Hiscox (LSE:HSX) Q3 2026 Earnings Call

0:01 Hello everyone, and thank you for joining us today for the Hiscox IMS Q3 2026 call. My name's Sammy, and I'll be coordinating your call today. During the presentation, you can post your question by pressing star, followed by 1 on your telephone keypad. If you change your mind, please press star, followed by 2 on your telephone keypad to remove yourself from the question queue. And I hand over to your host, Paul Cooper, CFO to begin. Please go ahead, Paul.

0:28 Good morning, and thank you for joining today's call. I will take you through the group's performance for the first nine months of 2026, focusing on premium growth, our change program, claims, and the investment result. After that, we will open the call for questions. Starting with premium. IPWP increased by 9.5% to over 4.4 billion. This was underpinned by accelerating momentum in all retail markets. while in big ticket proactive cycle management was offset by innovation, expansion into adjacent specialty classes and third party capital support. Now let's dive into the details starting with our retail business.

1:14 Retail ICWP reached two and a quarter billion dollars increasing by 9.1% in constant currency with double digit growth in the discrete leaving us well positioned to deliver our upgraded four-year guidance. Growth remained board-based and volume-led. UK premiums grew by 11.1% in constant currency to $811 million supported by continued investment in the brand, successful execution of our sector strategy and increased production from distribution deals Growth was underpinned by double-digit expansion in direct commercial, where new business increased by around 40% year on year, and ATC, which has now delivered double-digit growth for nine consecutive quarters.

2:09 Europe was up by 7.4% in constant currency. The BPD business benefited from improved execution by a dedicated management team. Momentum also built in the broker business. and many more. The US increased premiums by 8.4% to $792 million. US CCD expanded its top line by 10.1% to $491 million with continued improvement in partnerships and double digit growth in digital direct The ease of access to the HipHop platform, comprehensive small business cover and continued brand investment are driving increasing volumes through the channel.

3:01 In US partnerships, we have nearly doubled the number of partners since the business was re-platformed in 2023 and production is maturing from many of those added in recent years. Performance has also improved significantly as several of our longest-standing partners, which are now delivering double-digit new business growth. US broker premiums increased by 5.8% to $300 million, reflecting higher retention, expansion into life sciences and tech startups, and accelerating momentum in allied healthcare, following investment in underwriting talent. Turning to London market, ICWP increased by 9.9% with premiums now approaching 1.1 billion.

3:53 The underlying growth, excluding prior period premium adjustments, was 3.9%. Rates declined by 5% across the portfolio during the first nine months, but remain 59% above 2018 levels. Proactive cycle management in areas such as native property, Upstream Energy and Power and Renewables reduced premium growth by 9 percentage points. This was more than offset by adjacent classes, the build-out of Hiscox Portfolio Solutions and selective growth in our existing business. Turning to REIT, ICWP increased by 4.5% to $1.1 billion.

4:39 While Net ICWP reduced by 7.5% to $486 million, reflecting softening market rates and active cycle management. Rates declined by 14% over the first nine months, although the book remains well priced overall, with rates 55% above 2018. ILS assets under management increased to a record high of $3.1 billion. as of the 1st of October, with two-thirds in private ILS and the rest in our cap bond funds. Turning to our change programme, we remain on track to deliver a £75 million P&L benefit in 2026, with retail the largest beneficiary.

5:27 Most of the benefit is expected to come from group-wide efficiency and synergy initiatives. This includes re-designing operating models, stronger discipline around cost, and optimizing our resource something and location strategy. We continue to make good progress with the deployment of technology capabilities across retail. During the quarter, we started the rollout of our new direct customer portal in the US while we're in the process of launching a new broker portal in Europe and developing a new pricing engine in the UK. Once these capabilities have been rolled out locally, they will be deployed across retail, helping to improve scalability, enhance efficiency and support future growth.

