## Ye a r E n d 21
## Hiscox Ltd
## Report and Accounts 2021

| People matter | Opportunity knocks | At your service |
| --- | --- | --- |
| Employees from across the business | Aki Hussain, our new Group Chief | Hear from the frontline about how we |
| talk about the key developments in | Executive Officer, sees opportunities | focus on having conversations, not just |
| their areas during 2021, and what | everywhere for Hiscox. He discusses his | transactions, with customers. |
| the ‘human’ value means to them. | vision for the future, how he measures |  |

success, and Hiscox’s growth ambitions.
Opportunity knocks
## Q&
Q&A with Aki Hussain
Group Chief Executive Officer
2
An Englishman in New York
Q&A with Kevin Kerridge
Chief Executive Officer,
## A:
Hiscox USA
with Chloe Garbutt
14
Insurance Expert, Hiscox UK
Euro vision
Q&A with Robert Dietrich
## At your service
Chief Executive Officer,
Hiscox Europe
## Excellent customer
34
## Re birth service is central to
Q&A with Kathleen Reardon
Chief Executive Officer,
## the Hiscox proposition,
Hiscox Re & ILS
60
## and it all begins with
Rising tide
## Q&A with Dan Alpay the people on the front
Line Underwriter – Flood,
Hiscox London Market
## line taking the calls.
92
Recruitment driver
Q&A with Vanessa Newbury
HR Director and Head of Recruitment
126
Model citizen
Q&A with Robert Caton
Director of Underwriting Risk
and Reinsurance
132

| Chloe Garbutt, whose | automated, highly scripted | people across Hiscox – I have |
| --- | --- | --- |
| photo features on the | customer service that we’ve all | colleagues who started in a |
| cover, works in the Hiscox | experienced – it’s frustrating, | role like mine and have gone |
| Customer Experience | and it’s just not Hiscox. We’re | on to do a whole host of |
| Centre in York in a sales and | not robots and we’ve always | other roles within Hiscox, |
| service role as part of our | prided ourselves on not | including in underwriting, |
| UK home insurance team. | using scripts. It’s one of the | project management and |
|  | things that struck me during | corporate governance. |
| Q: How did you come to | the recruitment process in |  |
| work at Hiscox? | fact – that there was such a | Q: In October, you shaved |
| A: I applied when I was 18, | focus on hiring for attitude and | your head. What was the |
| straight out of college. At | customer focus. We want to | motivation for that? |
| the time, I was working as a | have natural conversations | A: Both my grandparents |
| kickboxing instructor, so this | with our customers and I hope | have had strokes – my |
| was a bit of a change of scene! | that comes across in every | Grandad had three in three |
| I’ve grown so much though, as | interaction a customer has | years, and my Nanna had |
| a result of my work at Hiscox. | with us. | two last year – so I wanted to |
| Every day you’ll get asked a |  | do something to raise money |
| question that you’ve never had | Q. What do you enjoy most | for the Stroke Association. |
| to answer before. Insurance | about your role? | My hair was really long, so |
| can be complicated, so it’s | A. I would consider myself a | I shaved my head to raise |
| understandable that people | ‘people’ person so for me it | money, and donated the hair |
| would have questions. It | is the people – and not just | to the Little Princess Trust, |
| keeps you on your toes, it | my colleagues, but also the | which provides wigs for |
| makes you better at your job, | interactions I get to have | young people who’ve |
| and it means you’re always | with customers. So many | had cancer treatment. It’s |
| learning. But you’re not thrown | of the customers we talk to | something that definitely |
| in at the deep end – there’s | in the home insurance team | pushed me outside of my |
| lots of support and a real focus | are happy because they’re | comfort zone but I’m so glad I |
| on learning and development. | buying a new house, or they’re | did it. One of Hiscox’s values |
| For example, we get at least | excited to start some home | is ‘human’ and this is one way |
| an hour’s coaching every | renovations, or they’ve just | that I think I personally lived |
| week to help us develop our | got engaged, and so their | the value in 2021. |
| confidence and knowledge. | insurance requirements have |  |

changed. It’s really lovely to
Q: How would you describe be part of those stories and
your team’s approach I hadn’t appreciated how
to service? rewarding it would feel to be
A: Everything we do revolves a small part of someone’s
around our customers. We big life event before I worked
want them to feel valued. We in insurance.
want to give them the best
service possible. We sell Q: What do you see yourself
our products on our service doing in the future?
and the competitive cover A: I have absolutely no idea.
we offer, and we want to be The good thing is that there
different to the type of slightly are a lot of opportunities for

|  | Chapter 1 |  | Chapter 3 |  | Chapter 5 |
| --- | --- | --- | --- | --- | --- |
| 4 Performance and purpose |  | 62 Governance |  | 128 Shareholder information |  |
| 4 Our key performance |  | 62 Board of Directors |  | 128 Directors’ report |  |
|  | indicators (KPIs) | 65 Board statistics |  | 131 Directors’ responsibilities |  |
| 6 Our purpose, values, |  | 66 Group Executive |  |  | statement |
|  | culture and vision |  | Committee (GEC) | 131 Advisors |  |
| 8 Our strategy and |  | 68 Chairman’s letter |  |  |  |
|  | how we operate |  | to shareholders |  | Chapter 6 |
| 10 Key risks and business priorities |  | 69 Corporate governance |  | 134 Financial summary |  |
| 12 Why invest in Hiscox? |  | 76 Compliance with the UK |  | 134 Independent auditor’s report |  |
|  |  |  | Corporate Governance | 142 Consolidated income statement |  |
|  | Chapter 2 |  | Code 2018 | 142 Consolidated statement of |  |
| 16 A closer look |  | 82 Nominations and Governance |  |  | comprehensive income |
| 16 Chairman’s statement |  |  | Committee report | 143 Consolidated balance sheet |  |
| 20 Chief Executive’s report |  | 89 Audit Committee report |  | 144 Consolidated statement of |  |
| 36 Capital |  |  |  |  | changes in equity |
| 38 Risk management |  |  | Chapter 4 | 145 Consolidated statement of |  |
| 42 Stakeholder engagement |  | 94 Remuneration |  |  | cash flows |
| 44 Environmental, social and |  | 94 Annual statement from the Chair |  | 146 Notes to the consolidated |  |
|  | governance (ESG) |  | of the Remuneration Committee |  | financial statements |
| 54 Task Force on Climate-related |  | 98 Remuneration summary |  | 207 Additional performance |  |
|  | Financial Disclosures (TCFD) | 100 Annual report on |  |  | measures (APMs) |
|  |  |  | remuneration 2021 | 208 Five-year summary |  |

108 Implementation of remuneration
policy for 2022
110 Other remuneration matters
114 Remuneration policy
## 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. 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 Listing Authority. Our
remuneration report is consistent
with UK regulations. Any additional
disclosures over and above these
requirements, have been made for
the benefit of shareholders, on a
voluntary basis.

| Chapter 1 4 Chapter 1 4 | Chapter 2 16 Chapter 2 16 | Chapter 3 62 Chapter 3 62 | Chapter 4 94 Chapter 4 94 | Chapter 5 128 Chapter 5 128 | Chapter 6 134 Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance Performance | A closer look A closer look | Governance Governance | Remuneration Remuneration | Shareholder Shareholder | Financial Financial |
| and purpose and purpose |  |  |  | information information | summary summary |

