response, these employees are counted in the
‘not specified/prefer not to say’ row. We do this so that, to the best of our abilities, all employees in the countries where we
collect the data are accounted for.
The data does not include employees in countries where we do not collect the data.
Note: some totals may not tally due to rounding.
Hiscox Ltd Report and Accounts 2022
59
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Task Force on Climate-related Financial Disclosures (TCFD)
Reporting against the Financial Stability
Board’s Task Force on Climate-related
Financial Disclosures (TCFD) is a
requirement of the Financial Conduct
Authority (FCA) for all premium-listed
firms on a ‘comply or explain’ basis.
We have been reporting against the
TCFD-aligned ClimateWise Principles
since 2019 and are public supporters
of TCFD. Our annual climate report sets
out our approach to climate-related
matters in every part of our business,
including from a governance, risk
management, operations, underwriting,
investment, and marketing perspective.
It is our richest source of climate-related
information and expands on the
information set out below, so for
more information go to:
hiscoxgroup.com/2022climatereport.
Governance
Structure and oversight
We have an established and embedded
governance structure for climate-related
matters, with robust and rigorous
processes for identifying, measuring,
monitoring, managing and reporting
climate-related matters (including
climate-related risks and opportunities)
across the Group. This spans from an
operational level up to the Sustainability
Steering Committee, the Risk Committee
of the Board, and the Board itself –
see page 64 for an overview of
structure, membership, roles and
responsibilities and frequency of
meetings, including management’s
role in assessing and managing
climate-related risks and opportunities.
While this structure also covers broader
ESG matters, climate-related matters
are an important component of this
and as such are regularly debated
and discussed. During 2022, this included:
60
Hiscox Ltd Report and Accounts 2022
s discussion and approval at the
Sustainability Steering Committee
of the 2022/23 ambitions outlined in
our 2022 climate report;
s annual review of the ESG exclusions
policy and the responsible
investment policy, coordinated by
the ESG working group (and, in the
case of the responsible investment
policy, the Group Investment team)
and approved by the Sustainability
Steering Committee;
s meetings with catastrophe
model vendors to discuss latest
modelling developments, led by
our catastrophe modelling team,
which contribute to the work of
the Natural Catastrophe Exposure
Management Group (see page 64);
s deep-dive session with the Board
on how we account for the effects
of climate change in our modelling.
In our UK legal entities, this structure
is bolstered by the appointment of
senior managers with overall regulatory
responsibility for managing the financial
risks from climate change, in line with
the UK’s Senior Managers Certificate
Regime (SMCR). The climate action plans
we have developed as part of SMCR are
considered not only through the relevant
management meetings and subsidiary
boards but also at the Sustainability
Steering Committee to ensure appropriate
inputs and oversight and drive progress.
Training and building expertise
We also consider the training and
development requirements of those
with oversight responsibilities and
accountability for climate matters to
ensure we have appropriate awareness
and expertise to drive progress. In 2022,
this included an externally facilitated
climate training session, available
to all Board Directors, to explore the
requirements and competencies of
a climate-informed board alongside
horizon scanning of future expectations
and regulatory requirements. This is now
an annual feature in the Board calendar
so we will continue to build expertise at
our most senior level in 2023.
Other opportunities to further build
in-house expertise are also considered
on a team-by-team, function-by-function
basis. For example, senior members
of our in-house investment team have
upskilled in ESG and climate matters by
gaining accreditation in the form of the
CFA Certificate in ESG Investing, and by
attending a course led by The University
of Oxford’s Sustainable Finance Group.
We will consider further ESG or
climate-specific training in 2023
as appropriate.
Policies and processes
The governance structure we have
embedded for climate issues is also
supported by a range of relevant policies
and processes that we expect both our
staff and our third-party providers to
adhere to. These include the following:
s the Hiscox Group ESG exclusions
policy, more information on which
can be found on page 56. Oversight
of this policy belongs to the
Sustainability Steering Committee,
with implementation of it driven
at a business unit and function
level across both underwriting and
investments. The policy is reviewed
annually and its 2022 review
resulted in no changes;
s the Hiscox Group responsible
investment policy, which outlines our
expectations of both our in-house
investment team and our external
asset managers. This includes:
our investment processes and
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Task Force on
Climate-related
Financial Disclosures
(TCFD)
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
46
64
Find out more about our modelling
of extreme natural catastrophe
loss scenarios.
Find out more about our governance
structure for climate-related matters.
stewardship activities as we look
to invest in companies that have
sound ESG practices; how we
evaluate our managers’ ESG
integration; and our approach to
impact investing. This policy is
owned by the Group investment
team with oversight from both the
Sustainability Steering Committee
and the Group Investment
Committee. The policy is reviewed
annually and its 2022 review resulted
in some small adjustments to
reflect progress, such as becoming
a Principles for Responsible
Investment (PRI) signatory;
s the Hiscox Group environmental
policy, which outlines our approach
to managing the environmental
impact of our business activities
and those that arise from our
ownership and occupation of
office premises. We actively
manage and aim to minimise our
environmental impacts, due to
the resources we consume and
the amount of waste our activities
produce, as well as complying with
relevant environmental legislation
and other external requirements.
While the policy is owned by our
Chief Operations and Technology
Officer and reviewed periodically,
its effective implementation relies
on Group-wide adherence to the
environmental principles we wish to
live by. During 2022, it was updated
to reflect the Group’s new net-zero
aligned GHG targets;
s the Hiscox Group supplier code
of conduct, which outlines how
our corporate values and
commitments to doing business
in a socially responsible way
extends to our relationships with
suppliers and any subcontractors
they may use. It covers areas
including our commitment to
fairness in the supplier selection
process; supplier diversity;
engagement; our expectations of
how our suppliers behave as well
as their obligations in adhering to
laws and regulations regarding
employment, health and safety,
human rights and labour practices,
the environment, diversity and
inclusion, and anti-bribery and
corruption. It is owned by our
Group procurement team,
shared with suppliers during
the procurement process and
published on hiscoxgroup.com.
The supplier code of conduct
superseded the ethical guide to
suppliers during 2022.
These governance policies and
processes are complemented by our
long-standing active risk management
practices, which include climate-related
stress testing and scenario analysis
(see pages 46 to 47), both through our
own established internal programme
of stress testing and scenario analysis
and also as participants in market-wide
activities such as the Bank of England’s
Climate Biennial Exploratory Scenario
(CBES) in 2021 and the PRA’s General
Insurance Stress test (GIST) in 2022.
Examples of the outputs of our internal
work include the property extreme loss
scenarios detailed on page 46, which
show the potential financial impact to
the Group of events including Japanese
earthquake, Japanese windstorm,
European windstorm, US earthquake
and US windstorm. Our risk management
practices also include the work of our
exposure management groups, which
is outlined on pages 63 to 65.
Our governance work culminates in
regular, repeatable climate-related
public reporting and disclosures.
This includes owned reports such as
our annual climate report, as well as
global standards that provide a means
of independent peer comparison
such as CDP, ClimateWise, Dow
Jones Sustainability Index, MSCI and
Sustainalytics. An overview of our
2022 performance resulting from these
disclosures can be found on page 65.
These scores are used to inform areas
of improvement for the year ahead,
alongside our own ESG plans, with the
resulting action plans agreed by the
Sustainability Steering Committee.
Strategy
Annual business planning
ESG and specifically climate issues
form part of the Board-approved Group
business plan for the year ahead. This
plan outlines the performance of key
business areas during the prior year,
and the strategic priorities for the
year ahead. Areas covered include
underwriting, investments, risk, IT,
finance and marketing, as well as
sustainability, and the plan is used by
senior management to guide the Group’s
annual business strategy and financial
planning where appropriate.
The 2022 Group business plan included
an overview of key climate-related areas
of focus for the year ahead such as:
s an annual review of the Group
ESG exclusions policy and the
responsible investment policy, both
of which were completed during
2022, with any recommended
changes to the policies approved
through the appropriate
governance channels;
s the development of a broader
suite of climate risk metrics and
transition pathway-aligned targets
for the investment portfolio, which
Hiscox Ltd Report and Accounts 2022
61
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Task Force on
Climate-related
Financial Disclosures
(TCFD)
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
57
More information on our approach
to ESG and, in particular,
climate can be found at
hiscoxgroup.com/responsibility.
Find out more about our full GHG
inventory, including emissions arising
from our investment portfolio.
GHG emissions are calculated according to the
Greenhouse Gas Protocol: A Corporate Accounting
and Reporting Standard (revised edition) and
UK government SECR guidelines. Note some
emissions totals may not tally due to rounding.
This table shows Group GHG emissions in line with
SECR requirements, which differ from our full GHG
inventory on page 57. In our full GHG inventory
you will find information on emissions arising from
investments, business travel and other elements
not required under SECR.
has been considered during 2022
as part of the creation of an ESG
dashboard for investments, and
shared with all relevant working
groups and committees, up to
and including the Investment
Committee of the Board;
s enhancements to existing
processes for measuring
and monitoring the Group’s
carbon emissions, which were
addressed during 2022 through
the introduction of a half-year
footprinting process to provide
mid-year oversight of the data and
which further improved data quality.
These outputs are included as part of
the 2022 performance review within
the 2023 Group business plan, with
new strategic deliverables (including
climate-related deliverables) set for the
year ahead.
Climate-related risks and opportunities
We consider climate change to be a
cross-cutting risk with the potential to
impact each existing risk type. It could
have a material impact on the Group,
by altering the frequency and severity
of extreme weather events that we are
exposed to through our underwriting,
but it could also present an opportunity,
driving greater demand for cover against
changing weather trends and creating
a need for innovative new products that
meet emerging needs.
In addition to the physical impacts of
a changing climate, the Group is also
aware that the transition to a low-carbon
economy, necessary to limit the worst
physical impacts of global warming,
also presents significant business
challenges, as well as opportunities.
One example of this is climate litigation
risk, where one party may seek to
62
Hiscox Ltd Report and Accounts 2022
Near-term climate risks and opportunities
(0-5 years)
Medium- to long-term climate risks and
opportunities (5+ years, up to 2050)
More frequent and more intense natural
catastrophes arising from climate change,
such as floods and storms, could result
in changes to current claims patterns.
These claims will not only come from
damage to property but also from other
knock-on effects, such as global supply
chain disruption or scarce resources.
However, given the majority of the policies
we write are annual (re)insurance policies,
we regularly consider our exposures to
climate-related risks which gives us the
opportunity to adjust pricing and appetite
accordingly. An overview of our modelling
of extreme natural catastrophe loss
scenarios can be found on page 46.
There are also the financial risks which
could arise from the transition to a
lower-carbon economy, such as a slump
in the price of carbon-intensive financial
assets. Our ESG exclusions policy,
which will see us reduce our exposures
to the worst carbon emitters in both
underwriting and investments, prepares
us for this as do our new GHG emission
reduction targets. For more information,
see page 56.
We have significant expertise in areas
such as flood, where we have a suite
of products and considerable risk
experience; renewable energy where
we are supporting a number of major
wind and solar energy projects; and in
the decommissioning of offshore carbon
assets which is an area we insure. These
are lines of business where we could see
increased opportunity over time, and in
some cases are already benefitting from
changing customer trends, for example
in US flood, where demand is growing
and our product offering, use of data and
technology means we are well placed to
serve more customers with flood cover.
Climate-related risks have the
longer-term potential to impact
regulatory risk, credit risk, legal risk,
reputational risk, and technology risk.
We have several emerging risks forums
across the organisation which are
designed to identify emerging,
longer-term risks and opportunities,
including climate-related risks and
opportunities. Alongside our in-house
modelling and research expertise,
these groups ensure our work takes
into account climate-related issues
over a range of business planning
time frames.
There is also the longer-term litigation
risk: that those who have suffered loss
from climate change might then seek to
recover those losses from others who
they believe may have been responsible.
Where such claims are successful, those
parties against whom the claims are
made may seek to pass on some, or all,
of the cost to insurance firms through
policies such as professional indemnity
or directors and officers’ insurance.
While in the long term as a property
casualty insurer, Hiscox is certainly
exposed to climate-related risks, we
believe our exposures can be managed
through time as a result of how we
conduct our business. For example,
through the flexibility we have in our
predominantly annual underwriting
contracts, and through the liquidity
of our investment portfolio which lends
itself to constant adjustment. This
flexibility is our key tool for managing
the multi-decade challenge of climate
risks holistically.
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Task Force on
Climate-related
Financial Disclosures
(TCFD)
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Streamlined Energy and Carbon Reporting (SECR) GHG emissions
Activity
Scope 1 total
Natural gas
Company cars
Refrigerants
Scope 2 (market-based) total
Electricity (location-based)
Electricity (market-based)
District heating
Operational Scope 3 total
Total operational footprint (market-based)
Total Scope 1 and 2 – UK proportion (market-based)
2022
energy
(kWh)
2,439,188
1,048,235
5,311,279
5,311,279
307,720
2021
energy
(kWh)
2,342,644
377,056
5,603,303
5,603,303
108,999
2022
emissions
(tCO2e)
786
445
250
91
927
1,313
874
53
19,298
21,011
29%
2021
emissions
(tCO2e)
678
441
87
150
866
1,484
847
19
17,116
18,660
36%
Year-on-year
change in emissions
(tCO2e)
16%
1%
189%
-39%
7%
-12%
3%
182%
13%
13%
-20%
recover climate-change-related losses
from another who they believe may
have been responsible.
The governance and risk management
structures we have in place are critical
to the delivery of the annual Group
operating plan (outlined above) and
ensure a coordinated approach to
climate and other issues across the
Group. These structures are supported
by investments in technology – to ensure
the right modelling and data are available
to support our pricing and exposure –
and by in-house expertise – where we
combine off-the-shelf climate views with
our own claims expertise and insight
to form a unique view (what we call the
‘Hiscox view of risk’).
Therefore, we consider the potential
impact from climate-related issues over
short-, medium- and long-term time
horizons which are defined opposite
and which broadly align with business
planning timeframes.
In 2022, Hiscox Syndicate 33, Syndicate
3624 and Hiscox Insurance Company
(HIC) participated in the Bank of
England’s General Insurance Stress
Test Exercise (GIST). The objectives
of the GIST 2022 exercise were to
assess resilience to severe but plausible
natural catastrophe, as well as cyber
scenarios, to gather information about
firms’ modelling and risk management
capabilities and to enhance the PRA’s
and firms’ abilities to respond to future
shocks. While the exercise did not aim to
assess the financial impact specifically
from climate change, the climate-related
(atmospheric) scenarios it explored – US
hurricanes, European/UK windstorms
and UK flood – represented severe
but plausible realisations of current
climate conditions chosen to reflect
firms’ exposures and business models.
Industry-wide stress tests such as
the GIST support our established and
embedded programme of internal stress
testing and scenario analysis, and
contribute to their continued evolution.
In order to meet future disclosure
requirements in this area, we continue
to review a range of scenario impacts
through internal workshops, from which
potential management actions can
be identified and our strategy and risk
management approach can be further
refined. This includes planned activity
for 2023 to review our underwriting
portfolios against a range of global
warming scenarios, including a below
two degrees scenario, using both our
own and credible third-party data around
future target states for climate. We will
provide a further update on our progress
in this area in our 2023 Annual Report.
Risk management
Approach
While there are certain nuances to
climate risk, we consider it to be a
cross-cutting risk with potential to
impact each existing risk type, rather
than a stand-alone risk. Climate-related
risks, among other major exposures, are
monitored and measured both within
our business units and at Group level,
so we understand how much overall
risk we take and what is being done
to manage it. We look at how different
risks interact and whether these may
result in correlations or concentrations
of exposure that we need to know about,
monitor and manage.
By design, our Group risk management
framework provides a controlled and
consistent system for the identification,
measurement, mitigation, monitoring
and reporting of risks (both current
and emerging) and so is structured in
a way that allows us to continually and
consistently manage the various impacts
of climate risk on the risk profile. For
example, relevant climate considerations
are included in our risk and control
register and our risk and control
self-assessment process, as well as
in our risk policies. This means that
climate-related risk drivers are assessed
and recorded against the risks on our
risk and control register, and ensures
that we do not consider any single
climate risk factor in isolation.
Structure and oversight
Our Risk Committee has the main
responsibility for assessing the
climate-related risks and opportunities
we face. It advises the Board on how
best to manage the Group’s risks,
by reviewing the effectiveness of risk
management activities and monitoring
the Group’s actual risk exposure. The
Risk Committee relies on frequent
updates from within the business,
including those arising from the
management committees and working
groups that report up through the Risk
Committee, some of which are outlined
below, and from independent risk experts
for its understanding of the risks facing
both our business and the wider industry.
Group Underwriting Review (GUR)
The GUR is a Group management
committee focused on assessing progress
against the Group’s strategic underwriting
priorities, reviewing and challenging
the Group’s underwriting portfolio and
loss ratio performance, and approving
key underwriting risks. It also serves
as an escalation point for underwriting
governance and control issues.
The committee meets at least five
times a year, is chaired by the Group
Hiscox Ltd Report and Accounts 2022
63
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Task Force on
Climate-related
Financial Disclosures
(TCFD)
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
ESG governance structure
How we manage and monitor ESG issues to ensure appropriate accountability and
oversight. This structure is supported by other established roles and teams that
contribute to our ESG story. These include our employee-led networks including our
green teams, our governance committees, and our Natural Catastrophe Exposure
Management Group. These areas are represented in elements of this structure.
Board
s Oversight of long-term ESG vision, strategy, priorities and performance
against agreed metrics and targets.
s Ensures governance and accountability in place with sufficient support.
s Typically twice-yearly discussion on ESG strategy, trends, opportunities,
vulnerabilities, and emerging issues.
Risk Committee
s Advises Board on ESG strategy, key priorities, risk profile, risk exposures
and opportunities.
s Recommends proposals for consideration by the Board as required.
Group Risk and Capital Committee
(GRCC)
s Quarterly reporting on ESG
matters from Sustainability
Steering Committee.
s Sets high-level Group strategy,
priorities and ensures delivery
across the Group.
Group Executive Committee (GEC)
s Periodic ESG sessions.
s Sets business unit or function
ESG-related strategy, priorities
and drives delivery through
business units and functions.
Sustainability Steering Committee (SSC)
s Sub-committee of the GRCC, responsible for execution of the agreed ESG
strategy, driving actions and delivery at a Group level.
s Typically meets quarterly and embeds sustainability risks and opportunities.
s Oversees effective use of resources and tracks Group and entity-level
sustainability performance.
s Ensures senior management-level involvement and accountability for
sustainability issues, with senior representation from areas including
underwriting, investments and operations.
ESG working group
s Operational body, providing central point of coordination and expertise for
ESG-related activity across the Group.
s Manages ESG-related Group reporting, disclosures and communications.
s Meets monthly and provides input and recommendations to management
on ESG matters.
s Focuses on ESG-related research, including external monitoring
and expectations.
64
Hiscox Ltd Report and Accounts 2022
Chief Executive Officer, and attended
by other senior leaders including the
Group Chief Financial Officer, Group
Chief Underwriting Officer, Group
Chief Risk Officer – with experts invited
from actuarial, claims, underwriting risk
and reinsurance.
A number of working groups feed into
the GUR, including some with particular
climate relevance such as the Natural
Catastrophe Exposure Management
Group (see below) and the Casualty
Exposure Management Group, which
considers among other things risks
associated with climate litigation.
In focus: the Natural Catastrophe
Exposure Management Group
We review natural catastrophe risk at
least quarterly, through our Natural
Catastrophe Exposure Management
Group. This group is chaired by the
Group Chief Underwriting Officer
and attended by other Hiscox senior
managers with responsibility for
catastrophe-exposed business.
This group looks at the risk landscape,
exposure monitoring and capital
modelling for climate-related perils,
and recommends, based on the latest
observations and scientific knowledge,
which models should be used for
each peril, and, if necessary, how they
should be adapted to reflect our best
view of the risk. They also identify new
areas of risk research.
All changes to modelling policy and
all of our research prioritisations and
results are signed off and authorised
by this group, decisions are recorded,
and models are adapted to reflect
policy. Their work not only enables us
to continuously refine our models (using
data to make better decisions): it also
supports future product development.
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Task Force on
Climate-related
Financial Disclosures
(TCFD)
ESG disclosure
We recognise the importance of credible,
repeatable and comparable ESG
disclosure which is why we contribute to
a number of independent ESG standards.
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
2022: B grade
2021: B- grade
2022: AA grade
2021: A grade
2022: 83%
2021: 72%
2022: 28.7
2021: 27.1
2022: 45/100
2021: 40/100
For example, we have calibrated and
delivered a loss model that will improve
the pricing capabilities for one of our
flood insurance products, FloodPlus.
We also included the use of additional
model sources for location-level
pricing. In addition, we are working with
data providers to augment FloodPlus
with first-floor elevation data, and are
exploring the use of machine learning
to augment the information we receive
from vendor flood hazard maps.
Group Risk and Capital
Committee (GRCC)
The GRCC is a Group management
committee focused on risk and capital
management. It covers all types and
categories of risk, including but not
limited to underwriting, reserving,
market, credit, operational and strategic
risk (see pages 8 to 11 for a summary of
our key risks), as well as risk aggregation,
concentration and dependencies.
The committee meets four times a
year, is chaired by the Group Chief
Executive Officer, and attended by
other senior leaders including the
Group Chief Financial Officer, Group
Chief Underwriting Officer, Group
Chief Risk Officer, and the Group
Head of Capital Management – with
other experts invited from across the
business as required.
A number of committees feed into
the GRCC, including some with
particular climate relevance such as
the Sustainability Steering Committee
and the Grey Swan Group (see below).
In focus: the Grey Swan Group
The focus of the Grey Swan Group is to
consider various enterprise emerging
risks identified from across the business
and to provide a forum for discussion
to ensure Hiscox has the relevant grey
swans identified and the right actions in
place to deal with them.
A number of elements feed into this
process including enterprise emerging risk
scanning; regulatory horizon scanning;
casualty exposure management;
strategic and business planning; claims
and actuarial reserving; and any other
relevant business unit or function inputs.
Rapidly evolving expectations on
company’s responses to ESG and
climate change is considered as part of
this group, in addition to other matters
unrelated to ESG or climate change.
The risk management processes we
have established and embedded for
climate-related matters feed into the
annual review of the operating plan, the
long-term strategy planning process,
as well as forward-looking assessment
scenarios and stress tests and reverse
stress test scenarios.
Metrics and targets
The cornerstone of our climate-related
metrics and targets is our Board-approved
GHG emission reduction targets, which
were created using SBTi methodologies
that align with a 1.5°C net-zero world
by 2050. This is in keeping with our
commitments as a signatory to the
2015 Paris Climate Agreement.
GHG targets
Our GHG targets commit us to:
s reduce our Scope 1 and Scope 2
emissions by 50% by 2030,
against a 2020 adjusted baseline*;
s reduce our Operational Scope 3†
emissions by 25% per FTE by 2030,
against a 2020 adjusted baseline*;
s transition our investment portfolios
to net-zero GHG emissions by 2050;
s engage with our suppliers, brokers
and reinsurers on our net-zero
targets and on their plans to adopt
Paris-aligned climate targets;
s monitor emerging standards
around underwritten emissions
and collaborate across our industry
on their development, aligning
with best practice in this area as
it emerges.
* Baseline year adjusted in light of Covid-19-related
lockdown measures,to reflect a more normal year
in terms of business travel etc.
† Operational Scope 3 emissions predominantly
consist of purchased goods and services and
capital goods, and business travel (air, rail and car
travel). More information on the Group’s operational
Scope 3 emissions can be found on page 57.
Interim GHG targets and progress
We recognise that achieving these targets
will take collective, consistent effort and
have started work towards achieving
them, as outlined below. This will continue
in 2023, when we will also publish our
low-carbon transition plan for the Group.
s In addressing our Scope 1 and
Scope 2 targets, we have this year
introduced a new half-year carbon
footprint process in order to further
enhance data transparency and
provide a new midpoint for internal
tracking and review. We have also
reviewed all electricity contracts
across the Group to further improve
our evidence base and oversight as
we migrate to renewable electricity
contracts wherever possible.
Where we have total control over
our utility providers, this is easier to
do, but where that control is shared,
or where it belongs to our landlords,
we will petition for change.
s On Scope 3, where emissions are
dominated by our investments,
as previously announced we have
set a number of interim targets:
that we will aim for more than
Hiscox Ltd Report and Accounts 2022
65
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Task Force on
Climate-related
Financial Disclosures
(TCFD)
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
25% of our corporate bond
portfolio by invested value to have
net-zero/Paris-aligned targets by
2025, followed by an additional 25%
by AUM coverage every five years
as we aim to be on a linear path
to 100% portfolio coverage by
2040. We are currently making
good progress towards the
first of our interim targets, with
approximately 20% of our
corporate bond portfolio having
net-zero/Paris-aligned targets
as at year-end, and will continue
to engage with our managers on
further net-zero plans and action.
These activities are owned by the
relevant business areas, from
underwriting to investments, with
progress reported through the
embedded ESG governance
structures. These metrics and targets
are complemented by external key
performance indicators, such as
our public ESG disclosure scores
(see page 65) and our annual climate
report, which assess our progress
against climate-related activities
during the prior year and outlines
our plans for climate-related action
in the year ahead.
Progress against these targets will be
driven by our ESG working group and
overseen by our Sustainability Steering
Committee. Progress will also be
recorded through our annual carbon
reporting cycle, and we will seek to remain
operationally carbon neutral through
offsetting, as we have been since 2014.
More information on our 2022 carbon
emissions can be found on page 57.
Metrics and targets beyond GHG
s The monitoring and measurement
of underwriting and investment
exposure to carbon-heavy sectors
including coal-fired power plants
and coal mines, oil sands and Arctic
energy exploration (beginning
with the Arctic National Wildlife
Refuge), in line with our Group
ESG exclusions policy.
s Annual investment portfolio
sustainability reviews, taking
into account climate-related
issues, in line with our responsible
investment policy.
s The growth and exposure of
sustainable underwriting products
such as flood and renewable
energy products.
66
Hiscox Ltd Report and Accounts 2022
TCFD disclosure mapping
compliance statement
Disclosures have been made against the TCFD recommendations, taking into account the TCFD supporting guidance, and in
consideration of the FCA listing rules. Where additional information outside of this report aids our TCFD disclosure, links to this
information have been provided, and where we have not yet disclosed fully against the recommended TCFD disclosure, we have
outlined why this is and the actions already being taken towards meeting the disclosure requirements within the timeframe given.
Theme
Recommended disclosure
Status
Reference
Governance
Disclose the organisation’s
governance around climate-related
risks and opportunities.
Strategy
Disclose the actual and potential impacts
of climate-related risks and opportunities
on the organisation’s businesses,
strategy, and financial planning
where such information is material.
Risk management
Disclose how the organisation
identifies, assesses, and manages
climate-related risks.
Metrics and targets
Disclose the metrics and targets
used to assess and manage relevant
climate-related risks and opportunities
where such information is material.
Describe the impact of climate-related risks and
Focus on developing
CDP climate questionnaire 2022.
Describe the organisation’s governance around
Disclosed.
climate-related risks and opportunities.
Describe management’s role in assessing and
Disclosed.
managing climate-related risks and opportunities.
Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium, and long term.
Disclosed.
opportunities on the organisation’s businesses,
low-carbon transition plan
strategy, and financial planning.
to enhance disclosure.
Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C
Focus on identifying risks
and opportunities to
progress towards disclosure.
or lower scenario.
Describe the organisation’s processes for
Disclosed.
identifying and assessing climate-related risks.
Describe the organisation’s processes for
Disclosed.
managing climate-related risks.
2022 climate report* pages 9 to 12.
CDP climate questionnaire 2022.
2022 climate report* pages 15 to 16.
CDP climate questionnaire 2022.
2022 climate report* pages 24 and 28.
CDP climate questionnaire 2022.
2022 climate report* page 13.
More information on steps being
taken towards meeting this disclosure
requirement can be found on page 63.
2022 climate report* pages 15 to 16
and 27 to 32.
CDP climate questionnaire 2022.
2022 climate report* pages 15 to 16
and 27 to 32.
CDP climate questionnaire 2022.
Describe how processes for identifying, assessing,
Disclosed.
2022 climate report* pages 10 to 13
and managing climate-related risks are integrated
into the organisation’s overall risk management.
and 15 to 16.
CDP climate questionnaire 2022.
Disclose the metrics used by the organisation
Additional indicators to monitor
2022 climate report* pages 21 and 37.
to assess climate-related risks and
opportunities in line with its strategy
and risk management process.
and manage risk exposure,
CDP climate questionnaire 2022.
including TCFD’s cross-industry
See Hiscox Group website.
climate-related metrics, to be
considered over time.
Disclose Scope 1, Scope 2 and, if appropriate,
Disclosed.
Scope 3 GHG emissions and the related risks.
Describe the targets used by the organisation to
Disclosed.
manage climate-related risks and opportunities
and performance against targets.
2022 climate report* pages 36 to 37.
CDP climate questionnaire 2022.
See Hiscox Group website.
2022 climate report* pages 36 to 38.
CDP climate questionnaire 2022.
Chapter 1
Performance
and purpose
2
20
Chapter 2
A closer look
Task Force on
Climate-related
Financial Disclosures
(TCFD)
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Read more in our 2022 CDP disclosure
hiscoxgroup.com/cdpdisclosure2022.
Read more about our approach to
climate change in our 2022 climate
report*, available online at
hiscoxgroup.com/2022climatereport.
* Our 2022 climate report was published in
August 2022 and covers our climate-related
activities between July 2021 and July 2022.
Where we reference information from that report,
that information remains correct at 8 March 2023.
Disclosures have been made against the TCFD recommendations, taking into account the TCFD supporting guidance, and in
consideration of the FCA listing rules. Where additional information outside of this report aids our TCFD disclosure, links to this
information have been provided, and where we have not yet disclosed fully against the recommended TCFD disclosure, we have
outlined why this is and the actions already being taken towards meeting the disclosure requirements within the timeframe given.
Recommended disclosure
Describe the organisation’s governance around
climate-related risks and opportunities.
Status
Disclosed.
Describe management’s role in assessing and
managing climate-related risks and opportunities.
Disclosed.
Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium, and long term.
Disclosed.
Describe the impact of climate-related risks and
opportunities on the organisation’s businesses,
strategy, and financial planning.
Focus on developing
low-carbon transition plan
to enhance disclosure.
Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C
or lower scenario.
Focus on identifying risks
and opportunities to
progress towards disclosure.
Describe the organisation’s processes for
identifying and assessing climate-related risks.
Disclosed.
Describe the organisation’s processes for
managing climate-related risks.
Disclosed.
Describe how processes for identifying, assessing,
and managing climate-related risks are integrated
into the organisation’s overall risk management.
Disclosed.
Metrics and targets
Disclose the metrics and targets
used to assess and manage relevant
climate-related risks and opportunities
where such information is material.
Disclose the metrics used by the organisation
to assess climate-related risks and
opportunities in line with its strategy
and risk management process.
Additional indicators to monitor
and manage risk exposure,
including TCFD’s cross-industry
climate-related metrics, to be
considered over time.
Disclose Scope 1, Scope 2 and, if appropriate,
Scope 3 GHG emissions and the related risks.
Disclosed.
Describe the targets used by the organisation to
manage climate-related risks and opportunities
and performance against targets.
Disclosed.
Reference
2022 climate report* pages 9 to 12.
CDP climate questionnaire 2022.
2022 climate report* pages 15 to 16.
CDP climate questionnaire 2022.
2022 climate report* pages 24 and 28.
CDP climate questionnaire 2022.
CDP climate questionnaire 2022.
2022 climate report* page 13.
More information on steps being
taken towards meeting this disclosure
requirement can be found on page 63.
2022 climate report* pages 15 to 16
and 27 to 32.
CDP climate questionnaire 2022.
2022 climate report* pages 15 to 16
and 27 to 32.
CDP climate questionnaire 2022.
2022 climate report* pages 10 to 13
and 15 to 16.
CDP climate questionnaire 2022.
2022 climate report* pages 21 and 37.
CDP climate questionnaire 2022.
See Hiscox Group website.
2022 climate report* pages 36 to 37.
CDP climate questionnaire 2022.
See Hiscox Group website.
2022 climate report* pages 36 to 38.
CDP climate questionnaire 2022.
Hiscox Ltd Report and Accounts 2022
67
TCFD disclosure mapping
compliance statement
Theme
Governance
Disclose the organisation’s
governance around climate-related
risks and opportunities.
Strategy
Disclose the actual and potential impacts
of climate-related risks and opportunities
on the organisation’s businesses,
strategy, and financial planning
where such information is material.
Risk management
Disclose how the organisation
identifies, assesses, and manages
climate-related risks.
Q&
A:
with Regine Fiddler
Chief Marketing Officer, Hiscox USA
Brand ambassador
Building an insurance brand is about
so much more than advertising and
digital marketing. It’s about showing
customers, partners and brokers that
you genuinely care. >
68
Hiscox Ltd Report and Accounts 2022
Hiscox Ltd Report and Accounts 2022
69
Regine Fiddler joined Hiscox in
November 2020, with a long track
record of building and growing
brands in the banking and fintech
sectors. Based in New York, she is
tasked with driving the next phase
of Hiscox USA’s brand-building
to support its laser focus on small
business insurance.
Q&
A:
with Regine Fiddler
Chief Marketing Officer, Hiscox USA
Q: What was it that initially drew
you to joining Hiscox?
A: For me, the key drivers were what
Hiscox stands for as an employer and
how I saw that exhibited through our
advertising to customers, brokers and
agents. What I thought was compelling
was that we capture the small business
audience in a way that other brands
typically don’t. It’s very authentic, it’s
very real. For a marketer, insurance may
not seem like the sexiest sector, but I
love industries where marketing isn’t just
about selling a pretty product. It’s about
a product that can make a real difference
in people’s lives. Also, insurance isn’t
something that’s easy to market, so it
challenges you a little more!
Q: What do you think are the key
elements to building a successful
insurance brand?
A: When I think about building a brand,
it’s not really about advertising. It’s not
about having a pretty logo. Instead,
it’s about every touchpoint that drives
an emotional benefit. Whether you’re a
customer, a partner or a broker, when
you pick up the phone and call us, or
70
Hiscox Ltd Report and Accounts 2022
when you go through our e-commerce
experience, do you get the emotional
benefit of knowing who we are and what
our value proposition is? Do you feel,
“Hey, these people really are experts,
and they’re so efficient and reliable”?
Do we make you feel like you’ve got a
partner who’s really got you covered?
Advertising and digital marketing are
important, but it’s the soft skills that
we exhibit in our interactions that
matter most. Especially in a commodity
business, customers don’t rave if you
only deliver what they expect. We need to
go beyond that. We need to show that we
genuinely care. Every interaction, every
communication, has to exhibit that.
Q: Hiscox USA has been going
through a strategic shift on the
broker side. Tell us about that.
A: For our broker channel, our strategy
is to home in on where we have the
right products, as well as the right
underwriting expertise to provide the
very best solutions. So we made
the decision that the sweet spot for
us is serving small businesses with
annual revenues of under $25 million,
though we’re also continuing to serve
businesses with up to $100 million in
revenue. Writing anything over that
wasn’t core to our expertise. As a result,
we’ve slimmed down our appetite
for products that were being sold to
companies over $100 million. Unlike a
lot of carriers, we remain truly focused
on small business. There is plenty of
opportunity in that space – we have over
30 million small businesses in the USA!
So many successful companies start out
with entrepreneurs that have one or two
employees. Give them what they need,
and they’ll stay with you as they grow.
That’s how we’ll win in this category.
Q: When you’re dealing with smaller,
more entrepreneurial businesses, what
are the buttons you’re trying to push?
A: One of the main problems for small
businesses in choosing insurance is they
think it’s complex and time-consuming,
and they don’t really understand it.
Their pain point is, “This is complicated,
I don’t even know why I need it”. What we
should be thinking is, how do we provide
the information they need in a way that’s
digestible? Through content marketing,
we want them to understand why it’s
important to have insurance, what it
covers, and what is most applicable to
them. It’s about educating the customer
and providing them with efficient
information to make the best decision
for their business. It’s about focusing on
their needs. How do we, as our slogan
says, ‘encourage courage’? How do
we help them pursue their dreams?
Q: What other forms of marketing
work well for you?
A: Obviously we have brand marketing
and we have acquisition marketing, but
within that I would say about 20-25%
of our marketing balance is focused
on grassroots marketing. We’ve been
For a marketer, insurance may not
seem like the sexiest sector, but I love
industries where marketing isn’t just
about selling a pretty product. It’s
about a product that can make a real
difference in people’s lives.”
When I think about building a brand,
it’s not really about advertising.
It’s not about having a pretty logo.
Instead, it’s about every touchpoint
that drives an emotional benefit.”
going to small business trade shows,
we’ve been building connections with
diverse small business segments like the
US Hispanic Chamber of Commerce.
That allows us to interact with business
owners, which is really important to
understanding what makes them tick.
This isn’t static, of course, and what
we’re seeing now is that they care
about much more than just the price of
insurance – they care about who’s really
standing up for them when they need
them the most. That means a lot to us
because we pride ourselves on being
customer focused and having that
strong customer relationship.
Q: How does marketing work across
Hiscox as a global organisation?
How connected are you with your
peers in other regions?
A: That’s a very timely question,
because we’re currently undergoing a
global brand refresh project with the
Group. We’ve always been committed to
our brand being represented consistently
across the countries in which we operate,
so this is about us coming together as
a global marketing organisation and
defining who we are right now and who
we want to be as the business grows.
We’re now testing a couple of concepts
with customers across different countries
so it’s a pretty exciting time.
Q: So, where do you see the biggest
opportunities for Hiscox USA?
A: I think it’s in our continued investment
in digital. And not just in partnerships,
but direct-to-consumer and in the retail
trade, because brokers are going to want
more tools and more technology to drive
efficiency across their channel. We’ve
seen some of that, but it’s not over yet.
I love where we stand in our digital
evolution. We know that we need to
be great on the digital side, but we
also know that our business is based
on relationships. A broker wants to be
sure that there’s an underwriter or a
relationship manager on the other end of
the phone when they need them. Right
now, most carriers are really good at the
relationship side, but they’re not really
developed on the digital side. Or you
have insurtechs who are really great at
digital, but miss the mark when it comes
to building those relationships in the retail
traded channel. We want to make sure
that whoever you are, we’ve provided
a path to meet your needs and that’s
something that makes Hiscox unique
in the US market.
Q: Outside of work, what gives
you energy?
A: My family, for sure. It’s a simple thing.
I have a 14-year-old son, and watching
him grow up, watching him embrace life
and be much braver than I ever was at
14 – that is my greatest source of energy
and happiness.
Hiscox Ltd Report and Accounts 2022
71
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Board of Directors
Non Executive Chairman
Robert Childs (Aged 71)
Appointed Chairman: February 2013
Appointed to the Board: September 2006
Executive Director
Aki Hussain (Aged 50)
Group Chief Executive Officer
Appointed to the Board: September 2016
Executive Director
Paul Cooper (Aged 50)
Group Chief Financial Officer
Appointed to the Board: May 2022
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.
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 experience of driving
business change.
Relevant skills, experience and contribution
s Considerable experience of financial
and commercial management
within a complex regulatory and
compliance environment.
s Qualified Chartered Accountant, with
significant experience of both the retail
and Lloyd’s insurance markets.
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.
Aki joined Hiscox in 2016 as Group Chief Financial
Officer and became Group Chief Executive
Officer in 2022. Aki also sits on the Board of a
number of Hiscox subsidiary companies. Prior to
Hiscox, Aki held a number of senior roles across
a range of sectors, including Chief Financial
Officer of Prudential’s UK and Europe business,
and Finance Director for Lloyds Banking Group’s
consumer bank division. Aki is a Chartered
Accountant, having trained with KPMG.
Paul joined Hiscox in 2022 as Group Chief
Financial Officer. With over 25 years of financial
services experience, Paul has held a number of
senior roles, including most recently Interim
Group Chief Financial Officer at M&G Plc
and Chief Financial Officer for The Prudential
Assurance Company. Paul is a qualified
Chartered Accountant, having trained with
PwC, and sits on the board of a number of
Hiscox subsidiary companies.
External board appointments
None.
External board appointments
Visa Europe Limited.
External board appointments
Association of British Insurers.
Executive Director
Joanne Musselle (Aged 52)
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 20 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.
72
Hiscox Ltd Report and Accounts 2022
Senior Independent Director
Colin Keogh (Aged 69)
Appointed to the Board: November 2015
Independent Non Executive Director
Donna DeMaio (Aged 64)
Appointed to the Board: November 2021
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 Chair of the
Hiscox Insurance Company Limited Board and
also of the Remuneration Committee.
External board appointments
Ninety One Plc; Ninety One Ltd.
Relevant skills, experience and contribution
s Extensive financial services experience,
particularly in the USA.
s Proven expertise in overseeing global
auditing activities.
Donna has over 35 years’ financial services
experience, gained across banking and
insurance. She was AIG’s General Insurance
Global Chief Operating Officer and also served
as their Global Chief Auditor. Donna was Chief
Executive and Chair of the Board at United
Guaranty, CEO and Chair of the Board at MetLife
Bank and was a PwC Financial Services Partner.
Donna serves on the board of Hiscox Insurance
Company Inc. as a Non Executive Director and is
Chair of the Audit Committee.
External board appointments
Azure; State Street Corporation.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
Board of Directors
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
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 64)
Appointed to the Board: November 2017
Independent Non Executive Director
Thomas Huerlimann (Aged 59)
Appointed to the Board: November 2017
Independent Non Executive Director
Anne MacDonald (Aged 67)
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
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 serves on the Hiscox SA Board
as a Non Executive Director.
External board appointments
Leadway Assurance Ltd, Nigeria.
Relevant skills, experience and contribution
s Extensive marketing expertise,
particularly in the USA.
s Sizeable 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, Travelers, Macys and
Pizza Hut. Anne serves as the Employee Liaison
for Hiscox.
External board appointments
Boot Barn Holdings, Inc.; IGNITE National;
Visiting Nurse & Hospice of Litchfield County.
Independent Non Executive Director
Constantinos Miranthis (Aged 59)
Appointed to the Board: November 2017
Independent Non Executive Director
Lynn Pike (Aged 66)
Appointed to the Board: May 2015
Group General Counsel and
Company Secretary
Marc Wetherhill (Aged 50)
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.
He is a Fellow of the UK Institute and Faculty
of Actuaries and a resident of Bermuda.
Costas serves on the Hiscox Insurance
Company (Bermuda) Limited Board as a
Non Executive Director.
External board appointments
Argus Group Holdings Limited; Pacific Life Re;
Gatland Holdings Jersey Limited.
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 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; Bankwork$
Advisory; California State University Channel
Islands Foundation.
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 2022
73
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
Board of Directors
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Departures and appointments
Retired Non Executive Director
Executive appointments
Paul Cooper
(effective 9 May 2022)
Non Executive appointments
None.
Executive retirements
None.
Non Executive retirements
Caroline Foulger
(effective 12 May 2022)
Independent Non Executive Director
Caroline Foulger (Aged 62)
Appointed to the Board: January 2013
A resident of Bermuda, Caroline 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
stepped down from the Hiscox Ltd Board at
the 2022 AGM, following the conclusion of her
nine-year term with the Company.
Director duties
As a company incorporated under the laws
of Bermuda, Hiscox complies with 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 a 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.
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Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Board statistics
59
Read more about gender and ethnic
diversity at Hiscox.
Board statistics
Board diversity at 8 March 2023
Gender
Female
Male
4
7
Age
46-55
56-65
66-75
3
4
4
Location
USA
Bermuda
Europe
Asia
3
1
6
1
Tenure
0-3 years
3-6 years
6-8 years
8+ years
3
4
3
1
Nationality
British
Bermudian*
American
Swiss
Australian
5
1
3
1
1
* Includes those Directors who hold
a Permanent Residency Certificate.
Hiscox Ltd Report and Accounts 2022
75
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Group Executive Committee
Aki Hussain
Group Chief Executive Officer
Joined Hiscox: September 2016
Paul Cooper
Group Chief Financial Officer
Joined Hiscox: May 2022
Robert Dietrich
Chief Executive Officer, Hiscox Europe
Joined Hiscox: June 1997
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 experience of driving
business change.
Aki joined Hiscox in 2016 as Group Chief Financial
Officer and became Group Chief Executive Officer
in 2022. As such, Aki leads the Group Executive
Committee in realising the strategy, delivering the
business plan, and driving the Company through
its next phase of growth. Prior to Hiscox, Aki held
a number of senior roles across a range of sectors,
including Chief Financial Officer of Prudential’s UK
and Europe business, and Finance Director for
Lloyds Banking Group’s consumer bank division.
Aki is a Chartered Accountant, having trained
with KPMG.
Relevant skills, experience and contribution
s Considerable expertise of financial
and commercial management
within a complex regulatory and
compliance environment.
s Qualified Chartered Accountant, with
significant experience of both the retail
and Lloyd’s insurance markets.
Paul joined Hiscox in 2022 as Group Chief
Financial Officer to lead our team of 400
finance experts around the world and ensure
robust financial systems and continued capital
efficiency. With over 25 years of financial services
experience, Paul has held a number of senior
roles, including most recently Interim Group Chief
Financial Officer at M&G Plc and Chief Financial
Officer for The Prudential Assurance Company.
Paul is a qualified Chartered Accountant, having
trained with PwC.
Hanna Kam
Group Chief Risk Officer
Joined Hiscox: February 2015
Kevin Kerridge
Chief Executive Officer, Hiscox USA
Joined Hiscox: December 1996
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 corporates 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.
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Hiscox Ltd Report and Accounts 2022
Relevant skills, experience and contribution
s Significant expertise in, and at the
forefront of, how digital is reshaping our
industry landscape.
s Multi-market, ground-up experience of
building omni-channel retail businesses.
Kevin has held a number of strategic planning,
leadership and operational roles across
the Group and was an early pioneer of our
eCommerce approach, having set up and run
our UK Direct business before relocating to
establish our digital operations in the USA. He
has led Hiscox USA since 2021, which now
spans nine offices and over 500 employees,
overseeing product and service innovations and
a programme of technology re-platforming that
can support our significant growth ambitions in
the region.
Relevant skills, experience and contribution
s In-depth knowledge of the European
insurance market.
s Significant experience of bringing niche
insurance products to market.
Robert served as Managing Director for Hiscox
Germany for many years, driving disciplined
expansion and building it into the flagship
European business it is today. In 2021, he took
on wider responsibility for Hiscox Europe, whose
operations span eight countries, overseeing
critical cross-country systems transformation
and redefining its long-term vision.
Kate Markham
Chief Executive Officer, Hiscox London Market
Joined Hiscox: June 2012
Relevant skills, experience and contribution
s Strong experience of building
customer-focused businesses.
s Track record of establishing operational
and digital infrastructures that support
profitable growth.
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. In addition, Kate
is the Group’s Executive Sponsor for diversity
and inclusion.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
Group Executive
Committee
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Jon Dye
Chief Executive Officer, Hiscox UK
Joined Hiscox: September 2022
Stéphane Flaquet
Group Chief Operations and Technology Officer
Joined Hiscox: March 2010
Nicola Grant
Group Chief Human Resources Officer
Joined Hiscox: September 2022
Relevant skills, experience and contribution
s In-depth knowledge of the UK
insurance market.
s Track record of building sustainable,
profitable retail insurance businesses.
Jon joined Hiscox in 2022 from Allianz UK, where
he was Chief Executive Officer. He leads our UK
retail insurance business, which spans eight
offices and over 800 employees and oversees
the development of our established broker
business, as well as our partnerships division
and direct-to-consumer offerings. Jon
is responsible for building on our long-term
broker relationships, distinguished brand
and deep expertise in underwriting and digital
distribution with new capabilities as we
continue to drive scale.
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 since held
a number of other senior roles including Group
Chief Information Officer, Chief Executive Officer
of Hiscox Europe, Chief Transformation Officer
and Interim Chief Executive Officer for Hiscox
UK. In his new role, created during 2022, he
oversees a number of critical Group functions
including claims, technology, change, property
services, procurement and marketing to ensure
the continued effective and efficient delivery of
core services while also driving process maturity
and digital transformation.
Relevant skills, experience and contribution
s Deep expertise in developing and
implementing HR strategies across
multiple geographies.
s Significant experience of global
performance and reward management,
robust talent and succession planning
and HR transformation.
Nicola joined Hiscox in 2022 from ING Group
where she held a number of senior HR positions.
She leads our team of 95 HR professionals
around the world and drives the Group’s
people strategy as we focus on attracting,
retaining and developing great people to
support the next phase of the Group’s growth.
This includes oversight of our HR policies and
procedures, employee rewards and benefits,
recruitment, learning and development, and
our approach to remuneration including
executive compensation.
Joanne Musselle
Group Chief Underwriting Officer
Joined Hiscox: April 2002
Kathleen Reardon
Chief Executive Officer, Hiscox Re & ILS
Joined Hiscox: January 2021
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 19 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.
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 leads our reinsurance and ILS
business, which operates in London and
Bermuda. She is responsible for ensuring the
110-strong team of underwriting, analytics
and asset manager experts take advantage
of changing market conditions and seize
opportunities as they present themselves, as
we continue to build both specialist reinsurance
capability and our position as an expert
alternative capital manager in the ILS space.
Hiscox Ltd Report and Accounts 2022
77
Q&
A:
with Jon Dye
Chief Executive Officer, Hiscox UK
Going places
Hiscox UK is a well-established retail brand
with a strong culture and considerable
expertise, and its opportunities for growth
are plentiful. >
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Hiscox Ltd Report and Accounts 2022
Hiscox Ltd Report and Accounts 2022
79
Jon Dye joined Hiscox in September
2022 after working in a number of
senior roles within the insurance
industry, most recently as Chief
Executive Officer of Allianz UK.
He also served as Chair of the ABI
between 2019 and 2021. In his new
post, he is responsible for leading
the next phase of growth for Hiscox’s
flagship UK retail business.
Q&
A:
with Jon Dye
Chief Executive Officer, Hiscox UK
Q: You’ve had a long career in the
insurance industry. What was it that
drew you to it initially?
A: I’m a law graduate, but I was always
pretty certain that I didn’t want to join
the legal profession. One of my lecturers
said: “If you’re interested in the law and
you want to change things, don’t be a
lawyer, because their role is to follow
their clients’ instructions. What you
need to do is work for one of the
compensators”. That means basically
the insurance industry and the
government. You hear lots of senior
people say: “I fell into insurance. It was
an accident”. I didn’t fall into insurance.
I chose to come to insurance because
I thought it was a fascinating and
important business, which it is.