6:16 Turning to claims. Loss experience in the third quarter was within expectations for the group. In big ticket, benign natural catastrophe loss experience in the third quarter more than offset marine losses from the ongoing Middle East conflict. In retail, loss experience was in line with expectations. The investment results for the first nine months was $104 million. Rising government bond yields have resulted in a reinvestment yield of 5.1%, up from 4.4% at the half year, and this will support future cash and coupon income. While the group recognised an unrealised fair value loss of $192 million on bonds and fixed income holdings, These movements are expected to unwind as the bonds mature.

7:11 Our investment portfolio remains conservatively positioned. Over 90% is held in cash equivalents or investment-grade fixed income securities with an average credit rating of A and a duration of two years. Finally, we have refinanced our maturing senior debt by issuing 300 million pounds at a coupon of 5.78. These notes are not eligible as BFDR capital and will be used for general business purposes. The group remains well capitalised with high levels of liquidity and strong capital generation, supporting continued investment in profitable growth and shareholder returns.

7:56 The share buyback is materially advanced with over 80% completed by the 30th of October. This concludes my remarks and I will now hand back the questions. Thanks very much. We will now begin the Q&A session. To restart the question, please press star followed by 1 and the telephone keypad now. To change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Will Hardscale from UBS. Will, your line is open, please go ahead.

8:35 Hey there, Will Hardcastle, EBS. Can you talk me through some of those biggest drivers of the retail growth across the geographies? I remember you said in the past there's quite broad basis to some of those drivers, and you touched on a couple there, but just really trying to see what's driving the acceleration. Is it perhaps the more partnerships? Is it the distribution? Any extra help on there would be great. And then really just some verification on the large loss commentary. In aggregate, are we saying that in the big ticket, it's actually still net-net, a little bit benign in the quarter, because you talk about benign net-cat, but then you talk about some of the escalation of those Middle East conflict losses. So I'm just thinking about in aggregate. And you mentioned last time about Middle East, you know, there's a large amount of that with IB&R in Q2.

9:26 I guess, how has that IB&R developed? Thank you.

9:31 Yeah. Great thanks Will. So look I'll take the second one first so yeah overall for the group the loss of experience was within expectations so you said better and then for big ticket the messaging is really the same so we've benefited from the benign natural catastrophe loss experience in Q3 and that more than offsets the losses that have appeared from the ongoing live event that is the Middle East I think from a half year perspective and going into Q3 you'll know that at the half year we had a prudent loss estimate, the majority of which was IBNR, I think about three quarters.

10:17 At Q3 that Middle East Reserve remained unchanged and indeed the IBNR component still is a majority. I think for retail, I think there's a number of moving parts. I think at the sort of macro level, there are several tailwinds. I think the two to point out is new business formation has been very strong. That's especially so in the US and Europe. And I think also what we're seeing is an increased levels of digital adoption. Our direct book has increased really across UK, US and EU and is growing double digit.

11:04 I think then sort of looking more at the individual markets, really that growth as you say is broad based and very much volume led. So rates are up 1% but what you've seen in Q3 is that we've delivered in constant currency growth and a number of other people. And I think the drive of that, they largely are a number of different management actions, but I would bucket them up into Firstly going deeper in our existing segments and sectors.

11:58 So you've seen, for example, we are targeting and writing more businesses such as online streamers, podcasters, online tutors, new products such as cyber that we're rolling out, a revamped cyber product that we're rolling out across Europe. We have distribution deals that we have been doing and really ramping up the volume since 2023. Those are starting to mature and I think that bodes well for additional momentum going into 2027. And then I think that you've got two other factors. One is technology. We have benefited from improvements in productivity that the technology gives us. at the front end.

12:52 And I think, of course, brand and marketing has been helpful. So that sort of has contributed to capturing that trend of increased digital adoption. I think those are really the themes, Will, that have been benefiting the UK, EU and US to varying degrees. Super helpful. Thank you. Our next question comes from Cameron Hussain from JP Morgan.