## At Hiscox people matter
## Having a human approach to our work is really important to us.
## At Hiscox, we care immensely about the job, each other, our
## customers, partners and the brand.
## It’s why we always aim to understand the person behind the
## policy or claim, the job description or task. This means we try
## to be clear, fair, and inclusive, and to treat everyone around us
## with the respect they deserve.
## Living our human value isn’t just about grand gestures, it’s also
## about the ‘tiny noticeable things’ that can make a huge difference
## to a customer or a colleague during the good times and the bad.
## In the pages that follow, you will hear from people across our
## business on what being ‘human’ means to them.
1Hiscox Ltd Report and Accounts 2021
barometer of the choices we relationship. We want to create
make: through good decisions an ecosystem that takes
made over a long period of into account the cycle of a
time, we’re now exposed to customer’s life or business.
## Q& markets in the USA, the UK Our ambition is to understand
and continental Europe that and predict how their
are growing quite quickly, and insurance needs will change
that really helps. Then you’ve over time and what sort of
got to ask: why do we do what help they might need through
## A: we do? Our expertise helps that process. We’re not there
with Aki Hussain individuals and businesses yet, but it’s something we’re
Group Chief Executive Officer realise their own strategies and very focused on.
ambitions while minimising the
## Opportunity knocks
chances of ruin. If we do that, Q: What does sustainability
if we serve our customers to mean to Hiscox?
## The Group’s new Chief
the best of our ability, growth A: It means building for the
is going to come. future, not just for the short
## Executive Officer sees
Another key mark of success term. It means understanding
## his main role as ‘clearing for me is having people who long-term risk, investing
are happy and proud to work in technology, investing in
## the path’ for others to
at Hiscox. If we have those people and building their
three things – happy people, capabilities, understanding
## do their jobs to the very
satisfied customers, and the that we have a role to play in
ability to innovate in a rapidly the communities in which we
## best of their ability.
changing environment – I’ll be operate, understanding our
pretty satisfied. customer base, and, given
the range of environmental

|  |  | Q: What do you think are | changes we’re seeing today, |
| --- | --- | --- | --- |
|  |  | Hiscox’s biggest strengths? | thinking about the impact |
|  |  | A: In our London Market and | of our work on the planet. |
| Aki Hussain is the new | massive part of my job is to | reinsurance businesses, our | Ultimately, it’s about being |
| Group Chief Executive | clear the path to allow that to | big advantage is that we have | a responsible organisation, |
| Officer of Hiscox, having | happen. Business is never | deep underwriting expertise, | understanding that we’re |
| stepped up to the role in | straightforward, environments | built over many, many years. | not an island, and building a |
| January 2022. He joined the | change, so continuously | In our retail business, that | business for the long term. |
| business in 2016 as Group | clearing the path so that | underwriting pedigree is |  |
| Chief Financial Officer. | people can give their best | complemented by the brand | Q: How do you see the |
|  | is absolutely key. | we’ve built and the investment | human value being |
| Q: When you joined as Group |  | we’ve put into technology. | applied at Hiscox? |
| Chief Financial Officer back | Q: This is the first time | Companies like Google and | A: I see it most tangibly |
| in 2016, what was it that | you’ve fronted a whole | Amazon have completely | in the interactions, the |
| drew you to Hiscox? | business. How are you | transformed the way people | interdependency, the |
| A: I loved the culture and the | finding the step up? | interact with the internet – click | teamwork. Here, the |
| ethos – and, quite frankly, the | A: I’ve had lots of experience | just three or four times and | awareness people have |
| scale of the opportunity. The | of running large, complex | you’ve bought something. For | of each other’s welfare is |
| thought of being able to work | operations and I’ve always | insurance, and certainly the | palpable. I’ve seen it in other |
| in a more entrepreneurial | taken ownership of everything | kind of specialist insurance we | organisations, but not turned |
| environment, an organisation | I’ve done, but being the Group | provide, that’s quite unusual, | up to that level. Everybody here |
| that is much closer to the start | Chief Executive Officer is | but through our investments | is approachable. My door is |
| of its journey, was and still is | totally different. Taking on that | in technology, underwriting | always open, and people from |
| incredibly exciting to me. | responsibility, realising that | and pricing, that’s what we’re | all parts of the organisation can |
|  | the buck really does stop here, | able to provide. | come to me with questions |
| Q: What do you think is the | that the problem is not going |  | and ideas. My job is to clear |
| most important quality for a | to go anywhere else – that’s | Q: As the retail business | the path, but how do you clear |
| leader to have? | something I’m getting used to, | grows, what kind of | a path for people if they don’t |
| A: You have to be able to | and I’m enjoying it immensely. | relationship do you want | feel they can tell you truthfully |
| recognise that you’re there |  | to have with customers? | what’s going on? Ours is |
| to serve the organisation. It’s | Q: Is growth still the | A: I’m not naïve about this | an environment where a |
| not about you. The way I see | most important measure | – we’re never going to be | graduate who has just joined |
| it, one of my major roles is | of success? | able to create the depth | the business can put me on |
| what I call ‘clearing the path’. | A: It’s one of many, but a very | of relationship that a | the spot, ask difficult questions, |
| We have a clear strategy | important one. But growth | customer might have with | or highlight something that |
| and great people who are | is not an end in itself; it’s just | their favourite retailer. But nor | I wouldn’t otherwise know. |
| trying to do the best they | an indicator that we’re doing | do we see buying insurance | I think that’s quite human. |
| can every single day, and a | things right. Partly, it’s a | as a one-time transactional | I also think it’s quite normal. |

2 Hiscox Ltd Report and Accounts 2021
3Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Our key performance indicators (KPIs)
## Financial KPIs
## Gross premiums written Net premiums earned Profit/(loss) before tax
## $4,269.2m $2,919.9m $190.8m

|  |  | 21 | 2,919.9 | 21 |  | 190.8 |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 20 | 4,033.1 | 20 | 2,752.2 | 20 | (268.5) |  |  |
| 19 | 4,030.7 | 19 | 2,635.6 | 19 |  | 53.1 |  |
| 18 | 3,778.3 | 18 | 2,573.6 | 18 |  | 135.6 |  |
| 17 | 3,286.0 | 17 | 2,416.2 | 17 |  |  | 37.8 |

## Combined ratio Basic earnings/(loss) Ordinary dividend
## 93.2% per share 34.5¢
## 55.3¢

| 21 | 93.2 | 21 |  | 55.3 |  | 21 | 34.5 |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 20 | 114.5 | 20 | (91.6) |  |  | 20 | 0.0 |
| 19 | 106.8 | 19 |  |  | 17.2 | 19 | 13.8 |
| 18 | 94.4 | 18 |  | 41.6 |  | 18 | 41.9 |
| 17 | 98.8 | 17 |  |  | 8.1 | 17 | 39.8 |

## Net asset value per share Tangible net asset value Return on equity
## 739.8¢ per share 8.1%
## 648.6¢

|  | 21 | 739.8 | 21 | 648.6 | 21 |  | 8.1 |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | 20 | 689.0 | 20 | 601.5 | 20 | (11.8) |  |
|  | 19 | 768.2 | 19 | 670.6 | 19 | 2.2 |  |
|  | 18 | 798.6 | 18 | 726.2 | 18 | 5.3 |  |
| 2021 20 20 20 20 20 20 20 20 | 4,269.2 |  |  |  |  |  |  |
|  | 17 | 817.1 | 17 | 751.5 | 17 | 1.0 |  |
| 20 20 20 20 20 20 20 20 20 |  |  |  |  |  |  |  |
| 20 20 20 20 20 20 20 20 20 |  |  |  |  |  |  |  |

4 Hiscox Ltd Report and Accounts 2021
20 20 20 20 20 20 20 20 20
20 20 20 20 20 20 20 20 20

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Our key performance
indicators (KPIs)
## Non-financial KPIs

| UK gender pay gap | London Market broker | UK customer satisfaction |
| --- | --- | --- |
| 19.1% | satisfaction 71% | 92% |
| As a UK company with 250 or more employees, | Each year, we survey our London Market broker | In the UK, customers who speak to one of our |
| we are required to disclose our gender pay gap | partners to understand more about their | insurance experts in our customer experience |
| for UK employees, which we have done since | experience of working with Hiscox throughout | centre in York are asked to rate their experience |
| 2017. Improving diversity and inclusion at Hiscox | the year. Their feedback is a reflection of our | of Hiscox at the end of the call. Whether they |
| is a high priority, and we continue to focus on | products and service levels, so receiving | have phoned for advice, a quote, to purchase a |
| finding ways to reduce our gender pay gap. | consistently good scores matters to us. | new policy or make changes to an existing one, |

their feedback helps us to constantly improve
our service.

