Hiscox : Interim Statement 2023

MidYear23

Hiscox Ltd

Interim Statement 2023

Chapter 1	Chapter 2
The year so far	Financial summary
1	Corporate highlights	10 Condensed consolidated
2	CEO's statement		interim income statement
		11	Condensed consolidated
			interim statement of
			comprehensive income
		12	Condensed consolidated
			interim balance sheet
		13	Condensed consolidated
			interim statement of changes
			in equity
		15	Condensed consolidated
			interim cash flow statement
		16 Notes to the condensed
			consolidated interim
			financial statements
		48	Directors' responsibilities
			statement
		49	Alternative performance
			measures
		50	Independent review report
			to Hiscox Ltd

2Hiscox Ltd Interim Statement 2023

Disclaimer in respect of forward-looking statements

This interim statement may contain forward-looking statements based on current expectations of, and assumptions made by, the Group's management. The Group is exposed to a multitude of risks and uncertainties and therefore cannot accept any obligation to publicly revise

or update forward-looking statements as a result of future events or the emergence of new information regarding past events, except to the extent legally required. Therefore undue reliance should not be placed on any forward-looking statements.

Corporate highlights

Group key performance indicators

Insurance contract written premium† $2,723.3 million (H1 2022*: $2,617.2 million)

Net insurance contract written premium† $1,945.6 million (H1 2022*: $1,784.5 million)

Insurance service result $221.4 million (H1 2022*: $140.2 million)

Net investment result $121.8 million (H1 2022*: $(214.1) million)

Profit before tax $264.8 million (H1 2022*: $25.4 million)

Earnings per share 72.2¢ (H1 2022*: 9.8¢)

Interim dividend per share 12.5¢ (H1 2022: 12.0¢)

Net asset value per share 823.3¢ (H1 2022*: 715.6¢)

Group combined ratio (discounted)† 85.7% (H1 2022*: 90.8%)

Group combined ratio (undiscounted)† 90.2% (H1 2022*: 92.7%)

Return on equity (annualised)† 19.9% (H1 2022*: 2.6%)

Positive prior year development† $61.7 million (H1 2022*: $67.2 million)

*As restated under IFRS 17.

† Alternative performance measure definitions are included within the condensed consolidated interim financial statements.

Insurance contract written premium $2,723.3 million

30 June 2023	2,723.3
31 Dec 2022*	4,355.4
30 June 2022*	2,617.2

Operational highlights

Growth in revenues, insurance service result and profits in every business unit, resulting in annualised ROE of 19.9%.

Group net insurance contract written premiums (net ICWP) increased by 11.4% in constant currency to $1,945.6 million (H1 2022: $1,784.5 million), as we benefit from strategy execution, a positive rate environment across all business segments and capital allocation decisions.

Insurance service result (or underwriting profits) increased by 57.9% to $221.4 million (H1 2022: $140.2 million) from a combination of disciplined growth and margin expansion in a favourable underwriting environment.

Retail ICWP of $1,271.0 million (H1 2022: $1,237.7 million) increased by 5.5% in constant currency, underpinned by strong growth in Europe and improving momentum in the UK and US DPD.

Hiscox London Market had a strong first half, with net ICWP increasing by 14.2% to $443.4 million (H1 2022: $388.2 million), driven by attractive rates in property, as well as new business growth in upstream energy and marine.

Hiscox Re & ILS has continued to benefit from the hard market conditions, deploying incremental capital to grow exposure and improve the quality of the book. Net ICWP increased by 17.9% to $345.1 million

(H1 2022: $292.8 million), underpinned by strong double-digit growth in the North American natural catastrophe, retrocession and marine books.

Profit before tax increased by $239.4 million to $264.8 million (H1 2022: $25.4 million).

The Group remains conservatively reserved with a confidence level of 77% (FY 2022: 78%), within our target range of 75% to 85%.

Strong capital position, with an estimated Bermuda Solvency Capital Requirement (BSCR) of 199%, in line with the full year 2022 result, despite having deployed capital into the favourable market conditions which continue to persist.

Positive investment result of $121.8 million (H1 2022: loss of $214.1 million).