13:29 Hi, good morning. The first question is just around capital management and ADAS investment returns. Clearly, a bit of accounting noise this year on the investment return, mark to market, not a cash issue. But when you think about cash returns, do you expect to look through that accounting noise? Just kind of looking at the statement you made this time last year, at the very end of the statement you said you think about capital management on an annual basis. It wasn't there. Is there anything to read into the investment we've earned in that statement? And the second question is on retail. Clearly, you know, kind of double digits, this quarter is on an FH basis is fairly positive. Is there anything that would maybe dampen my enthusiasm that you could hit double digits next year if you're already kind of doing it in the third quarter now, so a year ahead of schedule.

14:29 I'm just interested if there's anything one-off or exceptional in this quarter that would suggest that maybe I shouldn't have double digits into next year.

14:38 Thank you. Great. Thanks, Graham, for that. So, look, dealing with the capsule question first, Yeah, I mean, I think certainly you've seen the market loss, you know, the duration of our bond portfolio is, you know, pretty short at two years and the port-a-part comes back pretty quickly. So, from a capital perspective, you know, really that impact is dampened. I think the other thing to consider, and this is true of accounting and capital, is that impact is also dampened by the impact of changes in yields on the discounting of reserves and we put in a sensitivity in the half year of what you can expect in terms of a change in 100 basis points to sort of help evaluate the impact of that.

15:35 I think sort of with regard to the annual statement, it's really sort of being clear, you know, we have a capital management framework you know we undertake that on an annual basis once we've got through the reporting period of the full year and indeed you know we'll come back as part of the year-end results and we'll you know go through the usual exercise the priorities are around deploying capital thirdly for profitable growth maintaining a strong balance sheet paying a progressive dividend and then you know evaluating the surplus for returning to shareholders and you would see from our track record you know the past three years we've announced some fairly decent capital returns in the form of buybacks I think then turning to retail I think that if you look at the double-digit growth in Q3, it really is a continuation of the momentum that's been building, I would argue, from those management actions over the past few years that's seen the growth move from 4%, 5%, 6% and now up to 9.1% in the nine months 2026.

16:53 and as I said I think that puts us in good stead for delivering the double digit guidance in 2028 as we laid out in the capital markets day. Now in terms of penciling anything in for 2027 we'll of course come back to you as part of the year end results and give you in year guidance for what we expect in that calendar year. No one else in Q3. Our next question comes from Ivan Bokmas from BART, please. Ivan, go ahead.

17:35 Good morning. Thank you very much. Could I get through, please? Firstly, on retail, I was just wondering, how do you think about the level of competition in the U.S. business? I think we have been hearing progressively throughout this year from so much of larger and smaller competitors that they increasingly just view the small ticket, the mid-market as the most attractive, pulling back from large ticket business. Are you seeing a bit more competition now in the broker business, which with your numbers looks better year on year, so there's some acceleration. And the second question, just looking into year-end for large ticket business, how should we think about the rate adequacy? Is it getting any worse than when we spoke last, perhaps around Monte Carlo, It's going to be a more competitive renewal compared to what we discussed. Thank you.

18:29 Great. Thank you for that question. So retail and competition, I sort of start by saying, you know, the market is enormous. So we laid out the capital markets there. I think the US sort of market is about Something like 30 million customers to go after. And that's a growing market. I mentioned that we're seeing good new business formation. So it's a growing market and we have a tiny share of it. I think the other aspect when you've seen others sort of talk about small business, we've got to bear in mind that there are different definitions. Now we overwhelmingly focus on that smaller micro end where you know employees are typically you know five employees or less.

19:23 That really contrasts with others where we've seen you know our average premium in the US certainly on the direct side of things in that channel is about a thousand dollars. Now others I've seen definitions of average premiums of twenty thousand, fifty thousand. The side I think is very different when people are talking about notionally small business. Nonetheless, you know, if you look at the dynamics, certainly on that sort of the DPD side of the US business, you know, we know that that business is, that market is fragmented, underserved, and as I said, a very big opportunity, and we have spent a long time Getting the dynamics right around underwriting brand technology and you'll recall that we underwrite automatically 99% of that business.

20:23 You have to do that in order to make the economics work and I think that that takes time and effort to get to that capability. Now I think if you look at the sub-segments of the US Our digital direct business continues to grow double digit. We're very happy with that. The partners you can see is improving momentum. You know, it's good to see that some of our longstanding partners are delivering double digit growth in Q3. And then I think where there is, you know, more competition is typically in that US broker space. We have invested a lot of time over the past couple of years in really strengthening relationships with our key brokers.