Q: As well as several Chief Executive
Officer roles, you’ve also had a
recent stint as Chair of the
Association of British Insurers
(ABI). What did you take from
that experience?
A: I took a huge amount from that role
and it was all in the timing. I was
appointed in the summer of 2019,
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Hiscox Ltd Report and Accounts 2022
when none of us knew what was just
around the corner. Covid was one of
our industry’s biggest challenges for
lots of reasons, and being the ABI Chair
as the industry faced those challenges
was such a valuable experience.
Everybody had different views of
the same problem and we really did
have to work together to navigate
through it.
Q: What was your impression of
Hiscox from the outside?
A: My impression was that it had
managed to build a clearly differentiated
position in the market, which is a
very difficult thing to do in insurance.
There’s no IP in your product, because
it’s there on sale, for all to see. To
differentiate yourself is really quite
hard, but I think Hiscox has done that
spectacularly well. Good people,
clever products, fantastic claims
service – that’s what I perceived from
the outside and that is exactly how it
is. The culture runs through Hiscox in
a way that is genuinely tangible. Every
business says it’s customer-centric,
every business says it’s entrepreneurial,
but living up to that can be quite hard.
If you haven’t got that culture, creating
it is really difficult. And if you have got it,
wow – that’s a great advantage!
Q: What attracted you to this
particular role?
A: It’s an opportunity to grow not just
the business, but also my own skills and
experiences. We have an energetic new
Group Chief Executive Officer who has
big ambitions for us, who wants to see
the UK retail operation move forward
and is prepared to put money into that
in terms of brand investment, change
investment and broad support for what
we’re trying to do. There’s no issue in
terms of headroom. Are we banging
our head on the maximum that you
can achieve in terms of market share
in key products? No. It’s all in our gift.
That’s the great attraction. Through the
channels we’re already working in, we
can do things better and bigger than we
do today.
Q: Presumably, your relationship
with brokers will be vital to that
growth. How is that relationship
changing as technology evolves?
A: Technology is important. A lot of
our change budget is pointed at digital
initiatives with brokers. Brokers want us
to be easy to deal with, and for smaller,
more straightforward risks, that’s got
to be digital. I think we’ve got a real
opportunity here to steal a bit of a march
on the market and move ourselves into a
leading position if we invest intelligently.
We’re on a journey there and I think quite
an exciting one.
But in other ways, working with brokers
is no different to how it was in January
1989, when I started. People trade
with people they know and trust. And
that works all the way up and down the
business. It’s a partnership and our
success depends on our ability to build
and leverage those relationships. One
of the big advantages at Hiscox is that
we’ve got a very flat structure. Brokers
can easily get to the decision-makers
who are executing on the strategies that
we’ve laid down. We’re actually looking
to devolve even more decision-making
to frontline specialists, allowing them to
deliver at pace and in this market that’s
quite unusual.
Q: What do you think your priorities
will be in the coming year?
A: We’re known in the market for our
strong underwriting talent and we’ll
continue to strengthen and build this
We have an energetic new Group
Chief Executive Officer who has big
ambitions for us, who wants to see the
UK retail operation move forward and
is prepared to put money into that in
terms of brand investment, change
investment and broad support for
what we’re trying to do. There’s no
issue in terms of headroom.”
The launch of our new Hiscox
Underwriting Academy is going to be
important as it will enhance our ability
to grow and train our own talent. We’ll
continue to recruit market experts
where appropriate, particularly those
with specialist expertise in profitable
growth segments.”
core capability. The launch of our new
Hiscox Underwriting Academy is going
to be important as it will enhance our
ability to grow and train our own talent.
We’ll continue to recruit market experts
where appropriate, particularly those
with specialist expertise in profitable
growth segments.
We’ll also be investing in technology –
that’s really important. As well as
building our digital trading capability,
we also need to simplify and digitise our
own processes and automate simple
tasks. And we’re investing in technology
to improve the customer journey –
we need to ensure our people have
all the tools they need to exceed
customer expectations.
Q: How important is it to have a
high-performing claims service?
A: I spent the first 18 years of my
career working in claims, and for me
it’s the moment of truth in our industry.
People buy a promise, and they only
know if it was a good purchase or a
bad purchase when they need to make
a claim. Seeing customers as people
rather than numbers is absolutely
vital and it’s something that Hiscox is
famously brilliant at. Our claims service
is genuinely a major differentiator – we
continue to deliver a superb service,
with really strong customer satisfaction.
Q: What have you seen so far at
Hiscox that makes you optimistic
about the future?
A: I think the fundamentals of the
business are completely solid. The
unique culture, the differentiated brand,
the great people, the clever products,
that’s all there. It’s actually been quite
helpful to have someone come in from
the outside and point out some of
the things that we’re really good at,
because there are lots and lots of
them. So that’s what makes me most
optimistic. The fundamentals of this
business offer a brilliant foundation on
which we can build a bigger and better
business, and that’s what I intend to do.
Q: Outside of work, what gives
you energy?
A: I play squash. I whack a little rubber
ball around a room and burn a lot of
energy in a short space of time. And it’s
great. Hiscox is actually very good at
encouraging people to take a break, do
some exercise or just get out in the fresh
air, so when I do get the opportunity to
have a lunchtime game I find that I come
back to work feeling revived and ready
to go again.
Hiscox Ltd Report and Accounts 2022
81
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Chairman’s letter to shareholders
Pragmatism in ESG
The accountability and oversight
structures we have established for ESG
continue to drive healthy debate on
our role in the transition to a net-zero
economy (see page 60). We take a
pragmatic approach to ESG, including
climate-related issues, which can be
seen not only in the progress we are
making to reduce our exposure to
some of the worst carbon emitters as we
adapt to our ESG exclusions policy, but
also in our work with clients to ensure an
orderly transition. We also recognise the
importance of comparable disclosures,
which is why we continue to contribute
to a range of independent indices, and
this year we were particularly pleased
to see our MSCI ESG rating upgraded
from an A to an AA. Our second year of
TCFD disclosure, in line with the FCA
requirements, can be found on pages
60 to 67.
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
Dear Shareholder
2022 has been another year of focus
when it comes to ensuring we have
robust governance arrangements that
are equipped to manage not only the
risks we face but also the opportunities.
The corporate governance report that
follows will cover the detail of what this
encompasses at Hiscox, but below are
some key points from the year.
Board changes
Caroline Foulger stepped down from the
Board in May, following the conclusion of
her nine-year term. Pleasingly, we have
experienced a smooth transition from
Caroline to Donna DeMaio, who not
only serves as an Independent Non
Executive Director on the Board but
also as Audit Committee Chair. I would
like to thank Caroline for her counsel
and constructive challenge over the
years, which I have personally valued
immensely and which the business
has significantly benefitted from.
In addition, Paul Cooper joined the
Board as well as the Group Executive
Committee in May, following his
appointment as the Group’s Chief
Financial Officer. Paul has over 25 years
of financial services experience,
including across both the retail and
Lloyd’s insurance markets, and joined
with strong knowledge of the Group –
having served as Finance Director
for Hiscox UK and Europe from
2006 to 2011 during a key phase of
growth. We are benefitting immensely
from his experience and insights.
As we announced with our 2022 results,
I will be stepping down as Chairman
during 2023 following 37 years of
service to the Group, including ten
years as Chairman, and the Board
has commenced the search for my
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Hiscox Ltd Report and Accounts 2022
successor. An update on this search
and on the succession process will be
provided to the market in due course.
Embedding the new Group
Executive Committee
During his first year as Group Chief
Executive Officer, Aki has established
a Group Executive Committee with
a combination of business unit and
functional expertise, institutional
knowledge and fresh thinking. This
team of our most senior leaders has
worked collaboratively and effectively
over the course of the year to deliver
strong progress against our 2022
business priorities, particularly when
it comes to building connected teams
with shared values and mindset, which
is reflected in our best employee
engagement scores for ten years
(see page 3).
Listening to our people
We are now in the fourth year of our
Employee Engagement Network, led
by Independent Non Executive Director
Anne MacDonald in her capacity
as Employee Liaison. This network
comprises a representative group of
colleagues, with diversity of geography,
business area, age, race and tenure, and
meets twice yearly, with anonymised
insights reported back to the Board.
These are rich discussions, which in
2022 have included rewards and
benefits, hybrid working, ESG, feedback
for Aki in his new role, and what our
people want to see from new Group
Executive Committee members. As
a result, the views of our people have
constructively helped to shape Board
discussions, for example around
employee engagement as we review
and refine our employee proposition,
and our approach to hybrid working.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Corporate governance
Corporate governance framework
The corporate governance framework
throughout Hiscox supports the delivery
of our values, culture, strategy and
business objectives.
The Board’s formal corporate
governance framework includes the
Board, the Hiscox Group subsidiaries
and the Executive internal governance
structures, which together ensure
the governance requirements for the
Group are robust and fit for purpose.
As a company listed on the London
Stock Exchange, the UK Corporate
Governance Code (the Code) is
applicable to Hiscox, and an overview
of the Company’s compliance with the
Code is detailed on pages 88 to 93.
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 Group governance
manual (the Manual) details the wider
corporate governance framework
including the overall legal entity
structures and relationship with
the business units, the division of
responsibilities between Group and
principal subsidiary boards, Board
process and procedures for issues
such as Non Executive Director
appointments, diversity requirements
and Board evaluations, and the principles
to be applied to the wider subsidiary
management. The Manual is approved
by the Board and regularly reviewed.
The Company also benefits from a
strong governance framework at a
subsidiary level. The Manual and the
supporting subsidiary governance
manuals ensure that the underlying
processes throughout the subsidiary
boards follow consistent and effective
governance practices. The division of
responsibility between the Board and
the boards of the Group’s principal
subsidiaries is understood throughout
the Group and is visually represented
in the Hiscox Group governance
model (available at hiscoxgroup.com/
investors/corporate-governance).
The model shows the relationship
between the Board exercising strategic
direction and oversight of the Hiscox
Group, and the subsidiary boards’
delivery of their respective entity’s
responsibilities. This is further detailed
in explicit terms of reference and
governance manuals for the principal
subsidiaries – ensuring alignment to
the overall Group approach to values,
purpose, culture of risk awareness,
ethical behaviour and Group controls.
Informal interaction, information flows
and collaboration between Group
and the principal subsidiaries are also
delivered by Board Non Executive and
Executive Director representation on
the boards of the principal insurance
carrier entities.
The Executive’s internal governance
structures support decision-making
at the Executive level between the
Group Executive Committee, the
business units and the functional
departments. Membership of the Group
Executive Committee was refreshed
in January 2022 following a review of
existing leadership structures by the
incoming Group Chief Executive Officer,
and the resulting Group Executive
Committee members are detailed on
pages 76 to 77.
Supporting policies and processes
The corporate governance framework
complements the Company’s internal
controls framework and its supporting
framework of policies and processes.
Key policies for the Group are published
online and available to view at
hiscoxgroup.com/about-hiscox/
group-policies-and-disclosures.
The Board is satisfied that the internal
control and risk management systems
relating to the financial reporting process
are strong, with the Audit Committee and
the Risk Committee forming the central
points of review and challenge. Further
detail can be found in the Audit Committee
report on pages 99 to 101 and in the risk
management section on pages 44 to 47.
In addition, the Board and the Audit
Committee – whose Chair also serves
as the Group’s whistleblowing champion
– have oversight of whistleblowing
matters and receive reports arising
from its operation. The Company’s
whistleblowing policy is designed
to ensure that the workforce feel
empowered to raise concerns in
confidence and without fear of unfair
treatment. The structures and processes
in place allow for the proportionate and
independent investigation of any such
matters, and for appropriate follow-up
action to be taken where necessary.
Board composition
The Board has responsibility for the
overall leadership of the Group and its
culture. The operations of the Board
are underpinned by the collective
experience of the Directors and the
diverse skills which they bring. The Board
comprises the Non Executive Chairman,
three Executive Directors, and seven
independent Non Executive Directors
including a Senior Independent Director.
Hiscox Ltd Report and Accounts 2022
83
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
Corporate governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Notable changes in the reporting
period include the appointment of
Paul Cooper as Group Chief Financial
Officer, effective 9 May 2022, and
Donna DeMaio’s appointment as
Audit Committee Chair, following the
retirement of Caroline Foulger at the
AGM in 2022, after the conclusion of
her nine-year term with the Company.
Biographical details for each member
of the Board are provided on pages
72 to 73.
In accordance with the Company’s
Bye-laws and the Code, all Directors
will seek appointment or re-appointment
(as applicable) at the 2023 Annual
General Meeting. No issues have arisen
that would prevent the Chairman from
recommending the re-appointment
of any individual Director. In addition,
the Senior Independent Director has
reviewed the position of the Chairman
with the Non Executive Directors, and
recommends the re-appointment
of Robert Childs, confirming that
the Chairman continues to show
the independence of character and
judgement necessary to chair the
Board effectively. This will be the last
time Robert will seek reappointment,
having announced with the Group’s
2022 results that he will step down
as Chairman during 2023 following
37 years of service to the Group,
including ten years as Chairman. The
search for a successor is underway
and an update will be provided to the
market in due course.
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. Additional
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Hiscox Ltd Report and Accounts 2022
details on Board composition and
succession planning can be found
in the Nominations and Governance
Committee report on pages 94 to 98.
Board independence and
Director duties
The Nominations and Governance
Committee reviews 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.
Each Director has undertaken to
allocate sufficient time to the Group in
order to discharge their responsibilities
effectively. Each Non Executive
Director’s letter of appointment outlines
the commitments expected of them
throughout the year and this is further
detailed in the Manual. Executive
Directors are prohibited from taking
more than one additional non executive
directorship in a FTSE 100 company.
Each year, as part of the Director review
process, 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 and
that appropriate time continues to be
available to devote to the Company.
The Nominations and Governance
Committee reviews the findings and
determines if there is any conflict of
interest. The Committee determined that
there were no relationships which could
cause an actual or potential conflict.
Additionally, there were no concerns
regarding overboarding and all Directors
had adequate time available to carry out
their duties. Where Directors accepted
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 that
Director’s time. Approval occurs prior
to a Director undertaking additional
external appointments.
Onboarding and Board training
On joining the Board, all Non Executive
Directors take part in a full, formal
induction programme which is tailored
to their specific requirements. More
information on this can be found in
the Nominations and Governance
Committee report on pages 94 to 98.
The Board also has an ongoing training
programme with regular items on topical
issues. In 2022, this included, among
other things: sessions on ESG horizon
scanning; the impact of IFRS 17; strategic
planning; redefining our employment
proposition; workforce engagement;
information security strategy; and
control environment training. Items
for training are identified in the Board,
Committee and Director reviews, as well
as through specific requirements and
individual requests, and can be delivered
via the frequent programme of Board
informational sessions.
Board structure and decision-making
The Board operates within an
established structure which ensures
clear responsibilities at Board level,
transparent, well-informed and balanced
decision-making, and appropriate
onward delegations to effectively
deliver the Company’s purpose,
values and strategy.
The Board has delegated a number of its
responsibilities to its Audit, Nominations
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
Corporate governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
and Governance, Remuneration and Risk
Committees. Each Board Committee
operates within established written terms
of reference and each committee Chair
reports directly to the Board. The formal
schedule of matters reserved for Board
decision and the Committee terms of
reference were reviewed in late 2022
as part of the annual review of terms of
reference, and copies of each can be
found at hiscoxgroup.com/investors/
corporate-governance. To ensure
that the Board operates efficiently,
the role of the Chairman, Senior
Independent Director and Chief
Executive are distinct to demonstrate
the segregation of responsibilities.
Board cycle
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 and
proposals directly.
The Board agenda is set by the Chairman
following discussion with the Group
Chief Executive Officer and Company
Secretary, and taking into consideration
feedback from the individual Directors.
Board agendas focus on strategically
important issues, key regulatory items
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 management
reports follow a short standard
format which aids discussion and
understanding. The quality of Board
papers is kept under regular review.
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.
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. Each quarterly cycle
typically covers a series of decisions,
discussions and regulatory items
either at the Board, during Committee
discussions, or during informal
informational sessions, depending
on the nature of the matter. Items for
discussion may be identified from
actions from previous meetings, issues
escalated from management, items
requested either formally or informally
by Non Executive Directors, ongoing
regulatory topics throughout the
Group, and horizon scanning including
review of the competitive landscape.
Agendas are built to ensure that the most
appropriate method of progressing an
item is utilised. 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.
Owing to this system, the Group has an
effective Board which supports a culture
of accountability, transparency and
openness. Executive and 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.
Board attendance in 2022
In line with the agreed meeting schedule,
the Board held four comprehensive
meetings in 2022 (these meetings
comprise meetings of the Board and
of each of the Committees of the
Board). In keeping with the practices
developed during the early stages of
the pandemic, there were an additional
seven 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.
All Directors were able to fulfil their
fiduciary responsibilities during 2022
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 the Company’s Bye-laws).
With respect to the four comprehensive
Board meetings in 2022, the Directors’
attendance (and the number of meetings
that they were eligible to attend) was
as follows: Robert Childs, Michael
Goodwin, Thomas Huerlimann, Colin
Keogh, Anne MacDonald, Costas
Hiscox Ltd Report and Accounts 2022
85
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
Corporate governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Board engagement with stakeholders
A key element of the corporate governance
framework is open and transparent
communication with stakeholders at all
levels including Board level. As such, the
Board regularly discusses stakeholder
matters including shareholder matters,
employee engagement, customers, and
the Group’s impact on, and relationship
with, wider society.
The Board is kept abreast of stakeholder
feedback and issues through reports
from a variety of sources, including the
Chairman, Group Chief Executive Officer,
Group Chief Financial Officer, Employee
Liaison, senior management and external
consultants. This feedback loop is
complemented by the regular dialogue
that the Board maintains with the Group’s
key stakeholders, with the support of
Executives and senior management.
The chair of each Committee of the
Board is available for engagement with
shareholders when required and an
example of this during 2022, in relation
to our remuneration policy review, can
be found on page 132.
More information on how the Board
engages with key stakeholders can
be found on pages 48 to 49.
Board evaluation 2022
The Board encourages a culture of
continuous improvement, and an important
part of this is the annual review of the
Board, its Committees and each Director.
The Board evaluation in 2022 was internally
facilitated, the details of which can be
found in the Nominations and Governance
Committee report on pages 94 to 98.
Board remuneration
The remuneration of Independent Non
Executive Directors is determined by
the Nominations and Governance
Committee and is regularly benchmarked
to ensure it reflects the time commitment
and responsibilities of each role; there are
no performance-related elements. The
Chairman’s remuneration is determined
pursuant to the remuneration policy.
More information on Board remuneration
can be found in the remuneration section
on pages 106 to 143.
Miranthis, Lynn Pike, Joanne Musselle,
Aki Hussain (4/4); Paul Cooper (3/3);
and Donna DeMaio (2/3). In November
2022, Donna DeMaio was involved in a
medical emergency which prevented
her from attending the November Board
meeting. The Deputy Chair of the Audit
Committee, Thomas Huerlimann, fulfilled
her responsibilities for the meeting.
There were also four meetings of each
of the Committees of the Board during
2022. All of the Company’s Independent
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) was as follows:
Michael Goodwin, Thomas Huerlimann,
Colin Keogh, Anne MacDonald, Costas
Miranthis, Lynn Pike (4/4); and Donna
DeMaio (2/3, for the same reason as
described above). Robert Childs is
a member of the Nominations and
Governance Committee, Risk Committee
and Investment Committee and he
attended all four of the meetings that he
was eligible to attend. Aki Hussain and
Joanne Musselle are members of the
Investment Committee and attended
all four meetings. Paul Cooper is also a
member of the Investment Committee
and attended the three meetings he
was eligible to attend.
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
liaise with management on activities
aligned to their key skills, and attend
appropriate management strategy
and training events. They also have the
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Hiscox Ltd Report and Accounts 2022
opportunity to attend briefings with
Group Executive Committee members
and senior management, to understand
key issues and conduct deep dives on
specialist subjects.
Board activity in 2022
Board activity in 2022 was suitably
focused to ensure it covered the
appropriate strategy, performance
and governance items and considered
the needs and concerns of our key
stakeholders. This included:
• strategy and business
performance, including approval
of the 2023 business plan, the
agreement of business priorities
for the year ahead, oversight of
capital management measures
taken (including legacy portfolio
transactions and debt refinancing),
embedding the Group’s strategic
evolution, and further optimising
operational effectiveness;
• culture and engagement,
including reviewing the annual
employee engagement survey,
oversight of the employee
proposition work done to date,
and gaining new insights from
the Employee Engagement
Network facilitated by the
Board’s Employee Liaison;
• governance, including updates
on key underwriting exposures,
and approval of the updated risk
limits framework;
• oversight of all key risks,
compliance, internal controls and
governance matters, as outlined
on pages 44 to 46, 94 to 98 and
99 to 101.
More information on Board activities
is covered as part of the annual Board
evaluation process outlined on pages
97 to 98.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
Corporate governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
The role of the Board
The Board as a whole is collectively responsible for the success of Hiscox Ltd and the Group. Its duties are to:
• set the Group’s strategic direction, purpose and values and align these with its culture;
• oversee competent and prudent management of internal control, corporate governance and risk management;
• determine the sufficiency of capital in light of the Group’s risk profile and business plans;
• approve the business plans and budgets.
This structure is supported by the Group Executive Committee, Investment Committee and a number of other
management committees.
Certain administrative matters have been delegated to a committee comprising two Directors and the Company Secretary.
Audit Committee
• Advises the Board on
financial reporting.
• Oversees the
relationship with internal
and external audit.
• Oversees internal
controls including
reserving and claims.
The Audit Committee report
can be found on pages 99
to 101.
Nominations and
Governance Committee
• Recommends Board
appointments.
• Succession planning.
• Ensures an appropriate
mix of skills and
experience on
the Board.
• Promotes diversity.
• Manages any potential
conflicts of interests.
The Nominations and
Governance Committee
report can be found on
pages 94 to 98.
Remuneration Committee
Risk Committee
• Establishes
remuneration policy.
• Oversees alignment
of rewards, incentives
and culture.
• Sets Chairman,
Executive Director and
senior management
remuneration.
• Oversees workforce
remuneration-related
policies and practices
across the Group.
The remuneration report can
be found on pages 112 to 121.
• Advises the Board on
the Group’s overall risk
appetite, tolerance
and strategy.
• Provides advice,
oversight and challenge
to embed and maintain
a supportive risk culture
throughout the Group.
More information on risk
management can be found
on pages 8 to 11 and 44 to 47.
To ensure that the Board operates efficiently, each Director has distinct role responsibilities.
Chairman
Senior Independent
Director (SID)
Chief Executive
Independent Non
Executive Directors
• Leadership of the Board.
• Ensuring effective
relationships exist
between the Non
Executive and
Executive Directors.
• Ensuring that the views
of all stakeholders
are understood and
considered appropriately
in Board discussions.
• Overseeing the annual
performance evaluation
and identifying any
action required.
• Leading initiatives to
assess the culture of the
Company and ensure
that the Board leads
by example.
• Advisor to the Chairman.
• Leading the Chairman’s
performance evaluation.
• Proposing and delivering
the strategy as set by
the Board.
• Serving as an
intermediary to
other Directors
when necessary.
• 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.
• Facilitating an effective
link between the
business and the Board
in support of effective
communication.
• Leading the Group
Executive Committee,
which delivers
operational and
financial performance.
• Representing Hiscox
internally and externally
to stakeholders,
including shareholders,
employees, government
and regulators, suppliers
and contractors.
• Active participation in
Board decision-making.
• Advising on key
strategic matters.
• Critiquing and
challenging proposals
and activities, and
approving plans
where appropriate.
Hiscox Ltd Report and Accounts 2022
87
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
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 Board is
pleased to report that the Company has
applied the principles and complied
with all its provisions, except in relation
to Provision 9 on Chair independence;
Provision 19 on Chair tenure (as explained
below) and part of Provision 25 regarding
the Chairman’s membership of the
Risk Committee.
The corporate governance statement
(pages 83 to 87), the remuneration report
(pages 112 to 131) and the Directors’
report (pages 148 to 151), together with
the cross references to other relevant
sections of the Annual Report and
Accounts, explain the main aspects of
the Company’s corporate governance
framework and seek to give a greater
understanding as to how the Company
has applied the principles and reported
against the provisions of the Code. The
Code itself can be found at frc.org.uk.
Chair independence and tenure
The Company complied with all of the
provisions of Section 2 with the exception
of Provision 9 and 19 regarding Chair
independence and tenure respectively.
As previously disclosed, the Chair,
Robert Childs, was not deemed to be
independent upon his appointment
as Chairman in 2013. The Chairman
has been in post since 2013 and as
announced with the Group’s 2022
results, will step down as Chair during
2023. Prior to 2013, the Chair served as
an Executive Director (Chief Underwriting
Officer for the Group) and, as such at the
time of appointment major shareholders
were consulted ahead of the Chair
appointment and the Board set out its
reasons for his appointment. The Board
continues to believe that the Chairman’s
88
Hiscox Ltd Report and Accounts 2022
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 independence and Board
tenure to be discussed in a specific
session with the Non Executive Directors
(without the Chairman being present).
This process is led by the Senior
Independent Director. The meeting
took place in November 2022 and,
having also considered the views of
the Executive Directors, the meeting
determined that the Directors continue
to highly value the Chair’s skills and
experience, and that he demonstrates
independence, constructive challenge
and engagement in the Board, as
well as valuable guidance to senior
management. The Board is therefore
satisfied that the Chair continues to
show the independence of character
and judgement necessary to chair the
Board effectively in this, his final year
as Chair.
Separately, there are a number of further
measures to ensure the robustness of
these arrangements including: 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 Chair
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. This
will also be a focus again in the 2023
externally facilitated Board evaluation.
A similarly positive result was found in
the 2021 and 2022 Board evaluations
as detailed on pages 97 to 98. The Board
therefore retains complete confidence in
the Chair’s ability to act independently,
and unanimously supports his re-election
at the AGM. This will be the last time
the Chair will seek reappointment,
having announced with the Group’s
2022 results that he will step down as
Chairman during 2023, following 37
years of service to the Group including
ten years as Chairman. The search
for a successor is underway and an
update will be provided to the market
in due course.
The Company complies with all of
the provisions in Section 3 (audit, risk
and internal control) except for part of
Provision 25. The role and functions
of the Audit Committee are set out in
Section 3 of the Code. This includes
certain risk-related responsibilities.
These risk-related responsibilities
are undertaken by the separate Risk
Committee at Hiscox. The composition
of the Risk Committee does not comply
with Provision 25 of the Code, which
states that the Audit Committee should
comprise Independent Non Executive
Directors and that the Chair should not
be a member of the Audit Committee.
This is because the Chairman sits on the
Risk Committee. However, the Board
considers the Chairman’s expertise
in underwriting and risk management
remains a valuable asset and the
Chairman is a valuable member of this
Committee because of the insight he
brings, which the Board considers to
be beneficial to that Committee.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
72
Chapter 3
Governance
Compliance with the
UK Corporate
Governance Code 2018
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Requirements
Operation and practices
Additional detail on provisions:
Compliance
1
Section 1
of the Code:
Board leadership
and Company
purpose
The Company
applied all of the
principles and
complied with
the provisions
of Section 1.
Provision 5 refers to
Section 172 of the UK
Companies Act which
is not applicable to
Hiscox as a Bermuda-
incorporated
company. However,
the material provisions
of Section 172 of the
UK Companies Act are
substantively covered
by the Bermuda
Companies Act, which
is the applicable
legislation that the
Company is required
to comply with
under Bermuda law.
Compliance against
Bermudian Director
duties is detailed on
page 74.
A: Board’s role
Code: A successful company is led by an effective and entrepreneurial
board, whose role is to promote the long-term sustainable success of the
company, generating value for shareholders and contributing to wider society.
Hiscox: The Board is collectively responsible for the stewardship and
long-term success of the Company. There is a robust decision-making
process in place with constructive challenge and debate. Pages 24 to
37 demonstrate the Company’s strong performance and position. In the
corporate governance overview on pages 83 to 87, we detail the governance
arrangements in place which contribute to the delivery of our strategy.
B: Purpose and culture
Code: The board should establish the company’s purpose, values and
strategy, and satisfy itself that these and its culture are aligned. All directors
must act with integrity, lead by example and promote the desired culture.
Hiscox: Having a clear purpose and strong set of values has always been
important at Hiscox as they act as a culture barometer by which the Board
and wider workforce can hold each other to account (see pages 2 to 3).
Procedures for regulation of Board conduct are detailed in the Group
governance manual and individual appointment letters, and is overseen
by the Chair of the Board.
C: Resources and controls
Code: The board should ensure that the necessary resources are in
place for the company to meet its objectives and measure performance
against them. The board should also establish a framework of prudent
and effective controls, which enable risk to be assessed and managed.
Hiscox: One of the key roles of the Board is to oversee the delivery of
strategy and annual operating plans, holding management to account on
their delivery of those plans. This is assisted by a robust internal control
and risk management framework (see pages 44 to 46). The Board and
its Committees have unfettered access to the resources they deem
necessary to fulfil their obligations.
D: Stakeholder engagement
Code: In order for the company to meet its responsibilities to shareholders
and stakeholders, the board should ensure effective engagement with,
and encourage participation from, these parties.
Hiscox: The Board regularly considers the Group’s relationship with
various stakeholder groups including shareholder matters, employee
engagement, customers, and the Group’s impact on, and relationship
with, wider society, examples of which can be found on pages 48 to 49.
The Board continues to engage with the workforce through the
pre-existing infrastructure and via the employee engagement network.
This ensures Hiscox is motivating and engaging employees in an
effective way. The Employee Liaison is responsible for providing a
summary of findings at Board meetings.
E: Workforce engagement
Code: The board should ensure that workforce policies and practices are
consistent with the company’s values and support its long-term sustainable
success. The workforce should be able to raise any matters of concern.
Hiscox: Comprehensive and robust policies and procedures are in place.
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 2022 results
can be found on page 3. The Board also engages with the workforce
through its established employee engagement network, which supports
the pre-existing engagement infrastructure.
Provision 1:
pages 44 to 47
(risk management),
pages 6 to 7
(business model).
Provision 2:
page 86
(Board activity),
pages 106 to 143
(chapter 4,
remuneration).
Provision 3:
pages 48 to 49
(shareholder
engagement).
Provision 4:
No AGM votes
below 80%.
Provision 5:
pages 48 to 49
(stakeholder
engagement),
page 86
(Board activity).
Provision 6:
page 83
(corporate
governance
framework).
Provision 7:
pages 83 to 86
(Non Executive
Director time,
corporate
governance
framework).
Provision 8:
Group governance
manual and Director
appointment letters.
Hiscox Ltd Report and Accounts 2022
89
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
72
Chapter 3
Governance
Compliance with the
UK Corporate
Governance Code 2018
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Requirements
Operation and practices
Additional detail on provisions:
Compliance
2
Section 2
of the Code:
Division of
responsibilities
The Company
applied all of the
principles and
complied with
the provisions of
Section 2 except for
Chair independence
within Provision 9
(see page 88).
F: Role of the Chair
Code: The chair leads the board and is responsible for its overall
effectiveness in directing the company. They should demonstrate objective
judgement throughout their tenure and promote a culture of openness and
debate. In addition, the chair facilitates constructive board relations and
the effective contribution of all non-executive directors, and ensures that
directors receive accurate, timely and clear information.
Hiscox: The Chair is responsible for the leadership and overall effectiveness
of the Board. The Chair drives a boardroom culture which encourages
openness and debate and ensures constructive relations between Executive
and Non Executive Directors, see Board cycle on page 85. The Chair,
with the support of the General Counsel and Company Secretary,
delivers high-quality information to the Board to enable a strong basis
for decision-making. Pages 83 to 86 detail the corporate governance
structures in place.
G: Composition of the Board
Code: The board should include an appropriate combination of executive
and non-executive (and, in particular, independent non-executive)
directors, such that no one individual or small group of individuals
dominates the board’s decision-making. There should be a clear division
of responsibilities between the leadership of the board and the executive
leadership of the company’s business.
Hiscox: There is a clear division of responsibilities between the Chair,
Chief Executive Officer and Senior Independent Director (see page 87).
No individual or small group has unfettered powers of decision. The Board
has a majority of independent Directors.
H: Role of Non Executive Directors
Code: Non-executive directors should have sufficient time to meet their
board responsibilities. They should provide constructive challenge, strategic
guidance, offer specialist advice and hold management to account.
Hiscox: The Group governance manual and the Directors’ letters of
appointment detail the requirements for the Non Executive Directors
regarding their role and time expectations. These factors are subject
to ongoing review, which is overseen by the Chair of the Board, and
is formally reviewed in the annual Director reviews conducted by the
Nominations and Governance Committee (see page 94). The duties of the
Board are detailed in our Matters reserved for the Board policy, which aligns
to the requirements of this principle and includes the key role of appointing
and removing Executive Directors. The Matters reserved for the Board is
available in the Board terms of reference at hiscoxgroup.com/investors/
corporate-governance.
I: Role of the Company Secretary
Code: The board, supported by the company secretary, should ensure
that it has the policies, processes, information, time and resources it
needs in order to function effectively and efficiently.
Hiscox: The Group General Counsel and Company Secretary acts as
a trusted advisor 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.
Provision 9:
page 88 (Chair
independence
and tenure),
page 87
(CEO and Chair
separate roles).
Provision 10:
page 72 to 73
(Board of Directors).
Provision 11:
page 72 to 73
(Board composition).
Provision 12:
page 72 to 73
(Board composition),
page 97 to 98
(Board evaluation).
Provision 13:
page 85
(Board cycle).
Provision 14:
page 87
(structure of Board
decision-making),
page 85 to 86
(Board attendance
in 2022).
Provisions 15 and 16:
Group governance
manual and Director
appointment letters.
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Chapter 2
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72
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Compliance with the
UK Corporate
Governance Code 2018
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Requirements
Operation and practices
Additional detail on provisions:
Compliance
3
Section 3
of the Code:
Composition,
succession
and evaluation
The Company
applied all of the
principles and
complied with
the provisions of
Section 3 except
for Chair tenure
within Provision 19
(see page 88).
J: Appointment to the Board and succession planning
Code: Appointments to the board should be subject to a formal, rigorous
and transparent procedure, and an effective succession plan should be
maintained for board and senior management. Both appointments and
succession plans should be based on merit and objective criteria and,
within this context, should promote diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths.
Hiscox: The Group governance manual details the commitment to
a formal, rigorous and transparent procedure for appointments to
the Board and effective succession planning for Board and senior
management, both of which are based on merit and promote diversity.
This is also detailed within the Matters reserved for the Board as part
of the Board terms of reference and the terms of reference of the
Nominations and Governance Committee, available at
hiscoxgroup.com/investors/corporate-governance.
The Board diversity and inclusion policy is detailed on pages 95 to 97.
It details the parameters for appointments and succession planning, as
well as oversight of Board and workforce diversity and inclusion policies
and programmes. The Nominations and Governance Committee leads on
the delivery of this principle on behalf of the Board as detailed on pages
94 to 98.
K: Skills, experience and knowledge of the Board
Code: The board and its committees should have a combination of skills,
experience and knowledge. Consideration should be given to the length
of service of the board as a whole and membership regularly refreshed.
Hiscox: The current composition of the Board is set out on pages 72 to 73
and is considered to be an appropriate size for the business, with the right
balance of Executive and Non Executive Directors with a wide range of
skills and experience that contribute to the Board’s performance. Length
of service is considered as part of the succession planning process and
this is delivered by the Nominations and Governance Committee on behalf
of the Board as detailed on pages 94 to 98.
L: Board evaluation
Code: Annual evaluation of the board should consider its composition,
diversity and how effectively members work together to achieve
objectives. Individual evaluation should demonstrate whether each
director continues to contribute effectively.
Hiscox: The Board, Committee and Director evaluation process is a
robust annual process which ensures that a thorough evaluation is
completed each year. This internal evaluation process is supported by
external evaluations, which are completed every three years, with the
next external review scheduled for 2023 (see pages 97 to 98).
Provision 17:
pages 94 to 98
(key responsibilities
and membership,
Nominations
and Governance
Committee report).
Provision 18:
pages 72 to 73
(Board composition).
Provision 19:
See explanation above
(Chair independence
and tenure).
Provision 20:
pages 94 to 98
(talent review and
Board composition
and succession,
Nominations
and Governance
Committee report).
Provisions 21 and 22:
page 94 to 98
(Board evaluation,
Nominations
and Governance
Committee report).
Provision 23:
pages 94 to 98
(Nominations
and Governance
Committee report).
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Chapter 2
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Governance
Compliance with the
UK Corporate
Governance Code 2018
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Requirements
Operation and practices
Additional detail on provisions:
Compliance
4
Section 4
of the Code:
Audit, risk and
internal control
The Company
applied all of the
principles and
complied with
the provisions
of Section 4, except
for part of Provision 25
as the Risk Committee
membership includes
the Board Chairman.
M: Internal and external audit
Code: The board should establish formal and transparent policies and
procedures to ensure the independence and effectiveness of internal and
external audit functions and satisfy itself on the integrity of financial and
narrative statements.
Hiscox: The Audit Committee oversees the relationships with the
internal and external audit functions ensuring their independence and
effectiveness. The Committee also has oversight of the relationship
with the actuarial function. The three parties work together to provide
assurances to the Audit Committee and Board on the integrity of the
financial statements, with external audit also providing assurances in
relation to the narrative statements. The Audit Committee report for
2022 can be found on pages 99 to 101.
The Directors’ responsibilities statement, going concern and viability
statements are set out on pages 148 to 151.
N: Fair, balanced and understandable assessment
Code: The board should present a fair, balanced and understandable
assessment of the company’s position and prospects.
Hiscox: 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
provides information necessary for shareholders to assess the Company’s
position, performance, business model and strategy. The Audit Committee
details how this is achieved on pages 99 to 101.
O: Risk management and internal control framework
Code: The board should establish procedures to manage risk, oversee
the internal control framework, and determine the nature and extent of
the principal risks the company is willing to take in order to achieve its
long-term strategic objectives.
Hiscox: The Board is ultimately responsible for our risk management and
internal controls, and for ensuring that the systems in place are robust and
take into account the principal risks (referred to in this document as key
risks) and the emerging risks faced by the Company. An overview of risk
management can be found on pages 44 to 47. The Risk Committee leads
detailed discussions on the principal and emerging risks of the Company
on behalf of the Board, and recommends to the Board the appropriate risk
management framework including risk limits, appetite and tolerances.
The Risk Committee also oversees the independence and effectiveness
of the risk and compliance functions.
Provisions 24 and 26:
pages 99 to 101
(Audit Committee
report).
Provision 25:
Audit Committee
terms of reference
are available at
hiscoxgroup.com/
investors/corporate-
governance. Risk
Committee terms of
reference are also
available. The Chair of
the Board sits on the
Risk Committee as the
Board considers that
this brings value to
that Committee.
Provisions 27, 30
and 31:
pages 148 to 150
(going concern and
viability statements,
Directors’ report).
Provisions 28, 29
and 31:
pages 44 to 47
(risk management).
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Compliance with the
UK Corporate
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Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
A full copy of the Corporate Governance
Code 2018 can be found at frc.org.uk.
Requirements
Operation and practices
Additional detail on provisions:
Compliance
5
Section 5
of the Code:
Remuneration
Provisions 32 and 33:
pages 106 to 109
(annual statement
from the Chair of
the Remuneration
Committee).
The Company
applied all of the
principles and
complied with
the provisions
of Section 5.
Provision 34:
pages 119 and 125
(Non Executive
Director fees,
Chair remuneration).
Provisions 35:
page 126
(consultants are
highlighted in
chapter 4:
remuneration).
Provisions 36, 37,
38, 39:
pages 132 to 143
(remuneration policy).
Provisions 40 and 41:
pages 106 to 143
(chapter 4:
remuneration).
P: Remuneration policies and practices
Code: Remuneration policies and practices should be designed
to support strategy and promote long-term sustainable success.
Executive remuneration should be aligned to company purpose and
values, and be clearly linked to the successful delivery of the company’s
long-term strategy.
Hiscox: Our remuneration policy and practices are developed by the
Remuneration Committee in consultation with our shareholders. They are
designed to support the Company’s strategic aims, promote the long-term
sustainable success of the Company, and attract and retain talent,
while also being aligned with the Company’s purpose, values, culture
and vision (see pages 2 to 3).
Q: Executive remuneration
Code: A formal and transparent procedure for developing policy on
executive remuneration and determining director and senior management
remuneration should be established. No director should be involved in
deciding their own remuneration outcome.
Hiscox: The Remuneration Committee is responsible for setting the
remuneration for all Executive Directors and senior management. The
remuneration report contains details of the procedures that have 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 outcome.
The Remuneration Committee receives information on broader workforce
remuneration policies and practices during the year which informs its
consideration of the policy (see page 128).
The remuneration policy was reviewed during 2022 and is being put to a
shareholder vote at the May 2023 AGM. Changes are being proposed to
reward the delivery of Hiscox’s wider strategy by introducing a scorecard
approach to the short- and long-term incentives. Bonus deferral and
post-employment shareholding guidelines are being further aligned with
market practice and the circumstances that may trigger use of malus and
clawback have been extended. Major shareholders’ views on proposed
changes to the policy were sought and they have indicated broad support
for the approach.
The Employee Liaison facilitates discussion with respect to the content of
the remuneration policy and how this aligns to wider Company pay policy,
and shares feedback on this with the Board.
R: Remuneration outcomes and independent judgement
Code: Directors should exercise independent judgement and discretion
when authorising remuneration outcomes, taking account of company
and individual performance, and wider circumstances.
Hiscox: The Remuneration Committee leads on this area of work on
behalf of the Board. Details of the composition and the work of the
Remuneration Committee are detailed on pages 106 to 143. The
Remuneration Committee comprises Independent Non Executive
Directors only. The remuneration of Independent Non Executive Directors
is determined by the Nominations and Governance Committee and
is regularly benchmarked to ensure it reflects the time commitment
and responsibilities of each role; there are no performance-related
elements. The Board Chair’s remuneration is determined in line with
the remuneration policy and reviewed by the Remuneration Committee.
The Remuneration Committee terms of reference can be found at
hiscoxgroup.com/remuneration-committee-tor.
Hiscox Ltd Report and Accounts 2022
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Remuneration
106
Chapter 5
Shareholder
information
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Chapter 6
Financial
summary
157
Nominations and Governance Committee report
Key responsibilities and membership
The Nominations and Governance
Committee (the 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 for Non
Executive Directors and by our Group
HR policies for Executive Directors and
senior management. The Committee
also reviews the Board evaluation
process, Company strategy relating to
diversity, equity and inclusion, and the
gender balance of both the Board and
senior management. In addition, the
Committee carries out several other
Group activities, including a review of
intragroup conflicts of interest and
the approval of Group policies.
The Committee is comprised of
eight members, of which seven are
Independent Non Executive Directors.
The Chair of the Board is the Chair
of the Nominations and Governance
Committee; the Senior Independent
Director leads on matters relating to
the Chair. The Committee’s terms of
reference are reviewed and approved
annually and are available on the
Company’s website at hiscoxgroup.
com/investors/corporate-governance.
Key activities of the Committee:
The Committee’s key priorities in 2022
were as follows.
• Board Director succession, which
in 2022 included ensuring a
smooth transition to a new Group
Chief Executive Officer, Group
Chief Financial Officer and Audit
Committee Chair.
• Review of the Board
evaluation outcomes.
• Ongoing diversity monitoring of the
Board and senior management.
• Consideration around Chairman
and Director succession planning.
Talent reviews
The Committee leads on Executive
succession planning via an established
and robust talent review process.
As required, the Committee reviews
key talent plans throughout the Group.
The Group review focuses on the
Group Executive Committee, and
their direct reports, and the Company
Secretary. The outputs of the talent
review process contribute to senior
management performance development
plans and include relevant diversity
actions. This process is replicated
at a business unit level to ensure a
sufficient pipeline of talent in each
area. Talent plans are also reviewed
when vacancies arise.
Board composition and succession
As part of the annual Board succession
planning process, the Committee
reviewed the composition of the Board
in 2022. 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. The review
focused on Non Executive succession
was aligned to the talent reviews for the
Executive Directors. Following these
formal reviews, the Board remains
confident that the current skills and
Succession was a key area
of focus for the Committee
again in 2022, at both
Executive Director level and
in relation to key leadership
positions. The positive
effects of new talent and
fresh perspectives are
already being felt.”
Robert Childs
Chair of the Nominations and
Governance Committee
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Chapter 2
A closer look
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Governance
Committee report
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Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
expertise are in place to deliver value to
the Company and its shareholders. This
formal annual process is augmented by
ongoing open dialogue between the Non
Executive Directors on succession and
the skills required to deliver the strategy.
Pages 72 to 73 demonstrate the nature
and breadth of each Director’s relevant
skills and experience. Additionally, all
Directors have demonstrated that they
have adequate capacity to fulfil their duties.
As part of the discussions on the
requirements of new Directors, the
Committee determined that the
Company has a strong Board which is
sufficiently capable to meet the demands
of the Group and future strategy.
Diversity, equity and inclusion (DEI)
DEI has been a strategic priority for a
number of years and remains critical
to our development as a sustainable
and resilient organisation. Hiscox
operates in a global market and the
success of our business is dependent
on our people, which is why we want
to build a workforce that reflects
the make-up of our customers, the
communities we serve, and the
communities in which we live
and work, ensuring that we have
employees with different backgrounds,
perspectives and experiences, with
a working environment where all our
people can thrive. Our belief is that
diverse teams and an equitable and
inclusive workplace are critical to
resilience as well as sustainable
growth, which in turn makes us a
stronger partner for our customers.
We believe it is important that the name
of the function appropriately reflects the
intent and work being done, which is
why in 2022 we evolved from ‘diversity
and inclusion’ to ‘diversity, equity and
inclusion’. We have a Global Head of
DEI and a DEI Executive Sponsor for
the Group, who together drive our DEI
strategy and progress. This includes
our DEI approach to building culture,
the alignment of policies and processes
with inclusion principles, building
community and belonging via employee
networks, and ensuring alignment to
credible external DEI commitments.
In addition, each business unit Chief
Executive Officer and functional leader
has established a DEI action plan which
is aligned to our Board-approved global
DEI strategy and includes aspects such
as recruitment, career development, and
DEI skills and capabilities development.
These plans are monitored centrally
and also via specific local reports to
subsidiary boards. This approach is
supported by an annual report on DEI
which this Committee receives.
DEI policies, progress and disclosure
After we reviewed and updated our
Board diversity policy in 2021, we built
upon this in 2022 by refreshing our Group
DEI policy which applies to our entire
workforce to more clearly articulate DEI
governance, refresh our principles and
approach to DEI, and align with the Board
DEI policy and other documentation.
This iteration more appropriately reflects
our intent and strategy and better
meets the expectations of our industry
and marketplace.
The Hiscox Ltd Board DEI policy and
Group DEI policy are publicly available
on our website at hiscoxgroup.com/
about-hiscox/group-policies-and-
disclosures. Both reflect the ethos of
the Company in advocating that
opportunity should be limited only by an
individual’s ability and drive. The specific
objectives of the Hiscox Ltd Board DEI
policy, as well as how they have been
implemented and the results during the
reporting period, are set out on page 96.
We have also fulfilled our UK obligations
to report our gender pay gap ratios with
respect to our UK subsidiaries, and
published our sixth annual gender
pay report during the year. This report
sets out in detail the gender-related
programmes and initiatives we pursued
during 2022 and can be viewed at
hiscoxgroup.com/gender-pay-
report-2022.
We voluntarily report our Board and
Executive management diversity data
as at 31 December 2022 in accordance
with the new UK Listing Rules targets
and associated disclosure requirements
– see page 59 for further details.
As at 31 December 2022, the Board
comprised 36% women and there
was one Director from an ethnic
minority background. None of the four
FCA-specified positions on the Board
(Chairman, Group Chief Executive
Officer, Group Chief Financial Officer or
Senior Independent Director) was held by
a woman. However, the UK Listing Rules
targets do not consider other executive
roles in the context of these senior Board
positions and one of the three Executive
Directors on the Board, our Chief
Underwriting Officer, is a woman.
The Board is fully committed to ensuring
diversity at all levels of the Group, as
evidenced by the existence of both the
Board DEI policy and the Group DEI
policy. The Board continues to work
towards building a pipeline of diverse
candidates and this, combined with the
new UK Listing Rules targets, underlines
the importance of the Company’s efforts
in this area. The Company will continue
to monitor its progress against these
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Governance
Committee report
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Chapter 4
Remuneration
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Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Board DEI objectives and 2022 progress
Board objective
Implementation
Progress
1.
Ensure a
diverse1 and
effective Board
1 Diversity of gender,
social and ethnic
backgrounds,
cognitive and
personal strengths.
• Annually review the structure, size and
composition of the Board, including the
balance of skills, knowledge and experience to
assist in the development of a diverse pipeline.
• Annually review Board diversity as part of the
Board evaluation process.
• Ensure the values of the Company promote an
open and inclusive environment.
Page 75 of the report demonstrates the diversity of
our Board as at 8 March 2023.
Via the delivery of our Board diversity, equity and
inclusion policy, we have:
• maintained a gender balance in line with the
Davies and Hampton-Alexander reviews
since 2015 and intend to work towards the
current FTSE Women Leaders Review target
and UK Listing Rules target for gender balance
at Board level;
• had one ethnic minority Director since 2016.
2.
Ensure that
all Board
appointments
are considered
on merit within
the context of
the strategy
requirements
and diversity
considerations
3.
Ensure that
the overall
workforce is
diverse and
inclusive
• At least annually review the succession plans
for the Board and senior management and
ensure the talent review process is in place for
the wider workforce.
• Gender and ethnic diversity will be taken
Each June, the Board and Committee review the
talent plans for senior management and, each
November, the Board succession plans. Diversity
is taken into account as part of this process. Talent
reviews are replicated throughout the business.
into consideration when evaluating the skills,
knowledge and experience desirable to fill
each role and when considering the methods
to attract diverse candidates.
• A search firm will normally be engaged to
assist in the review of the market and they
should be committed to addressing gender
and/or ethnicity diversity.
• All appointments must be made on merit
as aligned to the needs of the Board, the
Company, and its strategy and values.
• Review the execution of the Group diversity
and inclusion policy2.
• Ongoing Board and Committee review of
matters relating to employee retention,
engagement and culture.
2 hiscoxgroup.com/diversity-and-inclusion-policy.
The Committee has an annual report from the
Global Head of DEI. We have a Head of DEI and a
DEI Executive Sponsor for the Group, who together
drive our progress which includes a commitment
from every business unit and functional area
leader to deliver on our employee DEI targets.