Hiscox Ltd Interim Statement 2023

1

CEO's statement

Our business has delivered growth in revenues and profits in every business unit, as our proactive and disciplined underwriting and favourable market conditions come together. Our portfolio of businesses, our people and innovation to meet the changing needs of our customers position us well to continue delivering high-quality growth and earnings.

Hiscox Retail

	2023	2022*
	$m	$m
Insurance contract written premium	1,271.0	1,237.7
Net insurance contract written premium	1,157.1	1,103.5
Insurance service result	113.2	75.7
Profit before tax	153.3	4.3
Combined ratio (%)	89.2	92.6
Undiscounted combined ratio (%)	93.8	94.4

*As restated under IFRS 17.

The Group delivered continued growth and strong profits in the first six months of the year, as we benefitted from sustained momentum across our Retail businesses, a proactive approach to (re)insurance cycle management in big-ticket, continued underwriting discipline, and

a positive rating environment that persists across all business segments. Losses were within our expectations and we deployed incremental capital judiciously where we saw attractive opportunities. Profit before tax of $264.8 million is a combined effect of the insurance service result of $221.4 million, up 57.9% on the

prior period, and the improved investment result

of $121.8 million, as higher bond reinvestment yields begin to earn through.

I am pleased with the progress we have made this year in maximising the strength of our portfolio of businesses. All of our three business segments have delivered strong growth and earnings and are well positioned to continue to do so, as we face into favourable market and societal trends. Our diverse business portfolio enables Hiscox to operate in a number of different parts of the specialist insurance sector, allocating capital with agility to areas of expertise which offer the highest risk-adjusted returns. This has enabled us to deliver a half-year annualised RoE of 19.9%.

Group net ICWP increased by an impressive 11.4% in constant currency to $1,945.6 million (H1 2022: $1,784.5 million). Our reinsurance business is leaning into the hard market in a focused way and enjoying some of the best market conditions in over a decade. Our London Market business has returned to growth, as we believe the property book is priced adequately following significant re-rating and we are benefitting from attractive new growth opportunities in upstream energy, marine and renewables. In Retail, the opportunity remains significant, particularly in the USA, as the digitalisation of small businesses continues to accelerate and new business formation levels remain strong.

2Hiscox Ltd Interim Statement 2023

With a focus on quality growth, we have maintained our commitment to disciplined underwriting. For example, in Retail, where we have faced downward pressure on rates in certain segments of our cyber portfolio, we have remained disciplined and accepted a decline in share to maintain quality of earnings. As previously disclosed, we have also been exiting some non-core underwriting partnerships in the UK which are outside of our risk appetite. These two factors, which we consider to be transitory, have tempered headline growth in order to maintain quality of earnings. The strength and diversity in our Retail business means that the underlying growth1 in Retail is 7.3% in constant currency.

One of our current priorities is to continue our investment in technology and expand our distribution capabilities. We are making material progress that positions Hiscox to achieve sustained long-term growth. Our technology investment in the USA is beginning to drive benefits, with digital direct now achieving double-digit growth and digital partnerships gaining momentum in the second quarter. Our core system implementation in Europe is also going well and we anticipate operational benefits as the programme proceeds.

We continue to expand our product and distribution capabilities with solid progress in our e-broker extranet roll-out in the UK and, in an exciting step in the USA, we have agreed a new partnership with a multi-line US insurer to distribute workers' compensation, thereby materially increasing our reach and relevance in our target addressable market whilst also creating a new fee income stream. In London Market the ESG sub-syndicate is now operational and we have begun writing incremental new business.

Rates

The rating environment has been favourable in aggregate across all Hiscox businesses, and in particular in property lines, which continued to experience hard market conditions in both reinsurance and primary lines.

1Excludes Retail cyber and UK underwriting partnerships.

Hiscox Re & ILS benefitted from an average rate increase of 34%, with positive trends experienced in all lines

of business - most notably in North American natural catastrophe (up 43%) and retrocession (up 42%). This is the sixth successive year of rate improvement in Hiscox Re & ILS with cumulative rate increases of 95% since 2018. Cyber reinsurance continues to benefit from notable rate increases (25% at half year), and our terror business saw rates increase by 31%. Importantly, in these hard market conditions we have improved the quality of our book by significantly removing aggregate contracts and moving to higher attachment points.