21:16 We have invested in automation to improve the auto renewal process and that's helped in terms of retention. And also we've got a sort of focus on various customer segments that have helped benefit us. in the form of the life sciences tech startups and the addition of underwriting bench strength has helped in healthcare. But it's certainly the case, I think, that you're seeing U.S. broker is the more contested part of the U.S. business. I think then in terms of rate adequacy, it's useful just to, for a big ticket, the second question, If you go back to the half year you'll recall that we said that on a prospective basis the London market business is rated 76% of the portfolio is rated adequate or adequate plus for our return targets and the equivalent number three is 83%. So the portfolio is well rated.

22:25 Now you know we're going into sort of the final quarter of the year Obviously key things that can swing the market would be any sizeable CAD activity or not in Q4 and then we'll look forward to the renewals season in due course at 1.1. I guess the point to make is we are continuing to exercise underwriting discipline. and you've seen you know in Q3 that we continue to cycle that age. Thanks Paul. Our next question comes from Josh Kosalia from Goldman Sachs.

23:13 Josh your line is open please go ahead.

23:16 Hi, thank you for the opportunity. I have two questions, one on capital. So just thinking around your capital consumption, so if I look at your 1x slides, you've consumed around 10 points of capital, so let's say roughly 200 million. But given the sort of change in business mix that you expect, which is growing retail but somewhat declining big ticket lines, especially with the decline in your matcat exposure, Could you give us some color on how do you expect that to develop? Could that potentially be let's say real for next year or could we even expect some capital release? That's one. The second one on investments. So obviously you have a very conservative portfolio with around 14% invested Sinti in cash. So with the higher rates, can we expect a tactical shift in your investment portfolio just to pick up a little bit on the rate side?

24:11 Thank you.

24:15 Great, thank you for those questions. So from a capital perspective, I think it's important to point out that the group is strong from a capital generation perspective. And then the relative capital intensities are that REIT is the most capital intensive part of the business, followed by London Market, and then retail is the least capital intensive part of the business. Now the important point to note around that is if you look at the drivers at the half year you've already seen from a re-business segment that we were pulling down our CAT P&Ls so we're reducing our CAT exposure and I think it's the you know looking forward to the rate environment you know if it continues I think you can expect us to exercise a similar level of discipline and that's accordingly with reducing the sort of NAPCAT exposures further.

25:23 Obviously that reduces the capital intensive part of the coming from REI however what you've also seen is London market growth that does require capital and then also what you're seeing is retail you know pleasingly is moving towards that double digit growth so that will also consume capital. So in the round I think the sort of key messages is you've got to take account of mix around those relative capital intensive parts but again you know if you look at sort of the capital management framework It is very much going through those priorities bash to determine how much surplus we have at the end of each reporting period. And then from an investment perspective, you're right, we have been holding what I view is a higher level of cash, partly that is to sort of fund dividends and the buyback and the like. You can expect us to reduce the level of cash and accordingly get some yield pickup in terms of the fixed income market for that.

26:42 Thank you. I'll just try my luck here. Are you able to give us a relative sort of capital intensity between the three business lines?

26:54 No, you've got the dynamic. RE is the highest on the market and then retail.

27:00 Thank you.

27:01 And then I guess that's the only other point to make is bear in mind that there's strong diversification between all three of them. So mix will determine that level of diversification as well. It's the benefit of the group.

27:16 Yeah. Got it. Thank you so much. Our next question goes on Joseph Boones from Autonomous. Joseph, your line is open. Please go ahead.

27:31 Hi there. Firstly, I just want to ask about how much of the growth, the 13% growth in the London market over the course was driven by a new business race in the Middle East. And secondly, I was just kind of hoping for a bit of maybe clarification on a comment you made earlier about sort of the IV&R and a number of other people who have been involved in this. Just one, also if I might ask one more quick question on sort of premium adjustments in London market.