| 21 | 19.1% | 21 | 71% |  | 92% |
| --- | --- | --- | --- | --- | --- |
| 20 | 21.2% | 20 | 69% | 20 | 92% |
| 19 | 26.1% | 19 | 78% | 19 | 89% |
| 18 | 28.8% | 18 | 76% | 18 | 90% |
|  | 31.1% |  | 66% |  | 90% |


| Employee engagement | Germany customer | US customer reviews |
| --- | --- | --- |
| 64% | satisfaction 95% | using Feefo 4.8/5 |
| Our annual global employee engagement | In Germany, we ask all customers that purchase | In the USA, we ask customers to review their |
| survey looks at how connected we feel to | a policy to provide feedback on their experience | experience of Hiscox post-purchase. We do this |
| Hiscox, our managers, teams and roles. | so that we can continue to improve our service. | using Feefo, which has a five-star rating system, |
| The results are shared widely and heavily | This includes both quantitative analysis on | and are pleased to maintain such high scores |
| influence our people strategy, and improving | how they would score their experience with us, | year after year even as the business grows. |
| our employee engagement scores is a | and also qualitative insight on what they were |  |
| focus for 2022 as part of our work around | satisfied with, whether they would recommend |  |
| building connected teams with shared values | Hiscox, and any areas for improvement, so we |  |
| (see page 11). | are pleased to have maintained consistently |  |

high scores over time.

| 21 | 64% | 21 | 95% | 21 | 4.8 |
| --- | --- | --- | --- | --- | --- |
| 20 | 68% | 20 | 90% | 20 | 4.8 |
| 19 | 71% | 19 | 99% | 19 | 4.8 |
| 18 | 74% | 18 | 99% | 18 | 4.7 |

2021
20 20 20 20 20
17 77% 97% 17 4.7
20
20 20 20 20 20
20

| 20 20 20 20 20 |  |
| --- | --- |
| 20 | 5Hiscox Ltd Report and Accounts 2021 |
| 20 20 20 20 20 |  |

2017
2017 2017 20 20 2017
0.0 12.5 25.0 37.5 50.0 62.5 75.0 87.5 100.0

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Our purpose, values, culture and vision
Our purpose Our culture
As experts in risk, we give people and We work hard to nurture our culture, and
businesses the confidence to realise it is something we regularly measure
their ambitions. To do this we need and monitor to ensure we keep it alive.
differentiated products and services, We have a number of culture standards
great talent and a winning spirit. we wish to live by, such as diversity and
Success is measured in our reputation inclusion, diligence in risk management,
and financial performance. good leadership, integrity and respectful
behaviour. As Lloyd’s participants, these
Our values also contribute to the wider market focus
We have had a strong set of values on culture and talent.
for decades and they are incredibly

|  | important to us; we talk about them often | We are also embedding new hybrid |
| --- | --- | --- |
|  | and they guide our decision-making. | working practices that balance the |
|  | We want our values to differentiate us, | ability to work remotely with the culture, |
|  | which is why they are considered in our | collaboration and energy of our offices. |
|  | strategy and how we operate (see pages | This has required new technology and |
|  | 8 to 9). Our values play an important part | tools to ensure a seamless remote |
|  | when it comes to being a business our | working experience, but it has also |
|  | customers can relate to, and to providing | meant a re-engineering of our existing |
| Our culture and values | all employees with a work environment in | office space – with greater use of |
|  | which they can flourish. We periodically | hot-desking and the creation of |

## are a really important
review our purpose, values, culture and ‘neighbourhoods’ that bring teams
## part of our employment vision to ensure they are still true to the and like-minded functions together.
business and fit for the future.
## proposition. They are
Our vision
## distinctive, they attract In our 2021 annual global employee For Hiscox to be the leading specialist
engagement survey, which was insurer in material markets – not the
## people to Hiscox, and

|  | completed by 85% of employees: |  | biggest, but the most respected. |
| --- | --- | --- | --- |
| they are a big part of | • 90% said they believe in our |  | We want to be known by customers for |
|  |  | corporate values; | being true to our word, by our employees |

## why people stay with

|  | • 83% said employees are treated |  | as a great place to work and grow for |
| --- | --- | --- | --- |
| us for so long.” |  | fairly, regardless of disability, | those who are ambitious and talented, |
|  |  | age or professional background; | and to be seen as an industry leader |
| Amanda Brown | • 73% said they felt proud to work |  | in attitude, sales growth, profits and |
| Chief Human Resources Officer |  | for Hiscox. | value creation. |

During 2021 we:
• attracted 644 new talented
permanent employees;
• promoted 368 existing employees;
• delivered over 43,500 hours of staff
training worldwide.
6 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Our purpose, values,
culture and vision
Our values
7Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Our strategy and how we operate
We have built a good reputation as businesses have been subject to a more a focus on building and maintaining
a specialist insurer in our chosen cyclical environment. balanced portfolios we will create more
segments through a long-held strategy manageable volatility across the Group.
of balance between our big-ticket and As the external environment evolves and By thinking about balance in this way,
Retail businesses – where greater new opportunities emerge, how we think we believe we can maximise both the
volatility in our big-ticket businesses about balance evolves too. In Hiscox profitable, cyclical growth and the
has typically been offset by more stable London Market and Hiscox Re & ILS, structural growth opportunities ahead.
returns in Retail – and a long-term we have begun building out more
investment in a differentiated brand balanced portfolios with an emphasis The Hiscox Group comprises four
that customers value. This approach on leading the business we write. businesses facing into different
has served us well, forming the This means Hiscox underwriting opportunities and challenges, but with
building blocks of our success, but plays a greater role in risk selection a common set of capabilities and the
over time that balance has evolved and contractual terms, with greater capital support required for success.
as the Retail businesses have grown control over growth. Volatility exists in
consistently while the big-ticket every part of insurance, but through
Balanced portfolio of large and complex risks SME and personal lines
• Global risks through Lloyd’s platform • Small and micro businesses
• Heritage of deep technical expertise • Digitally traded, with
• Leading the market in applying low-cost distribution and
e t H
technology to distribution r k i s auto-underwriting
a c
o
M x
and underwriting n R • Partnership management capability
o e
d t
n a through digital connectivity
i l
o :
L d
x i g
o i
Delivers profits and capital t Significant structural
c a
s
generation for reinvestment i People l growth opportunity
H
and culture
Brand
Underwriting
Technology
l
a
Capital
n
H o
i
t
i i
s
d
c
a
o r
x t
l :
R i
e a
t
& e
• Specialist reinsurance capability I L R • Focus on SMEs, not traded digitally
S x
o
s c
• Holistic risk insights H i • Leadership in specialist lines
• Expert alternative capital manager • Long-term broker partnerships
Delivers underwriting profit Delivers stable profit generation
and capital-light fee income and growth
8 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Our strategy and
how we operate

| Our strategy in practice | 14 countries and 35 offices. We invest in |
| --- | --- |
| Opportunity | local market knowledge and experience |
| There is an abundance of opportunity | which ensures we understand the |
| ahead for Hiscox. In many of our | markets we operate in and provide |
| chosen lines and markets, our market | relevant products and services. This |
| shares remain small, giving us plenty | gives us a unique breadth of expertise, |
| of headroom for growth. This is | serving customers from one-man-bands |
| where our specialist knowledge and | to multinational companies and |
| multi-year investments in digital trading | ILS investors. |

differentiate us.
Specialist products
Innovation In every part of the Hiscox Group, we
The insurance industry consists of an focus on providing products and services
ecosystem of different types of business; that differentiate us. These range from
there are the ‘wave surfers’ for example, high-value home insurance and fine art –
who enter the market on the upside of areas where we have deep foundations
opportunity and retreat when it recedes. to build on – to small business, flood and
Hiscox aims to be a ‘game changer’ kidnap and ransom – where innovative
and here for the long term: innovating products set us apart.
through long-held market experience
## Our mix of businesses and underwriting acumen, embracing Claims experience
technology and taking risks to evolve Being true to our word is the cornerstone
## provides exposure to
with and lead market change. of our claims service. We know that
## both long-term structural each customer and each claim is
Growth different, which is why we have
## growth and cyclical
Growth is important to us, but not at embedded experienced claims teams
## trading opportunities. the expense of profitability. That’s with specialist product knowledge in
why our focus is on maximising the every part of our business.
## Market conditions are
structural growth opportunities
## incredibly attractive, ahead as we see them in Retail, and Talented people
in building out balanced portfolios in The quality of our people is a crucial
## and we have a powerful
our bigger-ticket businesses. factor in our continuing success. Their
## combination of expertise, energy and commitment
Volatility drive our reputation for quality and
## underwriting pedigree,
Our business is naturally exposed to professionalism. In return we aim to
## data analytics and volatility. We manage this through our provide a work environment that brings
underwriting experience and expertise, out the best in everybody and rewards
## investment in technology
our investment in data, and our risk hard work.
## which I believe sets management processes, and we work
hard to ensure the risks we take are Powerful brand
## us apart.”
commensurate with the premium that We have invested significantly over
is paid. many years to build a recognised
Aki Hussain
and renowned brand. Our distinctive
Group Chief Executive Officer

| A differentiated offering | marketing campaigns are developed |
| --- | --- |
| Global reach | from a deep understanding of our |
| We are a truly international business, | customers and positively contribute |
| with over 3,000 employees across | to consumer buying decisions. |

9Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Key risks and business priorities
case reserves and/or insufficient Operational risk
## As an insurance group,
outstanding reserves being in place to The risk of direct or indirect loss resulting
## specific risks related meet incurred losses and associated from internal processes, people or
expenses, which could affect the systems, or from external events. This
## to our business include:
Group’s future earnings and capital. includes cyber security risk, which is
the threat posed by the higher maturity
Strategic risk Credit risk of attack tools and methods and the
The possibility of adverse outcomes The risk of a reinsurance counterparty increased motivation of cyber attackers,
resulting from ineffective business being subject to a default or downgrade, in conjunction with a failure to implement
plans and strategies, decision-making, or that for any other reason they may or maintain the systems and processes
resource allocation or adaptation to renege on a reinsurance contract necessary to protect the confidentiality,
changes in the business environment. or alter the terms of an agreement. integrity or availability of information
The Group’s continuing success The Group buys reinsurance as a and data. Operational risk also covers
depends on how well we understand protection, but if our reinsurers do not the potential for financial losses, and
our clients, markets and the various meet their obligations to us, this could implications from a legal, regulatory,
internal and external factors affecting put a strain on our earnings and capital reputational or customer perspective,
our business, and having a strategy in and harm our financial condition and for example, major IT, systems or
place to address risks and opportunities cash flows. Similarly, if a broker were service failures.
arising out of this. Not having the right to default, causing them to fail to pass
strategy could have a detrimental impact premiums to us or pass the claims Regulatory, legal and tax governance
on profitability, capital position, market payment to a policyholder, this could This relates to the risk that the business
share and reputation. result in Hiscox losing money. fails to act, or is perceived to have failed
to act, in accordance with applicable
Underwriting risk Market risk legal, regulatory, and tax requirements
The risk that insurance premiums prove The threat of unfavourable or unexpected in all of the jurisdictions where the Group
insufficient to cover future insurance movements in the value of the Group’s operates. The regulatory, legal and tax
claims and associated expenses. Likely assets or the income expected from them. environment continues to be complex,
causes include failing to price policies It includes risks related to investments with frequent changes in rules and
adequately for the risk exposed, making – for example, losses within a given expectations which increase complexity
poor risk selection decisions, allowing investment strategy, exposure to in this area.
insurance exposures to accumulate inappropriate assets or asset classes, or
to an unacceptable level, or accepting investments that fall outside of authorised Climate-related risk
underwriting risks outside of agreed strategic or tactical asset allocation limits. This relates to the range of complex
underwriting parameters. This includes physical, transition and liability risks
people, process and system risks Liquidity risk arising from climate change. This includes
directly related to underwriting, and This relates to the risk of the Group the risk of higher claims as a result of
considers emerging external risks such being unable to meet cash requirements more frequent and more intense natural
as climate, geopolitical and changing from available resources within the catastrophes; the financial risks which
customer trends. appropriate or required timescales, could arise from the transition to a
such as being unable to pay liabilities to lower-carbon economy; and the risk that
Reserving risk customers or other creditors when they those who have suffered loss from climate
The Group makes financial provisions for fall due. It could result in high costs in change might then seek to recover those
unpaid claims, defence costs and related selling assets or raising money quickly losses from others who they believe may
expenses to cover liabilities both from in order to meet our obligations, with the have been responsible. Climate-related
reported claims and from ‘incurred but potential to have a material adverse effect risk is not considered a stand-alone risk,
not reported’ (IBNR) claims. Reserving on the Group’s financial condition and but a cross-cutting risk with potential to
risk relates to the possibility of unsuitable cash flows. amplify each existing risk type.
10 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Key risks and
business priorities

|  |  | 38 103 | 156 |  |
| --- | --- | --- | --- | --- |
| Read more about our key risks | Read more on risk management in |  |  | Read more on performance against |
| hiscoxgroup.com/about-hiscox/ | chapter 2, and on our key risks and |  |  | our 2021 business priorities. |
| risk-management | how we manage them in note 3. |  |  |  |

ambitions. We will also build on progress
## Business priorities
made in the Group’s underwriting
## for 2022 controls and governance around
product, pricing, appetite and wordings
by finding new and improved ways to
share data, insights and expertise across
Realising the retail opportunity claims, underwriting and reserving and
We will continue to build on our multi-year the areas that support them.
investments in technology during the

|  | year ahead, as we look to realise the | Operational efficiency |
| --- | --- | --- |
|  | significant growth opportunities that exist | In 2022, we will build on the operational |
|  | across our retail operations. Our head | efficiencies realised in 2021 in areas such |
|  | start in digital small business insurance in | as procurement and operations, where |
|  | the UK, USA and a number of European | automation has played a part, and in |
|  | markets positions us well to serve the | the rebalancing of our global versus |
|  | needs of this high-growth segment of | local capabilities. We will continue to |
|  | the economy. We will use customer | evolve our operating model to ensure |
|  | analytics and insights to continue to | we have the right structure to enable fast |
|  | enhance our digital trading strategy | decision-making, and a strong culture |
|  | to best support the evolving buying | of accountability. We will also review |
| The opportunity ahead | behaviours of our customers. | and refine our supplier assessment |

and management processes. This
## of us is huge and I’m
Balancing big-ticket growth will include new tools that improve
## personally very excited with volatility consistency in our procurement
With Hiscox London Market and processes and ensure factors such as
## by our 2022 plans, which

|  | Hiscox Re & ILS currently enjoying | ESG are considered in decision-making. |
| --- | --- | --- |
| build on the progress | more favourable market conditions, |  |
|  | in 2022 we will leverage our unique | Connected teams with shared values |

## we’ve already made

|  | combination of underwriting and digital | and mindset |
| --- | --- | --- |
| in optimising both our | expertise to achieve profitable growth | The global pandemic has changed |
|  | while balancing volatility. This will involve | where and how we work, and in 2022 we |

## underwriting portfolios

|  | the use of balanced performance metrics | will continue to embed the new hybrid |
| --- | --- | --- |
| and our operating model.” | and require best-in-class underwriting, | working styles that we established in |
|  | active portfolio management and | 2021. This means an ongoing focus |
| Joanne Musselle | technical excellence. | on activity-based working; balancing |
| Group Chief Underwriting Officer |  | the more autonomous tasks that can |
|  | Technical excellence | be achieved through remote working, |
|  | The strong progress made in 2021 in | with those that require the collaboration |
|  | optimising our underwriting portfolios | and energy of our offices. It also means |
|  | provides a solid basis for further work | finding new ways to communicate a |
|  | in 2022. We will continue to address | common vision, and a strategy that |
|  | lower decile lines through active portfolio | unites our people. In addition, we will |
|  | management, as we dynamically | look to find new ways to enhance our |
|  | adjust to evolving market conditions | employee proposition and evolve our |
|  | and maintain an optimum portfolio | approach in areas such as employee |
|  | mix. Equally, we will look to grow in | benefits, in line with our ambitions to be |
|  | top quartile lines and in line with our | an employer of choice within our sector. |

11Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Why invest in Hiscox?
A focus on generating sustainable and A unique structural
compounding shareholder returns growth opportunity
We aim to balance consistent and We aim to grow the business in a way that
progressive shareholder cash returns is organic, sustainable and profitable,
with reinvestment into the business and the abundance of opportunity we
to support long-term growth and see ahead supports this continued
value creation. trajectory. In Hiscox Retail, where our
market shares remain modest, the size
of the addressable market is huge, giving
us plenty of headroom for growth; and
in our big-ticket businesses, where we
now lead on more open market risks, our
combination of underwriting and digital
expertise differentiates us.

| 14 8% | 50m SMEs |
| --- | --- |
| total shareholder return over the | size of the addressable SME market |
| last ten years. | across the UK, USA and Europe. |