Hiscox London Market achieved a 9% rate increase in the first half of 2023, with an overall 72% cumulative rate increase since 2018. Property lines are seeing the strongest increases, with 27% in household and 23% in major property, and we see the potential for further rate hardening through the rest of the year. Terrorism rates are up 15%, as expected, driven by geopolitical uncertainty, which allowed us to maintain top-line premiums while reducing exposure, thus further increasing the overall profitability of the portfolio. In contrast, casualty lines, in particular D&O and cyber, continue to see rate decreases. Overall, we expect London Market rates to continue their current trajectory for the remainder of 2023.

Hiscox Retail benefitted from an average rate increase of 6% in the first half of 2023 with rates remaining in aggregate positive across all markets.

Claims

While there were tragically several natural catastrophes during the first half, including New Zealand floods, Syria/Turkey earthquake, winter storm Elliot and cyclone Gabrielle, as well as other non-natural catastrophe events, the total estimated net losses are within our modelled expectations. In addition, our net loss reserved for the Russia/Ukraine conflict remains unchanged. Large and attritional losses across the Group are within our expectations.

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.

The Group has a conservative reserving philosophy and continuously evaluates reserve adequacy to ensure we maintain a robust balance sheet position, with net reserves at the 77% confidence level (FY 2022: 78%) and a risk adjustment above best estimate of $211.12 million (FY 2022: $217.6 million). The Group's legacy portfolio transactions (LPTs) continue to provide protection of 25% for 2019 and prior-year gross reserves from inflationary pressures up to a 1-in-200 downside risk. The favourable prior-periodrun-off is reflected in reserve releases of $61.7 million, broadly in line with prior year.

With regards to the new business we are writing, we mitigate inflationary pressures through a combination of exposure indexation and rate increases. The inflation assumptions included in our pricing and reserving models across the Group remain robust. The increased premiums being collected through rate and indexation are keeping pace with our view of expected inflation.

Hiscox Retail

Hiscox Retail comprises our retail businesses around the world: Hiscox UK, Hiscox Europe, Hiscox USA and DirectAsia. 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.

Retail ICWP of $1,271.0 million (H1 2022: $1,237.7 million) increased by 5.5% in constant currency.

We continue to achieve strong top-line growth in Europe, improving momentum in the UK and acceleration in US DPD. Overall retail growth was tempered by the business

2Allows for the reclassification of LPT recoveries into claims.

Hiscox Ltd Interim Statement 2023

3

maintaining discipline in the face of increased competition and reducing prices in the cyber product line, particularly prevalent in the USA. While not significant in absolute terms for the Retail division, it has impacted growth by 0.8 percentage points as we experience a reduction in cyber new business and retention. As previously reported, in the UK we have been exiting some non-core underwriting partnerships business which are outside our risk appetite, impacting top line by 1.0 percentage points. Excluding these two temporary factors, Retail growth continues

to deliver in line with expectations. Looking forward, taking into account these factors, we expect the full year headline growth to be in line with the half-year trend.

On an undiscounted basis, Hiscox Retail's combined ratio is 93.8%. Under IFRS 4, the Group had a Retail combined ratio operating range of 90% to 95% in normal circumstances, equivalent to 89%-94% under IFRS 17

of this course correction to continue to moderate into the fourth quarter. The core portfolio continues to grow well.

To reinforce the strength of our brand and support the acquisition marketing engine in the UK, we are increasing our investment in brand advertising for the second half of the year. Our new brand campaign will run nationally from September and will target primarily small business and APC customers.

Our e-trade extranet has been live since the start of the year and now has over 200 brokers. During the second quarter, we have continued to improve the core platform capability with ongoing builds of specialty product extranets, a high net worth product build, and we are in the early stages of developing the technology for our schemes business.

US DPD is accelerating growth in line with expectations following the technology re-platforming, with growth accelerating in the second quarter to 8.9% from 6.8% in the first quarter with overall growth for the first six months of the year at 7.8%."

on an undiscounted basis. Our first half result is within the range on both bases.