These plans are monitored centrally and also via
specific local reports to subsidiary boards.
The tables on page 59 provide a breakdown of
diversity at Hiscox.
The Board and Committees receive reports relating to
key workforce matters on an ongoing basis, including
employee retention, engagement and culture.
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Governance
Committee report
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Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
targets over the course of 2023 and will
provide a further update in the 2023
Annual Report and Accounts.
Our employee networks (ENs), which
focus on building communities and
support around a variety of employee
populations, expanded in 2022 to include
disabilities and neurodiversity. Along with
our Pan-African, Generations, Latino,
Parents and Carers, Pride (LGBT+),
WeMind (mental health), and Women’s
ENs, these groups support our DEI
strategy by helping to drive positive
employee engagement and promoting
a culture of inclusion.
We are committed to improving our
diversity at all levels, to ensure our
workforce reflects the customers and
communities that we serve and the
communities where we live and work.
In some of the jurisdictions in which
we operate, current laws mean it is
not possible to collect ethnicity data
from employees, but where we can we
encourage employees to self-identify.
In 2022, we expanded the diversity data
we collect in Bermuda, the UK, and
the USA to include more categories
and expand some of the options within
the categories for better coverage of
diversity characteristics. Expanding the
categories and options we offer helps us
make the invisible more visible, build a
more complete picture of our workforce
(including intersectionality), understand
our progress against our strategy, and
better enables us to make smarter,
more inclusive programme and policy
decisions. As such, improving the volume
of voluntary disclosure from employees
remains a focus area and while that
work continues we are pleased to be
disclosing all-employee ethnicity data,
as far as we are able to currently, for the
first time in this report.
We will look to build on this good work
in 2023 and beyond by strengthening
our ability to leverage data and insights,
building our DEI skills and capabilities,
inspiring others with our story, and
embedding DEI into business as usual.
Together, these initiatives will strengthen
the diversity measures we already have
in place and build the maturity of the DEI
landscape at Hiscox.
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 action and
development. Board and Committee
effectiveness evaluations are carried out
each year and the results are reviewed
and discussed at the Board and its
Committees – specifically the Nominations
and Governance Committee, with a
focus on Board composition.
2022 Board and Committee
effectiveness review
Every third year, the Board evaluation
is undertaken by an external evaluator.
This was last undertaken in 2020 and is
next scheduled for 2023. In the interim
years, an internal evaluation is carried
out which also reviews each Committee,
the Board and individual Directors. The
evaluation also assesses the completion
of the prior year’s actions. Each is
addressed in turn below.
2022 evaluation
Building on the work of prior years,
the interim year evaluation was carried
out using our improved evaluation
process of Board, Committee Chair
and individual Director performance.
The Board and Committee reviews
focused on, among other things: Board
oversight of strategy; risk management
performance and effectiveness of
systems; Board accountability, focus
and priorities for the coming year;
Board composition; culture of the Board
and the broader organisation; Board
and Chair independence, expertise,
decision-making and dynamics;
succession planning; Board progress
on diversity, climate change approach
and digitalisation; communication
with shareholders; clarity on purpose,
direction and values; and Board support.
The format of the evaluation was a
confidential survey of the Board. This
review was completed by all Directors,
with the results analysed by the
Company Secretary, shared with the
Chairman and discussed with the Board.
Individual Director reviews are an
opportunity to discuss individual skills,
training requirements, succession and
any other issues. Each Non Executive
Director completes a self-assessment
form which is followed by a detailed
discussion on performance with the
Chairman. The Senior Independent
Director carries out the Chairman’s
review and this supports the annual
review process of the Chairman.
Individual objectives and action plans
are agreed following each meeting
where appropriate.
2022 Board review outcomes
The 2022 Board results demonstrated
continued strong Board, Director, Chair,
and Committee performance and
re-affirmed the independence of the
Board, the appropriate leadership
provided by the Chair, and the
robustness of the Non Executive Director
succession plans and Executive Director
talent reviews. Directors were fully
engaged with the Board, Committee and
Director evaluation process. The review
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Chapter 5
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Chapter 6
Financial
summary
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• devoted time to considering
changes in the external
environment and their impact
on Hiscox, including competitor
activity in key markets, further
work on the Company’s strategic
response to climate change
and further deep dives on social
and governance matters, as
well as oversight of the Group’s
compliance with new accounting
standards (IFRS 17) to understand
the business and financial changes
required, in addition to peer
positioning; and
• maintained a focus on talent
management, employee
engagement and the retention
of high performers including
further focus on workforce DEI
and employee engagement.
Robert Childs
Chair of the Nominations and
Governance Committee
was positive with continued robust
decision-making and a Board culture
which fosters constructive discussion.
The Board continues to engage in
continuous improvements with the
annual review process being an explicit
point of reflection on ongoing actions
and new areas of focus. The Directors
determined to focus on the following
matters in 2023:
• people and succession planning
– further focus on workforce DEI,
employee engagement, and
long-term succession planning for
senior management, Independent
Non Executive Directors and
the Chairman;
• strategy – continue to review
iterations of the strategy to further
address risk, operations and
the competitor environment in
a fast-changing world;
• IFRS 17 – oversight of IFRS 17
and understanding the business
changes and peer positioning
on this in addition to the
financial changes;
• ESG – further focus on the
development and communication
of ESG initiatives in line with
changing expectations and
regulation. This will also include a
continued focus on the diversity of
the Board, particularly given that a
number of Directors will be coming
to the end of their term on the Board
over the next three years.
Additional topics for review were
identified as part of the Board evaluation
which will influence the agendas and
training plans for the year.
there will be any changes to Board
composition as a direct result of the
Board effectiveness review conducted
this year. However, as set out in more
detail on page 96, the Board is cognisant
of its commitment to diversity in all its
forms and intends to work towards the
current FTSE Women Leaders Review
target and UK Listing Rules target for
gender balance at Board level.
The Board welcomed the review’s
conclusions with the feedback directly
linking to ongoing Board developments.
The Chair owns the response to the
findings, and will report on their delivery
in the 2023 Annual Report and Accounts.
2021 Board effectiveness review –
progress against identified actions
The Board and its Committees have
made tangible progress against the
action points identified during 2022:
• focused on the succession of
Executive Directors and other key
leadership positions as detailed
in this report, including ensuring a
smooth transition to the new Group
Chief Executive Officer, Group Chief
Financial Officer and Audit Chair;
• continued the review of the
Group’s strategy to further
address risk, operations and
competitor environment in a
fast-changing world;
• continued to drive accountability
and excellence in execution,
including the continued monitoring
of progress against the Company’s
business priorities and key projects,
and building on new management
information to further increase the
linkage between objective setting
and monitoring;
In light of the finding that the Board
continues to perform well and function
effectively, it is not anticipated that
• continued discussions on
strategy, including business
mix and capital allocation;
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Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
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.
The Committee meets four times a
year to coincide with key points in
the Company’s financial calendar.
Working with both management and
the external auditor, the Committee
reviewed the appropriateness of the
interim and annual financial statements,
concentrating on:
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.
Following the transition of the Committee
Chair role to Donna DeMaio in May 2022,
the Committee is comprised of seven
independent Non Executive members.
The Committee has recent and relevant
finance expertise and competence
relevant to the insurance sector.
that the external auditor, PwC, displayed
the necessary professional scepticism
its role requires. The significant issues
considered by the Committee in relation
to the 2022 Annual Report and Accounts
were as follows.
i) Reserving for insurance losses
As set out in our significant accounting
policies on pages 179 to 180, the
reserving for insurance losses 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 the key
judgements within those estimates. The
Committee reviewed and challenged the
key judgements and estimates in valuing
the insurance liabilities.
During the year, the Group was impacted
by two major events, Hurricane Ian
and the Russia/Ukraine conflict. It
is important that the Company can
quickly, and with a reasonable degree
of reliability, estimate the gross and net
losses arising from these events. The
Committee received presentations from
the Chief Actuary and management
on the process undertaken, and the
judgements arrived at, to establish
these key estimates. The Committee
is satisfied with both the process that
was conducted and the reporting and
disclosure of the resulting estimates.
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 ensured
The Group is also impacted by the
current high inflation environment, with
explicit allowance for this added into
reserves over the year. The Committee
received presentations from the Chief
Actuary and management on the
process undertaken, and the judgements
arrived at, to establish these explicit
loadings. The Committee is satisfied with
both the process that was conducted
and the reporting and disclosure of the
resulting estimates. The Chief Actuary
also detailed the remaining insurance
risk given the significant uncertainty
in future inflation rates, however, the
Committee notes that the Group
continues to adopt a prudent
approach where uncertainty exists.
The Company continues to keep
Covid-19 losses under review, continually
evaluating loss estimates based on
entity-specific historical experience
and contemporaneous developments
observed in the wider industry when
relevant. The Committee received
detailed presentations from the Chief
Actuary and management relating
to the latest information and the
recommendations arising therefrom.
The Committee is satisfied with both
the process that was conducted and
the reporting and disclosure of the
resulting 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 prior years,
the Committee also considers the report
of the external auditor following its
Hiscox Ltd Report and Accounts 2022
99
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
Audit Committee report
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
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,
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 2022 was appropriate.
ii) The recoverability of reinsurance assets
The Committee received an update
on the credit risk exposures to
reinsurers. 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. The Committee is satisfied with the
approach taken and the recoverability of
reinsurance assets.
iii) Going concern assessment and
longer-term viability statements
The Committee noted the Group’s
going concern statements included
in the Interim Statement and in this
Annual Report and Accounts, and
the assessment reports prepared
by management in support of such
statements. More information on the
going concern and viability statements
can be found on pages 148 to 149.
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
100
Hiscox Ltd Report and Accounts 2022
macroeconomic factors underlying
the valuation process. The Committee
received updates on impairment
testing and the analysis performed
by management, and assessed the
appropriateness of the assumptions
made. The Committee is satisfied with
the approach taken and the recoverability
of the goodwill and intangible assets.
v) Accounting for the defined
benefit scheme
As explained in note 2.15 to the financial
statements, the Group recognises the
present value of the defined benefit
obligation, less the fair value of plan
assets at the balance sheet date.
The Committee reviewed the key
judgements and estimates used to
measure the pension scheme net liability
or asset position, and the results of the
independent pension valuation report.
A new funding agreement was signed
in 2022 and the impact of this was
assessed, with specific analysis of the
minimum funding requirements of IFRIC
14 and the asset ceiling requirements of
IAS 19. The Committee is satisfied that
the assumptions used to measure the
pension scheme are reasonable and that
appropriate disclosures are provided in
the Annual Report and Accounts.
vi) 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 notes 17 and 20, 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 equities and
investment funds, a small proportion
relies on a higher degree of judgement.
The impact of the Ukraine conflict on
a small number of investments was
reported to the Committee.
The Committee, through the Investment
Committee, receives reports on the
portfolio valuation and is content with
the process and the estimates reported.
Sensitivity analysis on valuation of assets
is captured within the financial risk section
(note 3.3 to the financial statements) of
the Annual Report and Accounts.
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 assumptions
regarding recoverability of deferred tax
assets remain consistent with prior years.
The Committee reviewed the underlying
assumptions for the recognition of deferred
tax assets, principally the availability of
future taxable profits and utilisation period.
Controls and corporate governance
The Committee received quarterly
updates on the effectiveness of the
financial control environment. In addition,
the Committee was updated on expected
changes to governance and audit with a
focus on internal controls and enhancing
the financial control framework. An
approach to assess and implement the
new requirements was proposed. The
Committee was also given updates on
various FRC papers published in 2022
on corporate reporting.
Environmental, social and governance
(ESG) reporting
The Committee was updated on ESG
reporting matters including external
developments such as activity by the
International Sustainability Standards
Board (ISSB). As the demand for
ESG-related disclosures increases, it
is important that Hiscox demonstrates
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
Audit Committee report
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
its commitment to environmental, social
and governance factors. The Committee
will play a key role in assessing the
controls and assurance over these
disclosures going forward.
Insurance contracts (IFRS 17) and
financial instruments (IFRS 9)
The Committee received regular updates
on the Group’s IFRS 17 Insurance
Contracts programme with an increasing
focus on the preparedness of the Group
to implement the new standard.
The Committee monitored the
implementation of the systems,
communication plan, processes and
operating model to support the delivery of
the new financial reporting requirements.
In addition, the Committee reviewed
and approved material methodologies,
policies, assumptions and reporting
metrics, supported by a number of
Board technical training sessions. This
included reviewing and challenging
the methodology and key judgements
underpinning the preparation of the
opening balance sheet under IFRS 17.
The Committee received regular updates
from PwC in relation to the progress and
findings from their assurance work.
The Committee concluded that the
disclosures in respect of IFRS 17
included in note 2, basis of preparation,
are appropriate for inclusion in the
Annual Report and Accounts.
The accounting policy changes and
implementation impacts of adopting
IFRS 9 Financial Instruments from
1 January 2023 were presented to
the Committee.
Internal audit
The Group’s Chief Auditor provided
quarterly updates to the Committee on
the progress of the internal audit plan,
the outcomes of recent audits, the
progress of audit-related actions, and
any other relevant activities including
its key performance measures and the
development of its resources. Updates
on aspects such as the assessment of
internal audit’s effectiveness and the
review of the internal audit policy are shared
annually. The internal audit plan is derived
using a risk-based approach. In 2022, key
themes included core underwriting and
claims controls, pricing, business and
IT operations, change, financial control,
data governance and controls, ESG and
various regulatory themes.
External auditor
PwC has been the Company’s external
auditor since 2016 following a tender
process. 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
financial statements.
To safeguard auditor independence and
objectivity, non-audit services are not
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 Committee
has assessed the independence,
effectiveness and quality of the external
audit process. This assessment
considers the Committee’s interactions
with the external auditors and considers
a variety of issues, including: the external
auditors’ experience and expertise; their
professional scepticism and approach
to challenging management where
necessary; their efficiency in completing
the agreed external audit plan; and the
content, quality and robustness of their
reports. The Committee also takes
into account the perspectives of those
in senior management who interact
with the external auditors on a regular
basis. This process forms the basis for
the Committee’s recommendation to
shareholders to reappoint the external
auditor and no substantive concerns
were raised by the Committee this year.
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.
Fair, balanced and understandable
The Committee assessed whether
the Annual Report and Accounts,
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.
Donna DeMaio
Chair of the Audit Committee
Hiscox Ltd Report and Accounts 2022
101
Q&
A:
with Nicola Grant
Group Chief Human Resources Officer
People person
It’s been a busy year for Hiscox – refining
its employee proposition and evolving
its hybrid-working model – and now the
Company is looking to better promote its
unique culture to potential employees. >
102
Hiscox Ltd Report and Accounts 2022
Hiscox Ltd Report and Accounts 2022
103
Nicola Grant joined Hiscox in
September 2022 after 17 years
with ING, bringing considerable
experience in HR transformation,
organisational development and
design, talent management and
diversity, equity and inclusion.
Based in London, her role involves
developing the Group’s people
strategy and leading a team of 95
HR professionals around the world.
Q&
A:
with Nicola Grant
Group Chief Human Resources Officer
Q: Before joining Hiscox you
worked for ING in New York, then
Amsterdam. How did that experience
of working abroad prepare you for
overseeing HR in a company with a
global footprint?
A: Working abroad, you learn a lot
about yourself, and you learn a lot about
adapting to the environment in which you
work. You also learn how important it is
to think in an inclusive, global way. For
example, hosting calls in the morning on
the East Coast of the USA when people
have to dial in from the West Coast
doesn’t create good experiences for
all. You’d get up at 5am for these calls,
absolutely exhausted, then they’d be
cancelled ten minutes before. I became
much more aware of simple things like
that, which make such a big difference
to how people feel. In Amsterdam, I had
to work very hard to build relationships
and gain buy-in from people in an office
where English wasn’t the first language,
so I learnt what that feels like. What really
sticks with me though is how intentional
you have to be to make everyone feel
included. That’s something I’m very,
very passionate about.
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Hiscox Ltd Report and Accounts 2022
Q: What persuaded you to make the
leap to Hiscox?
A: I’d been with ING for 17 years and I
loved it there. I needed the next move
to be the right one. I’d talked with other
financial institutions, but culturally we
weren’t aligned. When I got a call about
Hiscox, my first thought was: “I don’t think
insurance is for me”. But I remembered
that, 20 years ago, I’d heard about Hiscox
having a forward-thinking sabbatical
policy, so I agreed to have a conversation.
I met with Aki, and there were a couple
of things about that conversation that I
found exciting. Hiscox is going through
this transformation from a big-small
company to small-big company, and the
opportunity to influence that shift was
something really compelling. He was
also completely authentic, and that was
true of all of the people I talked to here. I
genuinely felt that the culture would align
with my own values, and for me that’s the
most important thing.
Q: Based on your own experience,
does more need to be done to
promote Hiscox’s employer brand
to potential employees?
A: Hiscox is at a really exciting point
in time, where I think the opportunity
to shout about our employer brand is
huge. As someone coming in with a fresh
perspective, I can honestly say that I
do think Hiscox is unique, and so we
mustn’t undervalue just what a special
thing our culture is. That ‘human’ value
is really lived, it’s such a lovely, friendly,
caring organisation, but also one filled
with smart individuals performing at an
incredibly high level. Had I not heard
about our sabbatical policy all those years
ago, and remembered it because it was
ahead of its time, I might have thought:
“Insurance, boring, I’m not interested”.
I think a lot of people have that thought
process, so we need to invest in branding
ourselves as an employer of choice,
which is where we want to be, and getting
there is absolutely a priority of mine.
Q: How do you go about getting that
message out there?
A: It’s a number of things. We’ve been
busy refining our employee proposition
– our promise to employees, if you like –
and we have to start activating that in the
external environment. One thing we need
to do is leverage our alumni in a stronger
way. Throughout the organisation, we
have a lot of what we call ‘boomerangs’.
These are people who leave Hiscox but
come back, which I think says a lot about
the Company and its culture. I also think
we have to be intentional about how we
position ourselves in universities and in
other places in the community where
there’s the potential to start hiring. I think
we have a real opportunity to differentiate
ourselves there.
Q: You mentioned the employee
proposition. How has that
been changing?
A: We’ve made some quick tactical
interventions to improve the employee
proposition while we work on the bigger,
more strategic piece of work. One of
the main things is the concept of ‘time
out’, which includes a more modern
sabbatical policy, so that instead of
having to wait ten years, we now offer a
four-week sabbatical for every five years
of employment. We also introduced
‘Hiscox days’: people can take two extra
days off every year for whatever they
want – religious holidays, birthdays or
just a duvet day. So far, we’ve seen them
used on everything from school sports
days to people renewing their wedding
vows and I just love to hear those stories.
Then, from January 2023, people can
buy additional holiday. People want more
flexibility, they want more choice, and
Hiscox is at a really exciting point in
time, where I think the opportunity to
shout about our employer brand is
huge. As someone coming in with a
fresh perspective, I can honestly say
that I do think Hiscox is unique, and
so we mustn’t undervalue just what
a special thing our culture is. That
‘human’ value is really lived, it’s such
a lovely, friendly, caring organisation,
but also one filled with smart
individuals performing at an incredibly
high level.”
that and we have to be more intentional
about talent and career development for
staff. That’s something that is definitely a
priority for next year.
Also, we continue to build our digital
capabilities and from a people perspective
that’s something I’m interested in – how
can we free people up from what I’d call
analogue tasks in a way that’s exciting for
our people, but that also enhances our
abilities to develop our talent?
Q: The introduction of hybrid working
has been a big change in recent years.
How is that evolving?
A: We’ve moved away from what
employees told us was ‘rigid flexibility’,
where we said: “You need to return to
the office x-days a week”. Instead, we’ve
introduced a much more collaborative
approach within the teams where they
work things out according to their
needs and define this through a
co-created team charter. That’s gone
down incredibly well. I really do believe
all leading organisations will continue to
move towards activity-based working.
We’re not going to go back to five days a
week in the office – that ship has sailed.
I think the challenge is: how do you create
the community and the connection, and
maintain our amazing culture, when you
don’t see each other very often? I think
orchestrating that is quite challenging,
so that’s where we’re going to spend the
time over the next year.
Q: Looking across the Group, are you
able to maintain a consistent culture
that crosses borders?
A: A strong internal culture can live in
all places. Everything we do needs to
be congruent. We have to signpost our
values and culture, and the context in
which we operate needs to support
them. So, for example, our offices –
We also introduced ‘Hiscox days’:
people can take two extra days off
every year for whatever they want –
religious holidays, birthdays or just
a duvet day. So far, we’ve seen them
used on everything from school
sports days to people renewing their
wedding vows and I just love to hear
those stories.”
they want more time out of the office, so
that’s what we’ve tried to deliver with this
new suite of benefits.
The other differentiating benefit is the
introduction of HSX:26, which extends
the concept of ownership – one of our
values. Every permanent employee has
been issued with stock that will vest in
2026, so every employee is now an owner
of the Company. HSX:26 is still open, so
we can offer a pro-rated grant to new
hires up until 2024, which is phenomenal.
Q: What’s next?
A: The work around employee
proposition won’t stop. We’re hosting
some focus groups to further refine our
employee proposition promise. There are
a couple of other things we need to look
at too. One is around capabilities. Which
capabilities are we going to invest in in
the future, which of those capabilities
will differentiate us as an employer and
give us the edge in the market? The other
is our approach to talent management.
More people than we would like say that
their primary reason for leaving is career
development, so we have to learn from
the look and feel – should be similar
throughout the organisation. Our
managers should have the same level of
capability throughout the organisation
and the same approach to management.
Our tooling, whether it’s performance
management or our approach to talent,
should be uniform. All of these things tell
a story. I’ve been to quite a few countries
now and my observation is we do this
well and they’re all pretty consistent,
so maintaining this will be a priority as
we scale.
Q: Outside of work, what gives
you energy?
A: Walking my dog in the fields in the
morning. That’s a really important little
bit of ‘me’ time and sets me up for the
day ahead.
Hiscox Ltd Report and Accounts 2022
105
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Annual statement from the Chair of the
Remuneration Committee
Dear fellow shareholder
2022 was a year of progress for Hiscox.
The Group delivered a strong underwriting
profit of $269.5 million, the highest for
seven years, representing an ROE of
10.8% from the core business, in a year
which has included a range of significant
natural and man-made catastrophes.
Hurricane Ian losses were much
lower than they would have been
had we not reduced our exposure to
under-priced business. Hiscox has
achieved a combined ratio for retail
within its target range a year ahead of
market expectations and internal targets;
the bench strength of talent at a senior
leadership level was bolstered with a
number of new appointments, including
Paul Cooper who joined the Executive
team earlier in the year as the new Group
Chief Financial Officer, bringing fresh
thinking to the top table; and employee
engagement scores reached their
highest level in ten years.
The Remuneration Committee has been
busy reviewing our remuneration policy
and consulting with shareholders in light
of the forthcoming policy review. As a
result of this process, we have proposed a
number of changes which we believe will
ensure that our executive remuneration
fully supports achievement of our strategic
objectives and motivates continued high
performance on behalf of shareholders
– including our financial results but also
our wider role as a responsible employer,
insurer and corporate citizen.
The Committee is focused on ensuring
that we are rewarding performance
that is sustainable. As such, we plan to
introduce non-financial performance
measures under our incentive plans for
the first time as we look to further focus
Executive Directors on leading measures
of performance. Our customers
are at the heart of what we do and
their experience of dealing with us is
becoming an increasingly key part of our
overall performance, particularly given
our growing retail focus. Likewise, we
know that there is a strong relationship
between employee engagement and
company performance, and we believe
that making Hiscox a great place to work
is in shareholders’ long-term interests,
in addition to being valuable in its own
right. We are also conscious of the
impact we can have as a business on the
environment, which is why we propose to
allow scope within our long-term incentive
plan for the addition of ESG-related
targets. We anticipate that our use of
non-financial measures will evolve as we
continue to develop our approach over
the coming years, in line with our strategic
aims and evolving market practice.
The 2021 Annual Report and Accounts
included details of the Group’s strategic
evolution as Hiscox seeks to build more
balanced portfolios in the big-ticket
businesses, alongside the significant
structural growth opportunities that exist
in our retail operations. This strategic
evolution means that the profile of our
returns is expected to change over time
and this – along with the continuing
volatility in market conditions – formed
part of the Committee’s decision-making
around incentive targets and how they
calibrate with pay outcomes for 2023 and
beyond (described below). Our objective
was to ensure the strongest possible
ongoing alignment between Executive
pay outcomes and shareholder interests
in the context of market change.
Remuneration policy review
The comprehensive policy review
confirmed that, overall, our framework
continues to operate effectively,
supporting our aims of delivering strong
Our remuneration strategy is
designed to attract and keep
talented, ambitious people
and foster a culture that
encourages sustainable high
performance. Our aim is to
deliver strong returns across
the insurance cycle and
create long-term value for
our shareholders.”
Colin Keogh
Chair of the Remuneration Committee
106
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Chapter 4
Remuneration
Annual statement
from the Chair of
the Remuneration
Committee
returns across the insurance cycle and
creating sustainable long-term value for
our shareholders. Nevertheless, we are
proposing some improvements, set out
below, with three key objectives in mind:
A to align the policy with good
remuneration practice among
UK-listed companies;
A to reduce any unnecessary
complexity and volatility within
the framework; and
A to appropriately reinforce our
environmental, social and
governance (ESG) responsibilities.
Throughout the review process,
shareholders have provided valuable,
constructive feedback on the proposals
and on behalf of the Committee, I would
like to thank all those who contributed.
Performance measures for incentives
Our incentives have previously been
based only on financial measures, with
a discretionary overlay to account
for non-financial performance. The
Committee intends to add formal
non-financial metrics into the framework
of both the bonus and long-term
incentive plan to reflect the Group’s
wider strategic objectives and align
with developing market practice among
UK-listed companies. The non-financial
metrics have been carefully selected to
be relevant to business performance.
Annual bonus
The annual bonus is intended to align
reward with the achievement of key annual
objectives. We are proposing in the policy
to base up to 25% of annual bonus awards
on non-financial performance measures.
The majority of the bonus opportunity
(75% of the total) will still be based on
financial metrics which remain the
primary driver of bonus awards. Given
the importance of our customers and
colleagues, for the 2023 annual bonus
we propose the introduction of employee
and customer engagement metrics –
each weighted at 5% of total bonus.
The customer and employee metrics
are direct drivers of business growth
and performance, so fully aligned with
shareholder value.
Employee engagement will be measured
by considering our annual employee
engagement survey scores, and
customer engagement will be considered
through quarterly claims transactional
NPS results across our retail businesses.
Alongside these engagement metrics
will be an individual personal objectives
scorecard weighted at 15%, taking the total
non-financial component of the bonus for
2023 to 25% for each Executive Director.
Long-term incentive plan (LTIP)
The LTIP is intended to incentivise and
reward our Executives for delivering
against long-term objectives that are
focused on growth in Company value and
aligned with the interests of shareholders.
The current metrics of growth in net
asset value (NAV) per share plus
dividends and relative total shareholder
return (TSR) measured against a group
of our main peers, remain key measures
of our long-term success and are
therefore being retained.
To complement the existing structure
we are proposing to include in the policy
the capacity to base up to 30% of LTIP
awards in future years on non-financial
measures, including an element related
to our environmental impact in order
to ensure that the LTIP supports the
delivery of our wider corporate strategy
and recognises the impact that we can
have as an insurer and an investor.
As work continues in this area and
having considered shareholder
feedback, for 2023 LTIP awards we
propose to retain our past focus on
financial measures only, with a 50%
weighting proposed for relative TSR
and 50% for NAV growth. We will
consult with shareholders again ahead
of introducing an environment-related
measure in future years.
Good governance changes
We are also proposing a number of
smaller changes to the policy in order to
ensure its continued alignment with good
governance practice.
A Bonus deferral mechanism: the
current policy includes a cash
deferral structure which applies for
up to two years following the end
of the financial year, with a variable
amount deferred depending on
bonus quantum. In order to align
Executive interests further with
shareholders, align with market
practice and make deferral simpler,
we propose that deferral be applied
at a flat rate of 40% of bonus with
amounts deferred into Hiscox
shares and released three years
following the end of the relevant
performance year.
A Post-employment share ownership
guidelines: post-employment
share ownership under the
current policy tapers by 50% at
one year post-termination. We
propose to align to the Investment
Association’s principles of
remuneration, to extend the full
post-employment shareholding
guideline to two years with a
requirement to hold shares in line
with the in-service guideline in place
immediately prior to departure,
or the actual shareholding on
termination if lower.
Hiscox Ltd Report and Accounts 2022
107
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Chapter 4
Remuneration
Annual statement
from the Chair of
the Remuneration
Committee
A Malus and clawback: we propose
to extend our current provisions
by adding to the existing list of
circumstances that may trigger the
use of malus or clawback. Further
details are included on page 140.
Target setting
The strategic evolution of the Group
(see pages 6 to 7) has two important
consequences – first, more consistent
earnings growth should, over time,
narrow the range of performance
outcomes and, secondly, the planned
increase in the contribution from retail
should, again over time, reduce NAV
volatility arising from underwriting.
Therefore, the Committee felt it was
important to incentivise Executives to
deliver long-term incremental and stable
growth in earnings. We will therefore
seek to incorporate these factors as
we set incentive targets. For 2023 this
will involve:
A slightly lower parameters for the
ROE outcomes that underpin our
bonus targets; and
A a narrower range of NAV growth
outcomes applicable to the LTIP.
In setting the targets, we have also moved
away from referencing the risk-free rate
to absolute thresholds for ROE and NAV
growth, reflecting both broader market
practice and also the fact that the
risk-free rate is forecast to remain volatile.
strategy of building more balanced
portfolios to drive reduced earnings
volatility. Hiscox has achieved strong
organic capital generation, enabling
deployment of additional capital into a
very favourable rating and underwriting
environment while continuing to maintain
a strong balance sheet and solvency ratio,
and preserving a progressive dividend.
However, an excellent underwriting
performance was masked by significant
unrealised investment losses in our bond
portfolio. This was driven by the high level
of volatility in the global bond markets
this year and some of the sharpest rises
in interest rates on record. Most of the
bond portfolio losses are mark-to-market
losses, and thus accounting rather than
cash losses. Given that our portfolios
typically hold these investments until
maturity, and the portfolio is of very high
quality, we expect that these losses
will unwind as the bonds mature.
Remuneration outcomes for 2022
2022 annual bonus
Pre-tax ROE, our performance
metric for both Executive Director and
wider workforce profit bonuses, was
materially impacted by the unrealised
investment losses on the bond portfolio.
The Committee is firmly of the view
that unrealised gains and losses in
such a volatile external environment
are not a helpful or fair reflection of
management performance.
2022 business performance
The Group has delivered a strong
result in an active year of geopolitical
uncertainty, economic unpredictability
and natural catastrophe losses. An
underwriting profit of $269.5 million
(2021: $215.6 million) and combined ratio
of 90.6% (2021: 93.2%) is a testament
to the disciplined execution of a refined
For the wider workforce, the Committee
has decided that the fairest course is
to pay bonuses on the pre-tax result
after excluding the impact of unrealised
investment losses on bonds in their
entirety. As those bonds return to par
over the next three years, we will adjust
future bonus pools to remove the impact
of any future gains. This smoothing
effect of an accounting impact on
the maturity profile of our bonds is,
we feel, appropriate from a short-term
incentive perspective.
For the three Executive Directors,
without adjustment they would not
receive a bonus in respect of 2022.
Given the Group reported its strongest
underwriting profit since 2015 during
what has been a turbulent year, and
considering the broader contribution
and impact made by Executive
Directors, after careful consideration
the Committee determined that it
would be appropriate to exclude 50%
of the unrealised investment losses on
bonds ($107.5 million) for 2022, from the
bonus calculation. This results in an
adjusted pre-tax ROE result of 6.1%.
The Committee is of the view that
paying 25% of the maximum bonus
opportunity to Executive Directors is
a fair outcome and that payment of
this level of bonus is aligned with the
shareholder experience. The Committee
also noted the improvement in share
price performance seen during 2022
and the payment of dividends which
were not impacted by unrealised
investment losses.
As with the wider workforce, we will
adjust the bonus pools over the next
three years to remove the unwinding
of the unrealised investment losses,
so that there is no future benefit.
2020-2022 LTIP
Growth in NAV per share plus dividends
is our performance metric for awards
made in 2020, vesting in 2023.
Performance averaged over 2020,
2021 and 2022 has not met the vesting
threshold and therefore awards made
to Executive Directors will lapse in full.
108
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Chapter 4
Remuneration
Annual statement
from the Chair of
the Remuneration
Committee
2023 remuneration
Executive Directors will receive salary
increases of 5% which is below the
average across other Hiscox employees
in the UK of 6.1%.
Award opportunities under the bonus
and LTIP arrangements remain
unchanged from 2022.
Proposed changes to the performance
metrics and the assessment process for
both plans are outlined above. Further
detail on the measures and targets are
set out on pages 123 to 124.
Wider workforce
Engagement
We recognise the importance of
engaging with and seeking feedback
from employees on issues including
remuneration to inform decision-making.
One of the ways we do this is through
our Employee Engagement Network,
a representative group from across
functions and geographies, whose
sessions are facilitated by Employee
Liaison and Non Executive Director
Anne MacDonald and whose anonymised
views are shared with the Board
throughout the year. In 2022, a range of
people-related topics were discussed
in this forum, including new ways of
working, diversity, equity and inclusion
(DEI) and remuneration.
Another way in which we do this is
through the Group’s annual employee
engagement survey, and the Committee
is particularly pleased with the positive
improvements in employee engagement
during the year, reflecting the strategic
importance placed on building connected
teams post-pandemic. More information
on the Group’s 2022 employee
engagement scores, the highest in
ten years, can be found on page 3.
Rewards and benefits
Another of the Group’s strategic
priorities for 2022 was to take a fresh
look at the experience of working at
Hiscox, ensuring it remains a great
place to work and build a career.
This was a consultative process,
with views collected from across the
Group, and resulted in some significant
improvements to the global benefits
offering during 2022:
A the introduction of HSX:26
– an all-permanent-staff share
ownership grant, in line with
our ownership value and in
recognition of the critical role
that all employees play in
achieving our strategic
objectives between now and
2026, when the shares vest;
A a refreshed sabbatical policy
– giving all permanent staff a
four-week paid sabbatical for
every five years of service; and
A the introduction of Hiscox
days – giving our people two
additional days of leave to allow
them to mark occasions that
matter to them – from religious
holidays, to family events, or
something else important.
These days may also be
donated to a colleague.
Pay
Financial well-being is a core pillar
of our benefit philosophy and is why
Hiscox has been an accredited Living
Wage employer in the UK since 2019.
In 2022, we recognised the additional
challenges of high inflation levels and
an increased cost of living, and made
cost of living lump sum payments
of £1,500/$1,500/€1,500 to the
lowest-earning portion of our workforce
– with 38% of our people benefitting from
a one-off payment.
Pay reporting, measurement
and monitoring
In 2022, Hiscox published its sixth annual
gender pay report for the UK, and the
mean pay gap of 16.0% (2021: 19.1%)
represents steady progress at getting
more women into more senior and
higher-paid roles. Since 2017, on a mean
basis, our gender pay gap has reduced
steadily and is now 15 percentage points
lower than when reporting commenced.
While gender pay gap reporting is a
UK-specific disclosure requirement,
internally we measure and monitor
the gap globally. This supports our
continued focus on DEI and is reflected
in how we nurture talent and build a
pipeline of diverse leaders. For example,
each business unit and function across
the Group has an action plan in place
that is measured and monitored and
ensures we are building gender diversity
into succession planning and career
development as we seek to realise
women’s leadership potential across
our business.
In summary
The Remuneration Committee is satisfied
that the 2022 remuneration outcomes
are aligned with the experience of
shareholders and reflective of business
performance. Our policy has served
us well to date, but we believe that the
proposed amendments reflect good
market practice, align incentives with our
wider strategic objectives, and will enable
us to continue to retain and recruit the
high-calibre leadership required to deliver
in a highly competitive global sector.
Colin Keogh
Chair of the Remuneration Committee
Hiscox Ltd Report and Accounts 2022
109
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Remuneration summary
Key principles underpinning
remuneration at Hiscox
Summary of remuneration arrangements
A summary of the
remuneration
arrangements for
Executive Directors
is provided opposite.
Base salary
Competitive fixed pay.
Benefits
Same as majority of employees.
Annual bonus
Aligned to shareholder interests.
Performance Share
Plan (PSP)
Aligned to long-term shareholder
interests and performance.
Shareholding guidelines
Aligned to shareholder interests.
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 2022
Bonus of c.25%
of maximum
opportunity for the
Executive Directors.
Long-term performance
impacted by Covid-19
events and catastrophe
claims. PSP awards
granted in 2020 will
not vest.
Single figure of
£1,390,959 for the CEO.
110
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
Remuneration summary
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
132
Read our updated remuneration policy.
Implementation of policy for 2022
Implementation for 2023
Base salary
Competitive fixed pay.
Salaries for 2022:
— Aki Hussain: £750,000
— Paul Cooper: £525,000
— Joanne Musselle: £525,000
Salaries for 2023:
— Aki Hussain: £787,500
—Paul Cooper: £551,250
—Joanne Musselle: £551,250
Salary increase of 5% in line with the
average UK employee increase of 6.1%.
Benefits
Same as majority of employees.
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.
Annual bonus
Aligned to shareholder interests.
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 awarded to the CEO has been equivalent
to 26% of the current maximum opportunity.
Performance metrics: disclosure of the ROE target ranges and detail around
the individual performance factors used to determine outcomes for 2022 is
provided on pages 114 to 117.
Deferral: part deferral of amounts in excess of £50,000.
2022 actual as a percentage of maximum opportunity:
— Aki Hussain: 25%
— Paul Cooper: 25%
— Joanne Musselle: 25%
Performance Share
Plan (PSP)
Aligned to long-term shareholder
interests and performance.
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 (60% weighting)
and relative TSR (40% weighting).
Shareholding guidelines
Aligned to shareholder interests.
2022 award as percentage of salary:
— Aki Hussain: 250%
— Paul Cooper: 250%
— Joanne Musselle: 250%
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.
2022 actual:
— Aki Hussain: 212%
— Paul Cooper: 62%
— Joanne Musselle: 243%
Paul Cooper was appointed in May 2022.
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.
Maximum opportunity unchanged.
Performance metrics: 75% weighting
on ROE and 25% on non-financial
performance metrics. Further details
are provided on page 123.
Deferral: flat rate of 40% of bonus with
amounts deferred into Hiscox shares
and released three years following the
end of the relevant performance year.
Maximum opportunity, time horizon and
holding period all unchanged.
Vesting subject to: net asset value
per share growth plus dividends
(50% weighting) and relative TSR
(50% weighting).
2023 award as percentage of salary:
Aki Hussain: 250%
Paul Cooper: 225%
Joanne Musselle: 225%
Share ownership guideline unchanged.
Post-employment shareholding
requirement: maintain the level of the
in-employment shareholding guideline
(or the actual shareholding on stepping
down, if lower) for two years following
stepping down from the Board.
Hiscox Ltd Report and Accounts 2022
111
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Annual report on remuneration 2022
This report explains how the remuneration policy was implemented
for the financial year ended 31 December 2022.
PwC has been engaged to audit the sections in the annual report on remuneration 2022 below entitled ‘Executive Director
remuneration’ and ‘additional notes to the Executive remuneration table’, ‘annual bonus’, ‘performance outcomes for 2022’,
‘long-term incentive plan’, ‘Non Executive Director remuneration table’, ‘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 table (audited)
2022
Name
Aki Hussain1
Paul Cooper2
Joanne Musselle
Salary
£
750,000
340,057
522,125
Benefits
£
10,593
6,009
8,890
Bonus
£
562,500
237,182
525,000
Long-term
incentive
plan4
£
0
0
0
Retirement
£
67,866
30,732
43,527
Other3
£
Total
£
Fixed
remuneration
£
Variable
remuneration
£
0 1,390,959
620,273 1,234,253
0 1,099,542
828,459
376,798
574,542
562,500
857,455
525,000
Total split
2021
Name
Aki Hussain
Joanne Musselle
Salary
£
511,000
511,000
Benefits
£
8,308
9,060
Bonus
£
462,150
550,000
Long-term
incentive
plan
£
0
0
Retirement
£
46,453
46,938
Total
£
1,027,911
1,116,998
Fixed
remuneration
£
565,761
566,998
Total split
Variable
remuneration
£
462,150
550,000
¹Aki Hussain was appointed as Group Chief Executive Officer on 1 January 2022 (he was formerly the Group Chief Financial Officer).
2 Paul Cooper was appointed as Group Chief Financial Officer on 9 May 2022 and appointed to the Hiscox Ltd Board as an Executive Director on 12 May 2022.
Details of his joining package are contained on page 107 of the 2021 remuneration report.
3 Includes Sharesave scheme discount to market value of £4,500 (see page 121), plus 2021 bonus buy-out of £253,470 paid in May 2022, plus partial 2022 bonus
buy-out of £119,318, plus share buy-out of £242,985 using the middle market quotation of £9.142 on the 20 September 2022 vesting date. Dividend equivalents
were added. The share price had dropped 5% between the date of grant and vest. See page 117 for more details of buy-out arrangements.
4 2022 long-term incentives for Aki Hussain and Joanne Musselle relate to performance share awards granted in 2020 where the performance period ends on
31 December 2022. The award is due to vest on 15 May 2023. Based on the performance achieved, the awards will not vest. As the award will lapse in full there
is no part of the award attributable to share price appreciation.
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Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
106
Chapter 4
Remuneration
Annual report on
remuneration 2022
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Additional notes to the Executive Director remuneration table (audited)
Salary
Salary reviews take place in the first quarter of the year, effective from 1 April. As noted in last year’s remuneration report,
Joanne Musselle’s salary was increased by 2.2% from April 2022, which was below the average UK-based employee salary
increase. Aki Hussain’s salary remained unchanged from his 1 January 2022 starting salary. Paul Cooper’s salary was effective
from him commencing employment on 9 May 2022.
Base salaries for Executive Directors from 1 April 2022 were as follows:
Aki Hussain
Paul Cooper
Joanne Musselle
April 2022
£
750,000
525,000
525,000
Benefits
For 2022, benefits provided for Executive Directors included the healthcare scheme, life insurance, income protection insurance
and critical illness policies, as well as a Christmas gift and fitness cash allowance.
Retirement benefits
Aki Hussain and Paul Cooper received a 10% of salary cash allowance in the year (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 112. 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.
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.
Hiscox Ltd Report and Accounts 2022
113
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
106
Chapter 4
Remuneration
Annual report on
remuneration 2022
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Annual bonus (audited)
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. 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. 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.
The bonus is structured in a way that ensures significant variability in outcomes, including the possibility of no bonus being paid.
Over the past ten years there have been three occasions when the Group delivered a pre-tax ROE below the required threshold
and no bonuses were paid to Executive Directors. The threshold is set annually using an investment benchmark rate and for 2022
was set at a pre-tax ROE of risk-free-rate plus 2.5%.
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 personal and strategic objectives, including adherence to specific risk
management objectives. Details of the key objectives for 2022 and individual achievements by the Executive Directors are
shown on page 116. The Remuneration Committee also seeks input from the Chief Risk Officer and Chief Actuary. To aid
the Committee’s assessment of bonus outcomes, the following framework was in place for 2022.
Pre-tax return on equity
144
Hiscox Ltd Report and Accounts 2022
Hiscox Ltd Report and Accounts 2022
145
After building his career at R.J. Kiln
Syndicate, Argo Re, Ariel Re and
MS Amlin, Matthew Wilken joined
Hiscox Re & ILS in January 2022.
He is responsible for executing the
business’s underwriting strategy and
delivering long-term value by ensuring
the needs of clients and capital
partners are successfully met.
Q&
A:
with Matthew Wilken
Chief Underwriting Officer,
Hiscox Re & ILS
Q: Tell us a little about your
professional background.
A: I joined the industry in 1991, a
year before Hurricane Andrew. The
reinsurance market was going through
a paradigm shift similar to the one we’re
experiencing now, some three decades
on. I joined R.J. Kiln as a graduate trainee
and at that stage had not appreciated
just how instrumental the company
was in creating the foundations of the
catastrophe reinsurance marketplace
at Lloyd’s. Robert Kiln literally wrote the
book on how to transact reinsurance;
a book that became known in our part
of the industry as ‘the bible’. I suspect
there are people of my generation in
Hiscox who can still find a copy on their
bookshelves! I’ve known Hiscox through
that entire time, in the unique and lovely
Lloyd’s way – they were a competitor,
but they were also a kindred spirit:
supportive of the industry, innovative,
creative and courageous.
Q: From the outside, what had your
perception of Hiscox been?
A: From afar, I always considered it
a rigorously intellectual organisation,
146
Hiscox Ltd Report and Accounts 2022
robust and demanding. Now I’m here,
I can confirm that’s true! Historically, it’s
very heavily associated with reinsurance.
There have been a lot of newcomers
in our space, particularly over the past
decade and a half, but there aren’t
many companies that are steeped in the
history of reinsurance and have made it
a fundamental pillar of their strategy.
To have the positive re-enforcement
from management that reinsurance is,
and will remain, an integral part of our
business is a really strong sell to the
clients, to our capital, and to our teams.
That’s really valuable.
Q: What do you think are the key
ingredients of a high-performing
underwriting operation?
A: I think there are a few key ingredients
actually. It’s a business that has an
inherent uncertainty built into it, so
you need the tools to be able to deal
with that, measure it and understand
what it means. That rigorous analytical
capability needs to be reflected in senior
management, in our capital models and
in the underlying models that allow us to
transact our business and get the best
price. I also firmly believe that reinsurance
is a long game. This is about developing
relationships, developing trust. It’s not
just about capital optimisation in the short
term and swapping clients willy-nilly. We
have a finite number of clients and, as
a result, we build relationships that last
decades. I’m still dealing with customers
who I first saw when I was a junior
underwriter in the nineties.
But marrying that analytical capability
with a long-term relationship-building
philosophy is difficult. It takes balance and
experience. In reinsurance, even more so
than some other parts of insurance, every
single person in the team needs to have
the confidence to negotiate and talk to
very senior people – even at the very early
stages of a career in reinsurance, you’ll
be dealing with senior brokers, CEOs
and CFOs. So you need to understand
the pressure that these people are under,
how they tick, what’s on their mind. It’s not
easy, but my gosh it means you develop
your expertise quickly.
Q: As Chief Underwriting Officer,
what kind of culture are you looking
to foster?
A: Re & ILS has 19 underwriters and
every one of them is bringing in millions
of Dollars in gross written premiums,
running really key accounts. I don’t
underestimate that kind of responsibility,
so coming in here as a newbie it’s
important to respect the road that has
led them to this point in time. As a leader,
you sit, you listen, you observe, and
you try to build trust. Our work demands
a close structure, huge communication
and inherent trust. Culturally, we need
people with as little ego as possible
who trust one another and work
seamlessly as a team. And that’s
what we have. But it takes effort to do
that because we’re in two different
locations – Bermuda and London. If
we were disparate from one another
and not absolutely connected it would
significantly diminish the value. That’s
why a strong culture is key.
Q: You mentioned that the industry
is undergoing a paradigm shift. How
would you characterise that?
A: This is a complex but finite industry
that’s been heavily influenced by the
use of third-party capital, particularly
in the last ten years. There’s now an
imbalance of demand and supply.
Supply has gone down, but demand is
not staying flat – it’s increasing. We’ve
got an inflationary environment, the
average cost of products is rising, the
There’s now an imbalance of demand
and supply. Supply has gone down,
but demand is not staying flat – it’s
increasing. We’ve got an inflationary
environment, the average cost of
products is rising, the average cost
of houses is rising, so the average
losses are rising. That means
insurance companies are buying more
reinsurance cover to protect their
rising exposures.”
larger amounts of smaller losses
going into catastrophe reinsurance
programmes. That’s now disappearing,
and more reinsurers are going back to
the idea that the value we really create
is the protection of the infrequent
severe losses that threaten our client’s
capital. When you need us, we’re
there with our capital and our security
and our longevity. The whole structure
is changing.
In the face of that change, we need to
have courage. After Hurricane Andrew in
1992, after the World Trade Centre, and
after Hurricane Katrina, the companies
that were successful were those that
had the courage of their convictions,
a sophisticated ability to measure the
risk, continuity and longevity in their
relationships, the experience to be able
to write the contracts and the capital to
support it.
Q: Where do you see the opportunities?
A: The reinsurance world is focused
on property catastrophe excess of loss
business (or what we call property cat) at
the moment. For us it’s the largest part
of our overall portfolio. But reinsurance
extends to a lot of other lines as well – the
so-called specialty lines, such as marine
and energy and cyber. We want to grow
those lines and we’ve got the ability to do
so, so we’ll continue to build out those
areas as we go forward.
On the property cat side, it’s about
getting the right prices at the right
attachment levels and most importantly
the correct line-size committed on
each deal. The industry has, I think,
lagged behind the attachment level
of the cat product. The vulnerability
of cedants’ portfolios have increased
massively – the number of houses that
exist, what their value is and where
people are buying them. For example,
more people than ever want to live by
the coast. Florida is a prime example
of this and represents one of the most
vulnerable places to hurricanes on Planet
Earth. The impact is that if you have a cat
loss now, it’ll cost way more than it used
to and that needs to be considered and
priced for.
Q: What do you need to do to prepare
your team for the future?
A: Reinsurance demands time in the
industry to understand the complexities,
and build the relationships, so succession
planning is fundamental. Thankfully,
Hiscox has got a brilliant graduate
programme. The idea that we’re bringing
in the young, bright, aspirational leaders
of tomorrow, training them on the job
and giving them a pathway to develop
is really strong. So that’s key to me.
The other thing that’s important is the
diversity and inclusion policy. If you sit in
the average room of reinsurers, 80% of
them are going to be white males. We’ve
made a conscious effort to make sure we
address those issues, and we need to
keep doing more.
Q: Outside of work, what gives
you energy?
A: I’ve got family, I’ve got two sons and
our life revolves around them. Aside
from that, it’s sport. I’m a passionate
snowboarder, play golf (badly!) and still
rock climb occasionally if the opportunity
arises. I’m still a bit of an adrenaline
junkie. I’m a very keen kite-surfer, surfer,
wind surfer – anything on water I’ll give it
a go! But kite surfing’s my thing over here
in Bermuda. That’s my get-out-of jail-free
card to release the stress.
Hiscox Ltd Report and Accounts 2022
147
Reinsurance demands time
in the industry to understand
the complexities, and build the
relationships, so succession
planning is fundamental.