## Hiscox is a diversified
## and resilient business
## with a great runway of
## future opportunity in
## $ 1.7 b n * 300%
## both Retail and big-ticket
returned to shareholders over the increase in Retail customer numbers
## lines. This, along with our last ten years. across the Group since 2013.
## unique combination of
## underwriting and digital
## expertise, talented people,
## powerful brand and A rated 68%
over ten years of S&P A rating. Hiscox London Market now leads
## robust capital position,
on 68% of the business it writes,
## is a real differentiator 14 percentage points more than
it did five years ago.
## in the market.”
Liz Breeze
Interim Chief Financial Officer
* Based on special, ordinary and Scrip Dividends
paid to shareholders since 1 January 2012.
Excludes the final dividend proposed for 2021.
12 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Why invest in Hiscox?
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.
Total Group controlled income
($m)
4,795
4,530 4,532
5,000
4,224
4,500
3,652
3,625
4,000
3,310
3,268
3,008
2,951
3,500
2,839
2,690 2,669
2,587 2,570 2,585
3,000
2,033
1,928 1,901
2,500
1,506
2,000
,500
1
,000
Hiscox Retail Hiscox London Market, Hiscox Re & ILS
1
500
13Hiscox Ltd Report and Accounts 2021
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020* 2021
The scale we’ve reached realise the next phase of our
also means that we’ve got a growth. We’re just about to
wealth of data that will help start this new chapter, and
with our future assessment I think that’s really exciting.
## Q& of risk. Digital business is
all a data game. We don’t Q: How do you see the
have underwriters sitting human value being
there looking at individual applied at Hiscox?
applications that come in. A: When I think about our
## A: It’s the machine that’s doing values, we’ve always been
with Kevin Kerridge the underwriting. The other strong on things like courage
Chief Executive Officer, Hiscox USA thing that’s happening right and ownership, but the two
now is that we’re using a lot that have really come into
## An Englishman in
more third-party data. Use of their own recently have been
third-party data will be a big connected and human.
## New York
strategic battleground for us Because of Covid-19, and
in the future. because of the important
## From a standing start just
conversations that began here
## over a decade ago, Hiscox Q: Looking back at 2021, in the wake of George Floyd’s
what were some of the big death, we’ve really leant into
## USA is now the country’s
highlights for you? those values in a big way.
A: We’ve continued to We’ve thought a lot about how
## leading digital small
make strides on our digital we can be more supportive,
business. We’re really keeping more inclusive. We’ve started
## business insurer and

|  | that momentum going. | a development programme |
| --- | --- | --- |
| is busy reshaping its | Despite the economic and | for diverse talent, we’ve given |
|  | social impacts of Covid-19, | our people time off to attend |

## broker business.
which have obviously been peaceful protests, and that’s
terrible, from our perspective really just the beginning.
it’s caused a real tailwind.

| Kevin Kerridge has worked | York. It was only meant to be | When the world shut down, | Q: What was your experience |
| --- | --- | --- | --- |
| for Hiscox for over 25 | a three-year secondment, | everyone in the insurance | of the lockdowns of the past |
| years. In 1999, he was given | but the possibilities here are | space was like: “Blimey, how | two years? |
| the task of, in his words, | just so massive. I don’t think | do we do business?”. They’re | A: It wasn’t until I first saw a |
| ‘figuring out what we should | I – or the Company – ever | used to bricks and mortar, | lot of people back in the office |
| do on this thing called the | looked back. | face to face. Now everyone’s | again, and started going to |
| internet’. Ten years later, |  | having to consider a digital | events with our brokers, that |
| having played a major role | Q: What does the US | model, and because we’re so | I realised just how much we’d |
| in developing the brand’s | business look like now? | well advanced that has played | missed. It’s like the frog in the |
| digital operations in the | A: We are now almost a | to our strengths. | pot: when the temperature’s |
| UK, he moved to the USA | billion-Dollar business in | Then on the more | turned up slowly, you don’t |
| to carry out the same task. | terms of top-line revenue. | traditional side, which is | really notice. You forget how |
| He is now Chief Executive | The most exciting thing is | still around 50% of our US | life used to be. When you see |
| Officer of Hiscox USA. | that today we’re America’s | business, we’re going | people back in the office, |
|  | leading digital small business | through this thing called | gathered around a screen, |
| Q: What did you find when | insurer. We’ve got more digital | A25, which is short for | trying to solve a problem – or |
| you first came to the USA | scale than anybody else out | ‘accelerate to 2025’. We’ve | you’ve got new people making |
| in 2009? | there, even compared to | been reshaping the broker | themselves heard, getting |
| A: I came over here just to | the biggest brands, brands | business here because it’s | on-boarded in person – it’s |
| scout around and was amazed | that have been around for | not been profitable enough, | then that you realise how |
| by what I found: nobody in | 100-plus years. At the other | quite frankly. We made good | much we missed out on, how |
| the small business insurance | end of the scale, there are a | progress in addressing this | much of that social capital got |
| space, which was our sweet | number of start-ups with | in 2021. | eroded over that period. |
| spot, was doing anything on | great ideas and technology, |  |  |
| the internet. When you typed | but the great thing is we’ve | Q: So, you’re feeling |  |
| into Google ‘small business | got more scale and capability | positive about the future? |  |
| insurance’, the message was: | than them. If you’re a start-up, | A: I am. This past year has |  |
| ‘call us on this number’, or: ‘fill | you’re clamouring to get | been an emotional one for |  |
| out this form and someone | traction, but we’re sitting | those of us who’ve been here |  |
| will come back to you’. We | here with over 600,000 | a long time. We’ve celebrated |  |
| realised at that point how | policies in force. We’re in the | Bronek’s contribution over |  |
| huge an opportunity this was. | middle of those two things – | the past few decades and |  |
| Within a couple of months, I’d | the incumbent giants and the | now we’ve got a new leader |  |
| agreed to uproot my wife and | nimble start-ups – and we | in Aki, who’s bringing a fresh |  |
| four children and move to New | feel good about that. | perspective and looking to |  |

14 Hiscox Ltd Report and Accounts 2021
15Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Chairman’s statement
16 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chairman’s statement |  |  | information | summary |

We are pleased that our good
performance has allowed the Group
to resume paying dividends with the
2021 interim results and the Board is
pleased to propose a final dividend
for 2021 (subject to shareholder
## I am pleased to report that our
approval) of 23 cents per share. The
record date for the dividend will be
## skilled underwriters have substantially
6 May 2022 and the payment date will
be 13 June 2022. The Board proposes
## contributed to a very good result in
to offer a Scrip alternative, subject to the
## a period of low investment returns. terms and conditions of Hiscox’s 2019
Scrip Dividend Scheme. The last date
## Joanne Musselle, Group Chief
for receipt of Scrip elections will be
20 May 2022 and the reference price
## Underwriting Officer, has provided
will be announced on 30 May 2022.
## strong leadership and the active
People
## portfolio management is producing Following Bronek Masojada’s decision to
retire at the end of 2021, we announced
## results. We have strong teams
the appointment of Aki Hussain as our
new Group Chief Executive Officer back
## in place to make the most of the
in July. Aki has 22 years’ experience
working in financial services, telecoms
## opportunities ahead.”
and media which we are benefitting from.
Having worked with Aki over the last five
Robert Childs
years I have seen his strong leadership
Chairman
as our Group Chief Financial Officer
first-hand, his capable management of
the Group’s finances in what has been
The Retail businesses are going well; our appetite and providing new a challenging period for Hiscox and the
Hiscox Europe in particular. The UK opportunities. In Hiscox Re & ILS, industry while delivering a highly complex
and USA divisions are making great our prudent approach to reserving finance transformation programme. Over
strides in their direct and partnerships and discipline in risk selection has the years, the Board and I have seen the
business, where we maintain a strong delivered an excellent result in energy, passion and determination with
competitive advantage. Hiscox USA is another year of higher than average which Aki operates, and this combined
on track, increasing rates and trimming natural catastrophes. with a strategic mindset and clear
the portfolio in broker lines. In the UK, ambition for building a customer-focused
the broker business continues to do We are in this business for the long businesses, means he is well placed to
well, particularly in our commercial term, innovating through deep market shape our future strategy and capture
lines business. expertise, embracing technology, and the vast opportunities ahead.
unafraid to take risks to evolve. In 2021,

| Our big-ticket businesses in London | particularly in the UK, we have had some | I would also like to take this opportunity |
| --- | --- | --- |
| and Bermuda are benefitting from | challenges, but we have learned a lot. | to pay tribute to the outstanding |
| good risk selection and substantial | Courage is one of our values and we | contribution that Bronek has made in |
| rate rises. Digital initiatives in Hiscox | have needed it in 2021, but Hiscox is | leading the strategic development of |
| London Market are broadening | a stronger business for it in 2022. | the Group over the last three decades. |

17Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chairman’s statement |  |  | information | summary |

## Courage is one of our
## values and we have
## needed it in 2021, but
## Hiscox is a stronger
## business for it in 2022.”
I had the pleasure of working with Bronek
for over 28 years and throughout that
time, his leadership skills, tenacity and
desire to build a better business have
shone through. With Bronek’s energy
and commitment, we have overcome
some of the biggest challenges the
industry has faced, and seized some of
the greatest opportunities. His intellect
and vision built Hiscox from a small
private company to a FTSE 250 with
$4 billion of premium – which is an
immense achievement.
Following nine years of service, including
six as Chair of the Audit Committee,
Caroline Foulger will retire from the Ltd
Board at the 2022 AGM. I have valued
Caroline’s counsel greatly over the
years and would like to thank her for the
passion and challenge she brought to
the role. Ahead of Caroline’s retirement,
Donna DeMaio joined the Board as an
Independent Non Executive Director at
the end of 2021 and will replace Caroline
as Chair of the Audit Committee. Donna
has an impressive financial services
background and experience of the
US market which we will benefit from.
We also strengthened our subsidiary
Boards with the appointment of three
new Independent Non Executive
Directors. Mark Cliff and Jane Hayes
joined Hiscox UK while James Illingworth
joined Hiscox London Market; between
them they bring a wealth of industry
knowledge, underwriting and
distribution expertise. From left to right: Robert Childs, Joanne Musselle, Aki Hussain and Bronek Masojada.
Environmental, social and governance
We take ESG seriously and we have
made significant progress this year.
The Board has been very supportive
and the staff enthusiastic. We started
2021 by approving our ESG exclusions
policy which sets out our ambition
18 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chairman’s statement |  |  | information | summary |


| to reduce steadily, and eliminate by | 60% women. There is more work to |
| --- | --- |
| 2030, our insurance, reinsurance and | do throughout the Company but we |
| investment exposure to some of the | are on a positive trajectory. |

most carbon-intensive industries.
## Aki’s deep knowledge We are now embedding the required Outlook
supporting processes and a Hiscox is a growing company. We aim
## of the Hiscox Group,

|  | dashboard to measure our progress. | to grow our top-line profitably in this |
| --- | --- | --- |
| combined with a | We continue to attract and develop top | underwriting climate and continuously |
|  | talent: last year we welcomed 644 new | attract first-rate talent. We are embracing, |

## strategic mindset and

|  | permanent employees and made 368 | and in many cases leading, the digital |
| --- | --- | --- |
| ambition for building | internal promotions. It is thanks to the | revolution in insurance and continue to |
|  | hard work, ingenuity and flexibility of | invest. Aki has clear and exciting plans |

## customer-focused
our colleagues across the globe that we that are motivating our people and which
## businesses, means he have been able to continue to support the Board supports.
our customers and brokers during the
## is well placed to shape

|  | pandemic. We paid out $1.25 billion | In the insurance industry, catastrophes |
| --- | --- | --- |
| our future strategy | in claims last year across the whole | can happen at any time, but there is a fair |
|  | business – from exceptional events like | wind behind us and I am looking forward |

## and capture the vast
Covid and catastrophes, to the more to a great year – we are disciplined, rates
## opportunities ahead.” frequent fires and thefts. We have also are up, we are attracting exceptional
contributed very substantially to the talent, and the opportunity ahead of
restitution of many businesses through us is huge.
indemnifying them following their loss.
We have also served our communities
through our charitable work, resulting

| in $1.5 million being donated to good | Robert Childs |
| --- | --- |
| causes and over 1,000 volunteering | Chairman |
| hours – from beach clean-ups in | 2 March 2022 |

Bermuda to plastic fishing on the
River Thames.
We continue to focus on improving
diversity at all levels. Our 15 employee
network chapters play an important
part in this, but so too does our diversity
reporting. 2021 marked our fifth year of
UK gender pay reporting and although
our gender pay gap has been steadily
reducing since 2017, it continues to
be predominantly driven by more men
than women holding more senior roles.
In this respect it is important to show
leadership: our current Board diversity
is 55% men and 45% women, and
the newly formed Group Executive
Committee comprises 40% men and
19Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Chief Executive’s report
also seeding and organically growing
Retail to the $2.3billion gross premiums
written business it is today. The greater
volatility in the big-ticket businesses
has been balanced, or offset, by more
stable returns in Retail (2020 being the
## I am pleased with the strong results
exception when the result was affected
by the global pandemic). Excess profits
## the Group has delivered despite
in our big-ticket businesses have been
used to fund our Retail expansion.
## elevated natural catastrophe losses,
This strategy has allowed the Group
## reflecting successful execution of to build a solid platform to expand its
footprint and product offering through
## our strategy and the management
multiple distribution channels, develop
a recognised global brand and nurture a
## actions we have undertaken to
reputation as a leading specialist insurer
with deep technical expertise.
## improve the performance and
## quality of our portfolios.” We remain committed to the concept
of balance, however, as our markets
Aki Hussain are evolving, so too is the way we think
Group Chief Executive Officer about balance. We are in the business of
taking calculated risks, so while volatility
is an inherent feature of our business
model, we are also focused on building
a business that delivers sustainable,
attractive returns. As our strategy
continues to evolve, our focus is on
building more balanced portfolios within
each business, with an increased focus

| On 1 January 2022, I officially | Bronek Masojada, who retired as Group | on and use of the Hiscox underwriting |
| --- | --- | --- |
| assumed my role as the Group | Chief Executive Officer at the end of | ecosystem, which includes underwriting, |
| Chief Executive Officer of Hiscox | 2021, left the business in good shape | pricing, claims analytics, reserving, |
| and I am pleased to be able to | and I am delighted to be taking the reins | research and modelling, in our chosen |
| report a strong 2021 result for the | at this exciting juncture with plentiful | lines of business. |
| Group. Hiscox delivered a pre-tax | opportunities ahead. In my first CEO |  |
| profit of $190.8million (2020: loss | statement I would like to share my views | The fundamentals of our strategy remain |
| of $268.5million) and a combined | on the ambition we have as a business | unchanged: we continue to have strong |
| ratio of 93.2% (2020:114.5%), | and how we are going to achieve it. I will | competitive positions in all our business |
| despite reserving $223.8million | also provide the usual commentary on | segments, but managing volatility |
| net of reinstatement premiums for | business performance in 2021. | across the Group will pave the way to |
| natural catastrophe losses in an |  | maximising the long-term structural |
| elevated catastrophe loss environment. | Strategy | growth opportunity we have in our Retail |
| This strong performance is the | Our long-standing strategy of balance | businesses. Our purpose is ’to give |
| outcome of proactive portfolio | has served us well through the years, | people and businesses the confidence |
| actions undertaken over the last | allowing us to generate $4.3billion of | to realise their ambitions’ and this |
| few years to improve our margins. | profits over the last two decades, while | remains core to our strategy. |

20 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |

21Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |


| In summary, this is strategic evolution as | first and foremost, technical rigor and | traditional non-digital channels, has been |
| --- | --- | --- |
| we evolve our business model to make | disciplined risk management are a | the backbone of growth and profitability |
| the most out of the opportunity in each | prerequisite. We see technology as being | for the Retail division and in recent years |
| of our businesses, with each playing a | an enabler, allowing Hiscox to access | for the Group (with the exception of 2020 |
| critical role in what it brings to the Group | new markets in new ways. | that was affected by the pandemic) as we |
| and our strategic ambitions. I think |  | have traded through challenging market |
| about our business in four component | Through long-term investment Hiscox | conditions in our big-ticket businesses. |
| parts – Retail digital, Retail traditional, | now has market-leading platforms in |  |