The IFRS 17 accounting standard introduces discounting of liabilities, which results in greater volatility in the combined ratio purely due to external macro-economic factors with potential off-setting elements captured outside the combined ratio, therefore reducing its usefulness as a measure of underwriting profits. We will report the combined ratio on an undiscounted basis, which we believe is a useful measure of underwriting profits, and improves comparability period on period. Considering the definitional changes, the new standard requires reclassification of some expenses, primarily related to brand and some other overheads, as non-attributable, which results in a permanent definitional benefit to the Retail combined ratio. This is partially offset by the negative impact from moving to the own share presentation, thus resulting in an overall small net benefit leading to the restated operating range. For clarity, there is no change to the economics of our business.

Hiscox UK

Hiscox UK provides commercial insurance for small and medium-sized businesses, as well as personal lines cover, including high-value household, fine art and luxury motor.

Hiscox UK ICWP grew by 4.0% on a constant currency basis. In US Dollars this reduced by 1.7% to $399.3 million (H1 2022: $406.4 million). The business delivered solid growth in commercial lines, with commercial property, general liability and emerging professions showing sustained momentum. Pleasingly, the art and private client (APC) book has seen growth momentum in the first half of 2023, as we continue to sharpen the focus

of the book on our target high net worth segment.

The previously reported course correction to reduce exposure to some non-core delegated authority partnerships had a 2.6 percentage points impact on growth in the first half of 2023. We expect the impact

Earlier this year Hiscox UK launched its Underwriting Academy, the latest incarnation of the long tradition we have of investing in talent across our underwriting ecosystem to ensure we are training, developing and growing top-tier capabilities in this area.

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.

Our European business has again delivered excellent growth, with ICWP of $365.6 million

(H1 2022: $339.3 million) up 11.2% in constant currency, or 7.8% in US Dollars. France, Benelux and Iberia grew particularly well in the first half of the year.

France, Europe's second largest market, continues to demonstrate strong top-line growth of 16.8% in constant currency, benefitting from proactive management actions in the prior years which laid the groundwork for profitable growth. In Germany, we continue to see good growth of 8.0% in constant currency. Throughout the Group there is a strong culture of being attentive to customer needs and innovating to meet these needs as they evolve. In response to newly passed legislation, Hiscox Germany has developed and launched a new whistle blower assistance programme for small businesses that

are unable to offer this function in-house.

We continue to make significant progress in the technology re-platforming programme in Europe, with its phased roll-out across our European markets progressing as planned.

Hiscox USA

Hiscox USA focuses on underwriting small commercial risks with distribution through brokers, partners and direct-to-consumer using a wide range of trading models

- traditional, service centre, portals and application

programming interfaces (APIs). Our aspiration is to build America's leading small business insurer.

Hiscox USA's ICWP grew 2.0% to $475.8 million

(H1 2022: $466.3 million). US DPD is accelerating growth in line with expectations following the technology re-platforming, with growth accelerating in the second quarter to 8.9% from 6.8% in the first quarter with overall growth for the first six months of the year at 7.8%.

The Direct business has now been live on the new technology for 12 months, delivering a positive and accelerating growth trend. Direct ICWP growth rate has improved reaching double digits, underpinned by particularly strong momentum in new business, where the top line grew in excess of 30%, supported by increasing marketing expenditure.

As anticipated, the embedding of the new technology in our partnerships business slowed growth in the first quarter of the year; this has now begun to recover from its low point over the past three months, albeit at a moderate pace. To accelerate technology adoption and new business generation among the established partners, we have ongoing tailored partner engagement and introduced temporary financial incentives. Since the start of the year, we have added 17 new portal partners to our digital platform and have a healthy pipeline of further opportunities. We also continue to refine our internal onboarding processes to find ways to accelerate the timeline from sign-up to production.

A key part of building America's leading small business insurer is to increasingly become the destination brand for a wider breadth of insurance customer needs in our DPD business - whether we underwrite those ourselves or partner with others where we do not take insurance risk onto our own balance sheet. A prerequisite to being able to attract high-quality partners is to have the gravitational pull of a substantial customer base - with customer numbers now well in excess of 500,000 we have reached

a tipping point. In June, we launched a workers' compensation product in partnership with a multi-line US insurer. This is a balance sheet 'lite' approach, with Hiscox taking no underwriting risk and, instead, generating fee income.