28:27 When do you sort of foresee this kind of tailwind paving off and will it sort of flow into sort of the first quarter of 2027? Thanks for answering my questions.

28:39 Great, thank you for that. So let's pick up the and the Middle East one first. Yeah, so as I said, the reserve that we put up at the half year in total remains unchanged at Q3. But you're right, the level of IBNR within that has come down. So it was 75% and as you say, it's sort of trending more towards 50%. It's about two-thirds. So that's sort of the IBNR question. Premium adjustments, I think it's important to note that it's been a feature for many years. It is a feature of the Lloyds market where you have business written through binders that need to be trued up. And just as a reminder of what we said at the half year, you know, we have made the premium adjustments on a prudent basis.

29:33 And it's just that, you know, we'll get these year in, year out. It's just that they'll be more sizable. in 2026 and therefore we're calling them out separately. I think the last part it's useful just to put the 13% in context so just so that Peter can orientate. We've said that the underlying growth is 3.9%. We've exercised cycle management where we've reduced the book by 9 percentage points and then the growth as you've highlighted is Some of that has come from the Middle East, but it's pretty modest. I would say the core drivers of that 13% growth has been growth in terms of the opportunities, selective opportunities in the existing portfolio.

30:31 That would include the Middle East, but also GL and Fluff. We have been seeing opportunities in adjacencies where we're utilising our existing expertise and technology to innovate to access business such as middle market property, downstream energy, financial institutions, credit and political risks. And then also we've been really sort of focused on the structural change in distribution and then building out our capabilities in HPS to give it added focus. That's the Hiscox Portfolio solution. So those are the core elements of growth and you can see therefore that the Middle East pickup is pretty modest. And I would say that we are supporting our customers in the Middle East. We're open for business and charging a price that's commensurate with the risk.

31:34 Great, thanks for answering my questions. Our next question comes from Shanti Klang from Bank of America. Shanti, your line is open, please go ahead.

31:56 Hi Shanti.

31:59 Oh sorry, can you hear me?

32:02 All good.

32:06 Yeah, so I just had a couple of questions. The first one was just on the general market and casualty. I think in 3Q, a lot of the Bermuda and US players have seen a lot of adverse development, so adding to US casualty reserves. Maybe you can just talk us through how you get comfortable on your existing casualty tail risk in the book. And then today I noticed that you mentioned some selective opportunities to capture in general liability. Could you characterize that a little bit and maybe talk about how conservatively that might be booked? And then my second question... Sorry, what was your second question? Second question was just on the selective opportunities being captured in general liability that you mentioned in the press release. Maybe you could just characterize that a little bit. Maybe that's being booked very conservatively.

32:58 That would be helpful. And then my last question is just on the broader London market. If you guys have a view on the new Cortina structure that's being introduced from the Aon Blackstone agreement, is that an area where HPS could benefit, for example, or if you have any thoughts on that entering the Lloyds market, it would be great. Thank you.

33:24 Yeah, I mean, yeah, so talking to casualty, there's, you know, I would say that we have been very focused, a disciplined underwriter. How do you get comfortable? You know, you'll see that we are very selective in terms of that. We've been, you know, we've been writing casualty for years, the GL component, in the London market business is a relatively small proportion of the overall portfolio. Nonetheless, you'll see I guess two things. One is from the reserves perspective, we are the conservative reserver, I've mentioned that and if you look at the percentile strength at the half year, we were at 86% and indeed we've had 19 years from an unbroken track record of positive reserve development and I think that bears out the conservatism in our lost picks. I think the other aspect is you'll see that from the 19 and prior we've got a number of lost portfolio transfers in place with high limits on them. So that's sort of the GL aspects where we are selective you know as I said it's a small proportion of the overall London market portfolio that these are small lines you know we have been very

34:54 mindful of managing down our sort of line management and then Cortina you know I think it's just another feature of how the market is evolving matching risk to capital you know it's a supply demand dynamic you know we If you look at our sort of re-business, I think we've been very well placed and partnered very well with third party capital. It's led us to three years or the past three years of generating fee income for that segment in excess of 100 million per annum.