1
London Market and Re & ILS . Each the USA and UK and an emerging digital Over the years we have built this
component faces unique opportunities business in Europe. The opportunity is business carefully by being specialists
and challenges, which informs the role particularly significant in the USA where in attractive and large niches, getting to
that each will play in our future growth we believe we will continue to win in the know our customers’ needs intimately,
and success, underpinned by our long run, becoming one of the dominant building strong distribution partnerships,
long-term investment in both players, so it makes clear strategic sense maintaining robust risk selection and
underwriting and digital expertise. to continue investing in this business. delivering excellent customer service.
We operate in meaningful niches with

| Retail digital – significant structural | Building scale is important, not just for | material further growth potential, while |
| --- | --- | --- |
| growth opportunity | operating leverage and cost efficiency, | we also explore new adjacent niches |
| Retail digital presents the Group’s most | but to drive further growth. Expanding | with specialist distribution partners, |
| significant long-term structural growth | our customer base will make us into | into which the business can expand. |
| opportunity. This business has benefitted | an increasingly attractive distribution | This business will continue to evolve: |
| from the secular trends in society where | partner. Over time our objective is to build | for instance, we are in the process of |
| our customers and partners increasingly | a marketplace for our customers, offering | reshaping our US broker channel book |
| want to deal with us digitally. Across our | a broad range of insurance products | to focus on smaller business, and we are |
| geographies, there are approximately | catering for all their key needs. Some of | making changes to further improve our |
| 50 million SMEs, so the market is huge | these products Hiscox will underwrite on | broker service model in the UK. This is all |
| and we are barely scraping the surface | our own balance sheet, while others we | part and parcel of building a sustainably |
| of the opportunity ahead; I expect our | will offer through our expanding range of | profitable business. This business will |
| digital platforms to grow strongly for | reputable partners. The aim is to create | continue to provide growth and most of |
| many years to come. | a small business commercial insurance | the Retail profits over the next five years. |

marketplace in which Hiscox is a central
In this new and emerging landscape, and meaningful player. Hiscox London Market – underwriting
Hiscox has developed market-leading pedigree meets trading innovation
capabilities including products designed Our confidence in being able to succeed Hiscox’s roots lie in the London Market.
to meet customer needs, strong brand comes from the strength of our core This is our heritage and where we have
awareness, an underwriting ecosystem Group capabilities – our powerful brand, built a tremendous track record of delivery.
and investment in technology; this has the cross-divisional fertilisation of data Our business continues to evolve as we
enabled a significant part of the value- and analytics to improve underwriting develop deeper underwriting expertise
chain to be automated, while delivering decisions and our ability to selectively and data analytics in our specialist
superb customer service. Capturing this invest from the Group’s capital pool to areas. We now lead over two-thirds of
opportunity is not simply about deploying keep our client service and scalability the business we write in premium terms,
cool technology, we are underwriters of platform market-leading. compared to just over a half four years
ago. This ensures we have much more
1
These are Group strategy business components. Retail traditional – source of continued control of the business and the terms
Accounting segmentation, which reflects
growth and profitability for the Group on which it is being written, in short,
how the businesses are managed, remains
Our Retail traditional business, which the Hiscox underwriting ecosystem
unchanged, as represented in 2021 financial
performance sections. is distributed and serviced through the is driving decisions. I am also excited
22 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |

An actively managed business
Total Group controlled premium 31 December 2021: $4,795m
Period-on-period in constant currency
Small SpecialtyReinsurance Property Global Art and Marine
commercial private client casualty and energy
## +2%* +9%+8% +3% +6% -1% 0%
## $1,707m
Professional liability
Errors and omissions
Private directors
and officers’ liability
Cyber
Commercial
small package
Small technology
and media
Healthcare related
Media and
entertainment
## $917m
Property
Marine
Aviation
Casualty
Specialty
## $562m
Commercial
## $482m $479m
property

| Onshore energy | Kidnap and ransom | Home and contents |  |  |
| --- | --- | --- | --- | --- |
| USA homeowners | Contingency | Fine art | $359m |  |
| Flood programmes | Terrorism | Classic car |  |  |
|  |  |  | Public directors and | $289m |
| Managing | Product recall | Luxury motor | officers’ liability |  |
| general agents |  |  |  | Cargo |
|  | Personal accident | Asian motor | Large cyber |  |
| International |  |  |  | Marine hull |

General liability
property
Energy liability
Offshore energy
* 8% including
Marine liability
$109m of US
exited business.
23Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |

about Hiscox London Market pioneering capital for the business and providing However, as the rating cycle unfolds at
digital underwriting and distribution in the a means of scale in specialist areas in a different pace, the dynamic is slightly
Lloyd’s market with its HiscoxPlus suite of which the business participates. different by business segment.
products reaching a critical mass of over

| $100 million of gross premium written. | Market conditions have significantly | Hiscox London Market began |
| --- | --- | --- |
| While this is still a small proportion of | improved, although further rate increases | benefitting from rate increases as |
| Hiscox London Market’s top line, digital | are necessary in some areas to genuinely | early as 2017 and has seen a cumulative |
| distribution and auto-underwriting will | achieve satisfactory returns through the | rates increase of 60%. In 2021, we |
| continue to grow in both importance and | cycle. We have used the last few years | saw a 13% average rate improvement. |
| quantum in the years to come, and in | to refocus on business lines in which we | While rate growth is continuing, the |
| 2022 we expect this business to double | have deep expertise, thereby creating | speed of increase is now slowing in all |
| to over $200 million. | a balance which is consistent with our | lines except cyber. This is particularly |
|  | underwriting expertise. This combined | pronounced in US public company |
| Hiscox London Market provides cyclical | with improving market conditions is | D&O and US general liability, although |
| growth opportunities, expanding | increasing the resilience of the portfolio | the overall rate adequacy remains |
| and shrinking as market conditions | and creates the capacity to grow in lines | significantly above the loss experience |
| change. Since 2017 conditions have | where the returns are stronger. Looking | and expectation. We expect this trend |
| been improving and we now enjoy rate | forward, the improved resilience in | to continue in 2022 with momentum |
| adequacy in all of our lines. We have | the portfolio, together with the growth | slowing further, however, rate adequacy |
| used these improving market conditions | of ILS AUM, is expected to drive | remains solid and rates are likely to |
| to create a better-balanced portfolio of | much-improved generation of capital | remain in positive territory growing |
| business, improve terms and conditions, | and profits through the cycle. | by mid-single digits. |

expand margins and grow net revenues in

| business lines with better risk-adjusted | These component parts of our business | For Hiscox Re & ILS the market started |
| --- | --- | --- |
| returns. As I look forward, the improved | enjoy a symbiotic relationship. The | to turn slightly later, but the business |
| balance and control, combined with | development of market-leading | has achieved a cumulative rate increase |
| stronger margins and therefore resilience | underwriting capabilities, deep | of 35% since 2017. In 2021, Re & ILS |
| in the portfolio position us well for | relationships, innovation and | saw an average rate increase of 8%. |
| generating attractive risk-adjusted | entrepreneurial drive have traditionally | European floods in July, Hurricane Ida’s |
| returns through the cycle. | come from the big-ticket businesses. | landfall in August and US tornadoes in |
|  | In recent years, operational know-how, | December were once again a useful |
| Hiscox Re & ILS – specialist capabilities | new-generation digital technology, data | reminder of the risks borne by property |
| complemented by third-party capital model | analytics and the auto-underwriting | catastrophe reinsurers. As a result, |
| Hiscox Re & ILS is also part of our | expertise of the Retail digital business | we have seen better underwriting |
| heritage and once again a business | have been supporting growth in the | discipline and further rate strengthening |
| that has had an excellent long-term | rest of the Group. It is this ecosystem | in North American property lines, risk, |
| track record. This business operates in | wrapped in the unique culture of Hiscox | retro, marine and specialty as well as |
| a market where conditions are cyclical, | that is a source of strength and has helped | loss-impacted European business. |
| although the shape of the cycle has | the business to withstand the external | At the January 2022 renewals we saw |
| changed over the last decade. The | challenges of recent years in order to | 10% reinsurance rate growth, however, |
| development of insurance-linked | continue to deliver a resilient performance. | it is our view that further increases are |
| securities (ILS) platforms has resulted |  | necessary to achieve satisfactory returns |
| in new and efficient capital coming into | Turning to the 2021 financial result. | through the cycle in all property lines. |
| the market. We have capitalised on this |  | In light of this, Hiscox Re & ILS will |
| opportunity and Hiscox Re & ILS has built | Rates | continue to be disciplined to ensure |
| a successful ILS proposition, providing | Rate momentum continues to be | the business we write is sufficiently |
| a mechanism for lowering the cost of | favourable across all business divisions. | rated to make a sustainable profit. |