Thankfully, Hiscox has got
a brilliant graduate programme.”
average cost of houses is rising, so the
average losses are rising. That means
insurance companies are buying more
reinsurance cover to protect their rising
exposures. But you can’t just increase
your line without having the capital to do
it and broadly speaking the capital just
isn’t there. Our industry is quite systemic
in its use of capital models, and every
organisation has some form of tool that
helps it optimise its return on capital, so
there isn’t a lot of spare capacity sitting
on anyone’s balance sheet. Exacerbating
this situation is the fact that new capacity
is not entering the space at the moment
so market conditions are reflecting this
lack of supply.
Q: What impact is that disparity
having on the structure of the industry?
A: The reinsurance industry used to
be there to protect the infrequent and
very severe losses that would impact
companies’ survival, but over the years
– as there’s been an excess of supply,
and as companies have become more
confident in their ability to model price
– there’s been a tendency to grow into
ever-more vulnerable areas and have
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Directors’ report
The Directors have pleasure in
submitting their Annual Report and
consolidated financial statements for
the year ended 31 December 2022.
Management report
The Company is a holding company for
subsidiaries involved in the business of
insurance and reinsurance in Bermuda,
the USA, the UK, Guernsey, Europe
and Asia. The information found on
pages 24 to 37, 44 to 47, 166 to 230
and 232 fulfils the requirements of the
management report as referred to in
Chapter 4 of the Disclosure Guidance
and Transparency Rules (DTR). This
includes additional explanation of
the figures detailed in the financial
statements and the office locations
of the Group in different countries.
The key performance indicators are
shown on pages 4 to 5. Details
of the use of financial instruments
are set out in notes 3.3 and 17 to the
consolidated financial statements.
An analysis of the development and
performance of the business during
the financial year, its position at the end
of the year, any important events since
the end of the year and the likely future
development can be found within the
Chief Executive’s report on pages 24
to 37. The Chief Executive’s report
also describes the main trends and
factors likely to affect the future
development, performance and
position of the Company’s business.
A description of the Company’s
strategy and business model is set
out on pages 6 to 7. The Company
is not involved in any research and
development activities. A description of
the key risks and uncertainties and how
they are managed or mitigated can be
found in the key risks section on pages
8 to 11 and the risk management section
148
Hiscox Ltd Report and Accounts 2022
on pages 44 to 47. In addition, note 3 to
the consolidated financial statements
provides a detailed explanation of the
key risks which are inherent to the
Group’s business and how those
risks are managed.
The financial position of the Group, its
cash flows and borrowing facilities are
included in the capital section on pages
42 to 43. The Group has considerable
financial resources and a well-balanced
book of business.
Compliance with the UK Corporate
Governance Code 2018 (the Code)
Details of how the Company has applied
the principles set out in the Code and the
extent to which it has complied with
the provisions of the Code are set out
on pages 88 to 93.
Emerging and principal risks
The confirmation required by Provision
28 of the Code in relation to the Board’s
robust assessment of the Company’s
emerging and principal risks (referred
to in this document as key risks) can be
found on page 46.
Corporate governance statement
The information that fulfils the
requirements of the corporate
governance statement as referred
to in DTR 7.2 can be found on pages
83 to 87 in this report.
Diversity
The diversity of the business is outlined
in the Nominations and Governance
Committee report on pages 94 to 98
and on page 59.
Financial results
The Group delivered a pre-tax
profit for the year of $44.7 million
(2021: $190.8 million). Detailed results for
the year are shown in the consolidated
income statement on page 166.
Going concern
A review of the financial performance
of the Group is set out in the Chief
Executive’s report on pages 24 to 37.
The Board has reviewed the Group’s
current and forecast solvency and
liquidity positions for the next twelve
months and beyond. As part of the
consideration of the appropriateness
of adopting the going concern basis,
the Directors use scenario analysis
and stress testing to assess the
robustness of the Group’s solvency
and liquidity positions. Scenarios and
stresses assessed include economic
downturns/shocks, higher inflation,
cyber attacks, reinsurance default
and natural catastrophe events. A
number of potential mitigating factors
and management actions have been
identified to address the potential
adverse effects on the Group’s solvency
and liquidity. Stress and scenario testing
is based on expert opinion and as such is
highly subjective. Multiple experts within
the business review the provisional results
in order to reduce individual biases and
to try and ensure all possibilities are
considered and captured.
In undertaking this analysis, no material
uncertainty in relation to going concern
has been identified. This is due to the
Group’s strong capital and liquidity
positions, which provide resilience to
shocks, underpinned by the Group’s
approach to risk management which is
described in note 3 on pages 182 to 192.
After making enquiries, the Directors
have a reasonable expectation that the
Group has adequate resources to
continue in operational existence over a
period of at least 12 months from the date
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
Directors’ report
148
Chapter 6
Financial
summary
157
of this report. For this reason, the Group
continues to adopt the going concern
basis in preparing the consolidated
financial statements.
Longer-term viability statement
The preparation of the longer-term
viability statement includes an
assessment of the Group’s long-term
prospects in addition to an assessment
of the ability to meet future commitments
and liabilities as they fall due.
It is fundamental to the Group’s
longer-term strategy that the Directors
manage and monitor risk, taking into
account all key risks the Group faces,
including insurance risks, so that it
can continue to meet its obligations
to policyholders. The Group is also
subject to extensive regulation and
supervision including Bermuda
Solvency Capital Requirement.
Against this background, the Directors
have assessed the prospects of the
Group in accordance with Provision 31
of the UK Corporate Governance Code
2018, with reference to the Group’s
current position and prospects, its
strategy, risk appetite and key risks,
as detailed in the key risks section
on pages 8 to 11 and the risk
management section on pages
44 to 47, as well as note 3 to the
consolidated financial statements.
The assessment of the Group’s
prospects by the Directors covers the
three years to 2025 and is underpinned
by management’s 2023-2025 business
plan. It includes projections of the
Group’s capital, liquidity and solvency
and reflects the Group’s risk profile of
a portfolio of diversified short-tailed
and medium-tailed insurance liabilities.
In making the viability statement, the
Board carried out, as part of the Group’s
solvency self-assessment process,
a robust assessment using scenario
analysis and stress testing to consider
the Group’s capacity to respond
to a series of relevant financial,
insurance-related or operational shocks
should future circumstances or events
differ from these current assumptions.
The adequacy of the liquid resources
of the Group’s parent company has
been assessed by considering stress
scenarios that would result in additional
calls on central liquidity by the Group’s
business units. A 1-in-200 US and
Caribbean hurricane was assessed to be
the most severe liquidity stress. Under
this scenario the Group was shown to
have access to sufficient liquidity sources
to remain above risk appetite, after taking
into account the Group’s $600.0 million
undrawn revolving credit facility. This
analysis allows the Board to review and
challenge the risk management strategy
and consider potential mitigating actions.
Based on these assessments, the
Board confirms that it has a reasonable
expectation that the Group will be able
to continue in operation and meet its
liabilities as they fall due over the
three-year assessment period. Longer
term, the Group’s viability is underpinned
by the Group’s strategy of balancing
big-ticket with retail business, market
growth opportunities and underwriting
expertise. See pages 6 to 7 for further
details of the business model and
longer-term prospects.
Dividends
An interim dividend of 12.0 cents per
share was paid on 20 September 2022
and, as in previous years, a Scrip
Dividend alternative was offered. The
Board is also proposing payment of
a final dividend in respect of the year
ended 31 December 2022 (subject to
shareholder approval) of 24.0 cents
per share, to be paid on 13 June 2023
to shareholders on the register at
5 May 2023.
Bye-laws
The Company’s Bye-laws contain no
specific provisions relating to their
amendment and any such amendments
are governed by Bermuda Company
Law and subject to the approval of
shareholders in a general meeting.
Share capital
Details of the structure of the Company’s
share capital and changes in the share
capital during the year are disclosed
in note 22 to the consolidated financial
statements. The ordinary shares of
6.5p each are the only class of shares
presently in issue and carry voting rights.
There is power under Bye-law 45 of the
Company’s Bye-laws for voting rights
to be suspended if calls on shares are
unpaid. However, there are no nil or
partly paid shares in issue on which calls
could be made. The Bye-laws also allow
the Company to investigate interests
in its shares and apply restrictions
including suspending voting rights
where information is not provided.
No such restrictions are presently in
place. The Company was authorised by
shareholders at the 2022 Annual General
Meeting (AGM) to purchase in the market
up to 10% of the Company’s issued
ordinary shares. No shares have been
bought back under this authority as at
the date of this report.
Directors
The names and details of all Directors
of the Company who served during the
year and up to the date of this report are
set out on pages 72 to 73. Details of the
Chairman’s professional commitments
are included in his biography on page 72.
Hiscox Ltd Report and Accounts 2022
149
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
Directors’ report
148
Chapter 6
Financial
summary
157
Major interests in shares
The Company has been notified of the following interests in voting rights in its
ordinary shares in accordance with DTR 5:
Disclosure under LR 9.8.4 of the
Listing Rules
Fidelity Investments
Capital Research Global Investors
Number
of shares
33,069,818
25,821,322
*There were 346,546,029 shares in issue (excluding Treasury shares) as at 31 January 2023.
As at 7 March 2023, no changes have been notified to the Company.
% of issued
share capital
as at
31 January
2023*
9.54
7.45
Details of
long-term
incentive schemes
Allotment of shares
for cash pursuant
to employee
share schemes
Annual report
on remuneration
(pages 117 to 118)
Note 22 to the
consolidated
financial statements
on employee
share schemes
(page 213)
The Bye-laws of the Company govern
the appointment and replacement of
Directors. In accordance with the Code,
the Directors will submit themselves for
re-election at the AGM.
Details of the Directors’ share ownership
is also set out on page 120.
Board level, in line with the ESG
governance structure outlined on
page 64.
The Company also aligns its
climate-related activities to the
TCFD framework, details of which
can be found on pages 60 to 67.
Biographical details of the Directors
are set out on pages 72 to 73, as are
the reasons why the Board believes
their contribution is (and continues
to be) important to the Company’s
long-term sustainable success. This
information will also be set out in the
circular which will accompany the
notice of AGM.
Major interests in shares
The Company has been notified of the
interests in voting rights in its ordinary
shares in accordance with DTR 5,
which are outlined in the table above.
Any acquisitions or disposals of major
shareholdings notified to the Company
in accordance with DTR 5.1 are
announced and those announcements
are available on the Company’s website,
hiscoxgroup.com.
Political donations and
charitable contributions
The Group made no political
donations during the year (2022: $nil).
Information concerning the Group’s
charitable activities is contained in the
environmental, social and governance
(ESG) section on pages 54 to 59 and at
hiscoxgroup.com/responsibility.
Power of Directors
The powers given to the Directors are
contained in the Company’s Bye-laws
and are subject to relevant legislation
and, in certain circumstances (including
in relation to the issuing and buying back
by the Company of its shares), approval
by shareholders in a general meeting.
At the AGM in 2022, the Directors were
granted authorities to allot and issue
shares and to make market purchases
of shares and intend to seek renewal of
these authorities in 2023.
Disclosure under LR 9.8.4 of the
Listing Rules
The information that fulfils the reporting
requirements relating to the following
matters can be found at the pages
identified in the table above.
Annual General Meeting
The notice of the AGM, to be held
on 11 May 2023, will be contained
in a separate circular to be sent
to shareholders. The deadline for
submission of proxies is 48 hours
before the meeting.
By order of the Board
Marc Wetherhill
Company Secretary
Climate-related matters
In preparing and authorising this report,
the Board has considered the relevance
of material climate-related matters.
Climate-related matters are discussed
at all levels of the Company, including
Chesney House
96 Pitts Bay Road
Pembroke HM 08
Bermuda
8 March 2023
150
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Directors’ responsibilities statement
Advisors
The Directors responsible for
authorising the responsibility statement
on behalf of the Board are the Chairman,
Robert Childs, and the Group Chief
Executive Officer, Aki Hussain. The
statements were approved for issue
on 8 March 2023.
The Directors consider that the Annual
Report and Accounts, taken as a whole,
is fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Company’s
and the Group’s position, performance,
business model and strategy.
The Board is responsible for ensuring
the maintenance of proper accounting
records which disclose with reasonable
accuracy the financial position of the
Group. It is required to ensure that the
financial statements present a fair view
for each financial period. The Directors
explain in the Annual Report their
responsibility for preparing the Annual
Report and Accounts.
We confirm that to the best of
our knowledge:
s the financial statements, prepared
in accordance with UK-adopted
international accounting standards,
give a true and fair view of the
assets, liabilities, financial position
and profit or loss of the Company
and the undertakings included in
the consolidation taken as a
whole; and
s the management report includes
a fair review of the development
and performance of the business
and the position of the Company
and the undertakings included in
the consolidation taken as a whole,
together with a description of the
principal risks and uncertainties
that they face.
Hiscox Ltd
Secretary
Marc Wetherhill
Registered office
Chesney House
96 Pitts Bay Road
Pembroke HM 08
Bermuda
Registered number
38877
Auditors
PricewaterhouseCoopers Ltd.
Washington House
4th Floor, 16 Church Street
Hamilton HM 11
Bermuda
Stockbrokers
UBS Limited
1 Finsbury Avenue
London EC2M 2PP
United Kingdom
Registrars
Equiniti (Jersey) Limited
c/o Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
United Kingdom
Hiscox Ltd Report and Accounts 2022
151
Q&
A:
with Markus Niederreiner
Managing Director, Hiscox Germany
Network news
Through ambitious system changes
and integration into its partners’ digital
infrastructure, Hiscox Germany is seizing
opportunities for growth and efficiency. >
152
Hiscox Ltd Report and Accounts 2022
Hiscox Ltd Report and Accounts 2022
153
Markus Niederreiner joined Hiscox
Germany in September 2021,
bringing with him extensive
experience of implementing growth
strategies and overseeing the
digitisation of business processes.
Q&
A:
with Markus Niederreiner
Managing Director, Hiscox Germany
Q: Tell us about your professional
journey. What experiences did you
bring with you to Hiscox?
A: I came over to the UK to do an
MBA at Leeds University before I
started my professional career in the
financial services industry. Then after
seven years in different leadership
roles for Allianz Germany, seven years
in management consulting and five
years as Managing Director for BNP
Paribas in Germany and Austria, I joined
Hiscox in 2021. I would say that in my
previous roles a recurring starting
point was adapting to regulatory,
technological or market-related
change, resulting in the pursuit of
growth opportunities. That is something
I’ve brought to my role at Hiscox –
my experience of transforming and
scaling financial institutions from very
different perspectives.
Q: What was it that attracted you to
the Company?
A: I was fully attracted to the values,
to the culture, to the whole spirit of the
Company. I was able to feel that in every
interview I had. I was also drawn to the
154
Hiscox Ltd Report and Accounts 2022
enormous potential and ambition the
Company has. What makes Hiscox
unique, I think, is the way we integrate
the expertise and financial strength of
a stock-listed insurance company with
the entrepreneurial spirit and dynamic of
a real growth company. I love the drive
of getting better every day, adapting
to changing conditions and building a
sustainable business for the future. My
role here, together with an ambitious
team, is to write the next chapter of
Hiscox Germany’s growth story. This
means preparing our internal set-up
for profitable growth and building an
increased footprint in Germany. That’s
basically the mission, and for me it’s a
really exciting one.
Q: How have you found it so far?
A: My predecessor, Robert Dietrich,
was in this role for 15 of his 25 years at
Hiscox, and he built this business in
Germany up to where it is now, before
moving on to his current role as
Hiscox Europe Chief Executive Officer.
Coming in from outside of Hiscox to take
on the role was of course a challenge,
but I have absolutely loved it. What has
helped is that my job is not just to step
into the shoes of a person who did a
fantastic job before me for such a long
time. My job is to create something that
will prepare us for the future. We now
need to take the next step in growing
our business and organisation and I’m
very lucky to be able to build on such
solid foundations.
Q: Looking back over the past year,
what are you most proud of?
A: This has been a year of intensive
transformation, and we’ve also had to
face the challenges of a demanding
market environment, but we’ve been
able to deliver important foundations
for future growth without sacrificing
short-term results. We’ve achieved
double-digit growth and stable
profitability while making necessary
adjustments to our product line and
delivering important milestones within
our digital transformation projects.
All these achievements were only
possible with an enormous team effort
where everybody really went the extra
mile, and it makes me really proud to be
part of such a team.
Q: With those digital transformation
projects, what is it that you’re seeking
to achieve?
A: Our digital transformation initiatives
are for sure the key enablers for our
growth ambitions and efficiency targets.
We decided to not only digitise on the
surface but to build a new core system,
which for any insurance company is one
of the most demanding projects you
can handle. The implementation and
migration of the new core system was
piloted here in Germany before being
rolled out to other European countries,
so that was a big challenge for us.
But in combination with new front-ends
and data architecture, these system
changes give us enhanced connectivity,
easy integrations into existing
partner infrastructures and new
opportunities to advance our analytics
and data-driven business models. They
will help us react quickly to constantly
evolving customer and partner
expectations and create new growth
opportunities. At the same time, we will
be able to break the interdependency of
revenue and expense growth.
Q: Being the pilot country for the core
system change must have been a
significant responsibility.
A: There’s a special responsibility in
piloting such a project in one country.
The lessons we have learnt mean that
I was fully attracted to the values,
to the culture, to the whole spirit
of the Company. I was able to
feel that in every interview I had.
I was also drawn to the enormous
potential and ambition the Company
has. What makes Hiscox unique,
I think, is the way we integrate the
expertise and financial strength of
a stock-listed insurance company
with the entrepreneurial spirit and
dynamic of a real growth company.”
under-served in Germany – or even
unserved. On the product side, we
are looking to expand and develop
our verticals for certain target groups
like employee leasing or e-education
businesses. This will be complemented
by digitising and simplifying our quote
and bind processes, integrating them
into existing partner infrastructures and
improving the underlying data exchange.
The objective is to make it easy for
our partners, and to offer also more
standardised products to their smaller
mass clients.
A concrete example for new business
models arising in this context is our
partnership with an ecosystem for the
creator – by which we mean content
creators, influencers – and the freelancer
industry. This is an exponentially growing
target group, completely within our
appetite, but difficult to access and often
with a low sensitivity to risk exposure. Our
approach allows us to integrate insurance
solutions for creators and freelancers
with other products and services like
factoring solutions or business loans,
which is a really compelling proposition
for this target group. These new sales
partnerships mean we need the ability
to deliver modular products and easy
processes, rather than individual
case-by-case underwriting. This requires
a mindset shift as well as a logistical one,
but it’s an approach which holds a lot of
promise for us.
Q: How close is your relationship with
the other Hiscox Europe offices?
A: It is very close. Compared to other
geographies like the UK or the USA,
we have this diversification of different
countries, different geographies, different
cultures and different market mechanics,
which can sometimes be a challenge.
But this also gives us an opportunity to
Our new cyber product for Germany is
another example of a pilot. One of the
features is an innovation for business
interruption that helps to accelerate
claims regulation for small businesses
and mitigate surge risk scenarios.”
not every country following us will have
to go through the same tough journey. As
well as being able to share those lessons,
the good thing about the pan-European
set-up here is that it helps us leverage
return on investment and gives us all
opportunities to take on ambitious digital
transformation projects like this that we
would never be able to tackle alone.
Our new cyber product for Germany is
another example of a pilot. One of the
features is an innovation for business
interruption that helps to accelerate
claims regulation for small businesses
and mitigate surge risk scenarios. With
that, we were not only introducing a
market-leading solution for Germany,
we were implementing a pilot for
other European countries, and that
is very exciting.
Q: Where do you see the biggest
opportunities for growth?
A: Beside building on our strong position
within our private and commercial
insurance lines, we see enormous
potential in SME commercial insurance,
as major parts of this segment are
learn so much from each other. We all
have different strengths. For example,
in France and Spain, bancassurance
is already much more mature than it is
in Germany, so we can learn a lot from
them about that segment. We have
meetings on a very regular basis, across
geographies and functions. This is also
something that makes Hiscox unique
for me – the culture and the aspiration
to create something greater together.
Q: Outside of work, what gives
you energy?
A: My family, for sure. I became a father
for the first time last year. I have a small
daughter who gives me a lot of energy,
of course! And the other part is that
living in Bavaria, we are quite close to
the mountains. The mountains are the
perfect place to recover: skiing in winter,
hiking in summer. This is the privilege of
living in Munich. You’re in a city but you’re
close to the lakes and the mountains, and
for me this is the perfect environment.
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Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
156
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Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Financial summary
Hiscox Ltd Report and Accounts 2022
157
Chapter 1
Performance
and purpose
2
Chapter 2
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20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Independent auditor’s report
to the Board of Directors and the Shareholders of Hiscox Ltd
Report on the audit of the consolidated financial statements
Our audit approach
Overview
Materiality
Group
scoping
Key audit
matters
A Overall group materiality: $37.5 million, which represents
approximately 0.8% of gross premiums written for the
year ended 31 December 2022.
Our audit comprised:
A full scope audit procedures over four components;
A for certain other components, audit procedures over
specified financial statement line item balances;
A for the remaining components that were not
inconsequential, analytical procedures on their
financial information.
A Valuation of gross claims liabilities.
A Valuation of reinsurance claims recoverable.
A Disclosure of the expected impact of IFRS 17.
Our opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position
of Hiscox Ltd (‘the Company’) and its subsidiaries (together
‘the Group’) as at 31 December 2022, and their consolidated
financial performance and their consolidated cash flows for the
year then ended in accordance with UK-adopted international
accounting standards.
What we have audited
The Group’s consolidated financial statements comprise:
A the consolidated income statement for the year ended
31 December 2022;
A the consolidated statement of comprehensive income
for the year ended 31 December 2022;
A the consolidated balance sheet as at 31 December 2022;
A the consolidated statement of changes in equity for the
year then ended;
A the consolidated statement of cash flows for the year
then ended; and
A the notes to the consolidated financial statements,
which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under
those standards are further described in the ‘auditor’s
responsibilities for the audit of the consolidated financial
statements’ section of our report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the
International Code of Ethics for Professional Accountants
(including International Independence Standards) issued by the
International Ethics Standards Board for Accountants (IESBA
Code) and the ethical requirements of the Chartered Professional
Accountants of Bermuda Rules of Professional Conduct (CPA
Bermuda Rules) that are relevant to our audit of the consolidated
financial statements in Bermuda. We have fulfilled our other
ethical responsibilities in accordance with the IESBA Code
and the ethical requirements of the CPA Bermuda Rules.
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and purpose
2
Chapter 2
A closer look
20
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72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Independent
auditor’s report
In establishing the overall approach to the Group audit a
determination was made of the type of work that needed to
be performed at the components by the Group engagement
team, or by the component audit teams within the PwC
United Kingdom, PwC United States and PwC Bermuda firms.
A determination was made of the level of involvement of the
Group engagement team that was necessary in the audit
work at those components to be able to conclude whether
sufficient appropriate audit evidence had been obtained.
The Group engagement team had regular interaction with
the component teams during the audit process. The
engagement leader and senior members of the Group
engagement team reviewed in detail all reports with
regards to the audit approach and findings submitted
by the component auditors. This together with additional
procedures performed as described above, gave us the
evidence we needed for our opinion on the consolidated
financial statements as a whole.
The impact of climate risk on our audit
As part of our audit, enquiries were made of management
(both within and outside of the Group’s finance function)
to understand the process management adopted to
assess the extent of the potential impact of climate risk
on the Group’s consolidated financial statements and support
the disclosures made within the notes to the consolidated
financial statements. The key areas where management
has evaluated that climate risk has a potential to impact
the business are in relation to underwriting risk, financial risk,
and regulatory, legal, and reputational risk. Management
considers that the impact of climate change does not give
rise to a material financial statement impact.
Our knowledge of the Group was applied to evaluate
management’s assessment of the impact on the
consolidated financial statements. An evaluation was
performed of the completeness of management’s
assessment of climate change risk under the categories
of physical risk, transition risk, and liability risk and how
these may affect the consolidated financial statements
and the audit procedures performed.
As part of this, our audit procedures included:
A reading the minutes of meetings of the Group’s
Sustainability Steering Committee;
A reading submissions to regulators;
A reading the Group’s climate report 2022; and
A considering the Group’s memberships,
accreditations and public commitments.
The risks of material misstatement to the consolidated
financial statements as a result of climate change were
assessed and it was concluded that for the year ended
31 December 2022, there was no impact on the key
audit matters or the assessment of the risks of
material misstatement.
Finally, the consistency of the disclosures in relation to
climate change (including the disclosures in the Task
Force on Climate-Related Financial Disclosures (TCFD)
section) within the Report and Accounts was considered
against the consolidated financial statements and our
knowledge obtained from our audit including challenging
the disclosures given in the narrative reporting within the
consolidated financial statements.
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159
Audit scope
As part of designing our audit, the risks of material
misstatement in the consolidated financial statements were
assessed and materiality was determined. In particular,
consideration was given to where management made
subjective judgements; for example, in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in
all of our audits, the risk of management override of internal
controls was addressed, including, among other matters,
consideration of whether there was evidence of bias that
represented a risk of material misstatement due to fraud.
Tailoring of Group audit scope
The scope of our audit was tailored in order to perform
sufficient work to enable us to provide an opinion on the
consolidated financial statements as a whole, taking into
account the structure of the Group, the accounting processes
and controls, and the industry in which the Group operates.
The Group is structured into four segments (see note 4 to
the consolidated financial statements) and is a consolidation
of over 50 separate legal entities. The Group is a global
specialist insurer and reinsurer, and its operations primarily
consist of the legal entity operations in the United Kingdom,
Europe, the United States and Bermuda.
A full scope audit was performed for four components
located in the United Kingdom and Bermuda. Financial
statement line item audit procedures were also performed
over components in the United Kingdom, the United States
and Bermuda. Taken together this work provided over 80%
coverage of the Group’s gross premiums written and over
80% of the Group’s total assets.
The four full scope audit components are: (i) Hiscox Dedicated
Corporate Member Syndicate No. 33, (ii) Hiscox Dedicated
Corporate Member Syndicate No. 3624, (iii) Hiscox Insurance
Company Limited, and (iv) the parent company, Hiscox Ltd
(including consolidation). For certain other components,
account balances were identified which were considered
to be significant in size or audit risk at the financial statement
line-item level in relation to the consolidated financial
statements, and financial statement line item audit procedures
were performed over these specified balances. Analytical
procedures over the financial information of the remaining
components that were not inconsequential were performed.
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and purpose
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20
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72
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Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Independent
auditor’s report
Materiality
The scope of our audit was influenced by our application
of materiality. An audit is designed to obtain reasonable
assurance whether the consolidated financial statements
are free from material misstatement. Misstatements may
arise due to fraud or error. They are considered material if,
individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users
taken on the basis of the consolidated financial statements.
Performance materiality is used to reduce to an appropriately
low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds overall materiality.
Specifically, performance materiality is used in determining
the scope of the audit and the nature and extent of testing of
account balances, classes of transactions and disclosures,
for example in determining sample sizes. The performance
materiality applied was 75% of overall materiality, amounting
to $28 million for the consolidated financial statements.
A number of factors were considered in the determination of
performance materiality including: the history of misstatements,
risk assessment and aggregation risk and the effectiveness
of controls – we concluded that 75% of overall materiality
was appropriate.
We agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
$1.9 million, as well as misstatements below that amount
that, in our view, warranted reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the audit
of the consolidated financial statements of the current period
and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters, and any comments we make on the results
of our procedures thereon, were addressed in the context of
our audit of the consolidated financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Disclosure of the expected impact of IFRS 17 is a new key audit
matter this year. Otherwise, the key audit matters below are
consistent with last year.
Based on our professional judgement, certain quantitative
thresholds for materiality were determined, including the
overall Group materiality for the consolidated financial
statements as a whole, as set out in the table below. These,
together with qualitative considerations, helped to determine
the scope of our audit and the nature, timing and extent of our
audit procedures and to evaluate the effect of misstatements,
both individually and in aggregate, on the consolidated financial
statements as a whole.
Materiality
Overall Group materiality
$37.5 million.
How we determined it
Rationale for the materiality
benchmark applied
Approximately 0.8% of gross
premiums written for the year
ended 31 December 2022.
In determining materiality,
financial metrics believed
to be relevant to the primary
users of the consolidated
financial statements were
considered. We concluded
a premium based metric
was the most relevant to
the users.
A premium based
metric provides a good
representation of the size
and complexity of the
business and it is not
distorted by insured
catastrophe events to
which the Group is
exposed, or the levels
of external reinsurance
purchased by the Group.
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and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Independent
auditor’s report
Key audit matters
Key audit matter
How our audit addressed the key audit matter
1. Valuation of gross claims liabilities
Refer to notes 2.13, 2.21 and 23 to the consolidated financial
statements for disclosures of related accounting policies
and balances.
As at 31 December 2022 gross claims liabilities comprised
$2.5 billion of claims reported and claims adjustment expenses,
and $4.5 billion of claims incurred but not reported (IBNR).
Insurance claims liabilities are inherently uncertain and contain
material estimates, the most subjective element being IBNR.
Management bases the estimate of IBNR on the estimated
ultimate cost of all unsettled claims, inclusive of the related
claims handling costs. There is also uncertainty in elements
of the reported but not settled claims including those related
to Covid-19.
For IBNR, the methodologies and assumptions used to
estimate insurance liabilities involve a significant degree
of judgement. As a result, this was an area of focus as
the valuation can be materially impacted by numerous
factors including:
A the underlying volatility attached to estimates for
certain classes of business, where small changes in
assumptions can lead to large changes in the levels
of the estimate held, including the change to reserving
classes implemented this year;
A the risk of inappropriate assumptions used in determining
current year estimates. Given that limited data is available,
especially for ‘long-tailed’ classes of business, there is a
greater reliance on expert judgement in management’s
estimates; and
A the risk of application of inappropriate assumptions
in respect of specific claims reserves for natural
catastrophes and other large claims losses, including
inwards reinsurance classes of business exposed to
claims and potential claims arising from Covid-19. There
is significant judgement involved in these loss estimates,
particularly as they are often based on limited data.
Procedures were performed to obtain an understanding of,
evaluate and test the design and operational effectiveness of,
key controls in place in respect of the valuation of insurance
claims liabilities
In addition, the following procedures were performed:
A tested the completeness and accuracy of premiums
data used in the actuarial projections for IBNR;
A tested the completeness and accuracy of claims
data used in the actuarial projections for IBNR,
the establishment of large loss reserves, and the
determination of reported but not settled claims;
A tested the completeness and accuracy of policy
data, where applicable, used to establish large loss
reserves; and
A reconciled the gross claims liabilities from the
underlying financial records to the consolidated
financial statements.
In performing our work over the valuation of IBNR PwC
actuarial specialists were used, where appropriate.
Procedures included the following:
A development of independent point estimates for
classes of business considered to be higher risk,
particularly focusing on the largest and most uncertain
classes, as well as for certain other classes to introduce
unpredictability, as at 31 August 2022 and performed
a roll-forward test to 31 December 2022;
A tested specific claims reserves including those
impacted by Covid-19, natural catastrophes and other
large claims by understanding and challenging the
methodology and assumptions used by management
and where available comparing to data reported
by counterparties, industry benchmarks and other
publicly available information;
A performed key-indicator testing procedures over the
remaining classes of business to evaluate gross
IBNR reserves;
A evaluated the appropriateness of the booked gross
loss reserve margin, taking into account estimation
uncertainty inherent in the underlying insurance
business; and
A inspected the supporting evidence produced by
management on changes made to reserving
classes. For those classes subject to independent
re-projection, assessed the appropriateness of the
loss reserving classes.
The results of our procedures indicated that the valuation of
gross claims liabilities was supported by the evidence obtained.
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information
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157
Chapter 6
Financial
summary
Independent
auditor’s report
Key audit matters
Key audit matter
How our audit addressed the key audit matter
2. Valuation of reinsurance claims recoverable
Refer to notes 2.13, 2.21 and 23 to the consolidated financial
statements for disclosures of related accounting policies
and balances.
The valuation of the reinsurance claims recoverable is
uncertain due to the significant degree of judgement
applied in valuing the associated gross claims liabilities that
have been reinsured, the complexity of the application and
coverage of the reinsurance programme, and the willingness
and ability of the reinsurers to pay. As at 31 December 2022
claims recoverable are $3.4 billion in the consolidated financial
statements. For the year ended 31 December 2022, there
are additional circumstances contributing to the degree
of uncertainty for elements of reinsurance claims recoverable
as follows:
A reinsurance recoverables associated with policies
affected by Covid-19, as cedants and reinsurers
continue to evaluate how losses will be applied to
(re)insurance contracts; and
A the execution of legacy portfolio transaction (LPT)
contracts with external counterparties during the year.
Such transactions require judgement on the accounting
for the contracts, in particular the degree of risk transfer
present in the reinsurance contracts.
Procedures were performed to obtain an understanding of,
evaluate and test the design and operational effectiveness of
key controls in place in respect of the valuation of reinsurance
claims recoverable.
In addition, the following procedures were performed:
A tested the accuracy of application of reinsurance
contract terms;
A tested the netting down of reinsurance on gross paid,
outstanding, and specific claims reserves;
A for those classes of business selected for independent
projections on a gross basis, PwC actuarial specialists
were used to develop independent point estimates for
the associated reinsurer’s share of IBNR loss reserves;
A for the remaining classes of business where PwC
actuarial specialists performed key-indicator testing on
a gross basis, they performed testing on the associated
reinsurer’s share of IBNR loss reserves; and
A evaluated management’s assessment of risk transfer
for each of the LPT contracts executed in the year using
our actuarial specialists.
The results of our procedures indicated that the valuation
of reinsurance claims recoverable was supported by the
evidence obtained.
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and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Independent
auditor’s report
Key audit matters
Key audit matter
How our audit addressed the key audit matter
3. Disclosure of the expected impact of IFRS 17
Refer to note 2.1 to the consolidated financial statements.
On 1 January 2023, the Group transitioned to International
Financial Reporting Standard (IFRS) 17 Insurance Contracts
which replaced IFRS 4. The expected transition impact,
including the impact on opening equity as at 1 January 2022,
is disclosed in note 2.1 to the consolidated financial statements
in accordance with International Accounting Standard (IAS) 8.
Disclosures in these 2022 consolidated financial statements
are intended to provide users with an understanding of the
expected impact of the new standard ahead of implementation,
and as a result are more limited than the disclosures to be
included in the annual and interim 2023 consolidated
financial statements.
Due to the significance of the changes introduced by the
standard on opening equity (1 January 2022) upon transition,
the disclosure of the expected impact of IFRS 17 in the
31 December 2022 consolidated financial statements
was determined to be an area of focus.
The Group has evaluated the requirements of IFRS 17 and
exercised judgement to develop accounting policies, and
select assumptions. In particular, the determination of
the measurement model to apply under the standard, the
determination of the risk adjustment assumption, and the
determination of the discount rate methodology, were
deemed to be significant to the overall impact of transition.
The expected impact on opening equity as at 1 January 2022
has been calculated by management by adjusting the reported
position on an IFRS 4 basis, using a combination of models
developed for transition.
Procedures were performed to obtain an understanding of
and evaluate the design of controls in place over the disclosed
expected transition impact of IFRS 17, including the calculation
of the impact on opening equity as at 1 January 2022.
In addition, the following procedures were performed:
A assessed the significant judgements used by
management to determine the accounting policies
along with the compliance of those policies with
IFRS 17. This included judgements used to determine
use of the Premium Allocation Approach (PAA)
measurement model, and the policy applied for
the risk adjustment assumption;
A evaluated the appropriateness of management’s PAA
eligibility analysis, including testing the completeness
and accuracy of supporting data, evaluating the
assumptions used and scenarios applied, and
testing the accuracy of models used;
A evaluated the appropriateness of the methodology
used to determine discount rates and independently
recalculated the impact of discounting on opening
equity at 1 January 2022;
A tested the mathematical accuracy and completeness
of the supporting calculations and adjustments
used to determine the impact on opening equity at
1 January 2022; and
A assessed the appropriateness of the quantitative
and qualitative disclosures required by IAS 8.
The results of our procedures indicated that the disclosed
expected impact of IFRS 17 and the disclosures made are
supported by the evidence obtained.
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157
Chapter 6
Financial
summary
Independent
auditor’s report
Other information
Management is responsible for the other information. The other
information comprises the Report and Accounts (but does
not include the consolidated financial statements and our
auditor’s report thereon). The other information also includes
reporting based on the TCFD recommendations. Our opinion
on the consolidated financial statements does not cover the
other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other
information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report
in this regard.
Responsibilities of management and those charged with
governance for the consolidated financial statements
Management is responsible for the preparation and fair
presentation of the consolidated financial statements in
accordance with UK-adopted international accounting
standards and for such internal control as management
determines is necessary to enable the preparation of
consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements,
management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using
the going concern basis of accounting unless management
either intends to liquidate the Group or to cease operations,
or has no realistic alternative but to do so.
Those charged with governance are responsible for
overseeing the Group’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud
or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance
with ISAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated
financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
A identify and assess the risks of material misstatement
of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that
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Hiscox Ltd Report and Accounts 2022
is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of
internal control;
A obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
Group’s internal controls;
A evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by management;
A conclude on the appropriateness of management’s use
of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may
cast significant doubt on the Group’s ability to continue
as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or
conditions may cause the Group to cease to continue
as a going concern;
A evaluate the overall presentation, structure and content
of the consolidated financial statements, including the
disclosures, and whether the consolidated financial
statements represent the underlying transactions and
events in a manner that achieves fair presentation; and
A obtain sufficient appropriate audit evidence regarding
the financial information of the entities or business
activities within the Group to express an opinion on the
consolidated financial statements. We are responsible for
the direction, supervision and performance of the Group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with governance with a
statement that we have complied with relevant ethical
requirements regarding independence, and to communicate
with them all relationships and other matters that may
reasonably be thought to bear on our independence, and
where applicable, actions taken to eliminate threats or
safeguards applied.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law
or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because
the adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefits of
such communication.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Independent
auditor’s report
Report on other legal and regulatory requirements
Directors’ remuneration
The Company voluntarily prepares a report on Directors’
remuneration in accordance with the provisions of the UK
Companies Act 2006. The Directors have requested an audit
of the part of the report on Directors’ remuneration specified by
the UK Companies Act 2006 to be audited as if the Company
were a UK-registered company.
In our opinion, the part of the report on Directors’ remuneration
to be audited has been properly prepared in accordance with
the UK Companies Act 2006.
Corporate governance statement
The Directors’ statements in relation to going concern,
longer-term viability and that part of the corporate governance
statement relating to the Company’s compliance with the
provisions of the UK Corporate Governance Code, which the
Listing Rules of the Financial Conduct Authority specify for
review by auditors of premium listed companies has been
reviewed. Our additional responsibilities with respect to the
corporate governance statement as other information are
described in the ‘other information’ section of this report.
Based on the work undertaken as part of our audit, it was
concluded that each of the following elements of the
corporate governance statement is materially consistent
with the consolidated financial statements and our knowledge
obtained during the audit, and there is nothing material to add
or draw attention to in relation to:
A the Directors’ confirmation that they have carried out a
robust assessment of the emerging and principal risks;
A the disclosures in the Report and Accounts that describe
those principal risks, what procedures are in place to
identify emerging risks and an explanation of how these
are being managed or mitigated;
A the Directors’ statement in the consolidated financial
statements about whether they considered it appropriate
to adopt the going concern basis of accounting in
preparing them, and their identification of any material
uncertainties to the Group’s ability to continue to do so
over a period of at least twelve months from the date of
approval of the consolidated financial statements;
A the Directors’ explanation as to their assessment of the
Group’s prospects, the period this assessment covers
and why the period is appropriate; and
A the Directors’ statement as to whether they have a
reasonable expectation that the Company will be able
to continue in operation and meet its liabilities as they
fall due over the period of its assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
The review of the Directors’ statement regarding the
longer-term viability of the Group was substantially less in
scope than an audit and only consisted of making inquiries and
considering the Directors’ process supporting their statements;
checking that the statements are in alignment with the relevant
provisions of the Code; and considering whether the statement
is consistent with the consolidated financial statements
and our knowledge and understanding of the Group and
its environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit,
it was concluded that each of the following elements of the
corporate governance statement is materially consistent with
the consolidated financial statements and our knowledge
obtained during the audit:
A the Directors’ statement that they consider the Report
and Accounts, taken as a whole, is fair, balanced and
understandable, and provides the information necessary
for the shareholders to assess the Group’s position,
performance, business model and strategy;
A the section of the Report and Accounts that describes
the review of effectiveness of risk management and
internal control systems; and
A the section of the Report and Accounts describing the
work of the audit committee.
There is nothing to report in respect of our responsibility to
report when the Directors’ statement relating to the Company’s
compliance with the Code does not properly disclose a
departure from a relevant provision of the Code specified
under the Listing Rules for review by the auditors.
Other matter
As required by the Financial Conduct Authority Disclosure
Guidance and Transparency Rule 4.1.14R, these consolidated
financial statements will form part of the ESEF-prepared annual
financial report filed on the National Storage Mechanism of
the Financial Conduct Authority in accordance with the ESEF
Regulatory Technical Standard (ESEF RTS). This auditor’s
report provides no assurance over whether the annual financial
report will be prepared using the single electronic format
specified in the ESEF RTS.
The engagement partner on the audit resulting in this
independent auditor’s report is Marisa Savage.
PricewaterhouseCoopers Ltd.
Chartered Professional Accountants
Bermuda
8 March 2023
Hiscox Ltd Report and Accounts 2022
165
Consolidated income statement
For the year ended 31 December 2022
Income
Gross premiums written
Outward reinsurance premiums
Net premiums written
Gross premiums earned
Premiums ceded to reinsurers
Net premiums earned
Investment result
Other income
Total income
Expenses
Claims and claim adjustment expenses
Reinsurance recoveries
Claims and claim adjustment expenses, net of reinsurance
Expenses for the acquisition of insurance contracts
Reinsurance commission income
Operational expenses
Net foreign exchange gains
Total expenses
Total income less expenses
Finance costs
Share of profit of associates after tax
Profit before tax
Tax expense
Profit for the year (all attributable to owners of the Company)
Earnings per share on profit attributable to owners of the Company
Basic
Diluted
Note
4
4, 23.2
4
4, 23.2
4, 7
4, 9
23.2
23.2
4, 23.2
15
15
4, 9
4, 10
4, 14
25
2022
$m
2021
$m
4,424.9
(1,444.9)
2,980.0
4,313.8
(1,385.6)
2,928.2
(187.3)
46.5
2,787.4
(2,110.1)
781.8
(1,328.3)
(1,015.8)
260.3
(642.3)
30.6
(2,695.5)
91.9
(48.1)
0.9
44.7
(3.0)
41.7
4,269.2
(1,314.2)
2,955.0
4,246.9
(1,327.0)
2,919.9
51.2
56.8
3,027.9
(2,185.5)
755.1
(1,430.4)
(1,017.9)
283.2
(622.7)
0.7
(2,787.1)
240.8
(50.8)
0.8
190.8
(1.3)
189.5
28
28
12.1¢
12.0¢
55.3¢
54.7¢
Consolidated statement of comprehensive income
For the year ended 31 December 2022
Profit for the year
Other comprehensive income
Items that will not be reclassified to the income statement:
Remeasurements of the net defined benefit pension scheme
Income tax effect
Items that may be reclassified subsequently to the income statement:
Exchange losses on translating foreign operations
Other comprehensive income net of tax
Total comprehensive income for the year (all attributable to owners of the Company)
The notes on pages 170 to 230 are an integral part of these consolidated financial statements.
166
Note
27
2022
$m
41.7
34.9
(7.7)
27.2
(100.2)
(100.2)
(73.0)
(31.3)
2021
$m
189.5
31.6
(3.4)
28.2
(18.5)
(18.5)
9.7
199.2
Hiscox Ltd Report and Accounts 2022Chapter 6 157Financial summaryChapter 3 72GovernanceChapter 5 148Shareholder informationChapter 2 20A closer lookChapter 1 2Performance and purposeChapter 4 106Remuneration
Consolidated balance sheet
At 31 December 2022
Assets
Employee retirement benefit asset
Goodwill and intangible assets
Property, plant and equipment
Investments in associates
Deferred tax assets
Deferred acquisition costs
Financial assets carried at fair value
Reinsurance assets
Loans and receivables including insurance receivables
Current tax assets
Cash and cash equivalents
Total assets
Equity and liabilities
Shareholders’ equity
Share capital
Share premium
Contributed surplus
Currency translation reserve
Retained earnings
Equity attributable to owners of the Company
Non-controlling interest
Total equity
Employee retirement benefit obligations
Deferred tax liabilities
Insurance liabilities
Financial liabilities
Current tax liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
Note
2022
$m
2021
$m
27
12
13
14
26
15
17
16, 23
18
21
22
22
22
27
26
23
17
24
20.9
320.4
133.1
5.6
53.7
450.1
5,812.1
3,899.8
1,671.6
4.0
1,350.9
13,722.2
38.7
517.6
184.0
(389.5)
2,064.8
2,415.6
1.1
2,416.7
–
0.2
8,836.6
636.2
14.1
1,818.4
11,305.5
13,722.2
–
313.1
90.4
5.7
67.3
436.9
6,041.3
3,908.0
1,678.2
4.9
1,300.7
13,846.5
38.7
516.8
184.0
(289.3)
2,088.0
2,538.2
1.1
2,539.3
35.1
0.1
8,868.4
746.7
21.3
1,635.6
11,307.2
13,846.5
The notes on pages 170 to 230 are an integral part of these consolidated financial statements.
The consolidated financial statements were approved by the Board of Directors on 8 March 2023 and signed on its behalf by:
Aki Hussain
Group Chief Executive Officer
Paul Cooper
Group Chief Financial Officer
167
Hiscox Ltd Report and Accounts 2022Chapter 6 157Financial summaryChapter 3 72GovernanceChapter 5 148Shareholder informationChapter 2 20A closer lookChapter 1 2Performance and purposeChapter 4 106Remuneration Consolidated statement of changes in equity
Balance at 1 January 2021
Profit for the year
(all attributable to owners
of the Company)
Other comprehensive income
net of tax (all attributable to
owners of the Company)
Employee share options:
Equity settled
share-based payments
Proceeds from
shares issued
Deferred and current tax on
employee share options
Shares issued in relation
to Scrip Dividend
Dividends paid to owners
of the Company
Balance at 31 December 2021
Profit for the year
(all attributable to
owners of the Company)
Other comprehensive income
net of tax (all attributable to
owners of the Company)
Employee share options:
Equity settled
share-based payments
Proceeds from
shares issued
Deferred and current tax on
employee share options
Shares issued in relation
to Scrip Dividend
Dividends paid to owners
of the Company
Balance at 31 December 2022
Note
Share
capital
$m
38.7
Share
premium
$m
Contributed
surplus
$m
Currency
translation
reserve
$m
Retained
earnings
$m
Equity
attributable to
owners of the
Company
$m
Non-controlling
interest
$m
Total
equity
$m
516.5
184.0
(270.8)
1,884.4
2,352.8
1.1
2,353.9
–
–
–
–
–
–
–
–
0.1
–
–
0.2
–
–
–
–
–
–
–
189.5
189.5
(18.5)
28.2
9.7
–
–
–
–
24.0
24.0
–
1.3
–
0.1
1.3
0.2
–
–
–
–
–
–
189.5
9.7
24.0
0.1
1.3
0.2
–
38.7
–
516.8
–
184.0
–
(289.3)
(39.4)
2,088.0
(39.4)
2,538.2
–
1.1
(39.4)
2,539.3
–
–
–
–
–
–
–
–
–
0.1
–
0.7
–
–
–
–
–
–
–
41.7
41.7
(100.2)
27.2
(73.0)
–
–
–
–
27.2
27.2
–
1.2
–
0.1
1.2
0.7
–
–
–
–
–
–
41.7
(73.0)
27.2
0.1
1.2
0.7
–
38.7
–
517.6
–
184.0
–
(389.5)
(120.5)
2,064.8
(120.5)
2,415.6
–
1.1
(120.5)
2,416.7
22
22, 29
29
22
22, 29
29
The notes on pages 170 to 230 are an integral part of these consolidated financial statements.
168
Hiscox Ltd Report and Accounts 2022Chapter 6 157Financial summaryChapter 3 72GovernanceChapter 5 148Shareholder informationChapter 2 20A closer lookChapter 1 2Performance and purposeChapter 4 106Remuneration
Consolidated statement of cash flows
For the year ended 31 December 2022
Profit before tax
Adjustments for:
Net foreign exchange gains
Interest and equity dividend income
Interest expense
Net fair value losses on financial assets
Depreciation, amortisation and impairment
Charges in respect of share-based payments
Realised loss/(gain) on sale of subsidiary undertaking, intangible assets
and property, plant and equipment
Changes in operational assets and liabilities:
Insurance and reinsurance contracts
Financial assets carried at fair value
Financial liabilities carried at fair value
Financial liabilities carried at amortised cost
Other assets and liabilities
Cash paid to the pension fund
Interest received
Equity dividends received
Interest paid
Current tax paid
Net cash flows from operating activities
Cash flows from the sale of subsidiaries
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Purchase of intangible assets
Proceeds from the sale of intangible assets
Net cash used in investing activities
Proceeds from the issue of ordinary shares
Proceeds from the issue of loan notes
Distributions made to owners of the Company
Repayment of borrowings
Principal elements of lease payments
Net cash flows used in financing activities
Net increase/(decrease) in cash and cash equivalents
Note
7
10
7
9, 12, 13
9, 22
27
22
17
22, 29
17
2022
$m
44.7
(30.6)
(119.5)
48.1
254.2
60.0
27.2
2021
$m
190.8
(0.7)
(88.1)
50.8
57.9
58.3
24.0
0.1
(6.5)
141.6
(128.3)
–
0.9
9.2
(13.5)
109.1
3.9
(31.3)
(2.4)
373.4
–
(20.9)
0.9
(61.9)
–
(81.9)
0.1
279.1
(119.8)
(336.6)
(13.7)
(190.9)
100.6
(264.2)
(30.0)
(0.4)
0.7
(6.7)
–
90.5
1.9
(49.6)
(12.1)
16.6
21.4
(5.4)
0.2
(53.5)
0.7
(36.6)
0.1
–
(39.2)
(195.7)
(11.4)
(246.2)
(266.2)
Cash and cash equivalents at 1 January
Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate fluctuations on cash and cash equivalents
Cash and cash equivalents at 31 December
1,300.7
100.6
(50.4)
1,350.9
1,577.2
(266.2)
(10.3)
1,300.7
21
The purchase, maturity and disposal of financial assets and liabilities, including derivatives, is part of the Group’s insurance
activities and is therefore classified as an operating cash flow.