The addition of this product from a high-quality partner enables Hiscox to reach a greater proportion of the target market, it increases our potential share of wallet from existing customers through cross-selling opportunities and introduces a new non-insurance fee income stream. At present the product has been soft launched (available through the Hiscox call centre) with the full launch due in the next six months; this will include integration into the Hiscox digital shop front and straight-through processing to our partner, providing a more efficient and seamless customer experience.

Our confidence in the value of the new platform is increasing, as the Direct business is showing sustained positive momentum, although embedding of the partnerships business will take longer as discussed in March. The combination of continued acceleration in the digital direct business and improving momentum in digital partnerships is expected to drive US DPD growth towards the middle of the 5% to 15% range in 2023.

Growth in the US broker business has been tempered by the business maintaining discipline in the face of increased competition and reducing prices in the cyber product line, as a result US broker revenue has reduced by 4.2%.

Hiscox Asia

DirectAsia delivered insurance contract written premiums growth of 16.1% in constant currency to $30.3 million (H1 2022: $25.7 million). This was driven by a good performance in both Singapore and Thailand, where both markets benefitted from an increase in both partnership and travel insurance business, and a strong renewal performance.

4

Hiscox Ltd Interim Statement 2023

Hiscox Ltd Interim Statement 2023

5

Hiscox London Market

	2023	2022*
	$m	$m
Insurance contract written premium	654.4	591.8
Net insurance contract written premium	443.4	388.2
Insurance service result	75.5	53.6
Profit before tax	106.9	17.8
Combined ratio (%)	79.6	85.6
Undiscounted combined ratio (%)	83.7	87.9

*As restated under IFRS 17.

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 had a strong first half, increasing ICWP by 10.6% to $654.4 million (H1 2022: $591.8 million). This was driven by a combination of strong rate in property and new business growth in upstream energy and renewables, partially offset by softening rates in casualty lines. We continue to see a strongly positive underwriting environment in our property and marine, energy and specialty divisions, delivering growth of

16.8% and 37.9% respectively. Net ICWP grew 14.2% on prior year and we expect this positive growth momentum to continue throughout the rest of the year.

All property classes are enjoying hard market conditions due to the reduced availability of capital, with particularly strong ICWP momentum in major property, up 75% and household binders up 68%. Upstream energy is also benefitting from strong growth, particularly in the newly formed 'power and renewables' division, where new business is flowing in from the extensive amount of construction taking place in the renewable energy sector. Earlier this year we launched our ESG sub-syndicate, which has been well received by the market, with the first risks written being a wind farm in Europe and a solar farm based in the USA, and it is an area where we anticipate good momentum over time. We have seen extremely high interest from third-party capital providers (reinsurers) and have already secured the desired level of quota share capacity.

As previously flagged, market conditions in casualty, notably in D&O and cyber, continue to be challenging with rates declining in both classes. In line with the wider market, our cyber growth was impacted by the Lloyd's war exclusion mandate which has made writing new business more challenging. In D&O, where rates declined 11% year-on-year but still remain attractive (up 203%

6Hiscox Ltd Interim Statement 2023

since 2018), we have taken our foot off the accelerator and maintained line size discipline.

Overall, we remain focused on profitable growth through effective cycle management: shrinking exposure in casualty classes where margins have started to contract, and deploying capital in more attractively priced business classes, such as property and marine and energy. Testament to the success of this strategy has been

the consistency of the strong underwriting result. The London Market insurance service result is up 40.9% to $75.5 million (H1 2022: $53.6 million) with an undiscounted combined ratio of 83.7%, a 4.2 percentage point improvement on the prior period.

Hiscox Re & ILS

Hiscox Re & ILS comprises the Group's reinsurance businesses in London and Bermuda and insurance-linked securities (ILS) activity written through Hiscox ILS.

Hiscox Re & ILS net ICWP grew 17.9% in the first half to $345.1 million (H1 2022: $292.8 million)3, underpinned by strong double-digit growth in the North American natural catastrophe, retrocession and marine books. Leaning into the hard market, the Group has allocated additional organic capital to the Hiscox Re & ILS business. The business grew natural catastrophe exposure at a double-digit rate while also moving up in layers, further de-risking the bottom line from attritional or low severity events; this also explains the dynamic between net premium growth and rate increases. While the exceptional conditions seen at January renewals have eased, the momentum in the market remains strong.