35:34 Thanks very much. As a reminder, to ask a question, please press star followed by one on your telephone keypad. Our next question comes from Avit Hussain from Padma. The bridge around is open, please go ahead.

35:50 Hi, good morning all. I've got two more questions left, if I can please, both on retail. So the first one is just on the growth. It's good to see that growth come through, but I wanted to change the focus on to margins and just wondered if you could share the direction of travel on margins, perhaps if you could talk to the claims inflation that you're seeing and the early benefit of the change program and the impact of margins on the May term and perhaps on the medium term. That's the first question. The second one was on retail distribution. I think, correct me if I'm wrong, I think you may have started to advertise on LLMs and if SMEs started to buy through AI assistants or bots.

36:44 Just wondering if that strengthens your case, your direct brand proposition, or is there perhaps a risk you become one of many on the comparison side? Thank you.

36:57 Yeah, thanks. Great questions. So from a retail margin perspective, I think, you know, I sort of point you back to We've got our combined ratio guidance for retail remains 89 to 94 and you recall at the capital markets day we said that you should expect us to travel towards the bottom of that range as the change program is implemented and you can see that the change program is very much on track. We're on course to deliver the 75 million for this year and the 200 million in 2028. Of course, if you look at the sort of combined ratio trajectory from an actual standpoint, I think it's been improving over the course of the last two and a half years.

37:46 So we are seeing an improvement and that is including the sort of growth uptick that you've seen. So, you know, I would expect that 89 to 94 guidance to remain and for us to be very focused on meeting it. I think from the sort of changes in distribution and AI and LLMs, you know, we see that as a tailwind. We think that we are very well placed given our extensive presence in this sort of digital space. So I mentioned earlier that we have around 900 million of premium in the retail space that we sell through the digital channels. you know that's 900,000 customers we have a strong brand we had good third-party testimony in the form of FISO and other aspects around our claims NPS scores are very strong I would argue pretty market leading so that sort of combination of presence brand strength and it's interesting that We ran an exercise in Q1 where we looked at both sentiment and presence on LLMs

39:16 and in the UK we were number one. This is for small business insurance. For Germany as a proxy for Europe we were number one and in the US we were number three but I've kind of caveat that with the point I made earlier around definitions of small business in the US can differ but nonetheless you'll see that from a sentiment and a sort of profile we're certainly up there if not if not leading I think and how you can see that play out is one is that we have started to advertise on LLMs you you know albeit it's at a low base but Our sales from the LLM channel is up 3x. So I think you can see that we believe that this is a tailwind and our specialist focus on products means that we don't compete on price. There's a lot of other things that the LLMs are going to pick up rather than it forming a sort of price comparison sort of nature. I think the LLMs offer a more rounded search experience for let's say sort of things other than price, coverage, quality, brand and a number of other things you know customer servicing claims are some that I would mention.

40:47 So we think we're well set.

40:50 That's very helpful, thank you. My next question is a follow-up question from Will Harcastle from UPS. Will, please go ahead.

41:02 Hey, sorry, it's a quick one, I think. It might also embarrass me. You discussed the debt action that you've taken. I guess just a simple question, I think. Why not sub-debt and why not have that permissible? What's the logic? Was the yield picked up too much to go sub-debt?

41:23 Yeah, it was very much a refinance of our existing senior bond. So the senior bond, the refinance was oversubscribed, which is pleasant, and we upsized it to take advantage of the interest in the debt. Essentially, we didn't want to sort of, there's no need for the additional capital from the solvency perspective you'll see that we were at around 210% on a pro forma basis at the half year and as I said earlier the business remains highly capital generative this is really good to take advantage of a bit of additional liquidity at you know essentially a sort of almost neutral position given the reduction in in coupon from six percent to five and seven eight Thanks.

42:24 We currently have no further questions, so I'll hand back to Paul for some closing remarks.

42:30 Yeah, great. Thanks for listening and thanks for your questions today and see you at the full year results. Thank you. This concludes today's call. We thank everyone for joining. You may now disconnect your lines.