Included within cash and cash equivalents held by the Group are balances totalling $178 million (2021: $215 million) not
available for immediate use by the Group outside of the Lloyd’s syndicate within which they are held. Additionally, $89 million
(2021: $7 million) is pledged cash held against Funds at Lloyd’s, and $0.5 million (2021: $0.4 million) held within trust funds
against reinsurance arrangements.
The notes on pages 170 to 230 are an integral part of these consolidated financial statements.
169
Hiscox Ltd Report and Accounts 2022Chapter 6 157Financial summaryChapter 3 72GovernanceChapter 5 148Shareholder informationChapter 2 20A closer lookChapter 1 2Performance and purposeChapter 4 106Remuneration Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
Chapter 6
Financial
summary
157
Notes to the consolidated financial statements
1 General information
The Hiscox Group, which is headquartered in Hamilton,
Bermuda, comprises Hiscox Ltd (the parent company, referred
to herein as the ‘Company’) and its subsidiaries (collectively,
the ‘Hiscox Group’ or the ‘Group’). For the current period
the Group provided insurance and reinsurance services to
its clients worldwide. It has operations in Bermuda, the UK,
Europe, Asia and the USA and currently has over 3,000 staff.
The Company is registered and domiciled in Bermuda and
its ordinary shares are listed on the London Stock Exchange.
The address of its registered office is: Chesney House,
96 Pitts Bay Road, Pembroke HM 08, Bermuda.
2 Basis of preparation
The financial statements of the Group have been prepared
in accordance with UK-adopted International Accounting
Standards, and Section 4.1 of the Disclosure and Transparency
Rules and the Listing Rules, both issued by the Financial
Conduct Authority (FCA) and in accordance with the
provisions of the Bermuda Companies Act 1981.
The consolidated financial statements have been prepared
under the historical cost convention, except for pension
scheme assets included in the measurement of the employee
retirement benefit obligation which are determined using
actuarial analysis, and certain financial instruments including
derivative instruments, which are measured at fair value.
The consolidated financial statements have been prepared
on a going concern basis. In adopting the going concern basis,
the Board has reviewed the Group’s current and forecast
solvency and liquidity positions for the next 12 months and
beyond. As part of the consideration of the appropriateness
of adopting the going concern basis, the Directors use scenario
analysis and stress testing to assess the robustness of the
Group’s solvency and liquidity positions.
In undertaking this analysis, no material uncertainty in relation
to going concern has been identified, due to the Group’s strong
capital and liquidity positions providing resilience to shocks,
underpinned by the Group’s approach to risk management
described in note 3.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to
170
Hiscox Ltd Report and Accounts 2022
continue in operational existence over a period of at least
12 months from the date of this report. For this reason, the
Group continues to adopt the going concern basis in
preparing the consolidated financial statements.
In accordance with IFRS 4 Insurance Contracts, the Group
continues to apply the existing accounting policies that
were applied prior to the adoption of IFRS (‘grandfathered’)
or the date of the acquisition of the entity. IFRS accounting
for insurance contracts in UK companies was grandfathered
at the date of transition to IFRS and determined in accordance
with accounting principles generally accepted in the UK.
Items included in the financial statements of each of the
Group’s entities are measured in the currency of the primary
economic environment in which that entity operates (the
functional currency). The consolidated financial statements
are presented in US Dollars millions ($m) and rounded to the
nearest hundred thousand Dollars, unless otherwise stated.
The balance sheet of the Group is presented in order of
increasing liquidity. All amounts presented in the income
statement and statement of comprehensive income relate
to continuing operations.
The financial statements were approved for issue by the
Board of Directors on 8 March 2023.
2.1 Significant accounting policies
The principal accounting policies applied in the preparation
of these consolidated financial statements are set out below.
The most critical individual components of these financial
statements that involve the highest degree of judgement
or significant assumptions and estimations are identified
in note 2.21.
Except as described below and overleaf, the accounting
policies adopted are consistent with those of the previous
financial year.
(a) New accounting standards, interpretations and
amendments to published standards
New standards, amendments to standards and interpretations,
as adopted by the UK, that are effective for annual periods
beginning on 1 January 2022 have been applied in preparing
these consolidated financial statements and had no material
impact on the Group.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
2 Basis of preparation
2.1 Significant accounting policies
(a) New accounting standards, interpretations and
amendments to published standards continued
A IFRS 3 References to the Conceptual Framework
(Amendments to IFRS 3)
A IAS 16 Proceeds before intended use and
annual improvements
A IAS 37 Onerous contracts – cost of fulfilling a contract
(Amendments to IAS 37)
(b) Future accounting developments
The following new standards, and amendments to
standards, are effective for annual periods beginning after
1 January 2022 and have not been applied in preparing
these financial statements:
A Initial application of IFRS 17 and IFRS 9 –
comparative information
This narrow-scope amendment will not be used
by the Group.
A Amendments to IAS 1, IAS 8 and IAS 12 effective
from 1 January 2023.
A IFRS 9 Financial Instruments
This standard incorporates new classification and
measurement requirements for financial assets, the
introduction of an expected credit loss impairment
model which will replace the incurred loss model of
IAS 39 and new hedge accounting requirements. The
Group satisfies the criteria set out in IFRS 4 Insurance
Contracts for the temporary exemption from IFRS 9.
At 31 December 2015 (the date specified by IFRS 4),
the carrying value of the Group’s liabilities connected
with insurance comprised over 90% of the total
liabilities. These include significant insurance
liabilities; the subordinated debt as this debt counts
towards the Group’s regulatory and rating agency
capital requirements; and creditors arising from
insurance operations. The activities of the Group
remain predominantly connected with insurance.
Under the current requirements (IAS 39), a majority
of the Group’s investments were designated as at
fair value through profit or loss on initial recognition
and subsequently remeasured to fair value at each
reporting date, reflecting the Group’s business model
for managing and evaluating the investment portfolio.
The adoption of IFRS 9 is not expected to result in any
material changes to the measurement of the Group’s
investments, which continues to be at fair value through
profit or loss. Loans, receivables and debtors in scope
of IFRS 9 will continue to be recognised at amortised cost
less impairment, with the measurement of impairment
reflecting expected credit losses. The Group expects a
recognition of an earlier and higher loss allowance under
this approach compared to the current incurred loss
approach, but the impact on equity on adoption is not
expected to be material. IFRS 9 has been endorsed by
the UK Endorsement Board.
A IFRS 17 Insurance Contracts
The Group will restate comparative information for 2022
applying the full retrospective transitional provisions of
IFRS 17.
The nature of the changes in accounting policies can be
summarised, as follows.
The Group is permitted under IFRS 4 Insurance
Contracts to continue to adopt the existing accounting
policies that were applied prior to the adoption of IFRS
(‘grandfathered’) or the date of the acquisition of a
subsidiary. IFRS 17 replaces IFRS 4 and is effective for
annual periods beginning on or after 1 January 2023
and has been endorsed by the UK Endorsement Board.
IFRS 17 establishes specific principles for the recognition,
measurement and presentation of insurance contracts
issued and reinsurance contracts held by the Group.
Under IFRS 17, the liability for incurred claims (LIC) is
equivalent to the liabilities for claims reported, claims
adjustment expenses, and claims incurred but not
reported under IFRS 4 and the liability for remaining
coverage (LRC) is equivalent to unearned premium
liabilities for premiums received.
Measurement
IFRS 17 requires a current measurement model where
estimates are remeasured at each reporting period.
Under the General Measurement Model (GMM), contracts
are measured using the building blocks of discounted
probability-weighted fulfilment cash flows, an explicit
risk adjustment, and a contractual service margin (CSM)
representing the unearned profit of the contract which
is recognised as revenue over the coverage period. A
simplification, the Premium Allocation Approach (PAA),
can be applied if certain eligibility criteria are met. The
majority of the Group’s policies have a coverage period of 12
months or less and so are eligible for the PAA. Management
applies significant judgement in assessing whether
applying the PAA to groups of contracts with a coverage
period extending beyond 12 months would produce a
measurement of the LRC that would not differ materially
from the one that would be produced applying GMM.
Management has concluded that a majority of the Group’s
insurance contracts issued, and reinsurance contracts held,
meet the criteria and the PAA is applied to measure them.
The measurement principles differ from the approach
used by the Group under IFRS 4. The key areas are:
A the LRC reflects premiums received less deferred
insurance acquisition cash flows and less amounts
recognised in insurance service revenue. The Group
has taken the option not to discount the LRC;
A measurement of the LRC does not require separate
identification of the risk adjustment for non-financial
risk and the CSM;
A measurement of the LRC is adjusted if a group of
contracts is expected to be onerous (i.e. loss making)
over the remaining coverage period and a loss is
recognised immediately in the income statement
under ‘insurance service expenses’ with the
recoveries in ‘amounts recoverable from reinsurers
for incurred claims’. A loss component is measured
as the excess of the fulfilment cash flows that relate to
the remaining coverage of the group over the carrying
amount of the LRC of the group of contracts;
A measurement of the LIC is determined on a
probability-weighted expected value basis. In
contrast to IFRS 4, the LIC is discounted. The
LIC also includes an explicit risk adjustment to
compensate for non-financial risk. The liability
includes the Group’s obligation to pay other
incurred insurance expenses;
Hiscox Ltd Report and Accounts 2022
171
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
2 Basis of preparation
2.1 Significant accounting policies
(b) Future accounting developments continued
A the discount rates used to calculate the LIC
are constructed using risk-free rates, plus an
illiquidity premium, where applicable. The risk-free
rates are determined by reference to the market
observable data (swap rates or highly liquid
sovereign bonds) in the currencies of the respective
(re)insurance contract liabilities. The liquidity premium
is determined based on market observable illiquidity
premiums in financial assets, adjusted to reflect the
liquidity characteristics of the liability cash flows;
A the risk adjustment for non-financial risk is the
estimated compensation that the Group requires for
bearing the uncertainty about the amount and timing
of the cash flows of groups of insurance contracts.
Management applies significant judgements in
determining the risk adjustment amount;
A measurement of the reinsurance contract asset for
remaining coverage (ARC) reflecting reinsurance
premiums paid for reinsurance held is adjusted to
include a loss-recovery component to reflect the
expected recovery of onerous contract losses
where such contracts reinsure onerous contracts;
A measurement of the reinsurance asset for incurred
claims (AIC) is similar to the LIC as set out above;
A the expected premium received is recognised in
the consolidated income statement as part of
insurance service revenue over the insurance
coverage period on the basis of the passage of
time, unless the expected pattern of release from
risk differs significantly from the passage of time, in
which case it is recognised based on the expected
timing of incurred claims and benefits;
A all insurance and reinsurance contract assets and
liabilities are monetary items. As a result, those
balances denominated in foreign currencies are
subject to revaluation at foreign exchange rates
prevailing at the reporting date, with the impact
of changes in foreign exchange rates recognised
in the income statement in insurance finance
income and expenses;
Aunder IFRS 4, acquisition costs were recognised
and presented separately as ‘deferred acquisition
costs’. Under IFRS 17, the Group has taken the
option to include directly attributable acquisition
cash flows in the LRC which are tested separately
for recoverability and are amortised as part of
insurance service expenses.
Changes to presentation and disclosure
The presentation of the income statement will change,
with premium and claims figures being replaced with
insurance contract revenue, insurance service expense
and insurance finance income and expense. Gross and
net premiums written will no longer be presented on the
face of the income statement.
Further, reinsurance commission income that is
contingent on claims, for example profit commission
income, is treated as a part of claims recoveries cash
flows and that which is not contingent on claims, for
example overrider commission, is accounted for as
part of premium paid or received cash flows.
172
Hiscox Ltd Report and Accounts 2022
Transition
On transition date, 1 January 2022, the Group:
A has identified, recognised and measured each group
of insurance contracts as if IFRS 17 requirements
had always applied (the fully retrospective approach);
A derecognised any existing balances that would not
exist had IFRS 17 requirements always applied;
A performed a PAA eligibility assessment for the
2021 and prior unexpired groups of insurance and
reinsurance contracts with coverage periods of
longer than 12 months;
A estimated the net impact to equity at 1 January 2022
of approximately $25 million (increase) driven by the
following factors:
A the application of the discounting of the
insurance contract liabilities and assets of
approximately $55 million;
A offset by other differences including the
recognition of onerous contract net loss
components, non-performance risk, and
application of a Group-wide risk adjustment
policy and accounting policies on a consistent
basis under IFRS 17 of approximately $30 million.
The Group has not presented here the restated opening
balance sheet on 1 January 2022 or restated accounts for
the year-end 2022. These are being finalised and will be
presented later in 2023, before the announcement of the
half-year 2023 results.
2.2 Basis of consolidation
(a) Subsidiaries
Subsidiaries are those entities controlled by the Group. Control
exists when the Group has power over an entity, exposure
or rights to variable returns from its involvement with the
investee and ability to use its power to affect those returns.
The consolidated financial statements include the assets,
liabilities and results of the Group up to 31 December each
year. The financial statements of subsidiaries are included in
the consolidated financial statements only from the date that
control commences until the date that control ceases.
The Group applies the acquisition method to account for
business combinations. The consideration transferred for
the acquisition of a subsidiary is the fair value of the assets
transferred, the liabilities incurred to the former owners of the
acquiree and the equity interests issued by the Group. The
consideration transferred also includes the fair value of any
asset or liability resulting from a contingent consideration
arrangement. Identifiable assets acquired, liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date. The
Group recognises any non-controlling interest in the acquiree
on an acquisition-by-acquisition basis, either at fair value or
at the non-controlling interest’s proportionate share of the
recognised amounts of acquiree’s identifiable net assets.
Transactions with non-controlling interests that do not result
in loss of control are accounted for as equity transactions –
that is, as transactions with the owners in their capacity as
owners. The difference between fair value of any consideration
paid and the relevant share acquired of the carrying value of
net assets of the subsidiary is recorded in equity. Gains or
losses on disposals to non-controlling interests are also
recorded in equity.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
2 Basis of preparation
2.2 Basis of consolidation continued
(b) Associates
Associates are those entities in which the Group has
significant influence, but not control, over the financial and
operating policies. Significant influence is generally identified
with a shareholding of between 20% and 50% of an entity’s
voting rights. The consolidated financial statements include
the Group’s share of the total recognised gains and losses of
associates on an equity-accounted basis from the date that
significant influence commences until the date that significant
influence ceases.
The Group’s share of its associates’ post-acquisition
profits or losses after tax is recognised in the income
statement for each period, and its share of the movement
in the associates’ net assets is reflected in the investments’
carrying values on the balance sheet. When the Group’s
share of losses equals or exceeds the carrying amount of
the associate, the carrying amount is reduced to nil and
recognition of further losses is discontinued except to the
extent that the Group has incurred obligations in respect
of the associate.
(c) Transactions eliminated on consolidation
Intragroup balances, transactions and any unrealised
gains arising from intragroup transactions are eliminated in
preparing the consolidated financial statements. Unrealised
losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Foreign
currency gains and losses on intragroup monetary assets and
liabilities may not fully eliminate on consolidation when the
intragroup monetary item concerned is transacted between
two Group entities that have different functional currencies.
Unrealised gains arising from transactions with associates
are eliminated to the extent of the Group’s interest in the
entity. Unrealised losses are eliminated in the same way
as unrealised gains, but only to the extent that there is no
evidence of impairment.
2.3 Foreign currency translation
(a) Functional currency
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the
primary economic environment in which the entity operates
(the ‘functional currency’). Entities operating in France,
Germany, The Netherlands, Spain, Portugal, Ireland and
Belgium have functional currency of Euros; those subsidiary
entities operating from the USA, Bermuda, Guernsey and
Syndicates have functional currency of US Dollars with the
exception of Hiscox Ltd, a public company incorporated and
domiciled in Bermuda with functional currency of Sterling.
Functional currencies of entities operating in Asia include
US Dollars, Singapore Dollars and Thai Baht. All other entities
have functional currency of Sterling.
(b) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from
the retranslation at year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are
recognised in the income statement, except when deferred
in equity as IAS 39 effective net investment hedges or when
the underlying balance is deemed to form part of the Group’s
net investment in a subsidiary operation and is unlikely to be
settled in the foreseeable future. Non-monetary items carried
at historical cost are translated on the balance sheet at the
exchange rate prevailing on the original transaction date.
Non-monetary items measured at fair value are translated using
the exchange rate ruling when the fair value was determined.
(c) Group companies
The results and financial position of all the Group entities that
have a functional currency different from the presentation
currency are translated into the presentation currency
as follows:
A assets and liabilities for each balance sheet presented
are translated at the closing rate at the date of that
balance sheet;
A income and expenses for each income statement are
translated at average exchange rates (unless this average
is not a reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the date of
the transactions); and
A all resulting exchange differences are recognised as a
separate component of equity.
When a foreign operation is sold, such exchange differences
are recognised in the income statement as part of the gain,
or loss, on sale.
2.4 Property, plant and equipment
Property, plant and equipment are stated at historical cost less
depreciation and any impairment loss. Historical cost includes
expenditure that is directly attributable to the acquisition of the
items. Subsequent costs are included in the asset’s carrying
amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item can
be measured reliably. All other repairs and maintenance items
are charged to the income statement during the financial period
in which they are incurred.
Land is not depreciated as it is deemed to have an indefinite
useful economic life. The cost of leasehold improvements
is amortised over the unexpired term of the underlying
lease or the estimated useful life of the asset, whichever is
shorter. Depreciation on other assets is calculated using the
straight-line method to allocate their cost, less their residual
values, over their estimated useful lives.
The rates applied are as follows:
A buildings
A vehicles
A leasehold improvements including
fixtures and fittings
A furniture, fittings and equipment
20–50 years
3 years
10–15 years
3–15 years
The assets’ residual values and useful lives are reviewed at
each balance sheet date and adjusted if appropriate.
An asset’s carrying amount is written down immediately
to its recoverable amount if the asset’s carrying amount is
greater than its estimated recoverable amount. Gains
and losses on disposals are determined by comparing
proceeds with the carrying amount. These are included
in the income statement.
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Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
2 Basis of preparation continued
2.5 Intangible assets
(a) Goodwill
Goodwill represents amounts arising on acquisition of
subsidiaries and associates. In respect of acquisitions that
have occurred since 1 January 2004, goodwill represents
the excess of the fair value of consideration of an acquisition
over the fair value of the Group’s share of the net identifiable
assets and contingent liabilities assumed of the acquired
subsidiary or associate at the acquisition date.
In respect of acquisitions prior to 1 January 2004, goodwill is
included on the basis of its deemed cost, which represents
the amount recorded under previous generally accepted
accounting principles.
Goodwill on acquisition of subsidiaries is included in intangible
assets. Goodwill on acquisition of associates is included in
investments in associates.
Goodwill is not amortised but is tested at least annually
for impairment and carried at cost, less accumulated
impairment losses.
Goodwill is allocated to the Group’s cash-generating units
identified according to the smallest identifiable unit to which
cash flows are generated.
The impairment review process examines whether or not
the carrying value of the goodwill attributable to individual
cash-generating units exceeds its recoverable amount.
Any excess of goodwill over the recoverable amount
arising from the review process indicates impairment.
Any impairment charges are presented as part of
operational expenses. Gains and losses on the disposal
of an entity include the carrying amount of goodwill
relating to the entity sold.
(b) Other intangible assets
Intangible assets acquired separately from a business are
carried initially at cost. An intangible asset acquired as
part of a business combination is recognised outside of
goodwill if the asset is separable or arises from contractual or
other legal rights and its fair value can be measured reliably.
Customer relationships, syndicate capacity and software
acquired are capitalised at cost, being the fair value of the
consideration paid. Software is capitalised on the basis of
the costs incurred to acquire and bring it into use. Intangible
assets with indefinite lives such as syndicate capacity are
subsequently valued at cost and are subject to annual
impairment assessment.
Intangible assets with finite useful lives are consequently
carried at cost, less accumulated amortisation and
impairment. The useful life of the asset is reviewed annually.
Any changes in estimated useful lives are accounted for
prospectively with the effect of the change being recognised
in the current and future periods, if relevant.
Amortisation is calculated using the straight-line method
to allocate the cost over the estimated useful lives of the
intangible assets.
Subsequent expenditure on other intangible assets is
capitalised only when it increases the future economic
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benefits embodied in the specific asset to which it relates.
All other expenditure is expensed as incurred.
Those intangible assets with finite lives are assessed for
indicators of impairment at each reporting date. Where there
is an indication of impairment then a full impairment test is
performed. An impairment loss recognised for an intangible
asset in prior years should be reversed if, and only if, there
has been a change in the estimates used to determine the
asset’s recoverable amount since the last impairment loss
was recognised.
2.6 Fair value
Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date,
regardless of whether that price is directly observable or
estimated using a valuation technique.
This presumes that the transaction takes place in the
principal (or most advantageous) market under current
market conditions. Fair value is a market-based measure
and in the absence of observable market prices in an
active market, it is measured using the assumptions
that market participants would use when pricing the
asset or liability.
The fair value of a non-financial asset is determined
based on its highest and best use from a market
participant’s perspective. When using this approach,
the Group takes into account the asset’s use that is
physically possible, legally permissible and financially
feasible. The best evidence of the fair value of a financial
instrument at initial recognition is normally the transaction
price, i.e. the fair value of the consideration given
or received.
If an asset or a liability measured at fair value has a bid
price and an ask price, the price within the bid-ask
spread that is most representative of fair value in the
circumstances is used to measure fair value. An analysis
of fair values of financial instruments and further details
as to how they are measured are provided in note 20.
2.7 Financial assets and liabilities including loans
and receivables
The Group classifies its financial assets as a) financial
assets at fair value through profit or loss, and b) loans and
receivables. Management determines the classification of its
financial assets based on the purpose for which the financial
assets are held at initial recognition. The decision by the Group
to designate debt and fixed income holdings, equities and
investment funds and deposits with credit institutions, at fair
value through profit or loss, reflects the fact that the investment
portfolios are managed, and their performance evaluated,
on a fair value basis.
Purchases and sales of investments are accounted for
at the trade date. Financial assets and liabilities are initially
recognised at fair value. Subsequent to initial recognition,
financial assets and liabilities are measured as described
below. Financial assets are derecognised when the right to
receive cash flows from them expires or where they have been
transferred and the Group has also transferred substantially
all risks and rewards of ownership.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
2 Basis of preparation
2.7 Financial assets and liabilities including loans
and receivables continued
(a) Financial assets at fair value through profit or loss
A financial asset is classified into this category at inception if it
is managed and evaluated on a fair value basis in accordance
with a documented strategy, if acquired principally for the
purpose of selling in the short term, or if it forms part of a
portfolio of financial assets in which there is evidence of
short-term profit taking.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted
on an active market. Balances are carried at amortised cost,
less any provision for impairment, and include receivables
arising from insurance contracts.
(c) Borrowings
All borrowings are initially recognised at fair value. Subsequent
to initial recognition, borrowings are measured at amortised
cost. Any difference between the value recognised at initial
recognition and the ultimate redemption amount is recognised
in the income statement over the period to redemption using
the effective interest method.
2.8 Cash and cash equivalents
The Group has classified cash deposits and short-term
highly-liquid investments as cash and cash equivalents.
These assets are readily convertible into known amounts of
cash and are subject to inconsequential changes in value.
Cash equivalents are financial investments with less than
three months to maturity at the date of acquisition.
2.9 Impairment of assets
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually or whenever there
is an indication of impairment. Assets that are subject to
amortisation are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying
amount may not be recoverable.
(a) Non-financial assets
Objective factors that are considered when determining
whether a non-financial asset (such as goodwill, an intangible
asset or item of property, plant and equipment) or group of
non-financial assets may be impaired include, but are not
limited to, the following:
A adverse economic, regulatory or environmental
conditions that may restrict future cash flows and
asset usage and/or recoverability;
A actual breaches of credit terms such as persistent
late payments or actual default;
A adverse economic or regulatory conditions that may
restrict future cash flows and asset recoverability; and
A the withdrawal of any guarantee from statutory funds or
sovereign agencies implicitly supporting the asset.
(c) Impairment loss
An impairment loss is recognised for the amount
by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the
higher of an asset’s fair value, less costs to sell and
value in use. For the purpose of assessing impairment,
assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash-generating
units). For financial assets carried at amortised cost,
the amount of the impairment loss is measured as the
difference between the asset’s carrying amount and the
value of the estimated future cash flows discounted at the
financial asset’s original effective interest rate. Where an
impairment loss subsequently reverses, the carrying
amount of the asset is increased to the revised estimate
of its recoverable amount, but only to the extent that the
increased carrying amount does not exceed the carrying
amount that would have been determined had no
impairment loss been recognised for the asset in prior
periods. A reversal of an impairment loss is recognised
as income immediately. Impairment losses recognised in
respect of goodwill are not subsequently reversed.
2.10 Derivative financial instruments
Derivatives are initially recognised at fair value on the
date on which a derivative contract is entered into and
are subsequently valued at fair value at each balance
sheet date. Fair values are obtained from quoted market
values and, if these are not available, valuation techniques
including option pricing models are used as appropriate.
The method of recognising the resulting gain or loss
depends on whether the derivative is designated as a
hedging instrument and, if so, the nature of the item being
hedged. For derivatives not formally designated as a
hedging instrument, fair value changes are recognised
immediately in the income statement. Changes in the
value of derivatives and other financial instruments
formally designated as hedges of net investments in
foreign operations are recognised in the currency
translation reserve to the extent they are effective;
gains or losses relating to the ineffective portion of the
hedging instruments are recognised immediately in the
consolidated income statement.
A the likelihood of accelerated obsolescence arising from
the development of new technologies and products; and
A the disintegration of the active market(s) to which the
The Group had no derivative instruments designated
for hedge accounting during the current and prior
financial year.
asset is related.
(b) Financial assets
Objective factors that are considered when determining
whether a financial asset or group of financial assets
may be impaired include, but are not limited to,
the following:
A negative rating agency announcements in respect
of investment issuers, reinsurers and debtors;
A significant reported financial difficulties of investment
issuers, reinsurers and debtors;
2.11 Own shares
Where any Group company purchases the Parent Company’s
equity share capital (own shares), the consideration paid,
including any directly attributable incremental costs (net of
income taxes) is deducted from equity attributable to the
Company’s owners on consolidation. Where such shares are
subsequently sold, reissued or otherwise disposed of, any
consideration received is included in equity attributable to the
Company’s owners, net of any directly attributable incremental
transaction costs and the related tax effects.
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Chapter 1
Performance
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2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
2 Basis of preparation continued
2.12 Revenue
Revenue comprises insurance and reinsurance premiums
earned on the rendering of insurance protection, net of
reinsurance, together with profit commission, investment
returns, agency fees and other income. The Group’s
share of the results of associates is reported separately.
The accounting policies for insurance premiums are set
out in note 2.13.
Other revenue is recognised when, or as, the control of
the goods or services is transferred to a customer, i.e.
performance obligations are fulfilled at an amount that
reflects the consideration to which the Group expects to
be entitled in exchange for those goods or services.
See note 9 for further details.
2.13 Insurance contracts
(a) Classification
Insurance contracts are defined as those containing
significant insurance risk if, and only if, an insured event
could cause an insurer to make significant additional
payments in any scenario, excluding scenarios that lack
commercial substance, at the inception of the contract.
Such contracts remain insurance contracts until all rights
and obligations are extinguished or expire. The Group
issues short-term casualty and property insurance
contracts that transfer significant insurance risk.
(b) Recognition and measurement
Gross premiums written comprise premiums on business
incepting in the financial year, together with adjustments
to estimates of premiums written in prior accounting
periods. Estimates are included for pipeline premiums
and an allowance is also made for cancellations. Premiums
are stated before the deduction of brokerage and commission,
but net of taxes and duties levied. Premiums are recognised
as revenue (premiums earned) proportionally over the period
of coverage. The portion of premium received on in-force
contracts that relate to unexpired risks at the balance sheet
date is reported as the unearned premium liability.
Claims and associated expenses are charged to profit or loss
as incurred, based on the estimated liability for compensation
owed to contract holders or third parties damaged by the
contract holders. They include direct and indirect claims
settlement costs and arise from events that have occurred
up to the balance sheet date, even if they have not yet been
reported to the Group.
The Group does not discount its liabilities for unpaid claims.
Liabilities for unpaid claims are determined based on the
best estimate of the cost of future claim payments, plus an
allowance for risk and uncertainty. Any estimate represents
a determination within a range of possible outcomes using,
as inputs, the assessments for individual cases reported to
the Group, statistical analysis for the claims incurred but not
reported, an estimate of the expected ultimate cost of more
complex claims that may be affected by external factors, for
example, court decisions, and an allowance for quantitative
uncertainties not otherwise approved.
(c) Deferred acquisition costs (DAC)
Commissions and other direct and indirect costs that vary
with and are related to securing new contracts and renewing
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Hiscox Ltd Report and Accounts 2022
existing contracts are capitalised as deferred acquisition
costs. All other costs are recognised as expenses when
incurred. DAC are amortised over the terms of the insurance
contracts as the related premium is earned.
(d) Liability adequacy tests
At each balance sheet date, liability adequacy tests are
performed by each business unit to ensure the adequacy of
the contract liabilities net of related DAC. In performing these
tests, current best estimates of future contractual cash flows
and claims handling and administration expenses, as well as
investment income from assets backing such liabilities, are
used. Any deficiency is charged to profit or loss initially by
writing-off DAC and by subsequently establishing a provision
for losses arising from liability adequacy tests (‘the unexpired
risk reserve’). Any DAC written-off as a result of this test is
not subsequently reinstated.
(e) Outwards reinsurance contracts held
Contracts entered into by the Group with reinsurers, under
which the Group is compensated for losses on one or more
insurance or reinsurance contract and that meet the
classification requirements for insurance contracts, are
classified as reinsurance contracts held. Contracts that
do not meet these classification requirements are classified
as financial assets.
The benefits to which the Group is entitled under outwards
reinsurance contracts are recognised as assets. These
assets consist of short-term balances due from reinsurers
(classified within loans and receivables), as well as
longer-term receivables (classified as reinsurance assets)
that are dependent on the expected claims and benefits
arising under the related reinsured insurance contracts.
Amounts recoverable from or due to reinsurers are measured
consistently with the amounts associated with the reinsured
insurance contracts and in accordance with the terms of
each reinsurance contract.
The Group assesses its reinsurance assets on a regular basis
and, if there is objective evidence, after initial recognition,
of an impairment in value, the Group reduces the carrying
amount of the reinsurance asset to its recoverable amount
and recognises the impairment loss in the income statement.
Reinsurance liabilities primarily comprise premiums payable
for outwards reinsurance contracts.
(f) Retroactive reinsurance transactions
Retroactive insurance contracts that contain significant
insurance risk and that have an insurance component and
a deposit component are unbundled providing the deposit
component can be measured separately. The deposit
component is recorded directly into the balance sheet
within reinsurers’ share of insurance liabilities with a
corresponding amount in creditors arising out of reinsurance
operations. The reinsurers’ share of insurance liabilities
relating to the contracts is remeasured at each reporting
period with movements taken to the reinsurance recoveries
in the income statement.
Reinsurance transactions that transfer risk, but are retroactive,
are included in reinsurance assets. The excess of estimated
liabilities for claims and claim expenses over the consideration
paid is established as a deferred credit at inception. The
deferred amounts are subsequently amortised using the
Chapter 1
Performance
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2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
2 Basis of preparation
2.13 Insurance contracts
(f) Retroactive reinsurance transactions continued
recovery method over the settlement period of the reserves
and reflected through the claims and claim adjustment
expenses line. In transactions where the consideration
paid exceeds the estimated liabilities for claims and claim
adjustment expenses, a loss is recognised immediately.
(g) Reinsurance commission income
Reinsurance commission income represents commission
earned from ceding companies which is earned over
the terms of the underlying reinsurance contracts and
presented separately in the consolidated income statement.
(h) Receivables and payables related to insurance contracts
Receivables and payables are recognised when due. These
include amounts due to, and from, agents, brokers and
insurance contract holders. If there is objective evidence
that the insurance receivable is impaired, the Group
reduces the carrying amount of the insurance receivable
accordingly and recognises the impairment loss in the
income statement.
(i) Salvage and subrogation reimbursements
Some insurance contracts permit the Group to sell property
acquired in settling a claim (i.e. salvage). The Group may
also have the right to pursue third parties for payment of
some or all costs (i.e. subrogation). Estimates of salvage
recoveries are included as an allowance in the measurement
of the insurance liability for claims and salvage property is
recognised in other assets when the liability is settled. The
allowance is the amount that can reasonably be recovered
from the disposal of the property. Subrogation reimbursements
are also considered as an allowance in the measurement of
the insurance liability for claims and are recognised in other
assets when the liability is settled. The allowance is the
assessment of the amount that can be recovered from
the action against the liable third party.
2.14 Taxation
Current tax, including corporation tax and foreign tax, is
provided at amounts expected to be paid (or recovered)
using the tax rates and laws that have been enacted or
substantively enacted by the balance sheet date. A provision
is recognised for those matters for which the tax determination
is uncertain but it is considered probable that there will be a
future outflow of funds to a tax authority. The provisions are
measured at the best estimate of the amount expected to
become payable. The assessment is based on the judgement
of tax professionals within the Group supported by previous
experience in respect of such activities and in certain cases
based on advice sought from specialist tax advisors.
Deferred tax is provided in full, using the liability method,
on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the
financial statements. However, if the deferred income tax
arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the
time of the transaction affects neither accounting nor
taxable profit or loss, it is not recognised. Deferred tax is
determined using tax rates and laws that have been enacted
or substantively enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is
realised or the deferred tax liability is settled. Deferred tax
assets are recognised to the extent that it is probable that
future taxable profit will be available against which the
temporary differences can be utilised. Deferred tax is
provided on temporary differences arising on investments in
subsidiaries and associates, except where the Group controls
the timing of the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the
foreseeable future.
2.15 Employee benefits
(a) Pension obligations
The Group has defined contribution and defined benefit
pension schemes. The defined benefit scheme closed to
future accrual with effect from 31 December 2006 and
active members were offered membership of the defined
contribution scheme from 1 January 2007. A defined
contribution plan is a pension plan under which the Group
pays fixed contributions into a separate entity and has
no further obligation beyond the agreed contribution rate.
A defined benefit plan is a pension plan that defines an
amount of pension benefit that an employee will receive
on retirement, usually dependent on one or more factors
such as age, years of service and compensation.
For defined contribution plans, the Group pays contributions
to publicly or privately administered pension insurance plans
on a contractual basis. The contributions are recognised as
an employee benefit expense when they are due. Prepaid
contributions are recognised as an asset to the extent that
a cash refund or a reduction in future payments is available.
The amount recognised on the balance sheet in respect of
defined benefit pension plans is the present value of the
defined benefit obligation at the balance sheet date, less
the fair value of plan assets. The calculation of the defined
benefit obligation is performed annually by a qualified
actuary using the projected unit method. As the plan is
closed to all future benefit accrual, each participant’s
benefits under the plan are based on their service to
the date of closure or earlier leaving date and their final
pensionable earnings. The service cost is the expected
administration cost during the year. Past service costs are
recognised immediately in the income statement.
Remeasurements of the net defined benefit liability,
which comprise actuarial gains and losses, the return
on plan assets (excluding interest) and the effect of the
asset ceiling (if any), are recognised immediately in
other comprehensive income. The Group determines
the net interest expense (income) on the net defined
benefit liability (asset) for the period by applying the
discount rate used to measure the defined benefit
obligation at the beginning of the annual period to the
then net defined benefit liability (asset), taking into
account any changes in the net defined benefit liability
(asset) during the period as a result of contributions
and benefit payments. Net interest expense and other
expenses related to defined benefit plans are recognised
in the income statement through operating expenses.
To the extent that a surplus emerges on the defined benefit
obligation, it is only recognisable as an asset when it is
probable that future economic benefits will be recovered
by the Group.
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Chapter 3
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Chapter 4
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Chapter 5
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157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
2 Basis of preparation
2.15 Employee benefits continued
(b) Other long-term employee benefits
The Group provides sabbatical leave to employees on
completion of every five years’ service. The present value
of the expected costs of these benefits is accrued over
the period of employment. In determining this liability,
consideration is given to future increases in salary levels,
experience with employee departures and periods
of service.
(c) Share-based compensation
The Group operates equity settled share-based employee
compensation plans. These include the share option
schemes, and the Group’s Performance Share Plans, outlined
in the Directors’ remuneration report, together with the
Group’s Save As You Earn (SAYE) schemes. The fair value
of the employee services received, measured at grant date,
in exchange for the grant of the awards is recognised as
an expense, with the corresponding credit being recorded
in retained earnings within equity. The total amount to be
expensed over the vesting period is determined by reference
to the fair value of the awards granted, excluding the impact of
any non-market vesting conditions (for example, profitability or
net asset growth targets). Non-market vesting conditions are
included in assumptions about the number of awards that are
expected to become exercisable. At each balance sheet date,
the Group revises its estimates of the number of awards that
are expected to vest.
The Group recognises the impact of the revision of
original estimates, if any, in the income statement, and
a corresponding adjustment to equity, in periods in which
the estimates are revised.
When the terms and conditions of an equity settled
share-based employee compensation plan are modified,
and the expense to be recognised increases as a result of the
modification, then the increase is recognised evenly over the
remaining vesting period. When a modification reduces the
expense to be recognised, there is no adjustment recognised
and the pre-modification expense continues to be applied.
The proceeds received net of any directly attributable
transaction costs are credited to share capital and share
premium when the options are exercised.
(d) Termination benefits
Termination benefits are payable when employment is
terminated before the normal retirement date, or whenever
an employee accepts voluntary redundancy in exchange for
these benefits. The Group recognises termination benefits
when it is demonstrably committed to either: terminating the
employment of current employees according to a detailed
formal plan without possibility of withdrawal; or providing
termination benefits as a result of an offer made to encourage
voluntary redundancy.
(e) Profit sharing and bonus plans
The Group recognises a liability and an expense for
bonuses and profit sharing, based on a formula that takes
into consideration the profit attributable to the Company’s
shareholders after certain adjustments. The Group
recognises a provision where a contractual obligation
to employees exists or where there is a past practice
that has created a constructive obligation.
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Hiscox Ltd Report and Accounts 2022
2.16 Net investment hedge accounting
In order to qualify for hedge accounting, the Group is
required to document, in advance, the relationship between
the item being hedged and the hedging instrument. The
Group is also required to document and demonstrate
an assessment of the relationship between the hedged
item and the hedging instrument, which shows that the
hedge will be highly effective on an ongoing basis. This
effectiveness testing is reperformed at each period end to
ensure that the hedge remains highly effective. Accumulated
gains or losses will be recycled to the income statement only
when the foreign operation is disposed of. The ineffective
portion of any hedge is recognised immediately in the
income statement.
2.17 Finance costs
Finance costs consist of interest charges accruing on the
Group’s borrowings and bank overdrafts together with
commission fees charged in respect of Letters of Credit
and interest in respect of lease liabilities and funds withheld.
Arrangement fees in respect of financing arrangements are
charged over the life of the related facilities.
2.18 Provisions
Provisions are recognised where there is a present obligation
(legal or constructive) as a result of a past event that can
be measured reliably and it is probable that an outflow of
economic benefits will be required to settle that obligation.
2.19 Leases
(a) Hiscox as lessee
The Group recognises right-of-use assets at the
commencement date of the lease (i.e. the date the underlying
asset is available for use). Right-of-use assets are measured
at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities.
The cost of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred, and lease
payments made at or before the commencement date, less
any lease incentives received. Unless the Group is reasonably
certain to obtain ownership of the leased asset at the end of the
lease term, the recognised right-of-use assets are depreciated
on a straight-line basis over the shorter of their estimated
useful life and the lease term. Right-of-use assets are subject
to impairment. Right-of-use assets are presented on the
balance sheet as ‘property, plant and equipment’.
At the commencement date of the lease, the Group
recognises lease liabilities measured at the present value of
lease payments to be made over the lease term. The lease
payments include fixed payments less any lease incentives
receivable, variable lease payments that depend on an index
or a rate, and amounts expected to be paid under residual value
guarantees. The lease payments also include the exercise price
of a purchase option reasonably certain to be exercised by the
Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index
or a rate are recognised as an expense in the period in which
the event or condition that triggers the payment occurs. Lease
liabilities are included in ‘trade and other payables’ on the
balance sheet.
In calculating the present value of lease payments, the
Group uses the incremental borrowing rate at the lease
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
2 Basis of preparation
2.19 Leases
(a) Hiscox as lessee continued
commencement date if the interest rate implicit in the lease is
not readily determinable. After the commencement date, the
amount of lease liabilities is increased to reflect the accretion
of interest and reduced for the lease payments made. In
addition, the carrying amount of lease liabilities is remeasured
if there is a modification that is not accounted for as a separate
lease: future lease payments that are linked to a rate or index,
a change in the lease term, a change in the in-substance fixed
lease payments, a change in the assessment to purchase the
underlying asset or a change in the amounts expected to be
payable under a residual value guarantee.
The Group applies the short-term lease recognition exemption
to its applicable short-term leases. It also applies the low-value
assets recognition exemption to leases of office equipment that
are considered of low value. Lease payments on short-term
leases and leases of low-value assets are recognised as an
expense on a straight-line basis over the lease term.
(b) Hiscox as lessor
Rental income from operating leases is recognised
on a straight-line basis over the term of the relevant
contractual agreement.
2.20 Dividend distribution
Dividend distribution to the Company’s shareholders is
recognised as a liability in the Group’s financial statements
in the period in which the dividends are approved.
2.21 Use of significant judgements, estimates
and assumptions
The preparation of financial statements requires the
Group to select accounting policies and make judgements,
estimates and assumptions that affect the reported
amounts of assets, liabilities, income and expenses
in the consolidated financial statements.
The Audit Committee reviews the reasonableness of critical
judgements, estimates and assumptions applied and the
appropriateness of significant accounting policies. The
significant issues considered by the Committee in the year are
included within the Audit Committee report on pages 99 to 101.
Significant accounting judgements
The following accounting policies are those considered to
have a significant impact on the amounts recognised in the
consolidated financial statements.
A Consolidation: assessment of whether the Group
controls an underlying entity, for example, the treatment of
insurance-linked securities funds including consideration
of its decision-making authority and its rights to the
variable returns from the entity;
A Insurance contracts: assessment of the significance
of insurance risk transferred to/from the Group in
determining whether a contract should be accounted
for as an insurance contract or as a financial instrument.
This includes assessing the risk transferred on portfolio
transfers and the appropriate presentation of retroactive
reinsurance transactions;
A Financial investments: classification and measurement
of investments including the application of the fair
value option.
Significant accounting estimates
All estimates are based on management’s knowledge of
current facts and circumstances, assumptions based on that
knowledge and their predictions of future events. Actual results
may differ from those estimates, possibly significantly. Revisions
to accounting estimates are recognised in the period in which
the estimate is revised and in any future periods affected.
The following describes items considered particularly
susceptible to changes in estimates and assumptions.
The most critical estimate included within the Group’s
balance sheet is the measurement of insurance liabilities and
reinsurance assets, and in particular the estimate of losses
incurred but not reported (IBNR) within these balances.
The total gross estimate of IBNR as at 31 December 2022
is $4,474.2 million (2021: $4,539.8 million). The total estimate
for reinsurers’ share of losses IBNR as at 31 December 2022
is $2,261.9 million (2021: $2,349.5 million).
Estimates of IBNR 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. Between the reporting and final settlement
of a claim, circumstances may change, which may result in
changes to the established liability. The overall reserving risk
is discussed in more detail in note 3.2 and the procedures
used in estimating the cost of settling insured losses at
the balance sheet date including losses incurred but not
reported are detailed in note 23.
The Group tests the adequacy of its unearned premium liability
by comparing current estimates of future claims and claims
handling expenses attributable to the unexpired periods of
policies at the balance sheet date to the unearned premium
liability net of acquisition costs. As set out in note 2.13(d), any
deficiency is recognised in the income statement. The related
deferred acquisition costs are first written down and any
additional liability required is then recognised as an unexpired
risk reserve (URR).
Another key estimate contained within the Group’s
consolidated financial statements 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,
past underwriting experience, the contractual terms
of the policy and prevailing market conditions. Subsequently,
adjustments to those estimates arise as updated information
relating to those pricing variables becomes available, for
example due to declarations obtained on binding authority
contracts, reinstatement premium on reinsurance contracts
or other policy amendments. Such adjustments are recorded
in the period in which they are determined and impact gross
premiums written in the consolidated income statement and
premiums receivable from insureds and cedants recorded on
the consolidated balance sheet.
The Group carries its financial investments at fair value
through profit or loss, with fair values determined using
published price quotations in the most active financial markets
Hiscox Ltd Report and Accounts 2022
179
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
2 Basis of preparation
2.21 Use of significant judgements, estimates
and assumptions
Significant accounting estimates continued
in which the assets trade, where available. Where quoted
market prices are not available, valuation techniques
are used to value financial instruments. These include
third-party valuation reports and models utilising both
observable and unobservable market inputs. Valuation
techniques involve judgement, including the use of
valuation models and their inputs, which can lead to
a range of plausible valuations for financial investments.
Note 3.3 discusses the reliability of the Group’s
fair values.
The employee retirement benefit scheme obligations
are calculated and valued with reference to a number
of actuarial assumptions including mortality, inflation
rates and discount rate, many of which have been
subject to recent volatility. This complex set of economic
variables can have a significant impact on the financial
statements, as shown in note 27.
The Group operates in a multinational environment,
and legislation concerning the determination of
taxation of assets and liabilities is complex and
continually evolving. In preparing the financial
statements, the Group applies significant
judgements in identifying uncertainties over tax
treatments and in the measurement of the provision
being the best estimate of the amount expected to
become payable. The assessment is based on the
judgement of tax professionals within the Group
supported by previous experience in respect of
such activities and based on advice sought from
specialist tax advisors.
A deferred tax asset can be recognised only to the
extent that it is recoverable. The recoverability of
deferred tax assets in respect of carry forward
losses requires consideration of the future levels
of taxable profit in the Group. In preparing the Group’s
financial statements, management estimates taxation
assets and liabilities after taking appropriate professional
advice, as shown in note 25. Significant estimates and
assumptions used in the valuation of deferred tax relate
to the forecast taxable profits, taking into account the
Group’s financial and strategic plans. See note 26 for
further details of adjustments made to deferred tax
during the year.
The determination and finalisation of agreed taxation
assets and liabilities may not occur until several years
after the reporting date and consequently the final
amounts payable or receivable may differ from those
presented in these financial statements.
2.22 Reporting of additional performance measures
The Directors consider that the combined, claims and
expense ratio measures reported in respect of operating
segments and the Group overall in note 4 and net asset
value per share and return on equity measures disclosed
in notes 5 and 6, provide useful information regarding
the underlying performance of the Group’s businesses.
These measures are widely recognised by the insurance
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Hiscox Ltd Report and Accounts 2022
industry and are consistent with the internal performance
measures reviewed by senior management including the chief
operating decision-maker. However, these measures are not
defined within the accounting standards and interpretations,
and therefore may not be directly comparable with similarly
titled additional performance measures reported by
other companies.
3 Management of risk
The Group’s overall appetite for accepting and managing
varying classes of risk is defined by the Group’s Board of
Directors. The Board has developed a governance framework
and has set Group-wide risk management policies and
procedures which include risk identification, risk management
and mitigation and risk reporting. The objective of these
policies and procedures is to protect the Group’s shareholders,
policyholders and other stakeholders from negative events that
could hinder the Group’s delivery of its contractual obligations
and its achievement of sustainable profitable economic and
social performance.
The Board exercises oversight of the development and
operational implementation of its risk management
policies and procedures through the Risk Committee,
and ongoing compliance therewith through a dedicated
internal audit function, which has operational
independence, clear terms of reference influenced
by the Board’s Non Executive Directors and a clear
upwards reporting structure back into the Board. The
Group, in line with the non-life insurance industry generally,
is fundamentally driven by a desire to originate, retain and
service insurance contracts to maturity. The Group’s
cash flows are funded mainly through advance premium
collections and the timing of such premium inflows is
reasonably predictable. In addition, the majority of material
cash outflows are typically triggered by the occurrence of
insured events, although the timing, frequency and severity
of claims can fluctuate.
The principal sources of risk relevant to the Group’s
operations and its financial statements fall into three broad
categories: operational risk, insurance risk and financial
risk, which are described in notes 3.1, 3.2 and 3.3 below.
The Group also actively manages its capital risks as detailed
in note 3.4 and tax risks as detailed in note 3.5. Additional
unaudited information is also provided in the corporate
governance, risk management and capital sections of
this Report and Accounts.
3.1 Operational risk
The Group is exposed to the risk of direct or indirect loss
resulting from internal processes, people or systems, or
from external events. This includes cyber security risk, as
well as major IT, systems or service failures. The Group
has demonstrated continued resilience, underscoring the
benefits of its business model, disciplined risk management
and ongoing investment in technology and infrastructure.
We launched the ‘future of work’ programme to modernise
our hybrid working policy (via introduction of team charters)
and ensure our workforce are equipped with the necessary
technology to enable this (via an updated digital workplace
roll out). These measures have proven successful in
addressing employee engagement challenges and a
number of operational risks.
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.1 Operational risk continued
In addition to the ‘future of work’, Hiscox has launched the
Hiscox target operating model (HTOM) programme. The
programme is systematically working through each part
of our key functions to establish clarity in ownership and
accountability of activities between the Group and business
units, transparency and action around required capabilities
and investment to better enable delivery of our strategy, and
improved productivity and efficiency as a consequence.
3.2 Insurance risk
The predominant risk to which the Group is exposed is
insurance risk which is assumed through the underwriting
process. Insurance risk can be sub-categorised into
i) underwriting risk including the risk of catastrophe and
systemic insurance losses and the insurance competition
and cycle, and ii) reserving risk.
i) Underwriting risk
The Board sets the Group’s underwriting strategy and risk
appetite, seeking to exploit identified opportunities in light
of other relevant anticipated market conditions.
The Board requires all underwriters to operate within an
overall Group appetite for individual events. This defines the
maximum exposure that the Group is prepared to retain on
its own account for any one potential catastrophe event or
disaster. In addition, the Group’s overall underwriting risk
appetite seeks to ensure that in a 1-in-200 bad year we are
within the underwriting risk limit. The limit is calibrated each
year based on exposure, expected profit and the size of other
correlated risks to enable us to continue in business and take
advantage of market opportunities that arise.