A slight slowdown from the growth seen in the first quarter is due to our decision to keep exposure flat in Japan, where we are already at our target market share, and in Florida, where we grew exposure only slightly, due to the complex underwriting and legislative environment.

3The net ICWP compared to NWP is negatively impacted due to the way that ceding commissions are booked. There is no change to the economics, however, relative to IFRS 4, with the net growth being a lower percentage.

The powerful combination of exposure growth and the best-rated reinsurance market in a decade is expected to result in material increases in profits in a normal loss year. In addition, the favourable market conditions allowed

a continuing trend of improvement to the quality of the book, where both participations on aggregate excess of loss deals, and exposure to secondary perils, have been reduced.

The January renewals saw a seismic shift in pricing following Hurricane Ian, with the market conditions akin to those following Hurricane Andrew in 1992. All lines of business saw significant rate increases, which resulted in a total risk-adjusted rate change of over 30%. The April renewals, dominated by Japanese clients and some specific larger US cedants, met the anticipated rate increases of 20%, following a significant re-rating over the prior two years, and we maintained our share of the market. The June renewals also saw significant rate increases in US catastrophe and retrocession and we have again grown exposure, although less so than in January. As Florida remains a highly uncertain legal and regulatory jurisdiction, renewal rates were pushed up by over 40%, which allowed us to increase exposure in the state minimally while growing net premiums at a double-digit rate.

In line with the first quarter trend we delivered modest ICWP growth at 1.3% in the first half to $797.9 million

(H1 2022: $787.7 million), in contrast with the net ICWP growth noted above. This is to be expected for the Hiscox Re & ILS model at this point in the cycle - a key factor resulting in hard market conditions is a reduction in available capital, which has manifested itself in ILS net outflows of $219 million, as third-party capital investment appetite remains subdued. ILS assets under management were $1.7 billion as at 30 June 2023.

The reduction in ILS capital has been partially offset by increased allocation of own capital, thereby boosting net ICWP growth at an attractive point in the cycle. Notwithstanding this, the ILS funds are performing at

Hiscox Re & ILS

	2023	2022*
	$m	$m
Insurance contract written premium	797.9	787.7
Net insurance contract written premium	345.1	292.8
Insurance service result	32.7	10.9
Profit/(loss) before tax	55.1	(12.2)
Combined ratio (%)	76.3	91.7
Undiscounted combined ratio (%)	81.2	92.8

*As restated under IFRS 17.

inception-to-date highs as a result of rate improvements, heightened interest earnings, and modest loss activity in the first half of the year. While there is a likelihood that we will continue to experience ILS outflows as that sector rebalances, our quota share capital strategy welcomed new partners at both 1 January and mid-year, demonstrating our ability to access different mechanisms of third-party capital. The Hiscox ILS offering remains attractive and well positioned to support new flows of capital into this segment when the market trends reverse.

The business delivered a strong insurance service result of $32.7 million (H1 2022: $10.9 million) and a combined ratio on an undiscounted basis of 81.2%. In our Re & ILS business we have chosen to reduce vulnerability to attritional losses through higher attachment points and reductions in our non-property aggregate excess of loss book which, given the market experience in the first half, appears to have shielded our business from much of the heightened loss activity. Under IFRS 17, reinsurance commissions are classified as earnings rather than offsetting expenses under IFRS 4, which increases the combined ratio by 4.5 percentage points; however, this does not change the economic benefit of our reinsurance programmes.

Investments

The investment result for the first half of 2023 was $121.8million (H1 2022: loss of $214.1 million), or a return of 1.7% year to date (H1 2022: negative return of 3.0%). Assets under management at 30 June 2023 were

$7.4 billion (FY 2022: $7.1 billion).

While inflation is falling in most developed economies, it remains elevated, as growth and employment have remained firm. Central banks' commitment to lowering inflation remains unchanged and they have continued to raise rates. The economic resilience surprised markets which had anticipated slower growth, and so expectations shifted to pricing potential rate cuts much later and bond yields drifted higher. The rise in yields

Hiscox Ltd Interim Statement 2023

7