Specific underwriting objectives such as aggregation limits,
reinsurance protection thresholds and geographical disaster
event risk exposures are prepared and reviewed by the
Group Chief Underwriting Officer in order to translate the
Board’s summarised underwriting strategy into specific
measurable actions and targets. These actions and targets
are reviewed and approved by the Board in advance of
each underwriting year. The Board continually reviews its
underwriting strategy throughout each underwriting year in
light of the evolving market pricing and loss conditions and as
opportunities present themselves. The Group’s underwriters
and management consider underwriting risk at an individual
contract level, and also from a portfolio perspective where
the risks assumed in similar classes of policies are aggregated
and the exposure evaluated in light of historical portfolio
experience and prospective factors.
To assist with the process of pricing and managing
underwriting risk, the Group routinely performs a wide
range of activities including the following:
A regularly updating the Group’s risk models;
A documenting, monitoring and reporting on the Group’s
strategy to manage risk;
A developing systems that facilitate the identification of
emerging issues promptly;
A utilising sophisticated computer modelling tools to
simulate catastrophes and measure the resultant
potential losses before and after reinsurance;
A monitoring legal developments and amending the
wording of policies when necessary;
A regularly aggregating risk exposures across individual
underwriting portfolios and known accumulations of risk;
A examining the aggregated exposures in advance of
underwriting further large risks; and
A developing processes that continually factor market
intelligence into the pricing process.
The delegation of underwriting authority to specific
individuals, both internally and externally, is subject to
regular review. All underwriting staff and binding agencies
are set strict parameters in relation to the levels and types
of business they can underwrite, based on individual levels
of experience and competence. These parameters cover
areas such as the maximum sums insured per insurance
contract, maximum gross premiums written and maximum
aggregated exposures per geographical zone and risk
class. The Group compiles estimates of losses arising from
extreme loss events using statistical models alongside input
from its underwriters. These require significant management
judgement. The extreme loss scenarios, shown on pages
46 to 47, represent hypothetical major events occurring in
areas with large insured values.
They also represent areas of potentially significant exposure
for Hiscox. In addition to understanding the loss Hiscox
may suffer from an event, it is important to ensure that the
risk models used are calibrated to the risks faced today.
This includes recognising and forecasting inflationary
trends, updating trends in claims payments, and capturing
climate change-related impacts. Hiscox has a climate
risk framework, which is used to assess where research
resources should be focused, and models updated, and as
a result improves not only the Group’s understanding of the
potential impact of a changing climate but also the Group’s
ability to respond.
The selection of extreme loss scenario events is adjusted
each year and they are not therefore necessarily directly
comparable from one year to the next. The events are
extreme and unprecedented, and as such these estimates
may prove inadequate as a result of incorrect assumptions,
model deficiencies, or losses from unmodelled risks. This
means that should an extreme loss event actually occur,
the Group’s final ultimate losses could materially differ from
those estimates modelled by management. The Group’s
insurance contracts include provisions to contain losses,
such as the ability to impose deductibles and demand
reinstatement premiums in certain cases. In addition,
in order to manage the Group’s exposure to repeated
catastrophic events (both man-made and natural
catastrophes), relevant policies frequently contain
payment limits to cap the maximum amount payable from
these insured events over the contract period. In the case
of climate-exposed risks specifically, the vast majority
of contracts written by the Group are annual in nature
and thus can be revised frequently. This flexibility is a key
tool for managing the multi-decade challenge of climate
risks holistically.
The Group also manages underwriting risk by purchasing
reinsurance. Reinsurance protection is purchased at an
entity level and is also considered at an overall Group level
to mitigate the effect of catastrophes and unexpected
concentrations of risk. However, the scope and type of
reinsurance protection purchased may change depending
Hiscox Ltd Report and Accounts 2022
181
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.2 Insurance risk
i) Underwriting risk continued
on the extent and competitiveness of cover available in the
market. Below is a summary of the gross and net insurance
liabilities for each category of business.
The estimated liquidity profile to settle the gross claims
liabilities is given in note 3.3(e).
The specific insurance risks accepted by the Group fall
broadly into the following main categories: reinsurance
inwards, marine and major asset property, other property
risks, casualty professional indemnity and casualty other
insurance risks. These specific categories are defined for
risk review purposes only, as each contains risks specific
to the nature of the cover provided. They are not exclusively
aligned to any specific reportable segment in the Group’s
operational structure or to the primary internal reports
reviewed by the chief operating decision-maker. The
Group also considers climate change to be a cross-cutting
risk with potential to impact each existing risk type,
rather than a stand-alone risk. By design, the established
and embedded Group risk management framework
provides a controlled and consistent system for the
identification, measurement, mitigation, monitoring and
reporting of risks (both current and emerging) and so is
structured in a way that allows us to continually and
consistently manage the various impacts of climate risk
on the risk profile. This is supported by equally robust
processes and policies that address climate-related
underwriting risks, such as the Group-wide ESG
exclusions policy which represents a commitment to
reduce steadily, and eliminate by 2030, both underwriting
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 landmines.
Reinsurance inwards
The Group’s reinsurance inwards acceptances are primarily
focused on large commercial property, homeowner and marine
and short-tail specialty exposures held by other insurance
companies predominantly in North America and other
developed economies. This business is characterised more
by large claims arising from individual events or catastrophes
than the high-frequency, low-severity attritional losses
associated with certain other business written by the Group.
Multiple insured losses can periodically arise out of a single
natural or man-made occurrence. The main circumstances
that result in claims against the reinsurance inwards book are
conventional catastrophes, such as earthquakes or storms,
but also includes other events including fires, explosions and
cyber events. The occurrence and impact of these events
are very difficult to predict over the short term, which
complicates attempts to anticipate claims frequencies
on an annual basis. In those years where there is a low
incidence of severe catastrophes, claims frequencies on
the reinsurance inwards book can be relatively low.
A significant proportion of the reinsurance inwards
business provides cover on an excess of loss basis for
individual events. The Group agrees to reimburse the cedant
once their losses exceed a minimum level. Consequently,
the frequency and severity of reinsurance inwards claims are
related not only to the number of significant insured events
that occur, but also to their individual magnitude. If numerous
catastrophes occurred in any one year, but the cedant’s
individual loss on each was below the minimum stated,
then the Group would have no liability under such contracts.
Maximum gross line sizes and aggregate exposures are
set for each type of programme.
The Group writes reinsurance risks for periods of mainly
one year so that contracts can be assessed for pricing
and terms and adjusted to reflect any changes in market
conditions and the evolving impact of climate change.
More information on the strategy and governance
structures in place to manage climate-related risks
can be found on pages 60 to 67. The following describes
the policies and procedures used to identify and
measure the risks associated with each individual category
of business.
Property risks – marine and major assets
The Group directly underwrites a diverse range of property
risks. The risk profile of the property covered under marine
and major asset policies is different to that typically contained
in the other classes of property (such as private households
and contents insurance) covered by the Group.
Estimated concentration of gross and net insurance liabilities on the balance sheet as at 31 December 2022
Total
Gross
Net
Reinsurance
inwards
$m
2,387.6
438.2
Property –
marine and
major assets
$m
245.5
141.9
Property –
other
assets
$m
1,401.8
976.3
Casualty –
professional
indemnity
$m
2,758.1
2,241.6
Casualty –
other risks
$m
1,270.9
638.1
Other*
$m
772.7
500.7
Total
$m
8,836.6
4,936.8
Types of insurance risk in the Group
Estimated concentration of gross and net insurance liabilities on the balance sheet as at 31 December 2021
Total
Gross
Net
Reinsurance
inwards
$m
2,349.4
633.2
Property –
marine and
major assets
$m
281.9
127.6
Property –
other
assets
$m
1,505.7
926.4
Casualty –
professional
indemnity
$m
2,705.3
2,172.1
Casualty –
other risks
$m
1,298.9
608.1
Types of insurance risk in the Group
Other*
$m
727.2
493.0
Total
$m
8,868.4
4,960.4
*Includes a diverse mix of certain specialty lines such as kidnap and ransom, terrorism and other risks which contain a mix of property and casualty exposures.
182
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.2 Insurance risk
i) Underwriting risk continued
Typical property covered by marine and other major property
contracts includes fixed and moveable assets such as
ships and other vessels, cargo in transit, energy platforms
and installations, pipelines, other subsea assets, satellites,
commercial buildings and industrial plants and machinery.
These assets are typically exposed to a blend of catastrophic
and other large loss events and attritional claims arising from
conventional hazards such as collision, flooding, fire and theft.
Climate change may give rise to more frequent and severe
extreme weather events (for example, windstorms and river
flooding) and it may be expected that their frequency will
increase over time.
For this reason, the Group accepts major property insurance
risks for periods of mainly one year so that each contract
can be repriced on renewal to reflect the continually evolving
risk profile. The most significant risks covered for periods
exceeding one year are certain specialist lines such as
marine and offshore construction projects which can
typically have building and assembling periods of between
three and four years. These form a small proportion of the
Group’s overall portfolio.
Marine and major property contracts are normally
underwritten by reference to the commercial replacement
value of the property covered. The cost of repairing or
rebuilding assets, of replacement or indemnity for
contents and time taken to restart or resume operations
to original levels for business interruption losses are
the key factors that influence the level of claims under
these policies. The Group’s exposure to commodity
price risk in relation to these types of insurance contracts
is very limited, given the controlled extent of business
interruption cover offered in the areas prone to losses
of asset production.
Other property risks
The Group provides home and contents insurance,
together with cover for artwork, antiques, classic cars,
jewellery, collectables and other assets. The Group also
extends cover to reimburse certain policyholders when
named insureds or insured assets are seized for kidnap and
a ransom demand is subsequently met. Events which can
generate claims on these contracts include burglary, kidnap,
seizure of assets, acts of vandalism, fires, flooding and storm
damage. Losses on most classes can be predicted with
a greater degree of certainty as there is a rich history of
actual loss experience data and the locations of the assets
covered, and the individual levels of security taken by
owners, are relatively static from one year to the next.
The losses associated with these contracts tend to be
of a higher frequency and lower severity than the marine
and other major property assets covered above.
The Group’s home and contents insurance contracts
are exposed to weather and climate-related risks such
as floods and windstorms and their consequences.
As outlined earlier, the frequency and severity of these
losses do not lend themselves to accurate prediction
over the short term. Contract periods are therefore not
normally more than one year at a time to enable risks to be
regularly repriced.
Contracts are underwritten by reference to the commercial
replacement value of the properties and contents insured.
Claims payment limits are always included to cap the
amount payable on occurrence of the insured event.
Casualty insurance risks
The casualty underwriting strategy attempts to ensure that
the underwritten risks are well diversified in terms of type and
amount of potential hazard, industry and geography. However,
the Group’s exposure is more focused towards professional,
general, technological and marine liability risks rather than
human bodily injury risks, which are only accepted under
limited circumstances. Claims typically arise from incidents
such as errors and omissions attributed to the insured,
professional negligence and specific losses suffered as
a result of electronic or technological failure of software
products and websites.
The provision of insurance to cover allegations made against
individuals acting in the course of fiduciary or managerial
responsibilities, including directors and officers’ insurance,
is one example of a casualty insurance risk.
The Group’s casualty insurance contracts mainly experience
low-severity attritional losses. By nature, some casualty
losses may take longer to settle than other categories
of business. In addition, there is increased potential for
accumulation in casualty risk due to the growing complexity
of business, technological advances, and greater
interconnectivity and interdependency across the world
due to globalisation. The Group’s pricing strategy for
casualty insurance policies is typically based on historical
claim frequencies and average claim severities, adjusted for
inflation and extrapolated forwards to incorporate projected
changes in claims patterns. In determining the price of
each policy, an allowance is also made for acquisition and
administration expenses, reinsurance costs, investment
returns and the Group’s cost of capital.
The market for cyber insurance is still a relatively immature
one, complicated by the fast-moving nature of the threat,
as the world becomes even more connected. The risks
associated with cyber insurance are multiplying in both
diversity and scale, with associated financial and reputational
consequences of failing to prepare for them. The Group has
focused its cyber expertise on prevention, in addition to the
more traditional recovery product. Cyber products are sold
through our businesses in the UK, USA and Europe, and the
product is sold both direct to consumers and through a more
traditional broker channel.
ii) Reserving risk
The Group’s procedures for estimating the outstanding
costs of settling insured losses at the balance sheet date,
including claims incurred but not yet reported, are detailed
in note 23. The Group’s provision estimates are subject to
rigorous review by senior management from all areas of the
business. The managed Syndicates and US business receive
a review of their estimates from independent actuaries. The
final provision is approved by the relevant boards on the
recommendation of dedicated reserving committees.
Similar to the underwriting risk detailed above, the Group’s
reserve risks are well diversified. Short-tailed claims are
normally notified and settled within 12 to 24 months of the
insured event occurring. Those claims taking the longest
Hiscox Ltd Report and Accounts 2022
183
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.2 Insurance risk
ii) Reserving risk continued
time to develop and settle typically relate to casualty risks,
where legal complexities occasionally develop regarding
the insured’s alleged omissions or negligence. The length
of time required to obtain definitive legal judgments and
make eventual settlements exposes the Group to a
degree of reserving risk in an inflationary environment.
The final quantum for casualty claims may not be established
for many years after the event. A significant proportion of
the casualty insurance amounts reserved on the balance
sheet may not be expected to settle within 24 months of
the balance sheet date. Consequently, our approach is not
to recognise favourable experience in the early years of
development in the reserving process when setting the
best estimate.
Certain marine and property insurance contracts, such
as those relating to subsea and other energy assets and
the related business interruption risks, can also take longer
than normal to settle. This is because of the length of time
required for detailed subsea surveys to be carried out and
damage assessments agreed, together with difficulties
in predicting when the assets can be brought back into
full production.
For the inwards reinsurance lines, there is often a time lag
between the establishment and re-estimate of case reserves
and reporting to the Group. The Group works closely with
the reinsured to ensure timely reporting and also centrally
analyses industry loss data to verify the reported reserves.
In addressing the impact of inflation, the Group focuses on:
A regular case reserve reviews to ensure adequacy;
A uplifts to incurred but not reported (IBNR) reserves
to allow for current and future expectations of high
inflation rates;
A assessment of rate increases against future inflation
to assess loss ratio impacts.
Given the increase in inflationary pressures over the year,
the Group established explicit reserve uplifts to allow for
the expected higher future claims costs. Loss ratios have
also been reviewed to ensure they include an appropriate
allowance for future inflation.
Losses from Covid-19 continue to settle well within
expectations and there has been positive development
in first-order losses in the events and contingency lines.
As time passes and legal cases are gradually settled, the
outcome becomes more certain and so the level of margin
above the best estimate can be reduced.
3.3 Financial risk
Overview
The Group is exposed to financial risk through its
ownership of financial instruments including financial
liabilities. These items collectively represent a significant
element of the Group’s net shareholder funds. The Group
invests in financial assets in order to fund obligations
arising from its insurance contracts and financial liabilities.
The key financial risk for the Group is that the proceeds from
its financial assets and investment result generated thereon
184
Hiscox Ltd Report and Accounts 2022
are not sufficient to fund the Group’s obligations. The most
important elements and economic variables that could
result in such an outcome relate to the reliability of fair value
measures, equity price risk, interest rate risk, credit risk,
liquidity risk and currency risk. The Group’s policies and
procedures for managing exposure to these specific
categories of risk are detailed below.
(a) Reliability of fair values
The Group has elected to carry loans and receivables at
amortised cost and all financial investments at fair value
through profit or loss as they are managed and evaluated on
a fair value basis in accordance with a documented strategy.
With the exception of any unquoted investments shown in
note 20, all of the financial investments held by the Group are
available to trade in markets and the Group therefore seeks
to determine fair value by reference to published prices
or as derived by pricing vendors using observable quotations
in the most active financial markets in which the assets trade.
The fair value of financial assets is measured primarily with
reference to their closing market prices at the balance sheet
date. The ability to obtain quoted market prices may be reduced
in periods of diminished liquidity. In addition, those quoted prices
that may be available may represent an unrealistic proportion
of market holdings or individual trade sizes that could not be
readily available to the Group. In such instances, fair values may
be determined or partially supplemented using other observable
market inputs such as prices provided by market makers such
as dealers and brokers, and prices achieved in the most recent
regular transaction of identical or closely-related instruments
occurring before the balance sheet date, but updated for
relevant perceived changes in market conditions.
The Group did not experience any material defaults on
debt securities during the year.
Valuation of securities will continue to be impacted by
external market factors including interest rates, default rates,
rating agency actions and liquidity. The Group will make
adjustments to the investment portfolio as appropriate as
part of its overall portfolio strategy, but its ability to mitigate
its risk by selling or hedging its exposures may be limited by
the market environment.
The Group’s future results may be impacted, both positively and
negatively, by the valuation adjustments applied to securities.
Note 20 provides an analysis of the measurement attributes
of the Group’s financial instruments.
(b) Price risk
The Group is exposed to price risk through its holdings of
equities and investment funds. This is limited to a relatively
small and controlled proportion of the overall investment
portfolio and the equities and investment funds involved
are diversified over a number of companies and industries.
The fair value of equities and investment fund assets in the
Group’s balance sheet at 31 December 2022 was $339 million
(2021: $461 million). A 10% downward correction in equities
and investment fund prices at 31 December 2022 would have
been expected to reduce Group equity and profit after tax by
approximately $30 million (2021: $41 million). These may be
analysed as follows:
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.3 Financial risk
(b) Price risk continued
Nature of equity and investment fund holdings
Directly held equity securities
Equity funds
Hedge funds
Geographic focus
Specific UK mandates
Global mandates
2022
% weighting
2021
% weighting
8
43
49
22
78
10
55
35
38
62
The allocation of price risk is not heavily confined to any one
market index so as to reduce the Group’s exposure to individual
sensitivities. We make allocations to diversifying and less
volatile strategies, such as absolute return strategies, so as
to balance our desire to maximise returns with the need
to ensure capital is available to support our underwriting
throughout any downturn in financial markets.
(c) Interest rate risk
Debt and fixed income investments represent a significant
proportion of the Group’s assets and the Board continually
monitors investment strategy to minimise the risk of a fall in
the portfolio’s market value which could affect the amount
of business that the Group is able to underwrite or its ability
to settle claims as they fall due. The fair value of the Group’s
investment portfolio of debt and fixed income holdings is
normally inversely correlated to movements in market interest
rates. If market interest rates rise, the fair value of the Group’s
debt and fixed income investments would tend to fall and
vice versa if credit spreads remained constant. Debt
and fixed income assets are predominantly invested in
high-quality corporate, government and asset-backed bonds.
The investments typically have relatively short durations and
terms to maturity. The portfolio is managed to minimise the
impact of interest rate risk on anticipated Group cash flows.
The Group may also, from time to time, enter into interest
rate future contracts in order to reduce interest rate risk on
specific portfolios. The fair value of debt and fixed income
assets in the Group’s balance sheet at 31 December 2022
was $5,427 million (2021: $5,528 million). These may be
analysed below as follows:
Nature of debt and fixed income holdings
Government issued
Agency and government supported
Asset-backed securities
Mortgage-backed instruments
Corporate bonds
Lloyd’s deposits and bond funds
Credit funds
2022
% weighting
2021
% weighting
20
3
4
5
64
2
2
16
6
2
7
65
2
2
One method of assessing interest rate sensitivity is through
the examination of duration-convexity factors in the underlying
portfolio. Using a duration-convexity-based sensitivity analysis,
if market interest rates had increased or decreased by 200
basis points at the balance sheet date, the Group equity
and profit after tax for the year might have been expected to
decrease or increase by approximately $170 million
respectively (2021: $189 million) assuming that the balance
sheet area impacted was debt and fixed income financial
assets, excluding interest rate futures. Duration is the
weighted average length of time required for an instrument’s
cash flow stream to be recovered, where the weightings
involved are based on the discounted present values of
each cash flow. A closely related concept, modified
duration, measures the sensitivity of the instrument’s price
to a change in its yield to maturity. Convexity measures the
sensitivity of modified duration to changes in the yield to
maturity. Using these three concepts, scenario modelling
derives the above estimated impact on instruments’ fair
values for a 200 basis point change in the term structure
of market interest rates.
Insurance contract liabilities are not directly sensitive
to the level of market interest rates, as they are
undiscounted and contractually non-interest-bearing.
The Group’s debt and fixed income assets are further
detailed in note 17.
At 31 December 2022, the Group had borrowings at
nominal value of £525 million (2021: £550 million). The
borrowings comprised £525 million (2021: £550 million)
of long-term debt, which includes two listed instruments
of £275 million and £250 million, as explained in note 17:
the first being fixed-to-floating rate notes where the
floating rate becomes effective from November 2025; the
second being fixed rate notes maturing in September 2027.
The Group also has a revolving credit facility of $600 million
(2021: £450 million), which is $nil drawn (2021: £nil) and,
therefore, is not presenting interest risk. The Group has
no other significant borrowings or other assets or liabilities
carrying interest rate risk, other than the facilities and Letters
of Credit (LOCs) outlined in note 30.
(d) Credit risk
The Group has exposure to credit risk, which is the risk
that a counterparty will suffer a deterioration in actual or
perceived financial strength and be unable to pay amounts
in full when due, or that for any other reason they renege
on a contract or alter the terms of an agreement. The
concentrations of credit risk exposures held by insurers
may be expected to be greater than those associated with
other industries, due to the specific nature of reinsurance
markets and the extent of investments held in financial
markets. In both markets, the Group interacts with a number
of counterparties who are engaged in similar activities with
similar customer profiles, and often in the same geographical
areas and industry sectors. Consequently, as many of these
counterparties are themselves exposed to similar economic
characteristics, one single localised or macroeconomic
change could severely disrupt the ability of a significant
number of counterparties to meet the Group’s agreed
contractual terms and obligations.
Key areas of exposure to credit risk include:
A reinsurers’ share of insurance liabilities;
A amounts due from reinsurers in respect of claims
already paid;
A amounts due from insurance contract holders; and
A counterparty risk with respect to cash and cash
equivalents, and investments including deposits,
derivative transactions and catastrophe bonds.
Hiscox Ltd Report and Accounts 2022
185
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.3 Financial risk
(d) Credit risk continued
The Group’s maximum exposure to credit risk is represented by the carrying values of financial assets and reinsurance assets
included in the consolidated balance sheet at any given point in time. The Group does not use credit derivatives or other products
to mitigate maximum credit risk exposures on reinsurance assets, but collateral may be requested to be held against these assets.
The Group structures the levels of credit risk accepted by placing limits on its exposure to a single counterparty, or groups of
counterparties, and having regard to geographical locations. Such risks are subject to an annual or more frequent review.
There is no significant concentration of credit risk with respect to loans and receivables, as the Group has a large number of
internationally dispersed debtors with unrelated operations. Reinsurance is used to contain insurance risk. This does not,
however, discharge the Group’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Group remains liable
for the payment to the policyholder. The creditworthiness of reinsurers is therefore continually reviewed throughout the year.
The Group Reinsurance Credit Committee (RCC) assesses the creditworthiness of all reinsurers by reviewing credit grades
provided by rating agencies and other publicly available financial information detailing their financial strength and performance, as
well as detailed analysis from the Group’s analysis team. The financial analysis of reinsurers produces an assessment categorised
by factors including their S&P rating (or equivalent when not available from S&P).
Despite the rigorous nature of this assessment exercise, and the resultant restricted range of reinsurance counterparties with
acceptable strength and credit credentials that emerges therefrom, some degree of credit risk concentration remains inevitable.
While the rating agencies provide strong analysis on the financials and governance of a reinsurance security, the RCC also takes
account of qualitative factors. The RCC considers the reputation of its reinsurance partners and also receives details of recent
payment history and the status of any ongoing negotiations between Group companies and these third parties. The final score
that a security receives will determine how much reinsurance credit risk Hiscox is willing to have with that security based on the
exposure guidelines.
This information is used to update the reinsurance purchasing strategy.
Individual operating units maintain records of the payment history for significant brokers and contract holders with whom they
conduct regular business. The exposure to individual counterparties is also managed by other mechanisms, such as the right of
offset, where counterparties are both debtors and creditors of the Group, and obtaining collateral from unrated counterparties.
Management information reports detail provisions for impairment on loans and receivables and subsequent write-off. Exposures
to individual intermediaries and groups of intermediaries are collected within the ongoing monitoring of the controls associated
with regulatory solvency.
The Group also mitigates counterparty credit risk by concentrating debt and fixed income investments in a portfolio of typically
high-quality corporate and government bonds.
An analysis of the Group’s major exposures to counterparty credit risk, excluding loans and receivables, and equities and units in
unit trusts, based on S&P or equivalent rating, is presented below:
As at 31 December 2022
Debt and fixed income holdings
Reinsurance assets
Cash and cash equivalents
Total
As at 31 December 2021
Debt and fixed income holdings
Reinsurance assets
Cash and cash equivalents
Total
Note
17
16
21
Note
17
16
21
AAA
$m
521.6
1,325.2
242.3
2,089.1
AAA
$m
660.5
959.2
141.4
1,761.1
AA
$m
1,475.2
1,112.9
23.3
2,611.4
AA
$m
1,326.7
1,029.9
35.7
2,392.3
A
$m
1,580.7
1,436.8
1,084.9
4,102.4
A
$m
1,556.2
1,760.8
1,122.4
4,439.4
BBB
$m
1,449.3
6.5
–
1,455.8
BBB
$m
1,604.1
123.4
0.3
1,727.8
Other/
non-rated
$m
399.8
18.4
0.4
418.6
Other/
non-rated
$m
380.6
34.7
0.9
416.2
Total
$m
5,426.6
3,899.8
1,350.9
10,677.3
Total
$m
5,528.1
3,908.0
1,300.7
10,736.8
Within the debt and fixed income holdings, which include debt securities, deposits with credit institutions, credit funds and cash
equivalent assets, there are exposures to a range of government borrowers, on either a direct or guaranteed basis, and banking
institutions. The Group, together with its investment managers, closely manages its geographical exposures across government
issued and supported debt.
186
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.3 Financial risk
(d) Credit risk continued
The largest aggregated counterparty exposure related to debt and fixed income holdings at 31 December 2022 of $827 million is
to the US Treasury (2021: $712 million).
The Group is exposed to concentrations of risk with individual reinsurers due to the nature of the reinsurance market and the
restricted range of reinsurers that have acceptable credit ratings. The largest counterparty exposure included in reinsurance
assets at 31 December 2022 is to Blue Jay Reinsurance. The recoverable amount from Blue Jay Reinsurance represents 21%
(2021: Munich Re 11%) of this category of assets.
For the current period and prior period, the Group did not experience any material defaults on debt securities. The Group’s AAA
rated reinsurance assets include fully collateralised positions at 31 December 2022 and 2021.
(e) Liquidity risk
The Group is exposed to daily calls on its available cash resources, mainly from claims arising from insurance and reinsurance
contracts. Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. The Board
sets limits on the minimum level of cash and maturing funds available to meet such calls and on the minimum level of borrowing
facilities that should be in place to cover unexpected levels of claims and other cash demands.
A significant proportion of the Group’s investments is in highly liquid assets which could be converted to cash in a prompt fashion
and at minimal expense. The Group’s exposure to equities is concentrated on shares and funds that are traded on internationally
recognised stock exchanges.
The main focus of the investment portfolio is on high-quality, short-duration debt and fixed income securities and cash. There
are no significant holdings of investments with specific repricing dates. Notwithstanding the regular interest receipts and also
the Group’s ability to liquidate these securities and the majority of its other financial instrument assets for cash in a prompt and
reasonable manner, the contractual maturity profile of the fair value of these securities at 31 December is as follows.
Fair values analysed by contractual maturity as at 31 December 2022
Debt and fixed income holdings
Cash and cash equivalents
Total
Fair values analysed by contractual maturity as at 31 December 2021
Debt and fixed income holdings
Cash and cash equivalents
Total
Less than
one year
$m
Between one
and two years
$m
Between two
and five years
$m
1,355.5
1,350.9
2,706.4
1,519.6
–
1,519.6
2,063.8
–
2,063.8
Less than
one year
$m
Between one
and two years
$m
Between two
and five years
$m
1,111.2
1,300.7
2,411.9
1,263.1
–
1,263.1
2,510.7
–
2,510.7
Over
five years
$m
487.7
–
487.7
Over
five years
$m
643.1
–
643.1
2022
total
$m
5,426.6
1,350.9
6,777.5
2021
total
$m
5,528.1
1,300.7
6,828.8
The Group’s equities, equity funds, hedge funds and credit funds and other non-dated instruments have no contractual maturity
terms but predominantly could be liquidated in an orderly manner for cash in a prompt and reasonable time frame within one year
of the balance sheet date.
The available headroom of working capital is monitored through the use of a detailed Group cash flow forecast which is reviewed
by management quarterly, or more frequently as required.
Average contractual maturity analysed by denominational currency of investments as at 31 December
US Dollar
Sterling
Euro
Canadian Dollar
2022
years
3.77
2.65
2.67
2.48
2021
years
4.89
2.66
3.05
2.47
Hiscox Ltd Report and Accounts 2022
187
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.3 Financial risk
(e) Liquidity risk continued
The following is an analysis by liability type of the estimated timing of net cash flows based on the gross claims liabilities held.
The Group does not discount claims liabilities. The estimated phasing of settlement is based on current estimates and historical
trends and the actual timing of future settlement cash flows may differ materially from the disclosure below.
Liquidity requirements to settle estimated profile of gross claim liabilities on balance sheet
2022
Reinsurance inwards
Property – marine and major assets
Property – other assets
Casualty – professional indemnity
Casualty – other risks
Other*
Total
2021
Reinsurance inwards
Property – marine and major assets
Property – other assets
Casualty – professional indemnity
Casualty – other risks
Other*
Total
Within
one year
$m
Between one
and two years
$m
Between two
and five years
$m
1,101.7
71.7
413.5
675.5
463.7
288.3
3,014.4
499.8
40.6
277.5
563.9
253.6
104.9
1,740.3
462.8
43.4
160.0
649.2
259.6
102.5
1,677.5
Within
one year
$m
Between one
and two years
$m
Between two
and five years
$m
1,126.4
85.8
456.0
828.5
553.4
282.2
3,332.3
471.0
48.3
353.9
517.0
266.3
92.0
1,748.5
416.9
50.6
153.2
553.7
238.1
84.9
1,497.4
Over
five years
$m
149.6
13.9
54.8
183.9
94.7
31.1
528.0
Over
five years
$m
140.2
18.1
59.8
145.8
75.3
28.5
467.7
2022
total
$m
2,213.9
169.6
905.8
2,072.5
1,071.6
526.8
6,960.2
2021
total
$m
2,154.5
202.8
1,022.9
2,045.0
1,133.1
487.6
7,045.9
*Includes a diverse mix of certain specialty lines such as kidnap and ransom, terrorism and other risks which contain a mix of property and casualty exposures.
Details of the payment profile of the Group’s borrowings, derivative instruments and other liabilities are given in notes 17, 19 and 24.
(f) Currency risk
Currency risk is the risk of loss resulting from fluctuations in exchange rates. The Group operates internationally and therefore is
exposed to the financial impact of fluctuations in the exchange rates of various currencies.
The Group’s exposures to foreign exchange risk arise mainly with respect to the US Dollar, Sterling and the Euro. These exposures
may be classified in two main categories:
A operational foreign exchange exposure arises from the conversion of foreign currency transactions resulting from the
activities of entering into insurance, investment, financing and operational contracts in a currency that is different to each
respective entity’s functional currency; and
A structural foreign exchange exposure arises from the translation of the Group’s net investment in foreign operations to the
US Dollar, the Group’s presentation currency.
Operational currency risk
Operational foreign exchange risk is principally managed within the Group’s individual entities by broadly matching assets
and liabilities by currency and liquidity. Due attention is paid to local regulatory solvency and risk-based capital requirements.
All foreign currency derivative transactions with external parties are managed centrally. The Group also manages some exchange
risk centrally through matching intragroup loans and balances.
The Group does not hedge operational foreign exchange risk arising from the accounting mismatch due to the translation of
monetary and non-monetary items. Non-monetary items including unearned premiums, deferred acquisition costs and reinsurers’
share of unearned premiums are recorded at historical transaction rates and are not remeasured at the reporting date. Monetary
items including claims reserves, reinsurers’ share of claims reserves and investments are remeasured at each reporting date at
the closing rates.
188
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.3 Financial risk
(f) Currency risk continued
Structural currency risk
The Group’s exposure to structural currency risks mainly relates to Sterling and the Euro net investments in businesses operating
in the UK and Europe. The Group’s risk appetite permits the acceptance of structural foreign exchange movements within defined
aggregate limits and exchange rate parameters which are monitored centrally. However, the Group does not ordinarily seek to use
derivatives to mitigate the structural risk because:
A the currency translation gains and losses are accounted for in the currency translation reserve (a component of equity)
and do not affect the income statement unless the related foreign operation is disposed of;
A the currency translation gains and losses have no cash flow.
In periods of significant volatility that are expected to persist for an extended period of time, the Group may elect to utilise
derivatives to mitigate or reduce the risk in order to preserve capital.
The currency profile of the Group’s assets and liabilities is as follows:
As at 31 December 2022
Employee retirement benefit asset
Goodwill and intangible assets
Property, plant and equipment
Investments in associates
Deferred income tax
Deferred acquisition costs
Financial assets carried at fair value
Reinsurance assets
Loans and receivables including insurance receivables
Current tax assets
Cash and cash equivalents
Total assets
Deferred tax
Insurance liabilities
Financial liabilities
Current tax
Trade and other payables
Total liabilities
Total equity
As at 31 December 2021
Goodwill and intangible assets
Property, plant and equipment
Investments in associates
Deferred income tax
Deferred acquisition costs
Financial assets carried at fair value
Reinsurance assets
Loans and receivables including insurance receivables
Current tax assets
Cash and cash equivalents
Total assets
Employee retirement benefit obligations
Deferred tax
Insurance liabilities
Financial liabilities
Current tax
Trade and other payables
Total liabilities
Total equity
US Dollar
$m
–
135.7
22.3
–
34.8
267.1
4,165.8
3,014.0
1,008.4
3.5
773.1
9,424.7
–
5,994.7
–
1.1
1,306.2
7,302.0
2,122.7
US Dollar
$m
141.7
20.1
–
27.3
243.3
4,147.8
2,982.6
795.6
4.4
612.5
8,975.3
–
–
6,093.8
–
2.8
931.3
7,027.9
1,947.4
Sterling
$m
20.9
131.7
96.0
5.4
11.5
101.9
938.5
528.8
450.4
–
248.9
2,534.0
–
1,534.9
636.0
10.2
266.7
2,447.8
86.2
Sterling
$m
136.0
47.9
5.5
33.6
111.3
1,180.9
573.9
607.4
–
425.0
3,121.5
35.1
–
1,679.0
746.5
13.6
353.0
2,827.2
294.3
Euro
$m
–
46.7
13.0
0.2
7.4
59.9
511.8
232.2
125.5
0.5
229.8
1,227.0
0.2
1,032.0
0.2
2.8
181.6
1,216.8
10.2
Euro
$m
29.3
17.0
0.2
6.4
61.3
496.4
224.9
154.5
0.5
156.9
1,147.4
–
0.1
833.5
–
4.8
239.9
1,078.3
69.1
Other
$m
–
6.3
1.8
–
–
21.2
196.0
124.8
87.3
–
99.1
536.5
–
275.0
–
–
63.9
338.9
197.6
Other
$m
6.1
5.4
–
–
21.0
216.2
126.6
120.7
–
106.3
602.3
–
–
262.1
0.2
0.1
111.4
373.8
228.5
2022
$m
20.9
320.4
133.1
5.6
53.7
450.1
5,812.1
3,899.8
1,671.6
4.0
1,350.9
13,722.2
0.2
8,836.6
636.2
14.1
1,818.4
11,305.5
2,416.7
2021
$m
313.1
90.4
5.7
67.3
436.9
6,041.3
3,908.0
1,678.2
4.9
1,300.7
13,846.5
35.1
0.1
8,868.4
746.7
21.3
1,635.6
11,307.2
2,539.3
Hiscox Ltd Report and Accounts 2022
189
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.3 Financial risk
(f) Currency risk continued
Sensitivity analysis
As at 31 December 2022, the Group used closing rates of exchange of $1: £0.83 and $1: €0.94 (2021: $1: £0.74 and $1: €0.88).
The Group performs sensitivity analysis based on a 10% strengthening or weakening of the US Dollar against Sterling and
the Euro.
This analysis assumes that all other variables, in particular interest rates, remain constant and that the underlying valuation of
assets and liabilities in their base currency is unchanged. The estimated sensitivities below take account of the retranslation
movements of foreign currency monetary assets and liabilities in Group entities, and for the effect on equity the impact on the
retranslation of entities with non-US Dollar functional currencies. The methodology has been refined to include inter-company
balances that are eliminated on consolidation, but still expose the Group to foreign currency risk, with comparatives
re-presented accordingly.
During the year, the Group transacted in a number of over-the-counter forward currency derivative contracts. The impact of these
contracts on the sensitivity analysis is negligible.
As at 31 December
Strengthening of Sterling
Weakening of Sterling
Strengthening of Euro
Weakening of Euro
December 2022
effect on equity
after tax
$m
December 2022
effect on profit
before tax
$m
December 2021
effect on equity
after tax
$m
December 2021
effect on profit
before tax
$m
58.0
(58.0)
10.1
(10.1)
17.3
(17.3)
3.9
(3.9)
54.3
(54.3)
14.2
(14.2)
(25.3)
25.3
3.9
(3.9)
(g) Limitations of sensitivity analysis
The sensitivity information given in notes 3.3 (a) to (f) demonstrates the estimated impact of a change in a major input assumption,
while other assumptions remain unchanged. In reality, there are normally significant levels of correlation between the assumptions
and other factors. It should also be noted that these sensitivities are non-linear, and larger or smaller impacts should not be
interpolated or extrapolated from these results. The same limitations exist in respect to the retirement benefit scheme sensitivities
presented in note 27 to these financial statements. Furthermore, estimates of sensitivity may become less reliable in unusual
market conditions, such as instances when risk-free interest rates fall towards zero.
The sensitivity analysis does not take into consideration that the Group’s assets and liabilities are actively managed. Additionally,
the financial position of the Group may vary at the time that any actual market movement occurs. For example, the Group’s
financial risk management strategy aims to manage the exposure to market fluctuations. As investment markets move past
various trigger levels, management actions could include selling investments, changing investment portfolio allocation and
taking other protective action.
3.4 Capital risk management
The Group’s primary objectives when managing its capital position are:
A to safeguard its ability to continue as a going concern, so that it can continue to provide long-term growth and progressive
dividend returns for shareholders;
A to provide an adequate return to the Group’s shareholders by pricing its insurance products and services commensurately
with the level of risk;
A to maintain an efficient cost of capital;
A to comply with all regulatory requirements by an appropriate margin;
A to maintain financial strength ratings of A in each of its insurance entities; and
A to settle policyholders’ claims as they arise.
The Group sets the amount of capital required in its funding structure in proportion to risk. The Group then manages the capital
structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying
assets. In order to obtain or maintain an optimal capital structure, the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares, assume debt, or sell assets to reduce debt.
The Group measures its capital requirements against its available capital. Available capital 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 2022, the available capital under IFRS was $2,427 million (2021: $2,599 million), comprising net tangible asset
value of $2,096 million (2021: $2,226 million) and subordinated debt of $331 million (2021: $373 million).
190
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.4 Capital risk management continued
The Group can source additional funding from revolving credit and Letter of Credit (LOC) facilities. Standby funding from these
sources comprised $931 million at 31 December 2022 (2021: $941 million).
The Group’s borrowing facilities include financial covenants that are standard in such arrangements, including certain balance
sheet measures. These are monitored on a regular basis, at least quarterly, but more frequently where necessary.
The Board ensures that the use and allocation of capital are given a primary focus in all significant operational actions. With that
in mind, the Group has developed and embedded capital modelling tools within its business.
These join together short-term and long-term business plans and link divisional aspirations with the Group’s overall strategy.
The models provide the basis of the allocation of capital to different businesses and business lines, as well as the regulatory
and rating agency capital processes.
Gearing
The Group currently utilises gearing as an additional source of funds to maximise the opportunities from strong markets and to
reduce the risk profile of the business in weaker markets, particularly with respect to the more volatile business. The Group’s
gearing is obtained from a number of sources, including:
A LOC and revolving credit facility – the Group’s main facility may be drawn in cash up to $600 million (under a revolving
credit facility) and utilised as LOC up to $266 million. The facility was renewed during 2022, enabling the Group to utilise
the LOC as Funds at Lloyd’s to support underwriting on the 2022, 2023 and 2024 years of account. The revolving
credit facility is available until the end of 2024. As at 31 December 2022, $266 million was utilised by way of LOC to
support the Funds at Lloyd’s requirement and $nil cash drawings outstanding to support general trading activities
(2021: $266 million and $nil respectively);
A In 2020, the Group sourced an additional $65 million of funding in the form of a Funds at Lloyd’s facility. Under this facility
assets are pledged with the Corporation of Lloyd’s on the Group’s behalf, providing regulatory Tier 1 capital. As at
31 December 2022 and 2021 the facility was fully drawn;
A £275 million of fixed-to-floating rate subordinated notes that are classified as Tier 2 debt. This was raised in November 2015
and matures in 2045. The debt is rated BBB- by S&P and Fitch;
A £250 million of fixed rate senior notes raised in September 2022 and maturing in September 2027. The debt is rated BBB+
by S&P and Fitch;
A External Names – 27.4% of Syndicate 33’s capacity is capitalised by third parties, who also pay a profit share of
approximately 20%;
A Syndicate 6104 at Lloyd’s – with a capacity of £19.5 million for the 2023 year of account (2022 year of account: £12.7 million).
This Syndicate is wholly backed by external members and takes pure year of account quota share of Syndicate 33’s property
catastrophe, terrorism and cyber reinsurance accounts;
A gearing quota shares – historically the Group has used reinsurance capital to fund its capital requirement for short-term
expansions in the volume of business underwritten by the Syndicate; and
A qualifying quota shares and legacy portfolio transactions – these are reinsurance arrangements that allow the Group to
increase the amount of premium it writes.
Financial strength
The financial strength ratings of the Group’s significant insurance company subsidiaries are outlined below:
Hiscox Insurance Company Limited
Hiscox Insurance Company (Bermuda) Limited
Hiscox Insurance Company (Guernsey) Limited
Hiscox Insurance Company Inc.
Hiscox Société Anonyme
A.M. Best
A (Excellent)
A (Excellent)
A (Excellent)
A (Excellent)
–
Fitch
A+
A+
A+
–
–
S&P
A (Strong)
A (Strong)
–
–
A (Strong)
Syndicate 33 benefits from an A.M. Best rating of A (Excellent). In addition, the Syndicate also benefits from the Lloyd’s ratings of
A (Excellent) from A.M. Best, A+ (Strong) from S&P, AA- (Very strong) from Fitch and AA- from Kroll Bond Rating Agency.
Capital performance
The Group’s main capital performance measure is the achieved return on equity (ROE). This marker aligns the aspirations of
employees and shareholders. As variable remuneration relates directly to ROE and it is used as a key metric within the business
planning process, this concept is embedded in the workings and culture of the Group. The Group seeks to maintain its cost of
capital levels and its debt to overall equity ratios in line with others in the non-life insurance industry.
Hiscox Ltd Report and Accounts 2022
191
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
3 Management of risk
3.4 Capital risk management continued
Capital modelling and regulation
The capital requirements of an insurance group are determined by its exposure to risk and the solvency criteria established by
management and statutory regulations.
The Group’s capital requirements are managed both centrally and at a regulated entity level. The assessed capital requirement
for the business placed through Hiscox Insurance Company Limited, Hiscox Insurance Company (Bermuda) Limited, Hiscox
Insurance Company (Guernsey) Limited, Hiscox Insurance Company Inc., Hiscox Société Anonyme and Direct Asia Insurance
(Singapore) Pte Limited is driven by the level of resources necessary to maintain regulatory requirements.
The Group’s regulatory capital is supervised by the Bermuda Monetary Authority (BMA). The Group had sufficient capital at all
times throughout the year to meet the BMA’s requirements. The Solvency II regime came into force in Europe on 1 January 2016.
This requires insurance companies to calculate their capital requirements using either an internal model or a standard formula.
Hiscox Insurance Company Limited and Hiscox Société Anonyme use the standard formula to calculate their regulatory capital
requirements. Their risk profiles are sufficiently well represented by the standard formula not to warrant going through the internal
model approval process. Hiscox’s Lloyd’s operations use the internal model that has been built to meet the requirements of the
Solvency II regime. The model is concentrated specifically on the particular product lines, market conditions and risk appetite of
each risk carrier.
For Syndicate 33 and Syndicate 3624, internal model results are uplifted by Lloyd’s to the level of capital required to support its
ratings. Capital models are used more widely across the Group to monitor exposure to key risk types, inform decision-making
and measure ROE across different segments of the business. From the 2016 year-end, the Group has been required to publish
a financial condition report, as part of its regulatory filing with the BMA. This is a public document and sets out the financial
performance and solvency position of the Group in accordance with the economic balance sheet return filed with the BMA.
It is intended to provide the public with certain information to be able to make informed assessments about the Group. In the
Group’s other geographical territories, including the USA and Asia, its subsidiaries underwriting insurance business are
required to operate within broadly similar risk-based externally imposed capital requirements when accepting business.
During the year the Group was in compliance with capital requirements imposed by regulators in each jurisdiction where the
Group operates.
3.5 Tax risk
The Group is subject to income taxes levied by the various jurisdictions in which the Group operates, and the division of taxing
rights between these jurisdictions results in the Group tax expense and effective rate of income tax disclosed in these financial
statements. Due to the Group’s operating model, there is an unquantifiable risk that this division of taxing rights could be altered
materially, either by a change to the tax residence, or permanent establishment profile, of Hiscox Ltd or its principal subsidiaries;
or due to the repricing or recharacterisation for tax purposes of transactions between members of the Group, under local transfer
pricing or related tax legislation. The Group seeks to manage this risk by:
A maintaining appropriate internal policies and controls over its operations worldwide;
A monitoring compliance with these policies on an ongoing basis;
A adhering to internationally recognised best practice in determining the appropriate division of profits between
taxing jurisdictions;
A taking additional advice and obtaining legal opinions from local third-party professionals with the necessary experience
in the particular area.
Various jurisdictions in which the Group operates are committed to reaching an agreement on implementation of OECD ‘Pillar 2’
rules. Under current proposals, jurisdictions are expected to change their domestic tax rules in order to reflect the agreed
position over the course of the next few years. Several jurisdictions in which the Group operates have introduced draft legislation
which would implement changes impactful to the Group with effect from 1 January 2025, although this legislation has not been
substantively enacted at the balance sheet date. If legislation is substantively enacted, it could change the existing division of
taxing rights to which the Group is subject, and consequently have a material impact on the Group’s tax expense and effective
rate of income tax in future periods.
The Group seeks to maintain an open dialogue with the relevant tax authorities and to resolve any issues arising promptly.
The Group recognises uncertain tax provisions where there is uncertainty that a tax treatment will be accepted under local law,
including matters which are under discussion with the tax authorities. Based on facts and circumstances at the balance sheet
date, the range of the total exposure is estimated between $23 million and $47 million. The estimate is subject to review on an
ongoing basis and is susceptible to the progress of the settlement discussions with the tax authorities. Matters under discussion
which could affect the estimate include the Hiscox Group’s policy on the allocation of expenses between companies within the
Group, the allocation of income and expenses between branches of the same company, and the period subject to re-assessment.
192
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
4 Operating segments
The Group’s operating segment reporting follows the organisational structure and management’s internal reporting systems,
which form the basis for assessing the financial reporting performance of, and allocation of resources to, each business segment.
The Group’s four primary business segments are identified as follows:
A Hiscox Retail brings together the results of the Group’s retail business divisions in the UK, Europe, USA and Asia. Hiscox UK
and Hiscox Europe underwrite personal and commercial lines of business through Hiscox Insurance Company Limited and
Hiscox Société Anonyme (Hiscox SA), together with the fine art and non-US household insurance business written through
Syndicate 33. Hiscox USA comprises commercial, property and specialty business written by Hiscox Insurance Company
Inc. and Syndicate 3624.
A Hiscox London Market comprises the internationally traded insurance business written by the Group’s London-based
underwriters via Syndicate 33, including lines in property, marine and energy, casualty and other specialty insurance lines.
A Hiscox Re & ILS is the reinsurance division of the Hiscox Group, combining the underwriting platforms in Bermuda and
London. The segment comprises the performance of Hiscox Insurance Company (Bermuda) Limited, excluding the internal
quota share arrangements, with the reinsurance contracts written by Syndicate 33. In addition, the healthcare and casualty
reinsurance contracts previously written in Bermuda on Syndicate capacity are also included. The segment also includes the
performance and fee income from the ILS funds, along with the gains and losses made as a result of the Group’s investment
in the funds.
A Corporate Centre comprises finance costs and administrative costs associated with Group management activities and
intragroup borrowings, as well as all foreign exchange gains and losses.
All amounts reported on the following pages represent transactions with external parties only. In the normal course of trade,
the Group’s entities enter into various reinsurance arrangements with one another. The related results of these transactions are
eliminated on consolidation and are not included within the results of the segments. This is consistent with the information used by
the chief operating decision-maker when evaluating the results of the Group. Performance is measured based on each reportable
segment’s profit or loss before tax.
Hiscox Ltd Report and Accounts 2022
193
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
4 Operating segments continued
(a) Profit before tax by segment
Hiscox
Retail
$m
Hiscox
London
Market
$m
Hiscox
Re & ILS
$m
Corporate
Centre
$m
Total
$m
Hiscox
Retail
$m
Hiscox
London
Market
$m
Hiscox
Re & ILS
$m
Corporate
Centre
$m
Total
$m
Year to 31 December 2022
Year to 31 December 2021
2,272.1
1,114.9
1,037.9
1,976.8
735.1
268.1
1,946.0
(98.9)
15.9
1,863.0
725.8
(54.4)
7.4
678.8
256.4
(34.0)
20.8
243.2
–
–
–
–
2.4
2.4
4,424.9
2,290.0
1,171.4
807.8
–
4,269.2
2,980.0
1,969.3
711.5
274.2
–
2,955.0
2,928.2
(187.3)
46.5
2,787.4
1,958.6
26.9
22.8
2,008.3
690.3
15.8
19.1
725.2
271.0
8.8
11.3
291.1
–
(0.3)
3.6
3.3
2,919.9
51.2
56.8
3,027.9
(874.8)
(313.0)
(140.5)
–
(1,328.3)
(985.9)
(333.9)
(110.6)
–
(1,430.4)
(531.4)
(207.7)
(16.4)
–
(755.5)
(524.9)
(193.9)
(15.9)
–
(734.7)
(453.8)
(102.5)
(62.7)
(23.3)
(642.3)
(435.7)
(92.0)
(64.7)
(30.3)
(622.7)
–
(1,860.0)
–
(623.2)
–
(219.6)
30.6
7.3
30.6
(2,695.5)
–
(1,946.5)
–
(619.8)
–
(191.2)
0.7
(29.6)
0.7
(2,787.1)
3.0
(6.4)
–
55.6
(2.6)
23.6
(2.1)
9.7
(37.0)
91.9
(48.1)
61.8
(6.9)
105.4
(0.6)
99.9
(1.4)
(26.3)
(41.9)
240.8
(50.8)
–
–
0.9
0.9
–
–
–
0.8
0.8
(3.4)
53.0
21.5
(26.4)
44.7
54.9
104.8
98.5
(67.4)
190.8
Gross premiums
written
Net premiums
written
Net premiums
earned
Investment result
Other income
Total income
Claims and claim
adjustment
expenses, net
of reinsurance
Expenses for
the acquisition
of insurance
contracts
Operational
expenses
Net foreign
exchange
gains
Total expenses
Total income
less expenses
Finance costs
Share of profit of
associates after tax
Profit/(loss)
before tax
194
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
4 Operating segments
(a) Profit before tax by segment continued
The following charges are included within the consolidated income statement:
Year to 31 December 2022
Year to 31 December 2021
Hiscox
Retail
$m
15.4
33.2
–
48.6
Hiscox
London
Market
$m
4.1
3.2
–
7.3
Hiscox
Re & ILS
$m
Corporate
Centre
$m
2.6
0.9
–
3.5
0.6
–
–
0.6
Total
$m
22.7
37.3
–
60.0
Hiscox
Retail
$m
16.1
32.5
0.3
48.9
Hiscox
London
Market
$m
2.2
3.7
–
5.9
Hiscox
Re & ILS
$m
2.0
1.0
–
3.0
Corporate
Centre
$m
0.5
–
–
0.5
Total
$m
20.8
37.2
0.3
58.3
Depreciation
Amortisation of
intangible assets
Impairment of
intangible assets
Total
The Group’s wholly owned subsidiary, Hiscox Syndicates Limited, oversees the operation of Syndicate 33 at Lloyd’s. The Group’s
percentage participation in Syndicate 33 can fluctuate from year to year and, consequently, presentation of the results at the
100% level removes any distortions arising therefrom.
Year to 31 December 2022
Year to 31 December 2021
100% ratio analysis
Claims ratio (%)
Expense ratio (%)
Combined ratio (%)
Hiscox
Retail
44.4
50.4
94.8
Hiscox
London
Market
43.8
41.0
84.8
Hiscox
Re & ILS
Corporate
Centre
Total
Hiscox
Retail
50.9
30.7
81.6
–
–
–
44.8
45.8
90.6
50.0
48.9
98.9
Hiscox
London
Market
49.5
39.6
89.1
Hiscox
Re & ILS
Corporate
Centre
40.0
28.0
68.0
–
–
–
Total
48.9
44.3
93.2
Hiscox Ltd Report and Accounts 2022
195
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
4 Operating segments
(a) Profit before tax by segment continued
The claims ratio is calculated as claims and claim adjustment expenses, net of reinsurance, as a proportion of net premiums
earned. The expense ratio is calculated as the total of expenses for the acquisition of insurance contracts and operational
expenses, including profit-related pay, as a proportion of net premiums earned. The combined ratio is the total of the claims
and expenses ratios. All ratios are calculated using the 100% results.
Costs allocated to Corporate Centre are non-underwriting-related costs and are not included within the combined ratio. The
impact on profit before tax of a 1% change in each component of the segmental combined ratios is shown in the following table.
Any further ratio change is linear in nature.
At 100% level (note 4(b))
1% change in claims or expense ratio
At Group level
1% change in claims or expense ratio
(b) 100% operating result by segment
Year to 31 December 2022
Year to 31 December 2021
Hiscox
Retail
$m
19.8
19.5
Hiscox
London
Market
$m
9.8
7.3
Hiscox
Re & ILS
$m
3.0
2.6
Hiscox
Retail
$m
19.9
19.6
Hiscox
London
Market
$m
9.2
6.9
Hiscox
Re & ILS
$m
3.1
2.7
Hiscox
Retail
$m
Hiscox
London
Market
$m
Hiscox
Re & ILS
$m
Corporate
Centre
$m
Total
$m
Hiscox
Retail
$m
Hiscox
London
Market
$m
Hiscox
Re & ILS
$m
Corporate
Centre
$m
Total
$m
Year to 31 December 2022
Year to 31 December 2021
2,308.3
1,510.7
1,116.4
2,006.8
991.6
316.0
–
–
4,935.4
2,323.7
1,583.5
887.9
3,314.4
1,995.7
958.8
324.4
–
–
4,795.1
3,278.9
1,975.5
(105.1)
11.3
977.0
(57.8)
5.8
300.6
(36.2)
16.2
–
–
2.3
3,253.1
(199.1)
35.6
1,985.0
26.7
19.1
924.1
15.7
11.9
313.3
8.7
10.0
–
(0.3)
2.4
3,222.4
50.8
43.4
(876.2)
(427.5)
(153.1)
–
(1,456.8)
(991.7)
(457.8)
(125.2)
(539.6)
(275.3)
(23.3)
–
(838.2)
(531.8)
(252.5)
(16.6)
–
–
(1,574.7)
(800.9)
(456.8)
(125.1)
(68.8)
(23.6)
(674.3)
(439.1)
(114.0)
(71.1)
(28.6)
(652.8)
–
–
–
22.0
22.0
–
–
–
(1.2)
(1.2)
9.1
97.1
35.4
0.7
142.3
68.2
127.4
119.1
(27.7)
287.0
Gross premiums
written
Net premiums
written
Net premiums
earned
Investment result
Other income
Claims and claim
adjustment
expenses, net
of reinsurance
Expenses for the
acquisition of
insurance contracts
Operational
expenses
Net foreign
exchange
gains/(losses)
Total income
less expenses
Segment results at the 100% level presented above differ from those presented at the Group’s share at note 4(a) solely as a result
of the Group not owning 100% of the capacity of Syndicate 33 at Lloyd’s.
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Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
4 Operating segments continued
(c) Geographical information
The Group’s operational segments underwrite business domestically in Bermuda and from locations in the UK, USA, Guernsey,
France, Germany, Belgium, The Netherlands, Spain, Portugal, Ireland, Singapore and Thailand.
The following table provides an analysis of the Group’s gross premium revenues earned by material geographical location from
external parties:
Gross premium revenues earned from external parties
UK
Europe
USA
Rest of world
Year to 31 December 2022
Year to 31 December 2021
Hiscox
Retail
$m
757.7
476.5
906.6
76.1
2,216.9
Hiscox
London
Market
$m
84.7
81.8
673.7
286.0
1,126.2
Hiscox
Re & ILS
$m
38.3
52.2
554.9
325.3
970.7
Corporate
Centre
$m
–
–
–
–
–
Total
$m
880.7
610.5
2,135.2
687.4
4,313.8
Hiscox
Retail
$m
815.7
456.1
934.3
71.4
2,277.5
Hiscox
London
Market
$m
90.8
70.9
719.4
271.8
1,152.9
Hiscox
Re & ILS
$m
31.9
33.6
487.2
263.8
816.5
Corporate
Centre
$m
–
–
–
–
–
Total
$m
938.4
560.6
2,140.9
607.0
4,246.9
The following table provides an analysis of the Group’s non-current assets by material geographical location excluding financial
instruments, deferred tax assets, post-employment benefit assets, and rights arising under insurance contracts:
Non-current assets
UK
Europe
USA
Rest of world
2022
total
$m
267.5
59.9
120.7
11.0
459.1
2021
total
$m
222.5
46.5
128.7
11.5
409.2
Hiscox Ltd Report and Accounts 2022
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Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
5 Net asset value per share and net tangible asset value per share
Net asset value
Net tangible asset value
2022
net asset value
(total equity)
$m
2022
net asset value
per share
cents
2021
net asset value
(total equity)
$m
2021
net asset value
per share
cents
2,416.7
2,096.3
701.2
608.2
2,539.3
2,226.2
739.8
648.6
The net asset value per share is based on 344,672,172 shares (2021: 343,232,855 shares), being the shares in issue at
31 December 2022, less those held in treasury and those held by the Group Employee Benefit Trust.
Net tangible assets comprise total equity excluding intangible assets. The net asset value per share expressed in pence is
582.9p (2021: 546.2p).
6 Return on equity
Profit for the year (all attributable to owners of the Company)
Opening total equity
Adjusted for the time-weighted impact of capital distributions and issuance of shares
Adjusted opening total equity
Return on equity (%)
2022
$m
41.7
2,539.3
(54.9)
2,484.4
1.7
2021
$m
189.5
2,353.9
(11.3)
2,342.6
8.1
The return on equity is calculated by using profit for the period divided by the adjusted opening total equity. The adjusted opening
total equity represents the equity on 1 January of the relevant year as adjusted for time-weighted aspects of capital distributions
and issuing of shares or treasury share purchases during the period. The time-weighted positions are calculated on a daily basis
with reference to the proportion of time from the transaction to the end of the period.
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Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
7 Investment result
The total investment result for the Group comprises:
Investment income including interest receivable
Net realised (losses)/gains on financial investments at fair value through profit or loss
Net fair value losses on financial investments at fair value through profit or loss
Investment result – financial assets
Net fair value gains on derivative financial instruments
Investment expenses
Total result
Note
8
19
2022
$m
119.5
(54.1)
(254.2)
(188.8)
8.5
(7.0)
(187.3)
8 Analysis of return on financial investments
(a) The weighted average return on financial investments for the year by currency, based on monthly asset values, was:
US Dollar
Sterling
Euro
Other
(b) Investment return
Debt and fixed income holdings
Equities and investment funds
Deposits with credit institutions/cash and cash equivalents
Investment result – financial assets
2022
return
$m
(169.1)
(29.6)
9.9
(188.8)
2022
yield
%
(3.2)
(7.3)
0.7
(2.6)
2022
%
(2.2)
(3.5)
(3.8)
(0.6)
2021
return
$m
(11.4)
66.2
0.6
55.4
2021
$m
88.1
25.2
(57.9)
55.4
1.7
(5.9)
51.2
2021
%
0.4
1.5
1.1
0.0
2021
yield
%
(0.2)
11.6
0.0
0.7
Hiscox Ltd Report and Accounts 2022
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Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
9 Other income and operational expenses
Agency-related and other underwriting income
Profit commission
Other income
Total other income
Wages and salaries
Social security costs
Pension cost – defined contribution
Pension cost – defined benefit
Share-based payments
Temporary staff costs
Travel and entertainment
Legal and professional
Office costs
Computer costs
Depreciation, amortisation and impairment
Other expenses
Operational expenses
2022
$m
17.3
3.7
25.5
46.5
224.0
30.5
16.0
0.4
27.2
36.2
12.4
74.5
14.2
84.4
60.0
62.5
642.3
2021*
$m
23.1
4.8
28.9
56.8
228.9
30.8
17.3
1.0
24.0
39.6
5.6
71.6
13.6
63.3
58.3
68.7
622.7
* During 2022, the Group reviewed and reallocated certain items of other income and expenses to ensure consistency with management’s view of the categories.
As a result, $9.5 million of expense has been reallocated from other expenses to computer costs in 2021 and $4.8 million has been reallocated from
agency-related income to other income for 2021.
Agency-related income and other underwriting income relates to commission received from a non-Group insurer by an insurance
intermediary (‘agency’) for placement services, in limited cases claims handling services and results from the insurance-linked
securities managed by the Group. Commission income associated with the placement services is recognised at the point in
time when the agency has satisfied its performance obligation. That is when the terms of the insurance policy have been agreed
contractually by the insurer and policyholder and the insurer has a present right to payment from the policyholder. Where the
agency also provides the insurer with claims handling services, the commission income associated with these services is
recognised over time in line with the terms of the contractual arrangements.
Profit commission income attributed to non-insurance entities, for example Lloyd’s managing agent and ILS investment managers,
is determined based on a best estimate of the variable consideration. The income is recognised to the extent that it is highly
probable that it will not be subject to significant reversal.
Other income includes management fees which are recognised when the investment management services are rendered to
the ILS funds.
No disposals were made during 2022 (2021: disposal of Crystal Ridge subsidiary for $21.4 million on 1 June 2021 for a gain of
$5.2 million reported in other income).
Other expenses include marketing, VAT expense, other staff costs, Lloyd’s costs and subscriptions. Total marketing
expenditure (included in operational expenses and expenses for the acquisition of insurance contracts) for the year was
$65.8 million (2021: $56.6 million).
10 Finance costs
Interest charge associated with borrowings
Interest and expenses associated with bank borrowing facilities
Interest and charges associated with Letters of Credit
Other interest expenses*
Finance costs
Note
17
30
2022
$m
32.2
2.5
4.0
9.4
48.1
2021
$m
30.7
7.5
5.0
7.6
50.8
* Including interest expenses on lease liabilities of $1.9 million (2021: $1.2 million) and interest and charges of $8.4 million (2021: $6.4 million) associated with funds
withheld balances.
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Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
11 Auditor’s remuneration
Fees payable to the Group’s external auditor, PwC, its member firms and its associates (exclusive of VAT) include the following
amounts recorded in the consolidated income statement:
Group
Amounts receivable by the auditors and its associates in respect of:
The auditing of the accounts of the Group and its subsidiaries
All audit-related assurance services
All other non-audit services
2022
$m
5.6
0.3
–
5.9
2021
$m
4.6
0.3
–
4.9
Fees for the auditing of the Group and its subsidiaries in 2022 include audit work relating to the implementation of IFRS 17
Insurance Contracts of $1.6 million (2021: $0.3 million). The full audit fee payable for the Syndicate 33 and Syndicate 6104
audit has been included above, although an element of this is borne by the third-party participants in the Syndicate.
12 Goodwill and intangible assets
At 1 January 2021
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 31 December 2021
Opening net book amount
Additions
Disposals
Amortisation charges
Impairment charge
Foreign exchange movements
Closing net book amount
At 31 December 2021
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 31 December 2022
Opening net book amount
Additions
Disposals
Amortisation charges
Foreign exchange movements
Closing net book amount
At 31 December 2022
Cost
Accumulated amortisation and impairment
Net book amount
Goodwill
$m
13.9
(5.1)
8.8
8.8
–
–
–
(0.3)
(0.2)
8.3
11.5
(3.2)
8.3
8.3
–
–
–
(0.5)
7.8
10.2
(2.4)
7.8
Syndicate
capacity
$m
State
authorisation
licences
$m
Software and
development
costs
$m
Other
$m
Total
$m
33.1
–
33.1
33.1
–
–
–
–
–
33.1
33.1
–
33.1
33.1
–
–
–
–
33.1
33.1
–
33.1
8.5
–
8.5
8.5
–
–
–
–
–
8.5
8.5
–
8.5
8.5
–
–
–
–
8.5
8.5
–
8.5
336.4
(94.5)
241.9
241.9
53.5
–
(35.3)
–
(1.3)
258.8
386.4
(127.6)
258.8
258.8
59.2
(1.1)
(35.5)
(14.9)
266.5
409.8
(143.3)
266.5
40.4
(33.8)
6.6
6.6
–
–
(1.9)
–
(0.3)
4.4
20.2
(15.8)
4.4
4.4
2.7
–
(1.8)
(0.8)
4.5
20.3
(15.8)
4.5
432.3
(133.4)
298.9
298.9
53.5
–
(37.2)
(0.3)
(1.8)
313.1
459.7
(146.6)
313.1
313.1
61.9
(1.1)
(37.3)
(16.2)
320.4
481.9
(161.5)
320.4
Hiscox Ltd Report and Accounts 2022
201
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
12 Goodwill and intangible assets continued
Goodwill
Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to the smallest identifiable unit to which
cash flows are generated. $7.0 million (2021: $7.2 million) is allocated to the Lloyd’s corporate member entity CGU and $0.8 million
(2021: $1.1 million) is allocated to the CGUs within the Hiscox Retail business segment. Goodwill is considered to have an indefinite
life and as such is tested annually for impairment based on the recoverable amount which is considered to be the higher of the fair
value, less cost to sell or value in use. During 2022, there was no impairment charge on goodwill (2021: $0.3 million).
Value in use is considered to be the best indication of the recoverable amount for goodwill. Value in use calculations are performed
using cash flow projections based on financial forecasts. A discount factor, based on a weighted average cost of capital (WACC)
for the Group, of 11.0% to 11.5%, depending on the underlying currency (2021: 8.0% to 8.5%), has been applied to the cash flow
projections to determine the net present value. The outcome of the value in use calculation is measured against the carrying value
of the asset and, where the carrying value is in excess of the value in use, the asset is written down to this amount.
Impairment assessments
To test the sensitivity of the assessment, management flexed the key assumptions within a reasonably expected range. Within this
range, goodwill and other intangible assets recoveries were stress tested and remain supportable across all cash-generating
units or assets.
Intangible assets
All intangible assets have a finite useful life except for the Syndicate capacity and US state authorisation licences.
(a) Syndicate capacity
The cost of purchasing the Group’s participation in the Lloyd’s insurance syndicates is not amortised, but is tested annually for
impairment and is carried at cost less accumulated impairment losses. Having considered the future prospects of the London
insurance market, the Board believes that the Group’s ownership of Syndicate capacity will provide economic benefits over an
indefinite number of future periods. This assumption is reviewed annually to determine whether the asset continues to have an
indefinite life.
The Group’s intangible asset relating to Syndicate capacity has been allocated, for impairment testing purposes, to one
individual CGU, being the active Lloyd’s corporate member entity. The asset is tested annually for impairment based on its
recoverable amount which is considered to be the higher of the asset’s fair value less costs to sell or its value in use. The fair
value of Syndicate capacity can be determined from the Lloyd’s Syndicate capacity auctions. The value in use is determined
using cash flow projections based on business plans approved by management and discounted at the applicable WACC rate.
At 31 December 2022, the value in use or the fair value less cost to sell exceeded the carrying value of Syndicate capacity
recognised on the balance sheet.
(b) US state authorisation licences
As part of a business combination in 2007, the Group acquired insurance authorisation licences for 50 US states. This
intangible asset has been allocated for impairment testing purposes to one individual CGU, being the Group’s North American
underwriting business.
The asset is not amortised, as the Group considers that economic benefits will accrue to the Group over an indefinite number
of future periods due to the stability of the US insurance market. This assumption is reviewed annually to determine whether the
asset continues to have an indefinite life.
The licences are tested annually for impairment, and accumulated impairment losses are deducted from the historical cost. The
carrying value of this asset is tested for impairment based on its value in use. The value in use is calculated using a projected
cash flow based on business plans approved by management and discounted at the same rate used for goodwill. Key assumptions
include new business growth, retention rates, market cycle and claims inflation. The results of the test show there is no impairment.
202
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Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
12 Goodwill and intangible assets
Intangible assets continued
(c) Software and development costs
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the
specific software. These costs are amortised over the expected useful life of the software of between three and ten years
on a straight-line basis.
Internally developed computer software is only capitalised when it is probable that the expected future economic benefits that
are attributable to the asset will flow to the Group and the cost of the asset can be measured reliably. Amortisation of internally
developed computer software begins when the software is available for use and is allocated on a straight-line basis over the
expected useful life of the asset.
The useful life of the asset is reviewed annually and, if different from previous estimates, is changed accordingly with the change
being accounted for as a change in accounting estimates in accordance with IAS 8.
The carrying value of software and development costs is reviewed for impairment on an ongoing basis by reference to the stage
and expectation of a project. Additionally, at the end of each reporting period, the Group reviews the positions for any indication
of impairment, and as a result of this no impairment was provided for in 2022 (2021: $nil).
At 31 December 2022 there were $71.7 million of assets under development on which amortisation has yet to be charged
(2021: $27.3 million).
The assets are expected to be recovered or settled more than 12 months after the reporting date and as such are considered to
be non-current.
(d) Rights to customer contractual relationships (included in other)
Costs directly attributable to securing the intangible rights to customer contractual relationships are recognised as an intangible
asset where they can be identified separately and measured reliably and it is probable that they will be recovered by directly
related future profits. These costs are amortised on a straight-line basis over the useful economic life which is deemed to be ten
years and are carried at cost less accumulated amortisation and impairment losses.
At the end of each reporting period, an assessment is made on whether there is any indication that customer contractual
relationships may be impaired. Where indications of impairment are identified, the carrying value is tested for impairment based
on the recoverable amount which is considered to be the higher of the fair value less costs to sell or value in use. The asset’s value
in use is considered to be the best indication of its recoverable amount. Value in use is calculated using the same method as
described above for goodwill and the same discount rate used. The results of this test led to no impairment charge on intangible
rights to customer contractual relationships in 2022 (2021: $nil).
Hiscox Ltd Report and Accounts 2022
203
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
13 Property, plant and equipment
Year ended 31 December 2021
Opening net book amount
Additions
Disposals
Depreciation charge
Foreign exchange movements
Closing net book amount
At 31 December 2021
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2022
Opening net book amount
Additions
Disposals
Depreciation charge
Foreign exchange movements
Closing net book amount
At 31 December 2022
Cost
Accumulated depreciation
Net book amount
Land and
buildings
$m
Leasehold
improvements
$m
Furniture
fittings and
equipment
and art
$m
Right-of-use
assets:
property
$m
Right-of-use
assets:
other
$m
23.2
–
–
(1.3)
(0.1)
21.8
29.9
(8.1)
21.8
21.8
–
–
(1.1)
(2.4)
18.3
26.6
(8.3)
18.3
2.6
–
–
(0.7)
–
1.9
13.6
(11.7)
1.9
1.9
0.1
–
(0.7)
–
1.3
13.4
(12.1)
1.3
28.8
5.4
(0.2)
(4.6)
(0.4)
29.0
65.8
(36.8)
29.0
29.0
20.8
(0.1)
(4.3)
(2.4)
43.0
80.7
(37.7)
43.0
53.4
4.2
(6.2)
(13.5)
(1.0)
36.9
68.2
(31.3)
36.9
36.9
51.4
(0.8)
(16.0)
(2.5)
69.0
113.5
(44.5)
69.0
1.4
0.3
0.1
(0.7)
(0.3)
0.8
2.7
(1.9)
0.8
0.8
1.3
–
(0.6)
–
1.5
3.3
(1.8)
1.5
Total
$m
109.4
9.9
(6.3)
(20.8)
(1.8)
90.4
180.2
(89.8)
90.4
90.4
73.6
(0.9)
(22.7)
(7.3)
133.1
237.5
(104.4)
133.1
The Group’s land and buildings assets relate to freehold property in the UK. There was no impairment charge during the year
(2021: $nil).
The assets are expected to be recovered or settled more than 12 months after the reporting date and as such are considered to
be non-current.
The income from subleasing right-of-use assets amounted to $0.6 million (2021: $0.7 million).
14 Subsidiaries, associates and interests in other entities
This note provides details of the Syndicates and Special Purpose Insurers (SPI) managed by the Group, the acquisition and
disposal of subsidiaries and associates during the year and investments in associates.
(a) Subsidiaries
Hiscox Dedicated Corporate Member Limited (HDCM) underwrites as a corporate member of Lloyd’s on the main Syndicates
managed by Hiscox Syndicates Limited (the main managed Syndicates numbered 33 and 3624).
As at 31 December 2022, HDCM owned 72.6% of Syndicate 33 (2021: 72.6%), and 100% of Syndicate 3624 (2021: 100%). In view
of the several but not joint liability of underwriting members at Lloyd’s for the transactions of Syndicates in which they participate,
the Group’s attributable share of the transactions, assets and liabilities of these Syndicates has been included in the financial
statements. The Group manages the underwriting of, but does not participate as a member of, Syndicate 6104 at Lloyd’s which
provides reinsurance to Syndicate 33 on a normal commercial basis. Consequently, aside from the receipt of managing agency
fees, defined profit commissions as appropriate and interest arising on effective assets included within the experience account,
the Group has no share in the assets, liabilities or transactions of Syndicate 6104. The position and performance of that Syndicate
is therefore not included in the Group’s financial statements.
(b) SPIs
The Kiskadee Diversified Fund and Kiskadee Select Fund were launched in 2014 to provide investment opportunities to
institutional investors in property catastrophe reinsurance and insurance-linked strategies. The funds are managed by
Hiscox Re Insurance Linked Strategies Limited (formerly known as Kiskadee Investment Managers Limited) which is a wholly
owned subsidiary of the Group.
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Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
14 Subsidiaries, associates and interests in other entities
(b) SPIs continued
The Kiskadee Latitude Fund was launched in 2019 to give investors access to a more diverse portfolio of insurance and
reinsurance risks, with less focus on pure property catastrophe risk. The fund is managed by Hiscox Re Insurance Linked
Strategies Limited which is a wholly owned subsidiary of the Group.
The Group determined that it does not control the Kiskadee Diversified Fund, the Kiskadee Select Fund and the Kiskadee
Latitude Fund. Hence they are not consolidated.
The Kiskadee Cadence Fund was launched in December 2019 to achieve attractive risk-adjusted returns by investing primarily in
a worldwide reinsurance and retrocession portfolio and the Kiskadee Select Plus Fund was launched in January 2021 to achieve
attractive risk-adjusted returns that have low correlation to broader financial markets by investing primarily in a diversified,
worldwide property catastrophe reinsurance and retrocession portfolio, including a portion of non-catastrophe reinsurance.
These funds are segregated accounts of Kiskadee ILS Fund SAC Ltd, which is managed by Hiscox Re Insurance Linked
Strategies Limited, a wholly owned subsidiary of the Group. The Group determined that it does control these funds and hence
they are consolidated.
As at 31 December 2022, the Group recognised a financial asset at fair value of $45.3 million (2021: $50.9 million) in relation to
its investment in the unconsolidated funds (note 17). In assessing the maximum exposure to loss from its interest in the funds,
the Group has determined it is no greater than the fair value recognised as at the balance sheet date. The total size of the
unconsolidated funds was $600 million at 31 December 2022 (2021: $593 million). In addition to the return on the financial asset,
the Group also receives fee income through Hiscox Re Insurance Linked Strategies Limited and Hiscox Insurance Company
(Bermuda) Limited, both wholly owned subsidiaries, under normal commercial terms.
The Group is exposed to credit risk associated with reinsurance recoverables on risks fronted for the SPIs. Note 3.3(d) discusses
how the Group manages credit risk associated with reinsurance assets. The operations of the funds and SPIs are financed
through the issuance of preference shares to external investors. The Group does not intend to provide any further financial
support to the funds or SPIs.
(c) Investments in associates
Year ended 31 December
At beginning of year
Distributions received
Net profit from investments in associates
Foreign exchange movements
At end of year
The Group’s interests in its principal associates, all of which are unlisted, were as follows:
2022
$m
5.7
(0.3)
0.9
(0.7)
5.6
2021
$m
4.9
(0.2)
0.8
0.2
5.7
100% results
2022
Associates incorporated in the UK
Associates incorporated in Europe
Total at the end of 2022
2021
Associates incorporated in the UK and USA
Associates incorporated in Europe
Total at the end of 2021
% interest held at 31 December
Assets
$m
Liabilities
$m
Revenues
$m
Profit after tax
$m
from 32% to 35%
from 26% to 35%
from 29% to 35%
26%
10.3
8.6
18.9
20.3
5.6
25.9
6.7
5.4
12.1
17.0
3.5
20.5
10.9
4.1
15.0
13.6
2.4
16.0
0.9
2.0
2.9
0.2
1.1
1.3
The equity interests held by the Group in respect of associates do not have quoted market prices and are not traded regularly in
any active recognised market. The associates concerned have no material impact on the results or assets of the Group.
The assets are expected to be recovered or settled more than 12 months after the reporting date and as such are considered to
be non-current.
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20
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Chapter 4
Remuneration
106
Chapter 5
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information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
15 Deferred acquisition costs
Balance deferred at 1 January
Acquisition costs incurred in relation to insurance
contracts written
Acquisition costs expensed to the income statement
Foreign exchange and other adjustments
Balance deferred at 31 December
Gross
$m
Reinsurance
$m
2022
Net
$m
Gross
$m
Reinsurance
$m
2021
Net
$m
436.9
(110.0)
326.9
439.2
(106.9)
332.3
1,041.2
(1,015.8)
(12.2)
450.1
(254.7)
260.3
1.9
(102.5)
786.5
(755.5)
(10.3)
347.6
1,021.3
(1,017.9)
(5.7)
436.9
(288.2)
283.2
1.9
(110.0)
733.1
(734.7)
(3.8)
326.9
The deferred amount of insurance contract acquisition costs attributable to reinsurers of $102.5 million (2021: $110.0 million) is not
eligible for offset against the gross balance sheet asset and is included separately within trade and other payables (note 24).
The net amounts expected to be recovered before and after one year are estimated as follows:
Within one year
After one year
16 Reinsurance assets
Reinsurers’ share of insurance liabilities
Provision for non-recovery and impairment
Reinsurance assets
2022
$m
263.2
84.4
347.6
2021
$m
245.6
81.3
326.9
Note
23
2022
$m
3,900.1
(0.3)
3,899.8
2021
$m
3,908.5
(0.5)
3,908.0
The amounts expected to be recovered before and after one year, based on historical experience, are estimated as follows:
Within one year
After one year
1,991.0
1,908.8
3,899.8
1,919.5
1,988.5
3,908.0
Amounts due from reinsurers in respect of outstanding premiums and claims already paid by the Group are included in loans and
receivables (note 18). The Group recognised a gain during the year of $0.2 million (2021: loss of $0.1 million) due to movement on
the provision for non-recovery and impairment.
During the year, the Group completed two legacy portfolio transactions. Details of these transactions are disclosed in note 23.
17 Financial assets and liabilities
Financial assets designated at fair value through profit or loss are measured at fair values, with all changes from one accounting
period to the next being recorded through the income statement.
Debt and fixed income holdings
Equities and investment funds
Total investments
Insurance-linked funds
Derivative financial instruments
Total financial assets carried at fair value
206
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Note
19
2022
$m
5,426.6
339.1
5,765.7
45.3
1.1
5,812.1
2021
$m
5,528.1
461.2
5,989.3
50.9
1.1
6,041.3
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
17 Financial assets and liabilities continued
The effective maturity of the debt and fixed income holdings due within and after one year are as follows:
Within one year
After one year
2022
$m
1,355.5
4,071.1
5,426.6
2021
$m
1,111.2
4,416.9
5,528.1
Equities, investment funds and insurance-linked securities do not have any maturity dates. The effective maturity of all other
financial assets are due within one year.
An analysis of the credit risk and contractual maturity profiles of the Group’s financial instruments is given in notes 3.3(d) and 3.3(e).
Financial liabilities of the Group are:
Derivative financial instruments
Financial liabilities carried at fair value
Borrowings
Accrued interest on borrowings
Financial liabilities carried at amortised cost
Total financial liabilities
Note
19
2022
$m
0.3
0.3
2022
$m
628.8
7.1
635.9
636.2
2021
$m
0.2
0.2
2021
$m
743.7
2.8
746.5
746.7
All of the financial liabilities carried at fair value are due within one year. The long-term debt issued on 14 March 2018 was repaid
during the year, and all the remaining borrowings are due after one year. Accrued interest on long-term debt is due within one year.
On 24 November 2015, the Group issued £275.0 million 6.125% fixed-to-floating rate callable subordinated notes due 2045,
with a first call date of 2025.
The notes bear interest from, and including, 24 November 2015 at a fixed rate of 6.125% per annum annually in arrears starting
24 November 2016 up until the first call date in November 2025 and thereafter at a floating rate of interest equal to the sum of
compounded daily Sterling Overnight Index Average (SONIA), the reference rate adjustment of 0.1193% and a margin of 5.076%
payable quarterly in arrears on each floating interest payment date.
On 25 November 2015, the notes were admitted for trading on the London Stock Exchange’s regulated market. The notes were
rated BBB- by S&P as well as by Fitch.
On 14 March 2018, the Group issued £275.0 million 2% notes due December 2022. The notes were redeemed on the maturity
date at their principal amount together with accrued interest.
On 22 September 2022, the Group issued £250.0 million 6% notes due September 2027. The notes will be redeemed on the
maturity date at their principal amount together with accrued interest.
The notes bear interest from, and including, 22 September 2022 at a fixed rate of 6% per annum annually in arrears starting
22 September 2022 until maturity on 22 September 2027.
On 22 September 2022, the notes were admitted for trading on the Luxembourg Stock Exchange’s Euro MTF. The notes were
rated BBB+ by S&P as well as by Fitch.
The fair value of the borrowings is estimated at $623.1 million (2021: $797.3 million). The fair value measurement is classified
within Level 1 of the fair value hierarchy. The fair value is estimated by reference to the actively traded value on the stock exchanges.
Hiscox Ltd Report and Accounts 2022
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20
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Chapter 4
Remuneration
106
Chapter 5
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information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
17 Financial assets and liabilities continued
The decrease in the carrying value of the borrowings and accrued interest during the year comprises a drawdown of new
borrowings of $279.1 million (2021: $nil), repayment of short-term borrowings of $336.6 million (2021: repayment of
$195.7 million), the amortisation of the difference between the net proceeds received and the redemption amounts of
$0.9 million (2021: $0.8 million), the increase in accrued interest of $6.5 million (2021: reduction of $0.1 million) less exchange
movements of $60.5 million (2021: less exchange movements of $4.6 million).
Note 10 includes details of the interest expense for the year included in finance costs.
Investments at 31 December are denominated in the following currencies at their fair value:
Debt and fixed income holdings
US Dollars
Sterling
Euro and other currencies
Equities and investment funds
US Dollars
Sterling
Euro and other currencies
Total investments
18 Loans and receivables including insurance receivables
Gross receivables arising from insurance and reinsurance contracts
Provision for impairment
Net receivables arising from insurance and reinsurance contracts
Due from contract holders, brokers, agents and intermediaries
Due from reinsurance operations
Prepayments and accrued income
Other loans and receivables:
Net profit commission receivable
Accrued interest
Share of Syndicates’ other debtors’ balances
Other debtors including related party amounts
Total loans and receivables including insurance receivables
The amounts expected to be recovered before and after one year are estimated as follows:
Within one year
After one year
2022
$m
2021
$m
3,932.4
821.5
672.7
5,426.6
188.2
117.0
33.9
339.1
5,765.7
3,890.0
957.9
680.2
5,528.1
206.9
223.0
31.3
461.2
5,989.3
2022
$m
1,539.5
(7.0)
1,532.5
899.7
632.8
1,532.5
2021
$m
1,568.9
(7.3)
1,561.6
918.3
643.3
1,561.6
29.9
26.0
5.9
25.6
28.3
49.4
1,671.6
4.9
23.7
25.3
36.7
1,678.2
1,548.4
123.2
1,671.6
1,500.4
177.8
1,678.2
There is no significant concentration of credit risk with respect to loans and receivables as the Group has a large number
of internationally dispersed debtors. The movement in the provision for impairment allowance for receivables during the year
ended 31 December 2022 is due to foreign exchange movements (2021: increase in allowance of $2.2 million). The carrying
amounts disclosed above are reasonably approximate to the fair value at the reporting date.
208
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Chapter 2
A closer look
20
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Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
19 Derivative financial instruments
The Group entered into both exchange-traded and over-the-counter derivative contracts for a number of purposes during 2022.
The Group had the right and intention to settle each contract on a net basis. The assets and liabilities of these contracts at
31 December 2022 all mature within one year of the balance sheet date and are detailed below:
31 December 2022
Derivative financial instruments included on balance sheet
Foreign exchange forward contracts
Interest rate futures contracts
Gross contract
notional amount
$m
Fair value
of assets
$m
Fair value
of liabilities
$m
Net balance
sheet position
$m
8.2
34.9
–
1.1
(0.3)
–
The foreign exchange forward contracts are represented by gross fair value of assets and liabilities as detailed below:
Gross fair value of assets
Gross fair value of liabilities
0.8
(0.8)
–
6.4
(6.7)
(0.3)
(0.3)
1.1
7.2
(7.5)
(0.3)
31 December 2021
Derivative financial instruments included on balance sheet
Foreign exchange forward contracts
Interest rate futures contracts
Gross contract
notional amount
$m
Fair value
of assets
$m
Fair value
of liabilities
$m
Net balance
sheet position
$m
24.4
148.2
0.4
0.7
(0.2)
–
0.2
0.7
The foreign exchange forward contracts are represented by gross fair value of assets and liabilities as detailed below:
Gross fair value of assets
Gross fair value of liabilities
11.6
(11.2)
0.4
14.8
(15.0)
(0.2)
26.4
(26.2)
0.2
Foreign exchange forward contracts
During the current and prior year, the Group entered into a series of conventional over-the-counter forward contracts in order to
secure translation gains made on Euro, US Dollar and other non-Sterling denominated monetary assets. The contracts require
the Group to forward sell a fixed amount of the relevant currency for Sterling at pre-agreed future exchange rates. The Group
made a gain on these forward contracts of $1.3 million (2021: gain of $0.2 million) as included in the investment result in note 7.
There was no initial purchase cost associated with these instruments.
Interest rate futures contracts
To substantially hedge the interest rate risk the Group is exposed to, it continued to sell a number of government bond futures
denominated in a range of currencies. All contracts are exchange traded and the Group made a gain on these futures contracts
of $7.2 million (2021: gain of $1.5 million) as included in the investment result in note 7.
Equity index options
During the year, no equity index futures were purchased.
Hiscox Ltd Report and Accounts 2022
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Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
20 Fair value measurements
In accordance with IFRS 13 Fair Value Measurement, the fair value of financial instruments, based on a three-level fair value
hierarchy that reflects the significance of the inputs used in measuring the fair value, is set out below.
As at 31 December 2022
Financial assets
Debt and fixed income holdings
Equities and investment funds
Insurance-linked funds
Derivative financial instruments
Total
Financial liabilities
Derivative financial instruments
Total
As at 31 December 2021
Financial assets
Debt and fixed income holdings
Equities and investment funds
Insurance-linked funds
Derivative financial instruments
Total
Financial liabilities
Derivative financial instruments
Total
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
1,122.4
–
–
–
1,122.4
4,237.1
311.8
–
1.1
4,550.0
–
–
0.3
0.3
67.1
27.3
45.3
–
139.7
–
–
Level 1
$m
Level 2
$m
Level 3
$m
5,426.6
339.1
45.3
1.1
5,812.1
0.3
0.3
Total
$m
858.5
–
–
–
858.5
4,639.5
416.5
–
1.1
5,057.1
30.1
44.7
50.9
–
125.7
5,528.1
461.2
50.9
1.1
6,041.3
–
–
0.2
0.2
–
–
0.2
0.2
The levels of the fair value hierarchy are defined by the standard as follows:
A Level 1 – fair values measured using quoted prices (unadjusted) in active markets for identical instruments;
A Level 2 – fair values measured using directly or indirectly observable inputs or other similar valuation techniques for
which all significant inputs are based on market observable data;
A Level 3 – fair values measured using valuation techniques for which significant inputs are not based on market observable data.
The fair values of the Group’s financial assets are typically based on prices from numerous independent pricing services. The
pricing services used by the investment manager obtain actual transaction prices for securities that have quoted prices in active
markets. For those securities which are not actively traded, the pricing services use common market valuation pricing models.
Observable inputs used in common market valuation pricing models include, but are not limited to, broker quotes, credit ratings,
interest rates and yield curves, prepayment speeds, default rates and other such inputs which are available from market sources.
Investments in mutual funds comprise a portfolio of stock investments in trading entities which are invested in various quoted
and unquoted investments. The fair value of these investment funds is based on the net asset value of the fund as reported by
independent pricing sources or the fund manager.
Included within Level 1 of the fair value hierarchy are certain government bonds, treasury bills, corporate bonds having a quoted
price in active markets, and exchange-traded equities which are measured based on quoted prices in active markets.
The fair value of the borrowings carried at amortised cost is estimated at $623.1 million (2021: $797.3 million) and is considered
as Level 1 in the fair value hierarchy.
Level 2 of the hierarchy contains certain government bonds, US government agencies, corporate securities, asset-backed
securities and mortgage-backed securities. The fair value of these assets is based on the prices obtained from independent
pricing sources, investment managers and investment custodians as discussed above. The Group records the unadjusted price
provided and validates the price through a number of methods including a comparison of the prices provided by the investment
managers with the investment custodians and the valuation used by external parties to derive fair value. Quoted prices for US
government agencies and corporate securities are based on a limited number of transactions for those securities and as such
the Group considers these instruments to have similar characteristics to those instruments classified as Level 2. Also included
within Level 2 are units held in collective investment vehicles investing in traditional and alternative investment strategies and
over-the-counter derivatives.
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2
Chapter 2
A closer look
20
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Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
20 Fair value measurements continued
Level 3 contains investments in limited partnerships, unquoted equity securities and insurance-linked funds which have limited
observable inputs on which to measure fair value. Unquoted equities, including equity instruments in limited partnerships, are
carried at fair value. Fair value is determined to be net asset value for the limited partnerships, and for the equity holdings it is
determined to be the latest available traded price. The effect of changing one or more inputs used in the measurement of fair
value of these instruments to another reasonably possible assumption would not be significant. At 31 December 2022,
the insurance-linked funds of $45.3 million represent the Group’s investment in the unconsolidated Kiskadee funds
(2021: $50.9 million) as described in note 14.
The fair value of the Kiskadee funds is estimated to be the net asset value as at the balance sheet date. The net asset value
is based on the fair value of the assets and liabilities in the fund. The majority of the assets of the funds are cash and cash
equivalents. Significant inputs and assumptions in calculating the fair value of the assets and liabilities associated with reinsurance
contracts written by the Kiskadee funds include the amount and timing of claims payable in respect of claims incurred and periods
of unexpired risk. The Group has considered changes in the net asset valuation of the Kiskadee funds if reasonably different inputs
and assumptions were used and has found that a 12% change to the fair value of the liabilities would increase or decrease the fair
value of funds by $4.1 million.
In certain cases, the inputs used to measure the fair value of a financial instrument may fall into more than one level within the fair
value hierarchy. In this instance, the fair value of the instrument in its entirety is classified based on the lowest level of input that is
significant to the fair value measurement.
The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels at the end of the relevant reporting
period during which the transfers are deemed to have occurred. During the year, investments of $25.9 million were transferred
from Level 2 to Level 3 due to insufficient observable data being available, as a result of reduced trading volumes.
The following table sets forth a reconciliation of opening and closing balances for financial instruments classified under Level 3
of the fair value hierarchy:
31 December 2022
Balance at 1 January
Fair value gains or losses through profit or loss
Foreign exchange (losses)/gains
Settlements
Transfers
Closing balance
Unrealised gains and (losses) in the year on securities held at the end of the year
Debt and
fixed income
holdings
$m
Equities and
investment funds
$m
Insurance-
linked funds
$m
30.1
1.3
(1.2)
–
36.9
67.1
1.3
44.7
(3.0)
(3.3)
(0.1)
(11.0)
27.3
(2.4)
50.9
1.3
0.1
(7.0)
–
45.3
1.7
31 December 2021
Balance at 1 January
Fair value gains or losses through profit or loss
Foreign exchange (losses)/gains
Purchases
Settlements
Closing balance
Unrealised gains and (losses) in the year on securities held at the end of the year
Debt and
fixed income
holdings
$m
Equities and
investment funds
$m
Insurance-
linked funds
$m
–
0.1
–
30.0
–
30.1
0.1
45.5
(0.3)
(0.4)
0.2
(0.3)
44.7
–
63.2
–
0.1
–
(12.4)
50.9
(0.4)
Financial assets
Total
$m
125.7
(0.4)
(4.4)
(7.1)
25.9
139.7
0.6
Financial assets
Total
$m
108.7
(0.2)
(0.3)
30.2
(12.7)
125.7
(0.3)
Hiscox Ltd Report and Accounts 2022
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Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
21 Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Total
2022
$m
1,276.0
74.9
1,350.9
2021
$m
1,287.3
13.4
1,300.7
The Group holds its cash deposits with a well-diversified range of banks and financial institutions. Cash includes overnight deposits.
Short-term deposits include debt securities with an original maturity date of less than three months and money market funds.
22 Share capital
Group
Authorised ordinary share capital of 6.5p (2021: 6.5p)
Issued ordinary share capital of 6.5p (2021: 6.5p)
31 December 2022
31 December 2021
Share
capital
$m
Number
of shares
000
425.8 3,692,308
354,067
38.7
Share
capital
$m
Number
of shares
000
425.8 3,692,308
353,986
38.7
The amounts presented in the equity section of the Group’s consolidated balance sheet relate to Hiscox Ltd, the legal
parent company.
Changes in Group share capital and contributed surplus
At 1 January 2021
Employee share option scheme – proceeds from shares issued
Scrip Dividends to owners of the Company
At 31 December 2021
Employee share option scheme – proceeds from shares issued
Scrip Dividends to owners of the Company
At 31 December 2022
Ordinary share
capital
$000
38,659
–
2
38,661
1
5
38,667
Share
premium
$000
516,452
107
258
516,817
153
687
517,657
Contributed
surplus
$000
183,969
–
–
183,969
–
–
183,969
Contributed surplus is a distributable reserve and arose on the reverse acquisition of Hiscox plc on 12 December 2006.
The Company relies on dividend streams from its subsidiary companies to provide the cash flow required for distributions to be
made to shareholders. The ability of the subsidiaries to pay dividends is subject to regulatory restrictions within the jurisdiction
from which they operate.
Share repurchase
The trustees of the Group’s Employee Benefit Trust purchased nil shares (2021: nil shares) to facilitate the settlement of vesting
awards under the Group’s Performance Share Plan. As the Trust is consolidated into the Group financial results, these purchases
have been accounted for in the same way as treasury shares and have been charged against retained earnings. The shares are
held by the trustees for the beneficiaries of the Trust.
Note
29
Number of
ordinary shares
in issue
2022
000
353,986
18
63
354,067
Number of
ordinary shares
in issue
2021
000
353,955
11
20
353,986
Equity structure of Hiscox Ltd
At 1 January
Employee share option scheme – ordinary shares issued
Scrip Dividends to owners of the Company
At 31 December
All issued shares are fully paid.
212
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2
Chapter 2
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20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
22 Share capital continued
Performance Share Plan awards
Performance Share Plan awards are granted to Directors and senior employees. No exercise price is attached to performance
plan awards, although their attainment is conditional on the employee completing three years’ service (the vesting period) and
the Group achieving net asset value targets for awards from 2018 to 2020. Awards granted in 2021 and 2022 require both net
asset value and total shareholder return targets to be met. Share options are also conditional on the employees completing two
or three years’ service (the vesting period) or less under exceptional circumstances (death, disability, retirement or redundancy).
The options are exercisable starting three years from the grant date only if the Group achieves its targets of return on equity or
net asset value; the options have a contractual option term of ten years. The Group has no legal or constructive obligation to
repurchase or settle the options in cash. Share awards (HSX:26) granted in 2022 are conditional upon employees completing
three years’ service and maintaining a satisfactory personal performance rating. No other targets are required to be met.
In accordance with IFRS 2, the Group recognises an expense for the fair value of shares, share options and Performance Share
Plan award instruments issued to employees, over their vesting period through the income statement. The amount recognised
in the consolidated income statement during the year was an expense of $27.2 million (2021: expense of $24.0 million). This
comprises an expense of $15.0 million (2021: expense of $16.6 million) in respect of Performance Share Plan awards, an expense
of $2.9 million (2021: expense of $7.4 million) in respect of share option awards and $9.3 million (2021: $nil) in respect of employee
share awards. The Group has applied the principles outlined in the Black-Scholes option pricing model when determining the fair
value of each share option instrument. For the fair value pricing of performance share plans, the Group uses the share price on
the date of grant of the options. For any options contingent on achieving targets linked to total shareholder returns, the fair value
price on date of grant is adjusted to take account of the probability of achieving the performance targets.
The range of principal Group assumptions applied in determining the fair value of share-based payment instruments granted
during the year under review are:
Assumptions affecting inputs to fair value models
Annual risk-free rates of return and discount rates (%)
Long-term dividend yield (%)
Expected life of options (years)
Implied volatility of share price (%)
Weighted average share price (p)
2022
2021
1.36-3.00
1.27
3.25
49.2
981.1
0.18-0.26
1.46
3.25
46.2
865.3
The weighted average fair value of each share option granted during the year was 418.3p (2021: 317.5p). The weighted average
fair value of each Performance Share Plan award granted during the year was 983.0p (2021: 862.3p).
Movements in the number of share options and Performance Share Plan awards during the year and details of the balances
outstanding at 31 December 2022 for the Executive Directors are shown in the annual report on remuneration 2022. The total
number of options and Performance Share Plan awards outstanding is 10,325,738 (2021: 9,743,754) of which 1,287,068 are
exercisable (2021: 1,629,224). The total number of SAYE options outstanding is 2,650,322 (2021: 2,414,729) and employee
share awards is 4,765,411 (2021: nil).
The implied volatility assumption is based on historical data for periods of between five and ten years immediately preceding
grant date.
Hiscox Ltd Report and Accounts 2022
213
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
23 Insurance liabilities and reinsurance assets
Gross
Claims reported and claim adjustment expenses
Claims incurred but not reported
Unearned premiums
Total insurance liabilities, gross
Recoverable from reinsurers
Claims reported and claim adjustment expenses
Claims incurred but not reported
Unearned premiums
Total reinsurers’ share of insurance liabilities
Net
Claims reported and claim adjustment expenses
Claims incurred but not reported
Unearned premiums
Total insurance liabilities, net
Note
2022
$m
2021
$m
2,486.0
4,474.2
1,876.4
8,836.6
1,175.1
2,261.9
462.8
3,899.8
1,310.9
2,212.3
1,413.6
4,936.8
2,506.1
4,539.8
1,822.5
8,868.4
1,143.3
2,349.5
415.2
3,908.0
1,362.8
2,190.3
1,407.3
4,960.4
16
The net amounts expected to be recovered and settled before and after one year, based on historical experience, are estimated
as follows:
Within one year
After one year
2022
$m
2,878.4
2,058.4
4,936.8
2021
$m
3,155.1
1,805.3
4,960.4
The gross claims reported and claim adjustment expenses liability and the liability for claims incurred but not reported are net
of expected recoveries from salvage and subrogation. The amounts for salvage and subrogation at the end of 2022 and 2021
are not material.
214
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
23 Insurance liabilities and reinsurance assets continued
23.1 Insurance contracts assumptions
(a) Process used to decide on assumptions
There are many risks associated with insurance contracts, and this means that there is a considerable amount of uncertainty in
estimating the future settlement cost of claims. There is uncertainty in both the amounts and the timing of future claim payment
cash flows.
Claims paid are claims transactions settled up to the reporting date including settlement expenses allocated to those transactions.
Unpaid claims reserves are made for known or anticipated liabilities which have not been settled up to the reporting date.
Included within the provision is an allowance for the future costs of settling those claims.
The Group relies on actuarial analysis to estimate the settlement cost of future claims. Via a formal governed process, there is
close communication between the actuaries and other key stakeholders, such as the underwriters, claims and finance teams
when setting and validating the assumptions. The unpaid claims reserve is estimated based on past experience and current
expectations of future cost levels. Allowance is made for the current premium rating and inflationary environment.
The claims reserves are estimated on a best estimate basis, taking into account current market conditions and the nature of risks
being underwritten.
Under certain insurance contracts, the Group may be permitted to sell property acquired in settling a claim (for example, salvage).
The Group may also have the right to pursue third parties for payment of some or all costs (for example, subrogation). If it is certain
a recovery or reimbursement will be made at the valuation date, specific estimates of these salvage and/or subrogation amounts
are included as allowances in the measurement of the insurance liability for unpaid claims. This is then recognised in insurance
and reinsurance receivables when the liability is settled.
Estimates of where claims liabilities will ultimately settle are adjusted each reporting period to reflect emerging claims experience.
Changes in expected claims may result in a reduction or an increase in the ultimate claim costs and a release or an increase in
reserves in the period in which the change occurs.
Booked reserves are held above the best estimate to help mitigate the uncertainty within the reserve estimates. As the best
estimate matures and becomes more certain, the management margin is gradually released in line with the reserving policy.
This approach is consistent with last year. The margin included in the insurance liabilities at 31 December 2022 was 8.9%
above the best estimate (2021: 11.7%).
(b) Claims development tables
The development of insurance liabilities provides a measure of the Group’s ability to estimate the ultimate cost of claims.
The Group analyses actual claims development compared with previous estimates on an accident year basis. This exercise
is performed to include the liabilities of Syndicate 33 at the 100% level regardless of the Group’s actual level of ownership.
Analysis at the 100% level is required in order to avoid distortions arising from reinsurance to close arrangements which
subsequently increase the Group’s share of ultimate claims for each accident year, three years after the end of that accident year.
The top half of each table, on the following pages, illustrates how estimates of ultimate claims costs for each accident year have
changed at successive year ends. The bottom half reconciles cumulative claims costs to the amounts still recognised as liabilities.
A reconciliation of the liability at the 100% level to the Group’s share, as included in the Group balance sheet, is also shown.
Hiscox Ltd Report and Accounts 2022
215
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
23 Insurance liabilities and reinsurance assets
23.1 Insurance contracts assumptions
(b) Claims development tables continued
Insurance claims and claim adjustment expenses reserves – gross at 100%
2013
$m
2014
$m
2015
$m
2016
$m
2017
$m
2018
$m
2019
$m
2020
$m
2021
$m
2022
$m
Total
$m
Accident year
Estimate of ultimate
claims costs as
adjusted for foreign
exchange* at end
of accident year:
one year later
two years later
three years later
four years later
five years later
six years later
seven years later
eight years later
nine years later
Current estimate of
cumulative claims
Cumulative
payments to date
Liability recognised
at 100% level
Liability recognised
in respect of accident
years before 2013
at 100% level
Total gross liability to external parties at 100% level
(944.4)
(871.9)
123.6
881.7
51.0
9.8
1,276.2 1,396.5 1,504.6 1,874.2 3,317.8 3,032.5 3,268.3 3,707.8 2,982.5 2,923.8
–
1,164.3 1,188.7 1,370.5 1,665.0 3,035.4 3,469.9 2,977.5 3,685.9 2,803.6
–
–
1,039.6 1,100.2 1,239.2 1,577.6 3,006.6 3,288.0 2,809.4 3,442.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
977.1 1,053.4 1,234.7 1,609.7 2,921.5 3,075.8 2,727.4
–
922.7 1,029.4 1,251.6 1,647.4 2,888.7 2,997.5
–
–
1,012.1 1,278.8 1,642.8 2,851.7
901.1
–
–
–
897.2
–
–
–
900.0
–
–
–
897.4
–
–
–
881.7
997.4 1,276.3 1,632.8
–
998.8 1,276.4
–
–
995.4
–
–
–
995.4 1,276.4 1,632.8 2,851.7 2,997.5 2,727.4 3,442.9 2,803.6 2,923.8 22,533.2
(1,152.8) (1,468.7)
(2,419.8) (2,349.8)
(1,895.1)
(1,961.9)
(1,166.2)
(488.3) (14,718.9)
164.1
431.9
647.7
832.3 1,481.0 1,637.4 2,435.5
7,814.3
134.1
7,948.4
*The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 31 December 2022.
Reconciliation of 100% disclosures above to Group’s share – gross
2018
$m
2019
$m
2020
$m
2021
$m
2022
$m
Total
$m
995.4 1,276.4 1,632.8 2,851.7 2,997.5 2,727.4 3,442.9 2,803.6 2,923.8 22,533.2
(370.4)
(372.9)
(409.7)
(335.1)
(358.2)
(2,748.0)
2017
$m
2014
$m
2013
$m
2015
$m
2016
$m
881.7
888.1
(93.5)
788.2
(137.3)
(107.3)
(178.6)
(871.9)
(385.0)
1,139.1 1,454.2 2,466.7
Accident year
Current estimate of
cumulative claims
Less: attributable
to external Names
Group’s share of
current ultimate
claims estimate
Cumulative
payments to date
Less: attributable
to external Names
Group’s share of
cumulative payments
Liability recognised
on Group’s
balance sheet
Liability for accident
years before
2013 recognised
on Group’s
balance sheet
Total Group liability to external parties included in balance sheet – gross
(1,152.8) (1,468.7)
(1,025.9)
(838.8)
(780.9)
(944.4)
325.8
166.3
105.6
126.9
372.7
113.2
151.8
49.3
91.0
7.3
(1,302.4) (2,094.0) (2,068.9)
2,627.1 2,354.5 3,033.2 2,468.5 2,565.6 19,785.2
(2,419.8) (2,349.8)
(1,895.1)
(1,961.9)
(1,166.2)
(488.3) (14,718.9)
280.9
263.3
217.2
152.9
64.7
1,794.6
558.2
(1,631.8)
(1,744.7)
(1,013.3)
(423.6) (12,924.3)
722.7 1,288.5 1,455.2 2,142.0 6,860.9
99.3
6,960.2
216
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
23 Insurance liabilities and reinsurance assets
23.1 Insurance contracts assumptions
(b) Claims development tables continued
Insurance claims and claim adjustment expenses reserves – net of reinsurance at 100%
2013
$m
2014
$m
2015
$m
2016
$m
2017
$m
2018
$m
2019
$m
2020
$m
2021
$m
2022
$m
Total
$m
Accident year
Estimate of ultimate
claims costs as
adjusted for foreign
exchange* at end
of accident year:
one year later
two years later
three years later
four years later
five years later
six years later
seven years later
eight years later
nine years later
Current estimate of
cumulative claims
Cumulative
payments to date
Liability recognised
at 100% level
Liability recognised
in respect of accident
years before 2013
at 100% level
Total net liability to external parties at 100% level
(734.3)
(713.4)
754.3
741.0
40.9
6.7
80.3
1,411.6 1,788.3 1,732.5 1,725.7
1,083.8 1,126.0 1,203.4
989.4
897.8 1,022.0 1,215.3 1,563.6 1,708.9 1,464.2 1,814.7
–
845.2 1,015.8 1,239.7 1,563.4 1,532.8 1,415.8
–
–
820.1 1,015.9 1,279.5 1,450.9 1,459.6
–
–
–
798.7 1,044.8 1,213.4 1,363.4
–
–
–
–
793.5 1,007.6
–
–
–
–
963.5
782.1
–
–
–
–
–
754.3
–
–
–
–
–
–
1,112.1 1,282.4 1,583.2 1,753.1 1,656.3 1,984.9 1,623.0
–
–
–
–
–
–
–
–
2,113.3 1,710.9 1,719.7
–
–
–
–
–
–
–
–
–
962.1
863.1
799.4
794.1
770.7
769.4
769.9
754.2
741.0
1,142.2
–
–
–
963.5
1,142.2 1,363.4 1,459.6 1,415.8 1,814.7 1,623.0 1,719.7 12,997.2
(883.2) (1,083.9)
(1,273.3)
(1,216.5)
(1,072.3) (1,068.2)
(738.5)
(363.9)
(9,147.5)
58.3
90.1
243.1
343.5
746.5
884.5 1,355.8
3,849.7
85.6
3,935.3
*The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 31 December 2022.
Current estimate of cumulative claims in the table above has been impacted by the legacy portfolio transactions taken out in 2022
and 2021, see note 23.2.
Reconciliation of 100% disclosures above to Group’s share – net of reinsurance
2018
$m
2019
$m
2020
$m
2021
$m
2022
$m
Total
$m
1,142.2 1,363.4 1,459.6 1,415.8 1,814.7 1,623.0 1,719.7 12,997.2
(131.5)
(169.4)
(187.2)
(161.2)
(186.0)
(1,332.1)
862.4 1,028.6 1,231.9 1,328.1 1,246.4 1,627.5 1,461.8 1,533.7 11,665.1
(1,216.5)
(1,072.3) (1,068.2)
(738.5)
(363.9)
(9,147.5)
104.3
119.4
92.6
83.2
45.1
931.9
(1,112.2)
(952.9)
(975.6)
(655.3)
(318.8)
(8,215.6)
215.9
293.5
651.9
806.5 1,214.9
3,449.5
2017
$m
2014
$m
2013
$m
2015
$m
2016
$m
741.0
(74.6)
(76.0)
754.3
678.3
666.4
963.5
(101.1)
(113.6)
(131.5)
(734.3)
Accident year
Current estimate of
cumulative claims
Less: attributable
to external Names
Group’s share of
current ultimate
claims estimate
Cumulative
payments to date
Less: attributable
to external Names
Group’s share of
cumulative payments
Liability recognised
on Group’s
balance sheet
Liability for accident
years before
2013 recognised
on Group’s
balance sheet
Total Group liability to external parties included in balance sheet – net*
(883.2) (1,083.9)
(1,273.3)
(1,152.3)
(660.8)
(969.0)
(784.6)
(713.4)
(634.1)
121.0
114.9
44.2
98.6
73.5
59.6
79.3
79.6
77.8
5.6
*This represents the claims element of the Group’s insurance liabilities and reinsurance assets.
73.7
3,523.2
Hiscox Ltd Report and Accounts 2022
217
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
23 Insurance liabilities and reinsurance assets continued
23.2 Movements in insurance claims liabilities and reinsurance claims assets
A reconciliation of the insurance claims liabilities is as follows:
Year ended 31 December
Total at beginning of year
Claims and claim adjustment expenses for the year
Cash (paid)/received for claims settled in the year
Acquisitions, divestments and transfers
Foreign exchange and other adjustments
Total at end of year
Claims reported and claim adjustment expenses
Claims incurred but not reported
Total at end of year
Gross
$m
Reinsurance
$m
7,045.9
2,110.1
(2,026.4)
–
(169.4)
6,960.2
(3,492.8)
(781.8)
1,028.0
(249.6)
59.2
(3,437.0)
2,486.0
4,474.2
6,960.2
(1,175.1)
(2,261.9)
(3,437.0)
2022
Net
$m
3,553.1
1,328.3
(998.4)
(249.6)
(110.2)
3,523.2
1,310.9
2,212.3
3,523.2
Gross
$m
Reinsurance
$m
7,291.4
2,185.5
(2,331.8)
–
(99.2)
7,045.9
(3,213.0)
(755.1)
1,082.8
(639.0)
31.5
(3,492.8)
2,506.1
4,539.8
7,045.9
(1,143.3)
(2,349.5)
(3,492.8)
2021
Net
$m
4,078.4
1,430.4
(1,249.0)
(639.0)
(67.7)
3,553.1
1,362.8
2,190.3
3,553.1
The insurance claims expense reported in the consolidated income statement is comprised as follows:
Year ended 31 December
Current year claims and claim adjustment expenses
Over-provision in respect of prior-year claims and claim
adjustment expenses
Unexpired risk reserve
Total at end of year
Gross
$m
Reinsurance
$m
2022
Net
$m
Gross
$m
Reinsurance
$m
2021
Net
$m
2,657.4
(1,090.0)
1,567.4
2,775.0
(1,172.8)
1,602.2
(547.3)
–
2,110.1
308.2
–
(781.8)
(239.1)
–
1,328.3
(558.0)
(31.5)
2,185.5
409.1
8.6
(755.1)
(148.9)
(22.9)
1,430.4
A reconciliation of the unearned premium reserves is as follows:
Balance deferred at 1 January
Premiums written
Premiums earned through the income statement
Foreign exchange and other adjustments
Balance deferred at 31 December
Gross
$m
Reinsurance
$m
2022
Net
$m
Gross
$m
Reinsurance
$m
1,822.5
4,424.9
(4,313.8)
(57.2)
1,876.4
(415.2)
(1,444.9)
1,385.6
11.7
(462.8)
1,407.3
2,980.0
(2,928.2)
(45.5)
1,413.6
1,822.0
4,269.2
(4,246.9)
(21.8)
1,822.5
(431.6)
(1,314.2)
1,327.0
3.6
(415.2)
2021
Net
$m
1,390.4
2,955.0
(2,919.9)
(18.2)
1,407.3
The amounts expected to be recovered before and after one year, based on historical experience, are included in the first table to
this note 23.
A reconciliation of the gross premiums written to net premiums earned is as follows:
Gross premiums written
Outward reinsurance premiums
Net premiums written
Change in gross unearned premium reserves
Change in reinsurers’ share of unearned premium reserves
Change in net unearned premium reserves
Net premiums earned
2022
$m
4,424.9
(1,444.9)
2,980.0
(111.1)
59.3
(51.8)
2,928.2
2021
$m
4,269.2
(1,314.2)
2,955.0
(22.3)
(12.8)
(35.1)
2,919.9
218
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
23 Insurance liabilities and reinsurance assets
23.2 Movements in insurance claims liabilities and reinsurance claims assets continued
In determining the net claims, the Group estimates the reinsurers’ share of the claims by applying a consistent set of assumptions
with those in determining the gross claims, considering the individual wording of the reinsurance treaties, and estimating default
risks, as described in note 3.3(d). Changes to this set of assumptions and estimate could materially affect the amount of
reinsurers’ share of the claims.
During the year, the Group completed two legacy portfolio transactions securing coverage for potential adverse development
on historical liabilities for selected lines of business. The Group concluded that the transactions transferred significant risks and
accounts for the arrangements by recognising a reinsurance asset, a funds-withheld balance in trade and other payables, and a
net loss at inception in reinsurance premium ceded. The impact on reinsurance assets is presented in the acquisitions, divestment
and transfers line in the relevant table.
Hiscox Ltd Report and Accounts 2022
219
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
24 Trade and other payables
Creditors arising out of direct insurance operations
Creditors arising out of reinsurance operations
Share of Syndicates’ other creditors’ balances
Social security and other taxes payable
Lease liabilities
Other creditors
Reinsurers’ share of deferred acquisition costs
Accruals and deferred income
Total
The amounts expected to be settled before and after one year are estimated as follows:
Within one year
After one year
Note
15
2022
$m
90.4
1,243.7
1,334.1
18.3
52.4
79.9
47.1
197.7
102.5
184.1
1,818.4
2021
$m
96.3
1,152.2
1,248.5
2.6
49.3
46.5
19.8
118.2
110.0
158.9
1,635.6
2022
$m
1,372.5
445.9
1,818.4
2021
$m
1,062.3
573.3
1,635.6
The amounts expected to be settled after one year of the balance sheet date primarily relate to reinsurance creditors.
The carrying amounts disclosed above are reasonably approximate to the fair value at the reporting date.
The Group acts as both lessee and lessor in relation to various offices in the UK and overseas, which are held under non-cancellable
lease agreements. The leases have varying terms, escalation clauses and renewal terms.
Extension and termination options were taken into account on recognition of the lease liability if the Group was reasonably certain
that these options would be exercised in the future. As a general rule, the Group recognises non-lease components, such as
services, separately to lease payments.
Maturity analysis – contractual undiscounted cash flows:
Not later than one year
Later than one year and not later than five years
Later than five years
Total undiscounted lease liabilities at 31 December
2022
$m
12.2
43.2
36.9
92.3
2021
$m
15.7
30.2
7.8
53.7
The cost relating to variable lease payments that do not depend on an index or a rate amounted to $nil in the year ended
31 December 2022 (2021: $nil).
There were no leases with residual value guarantees (2021: none). The leases not yet commenced to which the Group is
committed amounted to $0.8 million (2021: $60.0 million).
Payments associated with short-term leases amounting to $1.1 million (2021: $1.2 million) and leases of low-value assets
amounting to $0.3 million (2021: $0.1 million) are recognised on a straight-line basis as an expense in profit or loss.
220
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
25 Tax expense
The Company and its subsidiaries are subject to enacted tax laws in the jurisdictions in which they are incorporated and
domiciled. The principal subsidiaries of the Company and the country in which they are incorporated are listed in note 32.
The amounts charged in the consolidated income statement comprise the following:
Current tax
Expense for the year
Adjustments in respect of prior years
Total current tax expense
Deferred tax
Expense for the year
Adjustments in respect of prior years
Effect of rate change
Total deferred tax expense/(credit)
Total tax charged to the income statement
2022
$m
4.5
(1.7)
2.8
0.7
(0.2)
(0.3)
0.2
3.0
The standard rate of corporation tax in Bermuda is 0% whereas the effective rate of tax for the Group is 7% (2021: 1%).
A reconciliation of the difference is provided below:
Profit before tax
Tax calculated at the standard corporation tax rate applicable in Bermuda: 0% (2021: 0%)
Effects of Group entities subject to overseas tax at different rates
Impact of overseas tax rates on:
Effect of rate change
Expenses not deductible for tax purposes
Tax losses for which no deferred tax asset is recognised
Other
Adjustment for share-based payments
Prior year tax adjustments
Tax charge for the year
2022
$m
44.7
–
(11.3)
(0.3)
1.6
11.6
0.1
3.1
(1.8)
3.0
2021
$m
9.5
(5.1)
4.4
3.6
(3.7)
(3.0)
(3.1)
1.3
2021
$m
190.8
–
2.3
(3.0)
2.5
9.3
(1.5)
0.5
(8.8)
1.3
Included within the current tax, a provision is recognised for those matters for which the tax determination is uncertain but it is
considered probable that there will be a future outflow of funds to a tax authority. The provisions are measured at the best estimate
of the amount expected to become payable.
The Group companies’ tax filings include transactions which are subject to transfer pricing legislation and the taxation authorities
may challenge the tax treatment of those transactions. The Directors are proactively engaged in discussions with the tax
authorities regarding these tax positions. The Group determines, based on tax and transfer pricing advice provided by external
specialist tax advisors, that: it is probable that the tax authorities will assess additional taxes in respect of these filings, for which
provisions have been made; the amount recognised at the balance sheet date represents the best estimate of the amount
expected to be settled, taking into account the range of potential outcomes and the current progression of discussions with
tax authorities.
Hiscox Ltd Report and Accounts 2022
221
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
26 Deferred tax
Net deferred tax assets
Trading losses in overseas entities
Deferred tax assets
Deferred tax liabilities
Total deferred tax asset
Net deferred tax liabilities
Deferred tax assets
Deferred tax liabilities
Total net deferred tax liability
2022
$m
28.4
69.1
(43.8)
53.7
–
0.2
0.2
2021
$m
29.1
97.9
(59.7)
67.3
(0.1)
0.2
0.1
Deferred tax assets and deferred tax liabilities relating to the same tax authority are presented net in the Group’s balance sheet.
Net Group deferred tax assets/(liabilities) analysed by balance sheet headings
Income
statement
(charge)
/credit
$m
Recognised
in other
comprehensive
income/equity
$m
Foreign
exchange
$m
1.9
(0.3)
(1.6)
(41.9)
1.2
1.5
1.6
3.4
24.5
(9.7)
(2.6)
1.2
26.0
(1.3)
(13.1)
10.2
0.5
(0.6)
0.5
(0.1)
–
(0.1)
(0.1)
(0.2)
–
–
(9.1)
–
–
–
–
–
(0.3)
(9.4)
–
–
–
–
–
–
(9.4)
–
(9.4)
(9.4)
–
–
–
(9.4)
(0.2)
(0.2)
(1.1)
(7.0)
–
–
(0.3)
0.1
(1.0)
(9.7)
(0.3)
–
4.4
–
1.6
5.7
(4.0)
(0.1)
(4.0)
(4.1)
–
–
–
(4.1)
2021
$m
1.7
1.6
12.7
56.9
11.2
8.3
5.0
–
0.5
97.9
(0.4)
(1.2)
(35.3)
(22.4)
(0.4)
(59.7)
38.2
29.1
38.2
67.3
(0.2)
0.1
(0.1)
67.2
2022
$m
3.4
1.1
0.9
8.0
12.4
9.8
6.3
3.5
23.7
69.1
(3.3)
–
(4.9)
(23.7)
(11.9)
(43.8)
25.3
28.4
25.3
53.7
(0.2)
–
(0.2)
53.5
At 31 December
Trade and other payables
Intangible assets – Syndicate capacity
Retirement benefit obligations
Open years of account
Unearned premium
Loss reserve discounting
Insurance contracts – technical reserves
Financial assets
Other items
Total deferred tax assets
Tangible assets
Financial assets
Reinsurance premiums
Deferred acquisition costs
Other items
Total deferred tax liabilities
Net total deferred tax assets/(liabilities)
Trading losses in overseas entities
Net total deferred tax assets/(liabilities)
Net deferred tax position asset/(liability)
Technical reserves
Other
Net total deferred tax position (liabilities)
Net Group deferred tax asset/(liability)
222
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
26 Deferred tax
Net Group deferred tax assets/(liabilities) analysed by balance sheet headings continued
Movements in deferred and current tax relating to tax deductions arising on employee share options are recognised in the
statement of changes in equity to the extent that the movement exceeds the corresponding charge to the income statement.
Movements in deferred tax relating to the employee retirement benefit obligation are recognised in the statement of comprehensive
income to the extent that the movement corresponds to actuarial gains and losses recognised in the statement of comprehensive
income. The total expense recognised outside the income statement is $6.5 million (2021: expense of $2.1 million), comprising
$9.4 million deferred tax expense and $2.9 million current tax income (2021: $3.4 million deferred tax expense and
$1.3 million current tax income).
Deferred tax assets of $28.4 million (2021: $29.1 million), relating to losses arising in overseas entities, which depend on the
availability of future taxable profits, have been recognised. Business projections indicate it is probable that sufficient future
taxable income will be available against which to offset these recognised deferred tax assets within five years. $27.7 million
(2021: $27.7 million) of the tax losses to which these assets relate will expire within ten years; a further $0.7 million
(2021: $1.4 million) will expire after ten years or will be available indefinitely. The Group has not provided for deferred tax assets
totalling $56.6 million (2021: $52.9 million) in relation to losses in overseas companies of $279.0 million (2021: $266.3 million).
In accordance with IAS 12, all deferred tax assets and liabilities are classified as non-current. The amount of deferred tax asset
expected to be recovered after more than 12 months is $53.5 million (2021: $67.2 million).
Factors affecting tax charges in future years
An increase to the UK corporate tax rate to 25% from 1 April 2023 was substantively enacted on 24 May 2021. This will have
a consequential effect on the company’s future tax charge, and deferred tax assets in relation to the UK have increased by
$0.2 million. The impact of these changes in future periods will be dependent on the level of taxable profits in those periods.
27 Employee retirement benefit obligations
The Company’s subsidiary Hiscox plc operates a defined benefit pension scheme based on final pensionable salary. The scheme
closed to future accruals with effect from 31 December 2006 and active members were offered membership of a defined
contribution scheme from 1 January 2007. The funds of the defined benefit scheme are controlled by the trustee and are held
separately from those of the Group. 61% of any scheme surplus or deficit is recharged to Syndicate 33. The full pension obligation
of the Hiscox defined benefit pension scheme is recorded and the recovery from the third-party Names for their share of the
Syndicate 33 recharge is shown as a separate asset.
The gross amount recognised in the Group balance sheet in respect of the defined benefit scheme is determined as follows:
Present value of scheme obligations
Fair value of scheme assets
Net amount recognised as a defined benefit (surplus)/obligation
2022
$m
213.9
(234.8)
(20.9)
2021
$m
404.1
(369.0)
35.1
As the fair value of the scheme assets exceeds the present value of scheme obligations, the scheme reports a surplus
(2021: reports a deficit).
The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit actuarial cost
method. A formal full actuarial valuation is performed on a triennial basis, most recently at 31 December 2020, and updated
at each intervening balance sheet date by the actuaries. The present value of the defined benefit obligation is determined by
discounting the estimated future cash flows using interest rates of AA rated corporate bonds that have terms to maturity that
approximate to the terms of the related pension liability.
Hiscox Ltd Report and Accounts 2022
223
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
27 Employee retirement benefit obligations continued
The scheme assets are invested as follows:
At 31 December
Investment assets
Pooled investment vehicles
Equities
Bonds
Derivatives
Assets held by insurance company
Cash
The amounts recognised in total comprehensive income are as follows:
Past service cost
Interest cost on defined benefit obligation
Interest income on plan assets
Net interest cost
Administrative expenses and taxes
Total expense recognised in operational expenses in the income statement
Remeasurements
Effect of changes in actuarial assumptions
Return on plan assets (excluding interest income)
Remeasurement of third-party Names’ share of defined benefit obligation
Total remeasurement included in other comprehensive income
Total defined benefit credit recognised in comprehensive income
The movement in the (surplus)/liability recognised in the Group’s balance sheet is as follows:
Note
9
Group defined benefit liability at beginning of year
Third-party Names’ share of liability
Net defined benefit liability at beginning of year
Defined benefit cost included in net income
Contribution by employer
Credit from third-party Names
Foreign exchange movements
Total remeasurement included in other comprehensive income
Net defined benefit (surplus)/liability at end of year
Third-party Names’ share of liability
Group defined benefit (surplus)/liability at end of year
2022
$m
2021
$m
81.4
26.1
122.2
–
2.5
2.6
234.8
2022
$m
–
6.4
(6.0)
0.4
–
0.4
(146.6)
104.7
7.0
(34.9)
(34.5)
2022
$m
35.1
(12.3)
22.8
0.4
(13.5)
(0.1)
0.1
(34.9)
(25.2)
4.3
(20.9)
145.3
36.3
182.2
0.2
–
5.0
369.0
2021
$m
–
5.6
(4.6)
1.0
–
1.0
(6.5)
(31.4)
6.3
(31.6)
(30.6)
2021
$m
73.5
(18.8)
54.7
1.0
–
(0.2)
(1.1)
(31.6)
22.8
12.3
35.1
224
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
27 Employee retirement benefit obligations continued
A reconciliation of the fair value of scheme assets is as follows:
Opening fair value of scheme assets
Interest income
Cash flows
Contribution by the employer
Benefit payments
Assets held by insurance company
Remeasurements
Return on plan assets (excluding interest income)
Foreign exchange movements
Closing fair value of scheme assets
A reconciliation of the present value of obligations of the scheme is as follows:
Opening present value of scheme obligations
Past service cost
Interest expense
Cash flows
Benefit payments
Assets held by insurance company
Remeasurements
Changes in actuarial assumptions
Foreign exchange movements
Closing present value of scheme obligations
2022
$m
369.0
6.0
13.5
(12.1)
2.6
(104.7)
(39.5)
234.8
2022
$m
404.1
–
6.4
(12.1)
2.6
(146.6)
(40.5)
213.9
2021
$m
344.4
4.6
–
(8.8)
–
31.4
(2.6)
369.0
2021
$m
417.9
–
5.6
(8.8)
–
(6.5)
(4.1)
404.1
Assumptions regarding future mortality experience are set based on the S3PA (2021: S3PA) light tables. Reductions in future
mortality rates are allowed for by using the CMI 2019 (2021: 2019) projections (core model) with 1.25% p.a. long-term trend
for improvements.
The average life expectancy in years of a pensioner retiring at age 60 on the balance sheet date is as follows:
Male
Female
2022
28.9
30.8
The average life expectancy in years of a pensioner retiring at 60, 15 years after the balance sheet date, is as follows:
Male
Female
2022
29.3
30.9
The weighted average duration of the defined benefit obligation at 31 December 2022 was 15.0 years (2021: 19.9 years).
2021
28.9
30.7
2021
29.3
30.8
Hiscox Ltd Report and Accounts 2022
225
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
27 Employee retirement benefit obligations continued
Other principal actuarial assumptions are as follows:
Discount rate
Inflation assumption (RPI)
Inflation assumption (CPI)
Pension increases
2022
%
4.95
3.09
2.54
2.89
2021
%
1.80
3.30
2.70
3.10
The scheme operates under UK Trust law and the Trust is a separate legal entity from the Group. The scheme is governed by
a board of trustees, comprised of member-nominated and employer-appointed trustees. The trustees are required by law to act
in the best interests of scheme members and are responsible for setting certain policies together with the principal employer.
The scheme is funded by the Group when required. Funding of the scheme is based on a separate actuarial valuation for funding
purposes for which the assumptions may differ from the assumptions above. Funding requirements are formally set out in the
statement of funding principles, schedule of contributions and recovery plan agreed between the trustees and the Group.
A triennial valuation was carried out as at 31 December 2020 and resulted in a deficit position of £78.0 million ($106.6 million)
on a funding basis. On 21 January 2022, the Group and the scheme’s trustees agreed a recovery plan to reduce the deficit and
to eliminate the deficit by 2027. No contributions were paid in 2021, following the advance payment made in December 2020
of £20.0 million ($26.7 million) in respect of contributions due in 2021. Under the recovery plan, and taking into account the
material improvement in the funding position since the valuation date, there are six payments of £10.0 million ($13.5 million), which
commenced in January 2022 and paid annually thereafter. The funding plan will be reviewed again following the next triennial
funding valuation which will have an effective date of 31 December 2023.
While management believes that the actuarial assumptions are appropriate, any significant changes to those could affect the
balance sheet and income statement. For example, an additional one year of life expectancy for all scheme members would
increase the scheme obligations by £5.1 million ($6.1 million) at 31 December 2022 (2021: £12.2 million ($16.5 million)), and
would increase/reduce the recorded net deficit/surplus on the balance sheet by the same amounts.
The most sensitive and judgemental financial assumptions are the discount rate and inflation. These are considered further below.
CPI revaluation in deferment is used for contracted-out members. Contracted-in members are linked to RPI as well as for all
pension in payment increases.
The Group has estimated the sensitivity of the present value of unfunded obligations to isolated changes in these assumptions at
31 December 2022 as follows:
Effect of a change in discount rate
Use of discount rate of 5.95%
Use of discount rate of 3.95%
Effect of a change in inflation
Use of RPI inflation assumption of 3.34%
Use of RPI inflation assumption of 2.84%
Present value
of unfunded
obligations
before change
in assumption
$m
Present value
of unfunded
obligations
after change
$m
(Increase)
/decrease
in obligation
recognised on
balance sheet
$m
213.9
213.9
185.6
249.6
28.3
(35.7)
213.9
213.9
216.6
211.2
(2.7)
2.7
226
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
28 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year, excluding ordinary shares held by the Group and held in treasury
as own shares.
Basic
Profit for the year attributable to the owners of the Company ($m)
Weighted average number of ordinary shares (thousands)
Basic earnings per share (cents per share)
Basic earnings per share (pence per share)
2022
2021
41.7
344,130
12.1¢
9.8p
189.5
342,551
55.3¢
40.2p
Diluted
Diluted earnings per share is calculated by adjusting for the assumed conversion of all dilutive potential ordinary shares. The
Company has one category of dilutive potential ordinary shares: share options and awards. For the share options, a calculation
is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market
share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share
options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming
the exercise of the share options.
Profit for the year attributable to the owners of the Company ($m)
Weighted average number of ordinary shares in issue (thousands)
Adjustments for share options (thousands)
Weighted average number of ordinary shares for diluted earnings per share (thousands)
Diluted earnings per share (cents per share)
Diluted earnings per share (pence per share)
2022
2021
41.7
344,130
4,490
348,620
12.0¢
9.6p
189.5
342,551
3,740
346,291
54.7¢
39.8p
Diluted earnings per share has been calculated after taking account of 3,680,735 (2021: 3,611,707) Performance Share Plan
awards, 352,505 (2021: 128,080) options under Save As You Earn schemes and 457,100 (2021: nil) employee share awards.
29 Dividends paid to owners of the Company
Final dividend for the year ended:
31 December 2021 of 23.0¢ (net) per share
Interim dividend for the year ended:
31 December 2022 of 12.0¢ (net) per share
31 December 2021 of 11.5¢ (net) per share
2022
$m
79.2
41.3
–
120.5
2021
$m
–
–
39.4
39.4
The interim and final dividend for 2021 was paid either in cash or issued as a Scrip Dividend at the option of the shareholder.
The interim dividend for the year ended 31 December 2021 was paid in cash of $39.2 million and 20,231 shares for a Scrip
Dividend. The final dividend for the year ended 31 December 2021 of 23.0¢ was paid in cash of $78.9 million and 27,940 shares
for the Scrip Dividend.
The interim dividend for 2022 was paid either in cash or issued as a Scrip Dividend at the option of the shareholder. The amounts
were $40.9 million in cash and 34,760 shares for a Scrip Dividend.
The Board recommended a final dividend of 24.0¢ per share to be paid, subject to shareholder approval, on 13 June 2023 to
shareholders registered on 5 May 2023. The dividends will be paid in Sterling unless shareholders elect to be paid in US Dollars.
The foreign exchange rate to convert the dividends declared in US Dollars into Sterling will be based on the average exchange
rate in the five business days prior to the Scrip Dividend price being determined. On this occasion, the period will be between
23 May 2023 and 30 May 2023 inclusive.
A Scrip Dividend alternative will be offered to the owners of the Company.
When determining the level of dividend each year, the Board considers the ability of the Group to generate cash; the availability
of that cash in the Group, while considering constraints such as regulatory capital requirements and the level required to invest in
the business. This is a progressive policy and is expected to be maintained for the foreseeable future.
Hiscox Ltd Report and Accounts 2022
227
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
30 Contingencies and guarantees
The Group’s parent company and subsidiaries may become involved in legal proceedings, claims and litigation in the normal
course of business. The Group reviews and, in the opinion of the Directors, maintains sufficient provision, capital and reserves
in respect of such claims.
The following guarantees have also been issued:
(a)
Hiscox Dedicated Corporate Member Limited (HDCM) and Hiscox Insurance Company (Bermuda) Limited (Hiscox Bermuda)
provide assets under a Security and Trust Deed charged to Lloyd’s of London, to meet any liabilities that occur from their
interest in Syndicates 33 and 3624. At 31 December 2022, HDCM held $170.8 million of investments (2021: $245.3 million),
$17.1 million of cash (2021: $1.8 million) and a $241.0 million LOC (2021: $241.0 million) in favour of Lloyd’s of London under
this arrangement. At 31 December 2022, Hiscox Bermuda held $528.1 million of investments (2021: $695.5 million),
$72.2 million of cash (2021: $26.4 million) and a $25.0 million LOC (2021: $25.0 million) in favour of Lloyd’s of London
under this arrangement.
(b)
(c)
In 2020, HDCM entered into a $65.0 million Funds at Lloyd’s agreement under which the lending bank provides assets on
HDCM’s behalf under a security and trust deed charged to Lloyd’s of London as part of the Company’s Fund’s at Lloyd’s
provision. At 31 December 2021 and 2022 the full $65.0 million was utilised.
Hiscox plc renewed during 2022 its LOC and revolving credit facility with Lloyds Banking Group, as agent for a syndicate
of banks. The facility may be drawn in cash up to $600.0 million (2021: £450.0 million) under a revolving credit facility or LOC
up to $266.0 million (2021: $266.0 million). The terms also provide that the facility may be drawn in USD, GBP or EUR, or
another currency with the agreement of the banks. At 31 December 2022, $266.0 million (2021: $266.0 million) was utilised
by way of LOC to support the Funds at Lloyd’s requirement and $nil cash drawings were outstanding (2021: $nil).
(d)
Hiscox Insurance Company Limited has arranged a LOC of £nil (2021: £50,000) with NatWest Bank plc to support its
consortium activities with Lloyd’s; the arrangement is collateralised with cash of £nil (2021: £50,000).
(e) The Council of Lloyd’s has the discretion to call a contribution of up to 5% of capacity if required from the managed syndicates.
(f)
As Hiscox Bermuda is not an admitted insurer or reinsurer in the USA, the terms of certain US insurance and reinsurance
contracts require Hiscox Bermuda to provide LOCs or other terms of collateral to clients. Hiscox Bermuda has in place
a LOC reimbursement and pledge agreement with Citibank for the provision of a committed LOC facility in favour of USA
ceding companies and other jurisdictions, and also committed LOC facility agreements with National Australia Bank and
Commerzbank AG. The agreements combined allow Hiscox Bermuda to request the issuance of up to $470.0 million in
committed LOCs (2021: $470.0 million).
LOCs issued under these facilities are collateralised by cash, US government and corporate securities of Hiscox
Bermuda. LOCs under these facilities totalling $189.4 million were issued with an effective date of 31 December 2022
(2021: $183.1 million) and these were collateralised by US government and corporate securities with a fair value of
$214.2 million (2021: $201.7 million). In addition, Hiscox Bermuda maintained assets in trust accounts to collateralise
obligations under various reinsurance agreements. At 31 December 2022, total cash and marketable securities with a
carrying value of approximately $23.2 million (2021: $23.6 million) were held in external trusts. Cash and marketable
securities with an approximate market value of $495.5 million (2021: $554.3 million) were held in trust in respect of
internal quota share arrangements.
(g)
Hiscox Société Anonyme has arranged bank guarantees with respect to its various office deposits for a total of €339,196
(2021: €266,624). These guarantees are held with ING Bank (Belgium) €23,460 (2021: €23,460), ABN Amro (Holland)
€44,749 (2021: €44,749), HypoVereinsbank – UniCredit (Germany) €229,007 (2021: €156,435) and ING Bank (Luxembourg)
€41,980 (2021: €41,980). As a consequence of the cross-border merger with Hiscox Europe Underwriting Limited effective
1 January 2019, Hiscox SA has the obligations under guarantees that were previously held by Hiscox Europe Underwriting
Limited during 2018.
(h) See note 25 for tax-related contingent liabilities.
228
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
31 Capital commitments and income from subleasing
Capital commitments
Refer to note 24 for lease commitments and note 27 for the Group’s funding contributions to the defined benefit scheme. The
Group’s capital commitments contracted for at the balance sheet date but not yet incurred for property, plant, equipment and
software development was $0.7 million (2021: $12.9 million).
Income from subleasing
Hiscox acts as a lessor and sublets excess capacity of its office space to third parties.
The total future aggregate minimum lease rentals receivable by the Group as lessor under non-cancellable operating property
leases are as follows:
No later than one year
Later than one year and no later than five years
32 Principal subsidiary companies of Hiscox Ltd at 31 December 2022
Company
Nature of business
Hiscox plc*
Hiscox Insurance Company Limited
Hiscox Insurance Company (Guernsey) Limited*
Hiscox Holdings Inc.
ALTOHA, Inc.
Hiscox Insurance Company Inc.
Hiscox Inc.
Hiscox Special Risks Agency (Americas) Inc.
Hiscox Insurance Services Inc.
Hiscox Specialty Insurance Company Inc.
Hiscox Insurance Company (Bermuda) Limited*
Hiscox Dedicated Corporate Member Limited
Hiscox Re Insurance Linked Strategies Limited
Hiscox Agency Limited
Hiscox Holdings Limited
Hiscox Syndicates Limited
Hiscox ASM Ltd.
Hiscox Underwriting Group Services Limited
Hiscox Underwriting Ltd
Hiscox Société Anonyme*
Hiscox Insurance Services (Guernsey) Limited
Hiscox MGA Limited
Hiscox Insurance Holdings Limited
Hiscox Connect Limited
Hiscox Assure SAS
Direct Asia Insurance (Holdings) Pte Ltd
Direct Asia Insurance (Singapore) Pte Limited
Direct Asia Management Services Pte Ltd
*Held directly by Hiscox Ltd.
Holding company
General insurance
General insurance
Holding company
Insurance holding company
General insurance
Insurance intermediary
Underwriting agency
Insurance intermediary
General insurance
General insurance and reinsurance
Lloyd’s corporate Name
Investment manager
Lloyd’s service company
Insurance holding company
Lloyd’s managing agent
Insurance intermediary
Service company
Underwriting agent
General insurance
Underwriting agency
Insurance intermediary
Holding company
Service company
Insurance intermediary
Holding company
General insurance
Service company
2022
$m
2.0
2.8
4.8
2021
$m
2.0
4.8
6.8
Country
Great Britain
Great Britain
Guernsey
USA (Delaware)
USA (Delaware)
USA (Illinois)
USA (Delaware)
USA (Delaware)
USA (Delaware)
USA (Illinois)
Bermuda
Great Britain
Bermuda
Bermuda
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Luxembourg
Guernsey
Great Britain
Great Britain
Great Britain
France
Singapore
Singapore
Singapore
All principal subsidiaries are wholly owned. The proportion of voting rights of subsidiaries held is the same as the proportion of
equity shares held.
Hiscox Ltd Report and Accounts 2022
229
Chapter 1
Performance
and purpose
2
Chapter 2
A closer look
20
Chapter 3
Governance
72
Chapter 4
Remuneration
106
Chapter 5
Shareholder
information
148
157
Chapter 6
Financial
summary
Notes to the
consolidated
financial statements
33 Related-party transactions
Details of the remuneration of the Group’s key personnel, presented in Sterling, are shown in the annual report on remuneration
2022 on pages 112 to 121. A number of the Group’s key personnel hold insurance contracts with the Group, all of which are on
normal commercial terms and are not material in nature.
The following transactions were conducted with related parties during the year.
(a) Syndicate 33 at Lloyd’s
Related-party balances between Group companies and Syndicate 33 reflect the 27.4% interest (2021: 27.4%) that the Group does
not own, and are as follows.
Hiscox Syndicates Limited
Hiscox Group insurance carriers
Hiscox Group insurance intermediaries
Other Hiscox Group companies
Transactions in
the income statement
for the year ended
Balances
outstanding
(payable) at
31 December
2022
$m
31 December
2021
$m
31 December
2022
$m
31 December
2021
$m
6.5
6.7
5.1
44.5
62.8
5.8
8.7
4.2
35.4
54.1
5.9
(90.6)
(4.6)
(1.6)
(90.9)
2.3
(74.8)
(9.2)
11.7
(70.0)
(b) Transactions with associates
Certain companies within the Group conduct insurance and other business with associates. These transactions arise in the
normal course of obtaining insurance business through brokerages, and are based on arm’s length arrangements.
Gross premium income achieved through associates
Commission expense charged by associates
There were no material outstanding balance sheet amounts with associates.
Details of the Group’s associates are given in note 14.
2022
$m
14.0
3.5
2021
$m
17.5
4.3
(c) Internal reinsurance arrangements
During the current and prior year, there were a number of reinsurance arrangements entered into in the normal course of trade
between various Group companies. The related results of these transactions have been eliminated on consolidation.
34 Post balance sheet event
There are no material events that have occurred after the reporting date.
230
Hiscox Ltd Report and Accounts 2022
Chapter 1
Performance
and purpose
4
Chapter 2
A closer look
16
Chapter 3
Governance
62
Chapter 4
Remuneration
94
Chapter 5
Shareholder
information
128
Chapter 6
Financial
summary
134
Additional performance measures (APMs)
A Net asset value (NAV) per share and net tangible asset
value per share
The Group uses NAV per share as one of its key
performance metrics, including using the movement of
NAV per share in the calculation of the options vesting of
awards granted under Performance Share Plans (PSP)
from 2018 onwards. This is a widely used key measure
for management and also for users of the financial
statements to provide comparability across peers in the
market. Net tangible asset value comprises total equity
excluding intangible assets. NAV per share and net
tangible asset value per share are shown in note 5,
along with an explanation of the calculation.
A Prior-year developments
Prior-year developments are a measure of favourable or
adverse development on claims reserves that existed at
the prior balance sheet date. It enables the users of the
financial statements to compare and contrast the Group’s
performance relative to peer companies. The Group
maintains a prudent approach to reserving, to help
mitigate the uncertainty within the reserve estimates.
The prior-year development is calculated as the positive
or negative movement in ultimate losses on prior accident
years between the current and prior-year balance sheet
date, as shown in note 23.
The Group uses, throughout its financial publications,
additional performance measures (APMs) in addition to
the figures that are prepared in accordance with UK-adopted
International Accounting Standards. The Group believes
that these measures provide useful information to enhance
the understanding of its financial performance. These APMs
are: combined, claims and expense ratios, return on equity,
net asset value per share and net tangible asset value per share
and prior-year developments. These are common measures
used across the industry, and allow the reader of our Annual
Report and Accounts to compare across peer companies.
The APMs should be viewed as complementary to, rather
than a substitute for, the figures prepared in accordance
with accounting standards.
A Combined, claims and expense ratios
The combined, claims and expense ratios are common
measures enabling comparability across the insurance
industry that measure the relevant underwriting profitability
of the business by reference to its costs as a proportion
of its net earned premium. The Group calculates the
combined ratio as if the Group owned all of the business,
including the proportion of Syndicate 33 that the Group
does not own (Group controlled income). The Group
does this to enable comparability from period to period
as the business mix may change in a segment between
insurance carriers, and this enables the Group to measure
all of its underwriting businesses on an equal measure.
The calculation is discussed further in note 4, operating
segments. The combined ratio is calculated as the sum
of the claims ratio and the expense ratio.
A Return on equity (ROE)
Use of return on equity is common within the financial
services industry, and the Group uses ROE as one of its
key performance metrics. While the measure enables
the Company to compare itself against other peer
companies in the immediate industry, it is also a key
measure internally where it is used to compare the
profitability of business segments, and underpins the
performance-related pay and pre-2018 share-based
payment structures. The ROE is shown in note 6, along
with an explanation of the calculation.
Hiscox Ltd Report and Accounts 2022
231
Five-year summary
Results
Gross premiums written
Net premiums written
Net premiums earned
Profit/(loss) before tax
Profit/(loss) for the year after tax
Assets employed
Goodwill and intangible assets
Financial assets carried at fair value
Cash and cash equivalents
Insurance liabilities and reinsurance assets
Other net assets
Net assets
Net asset value per share (¢)
Key statistics
Basic earnings/(loss) per share (¢)
Basic earnings/(loss) per share (p)
Diluted earnings/(loss) per share (¢)
Diluted earnings/(loss) per share (p)
Combined ratio (%)
Return on equity (%)
Dividends per share (¢)
Dividends per share (p)
Share price – high† (p)
Share price – low† (p)
†Closing mid-market prices.
The five-year summary is unaudited.
2022
$m
2021
$m
2020
$m
2019
$m
2018
$m
4,424.9
2,980.0
2,928.2
44.7
41.7
320.4
5,812.1
1,350.9
(4,936.8)
(129.9)
2,416.7
701.2
4,269.2
2,955.0
2,919.9
190.8
189.5
313.1
6,041.3
1,300.7
(4,960.4)
(155.4)
2,539.3
739.8
12.1
9.8
12.0
9.6
90.6
1.7
36.0
30.3
55.3
40.2
54.7
39.8
93.2
8.1
34.5
25.3
4,033.1
2,750.4
2,752.2
(268.5)
(293.7)
298.9
6,116.8
1,577.2
(5,468.8)
(170.2)
2,353.9
689.0
(91.6)
(71.5)
(90.6)
(70.7)
114.5
(11.8)
–
–
4,030.7
2,678.8
2,635.6
53.1
48.9
278.0
5,539.0
1,115.9
(4,707.6)
(35.6)
2,189.7
768.2
17.2
13.5
16.9
13.3
106.8
2.2
13.8
11.1
3,778.3
2,581.5
2,573.6
135.6
117.9
204.6
5,029.7
1,288.8
(4,244.9)
(19.2)
2,259.0
798.6
41.6
31.2
40.8
30.6
94.4
5.3
41.9
32.8
1,106.5
827.2
1,004.0
770.0
1,431.0
666.4
1,777.0
1,213.0
1,711.0
1,332.0
232
Hiscox Ltd Report and Accounts 2022Chapter 6 157Financial summaryChapter 3 72GovernanceChapter 5 148Shareholder informationChapter 2 20A closer lookChapter 1 2Performance and purposeChapter 4 106Remuneration Designed by Em-Project Limited
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the insurance sector; the impact
of changes in capital, solvency
standards or accounting standards
or relevant regulatory frameworks,
and tax and other legislation and
regulations in the jurisdictions
in which Hiscox operates; and
the impact of legal actions and
disputes. These and other important
factors could result in changes to
assumptions used for determining
Hiscox results and other key
performance indicators.
Hiscox therefore expressly
disclaims any obligation to update
any forward-looking statements
contained in this document,
except as required pursuant to
the Bermuda Companies Act,
the UK Listing Rules, the UK
Disclosure Guidance and
Transparency Rules or other
applicable laws and regulations.
Disclaimer
This document contains
forward-looking statements
regarding plans, goals and
expectations relating to the
Group’s future financial condition,
performance, results, strategy
or objectives, which by their very
nature involve risk and uncertainty.
Statements that are not historical
facts are based on Hiscox’s beliefs
and expectations. These include
but are not limited to statements
containing the words ‘may’,
‘will’, ‘should’, ‘continue’, ‘aims’,
‘estimates’, ‘projects’, ‘believes’,
‘intends’, ‘expects’, ‘plans’, ‘seeks’
and words of similar meaning.
These statements are based
on current plans, estimates and
projections as at the time they are
made and therefore undue reliance
should not be placed on them.
A number of factors could cause
Hiscox’s actual future financial
condition, performance or other
key performance indicators
to differ materially from those
discussed in any forward-looking
statement. These factors include
but are not limited to future market
conditions; the policies and actions
of regulatory authorities; the impact
of competition, economic growth,
inflation, and deflation; the impact
and other uncertainties of future
acquisitions or combinations within
Hiscox Ltd
Chesney House
96 Pitts Bay Road
Pembroke HM 08
Bermuda
T +1 441 278 8300
E enquiries@hiscox.com
www.hiscoxgroup.com
22185 03/23