24 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |

Hiscox Retail
2021 2020*
$m $m
Gross premiums written 2,290.0 2,180.0
Net premiums written 1,969.3 1, 9 07. 8
Underwriting profit/(loss) 34.9 (3 97.7 )
Investment result 26.9 103.4
Profit/(loss) before tax 54.9 (295.6)
Combined ratio (%) 98.9 123.4
Combined ratio excl. Covid-19 and loss portfolio transfer cost (%) 97.3 99.9
* Numbers have been re-presented to reflect reclassification of the Special Risks division.
See note 4 to the financial statements.

| Hiscox Retail is generally less cyclical | to strength: we have now enrolled | and DirectAsia. In this segment, our |
| --- | --- | --- |
| business with rates less prone to | over 30,000 customers across the | specialist knowledge and retail products |
| extreme fluctuations, yet in 2021 Retail | geographies in which we operate. | differentiate us and our ongoing |
| rates increased by 5% on average. | Our dedicated central cyber team | investment in the brand, distribution |
| This was led by Hiscox UK with rates | continues to support our cyber | and technology reinforces our strong |
| up 7% and Hiscox USA, where rates in | underwriters across the Group, | market position in an increasingly |
| the broker business grew 10%. Even in | delivering training to our underwriting | digital world. |
| Hiscox Europe, where rate increases are | and claims teams. We now have nearly |  |
| typically dampened by tacit renewals, | 20 employees who have gained | Hiscox Retail grew gross premiums |
| we saw increases of 4% on average. | external cyber security certifications. | written by 5.0%, or 1.5% in constant |
| Across all regions Retail rate increases | We have also added significant new | currency. Our commercial businesses, |
| are at least adequate or in excess of loss | features to our Hiscox Cyber Insight | which constitute over three-quarters of |
| experience and expectation, resulting in | tool to support underwriting decisions, | the Retail portfolio in gross premiums |
| sustained or expanding margins. | including integration with Microsoft | written terms, grew strongly across all |
|  | Secure Score, which allows us to | geographies. This was partially offset by |
| Across all our business segments, through | streamline questions for customers, | slower momentum in personal lines and |
| a combination of an indexed increase to | and gain far greater insight into our | the impact of deliberate portfolio actions |
| exposure data and increasing rates, we | customers’ security position. | in the US broker channel to reposition the |
| believe we are achieving premium growth |  | business towards smaller customers. |
| in excess of inflation expectations. | Throughout 2021, we worked closely | We have now exited over $100 million of |
|  | with customers and brokers in the UK | the non-core US business and, adjusting |
| Claims | to pay business interruption claims as | for this, the Group Retail underlying |
| 2021 was another year with above-mean | quickly as possible. As of 31 January | portfolio grew by 6.8% on a constant |
| natural catastrophe losses. The Group | 2022, 84% of the claims notified | currency basis. |
| has reserved $223.8 million net of | had received an outcome and we |  |
| reinstatement premiums, with Hiscox | expect to maintain the current claim | Hiscox DPD business grew gross |
| Re & ILS most impacted. In Hiscox | settlement momentum to resolve the | premiums written by 18.2% in constant |
| London Market we reduced the property | outstanding claims. The business | currency to $694 million and now serves |
| catastrophe exposure in 2021 as we | interruption claims in aggregate | over 910,000 customers. In the USA |
| made a conscious choice not to write | continue to settle within the actuarial | our DPD business grew 25.5% and it |
| business where pricing is not deemed | best estimate and in addition we | now represents almost two-thirds of |
| adequate. In Hiscox Re & ILS, we | continue to hold conservative | our global DPD business. |
| continued the re-underwriting action | margin above the best estimate. |  |
| commenced in 2020 as we further |  | With the more significant portfolio action |
| reduced our exposure to aggregate | The UK business interruption book | largely executed in the broker channel, |
| covers and increased attachment levels. | has now been fully renewed with | the headline growth rate is expected to |
|  | the appropriate pandemic exclusion | trend back towards the middle of the |
| In 2021, we saw a continuation of | terms. We have maintained continuous | 5% to 15% range for the Retail division |
| heightened threats in cyber and | and transparent dialogue with our | in 2022. |
| fine-tuned our cyber appetite, focusing | reinsurance panel throughout this |  |
| our SME business within Retail, | period and the reinsurance recoveries | Together with delivering robust growth, |
| reducing our exposure to ransomware | are now being collected. | the Retail business has achieved an |
| events in Hiscox London Market and |  | underlying combined ratio of 97.3%, |
| reducing cyber aggregate exposure. | Hiscox Retail | a 2.6 points improvement on prior |
| The Hiscox CyberClear Academy, our | Hiscox Retail comprises our retail | year, despite sustaining a net natural |
| free online training program for our | businesses around the world: Hiscox | catastrophe loss of $34 million net of |
| smaller customers, goes from strength | UK, Hiscox Europe, Hiscox USA | reinstatement premiums. This underpins |

25Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |


| our confidence that we are on track to | in our established niches such as | Europe’s DPD business is relatively |
| --- | --- | --- |
| return to the 90%-95% combined ratio | technology, consultants and other | nascent with gross premiums written |
| range in 2023. | emerging professions, where Hiscox’s | of just over $50 million and is growing |
|  | competitive advantage is strong and | well. The digital opportunity in Europe is |
| Hiscox UK | the opportunity is the most attractive. | attractive with around 11 million SMEs |
| Hiscox UK provides commercial | In 2022, we expect to increase our | in the markets where we operate and |
| insurance for small- and medium-sized | investment in marketing to build affinity | about a half of these being our target |
| businesses as well as personal lines | with new audiences and accelerate | customers. Hiscox Europe started its |
| cover, including high-value household, | the ongoing positive growth of the | direct digital business first in France, |
| fine art and luxury motor. | digital acquisition channel. | almost a decade ago, followed by |

Germany. In June 2021, the Netherlands

| Hiscox UK gross premiums written of | Hiscox Europe | became the latest market to launch a |
| --- | --- | --- |
| $831.1 million (2020: $756.1 million) | Hiscox Europe provides personal lines | digital proposition. Europe DPD is an |
| are up 9.9% or 2.9% on a constant | cover, including high-value household, | excellent example of leveraging |
| currency basis. The business has | fine art and classic car; as well as | cross-market expertise and infrastructure |
| delivered a resilient performance, | commercial insurance for small- and | with the businesses using common |
| despite the ongoing impact of Covid-19 | medium-sized businesses. | technology and sharing product |
| on events and art exhibitions. The |  | expertise and marketing collateral. |
| commercial lines business is showing | Hiscox Europe delivered another |  |
| strong growth of 9.9% in constant | strong top-line performance, growing | Similar to the UK, the non-natural |
| currency, boosted by rate improvements, | gross premiums written by 9.8% in | catastrophe loss performance has |
| maintaining good retention rates and | constant currency to $532.0 million | been in line with expectations. |
| adding a net 45,000 customers. Rate | (2020: $461.1 million). Rates are up |  |
| increases were achieved across the | 4% on average, with double-digit | The roll-out of the new core technology |
| portfolio of commercial business led | rate increases in cyber, commercial | is progressing well in Germany and |
| by cyber and professional indemnity | property and traditional professional | France and we continue to enhance |
| lines. In our personal lines business, | indemnity. A large share of the European | our data infrastructure to drive more |
| which includes art and private client | book renews in January and our | sophisticated underwriting and pricing. |
| and direct home, we have taken | underwriters have been focusing on |  |
| deliberate action to rebalance the | improving rate adequacy in cyber. | Hiscox USA |
| portfolio and non-renew some of |  | Hiscox USA focuses on underwriting |
| the higher commission business. | Hiscox Germany, Benelux and Iberia, | small commercial risks with |
| As a result, we have seen premiums | which together constitute around | distribution through brokers, partners |
| reduce by 4.9% in constant currency, | 60% of Hiscox Europe’s gross | and direct-to-consumer using both |
| however, this action will improve our | premiums written, all grew top line | traditional and digital trading models. |
| business returns. The personal lines | at double-digit rate in constant | Our aspiration remains to build America’s |
| business is expected to return to | currency, underpinned by healthy | leading small business insurer. |
| growth in 2022. | growth in commercial lines. Hiscox |  |
|  | France, our second largest European | Hiscox USA saw gross premiums |
| The non-natural catastrophe loss | business, grew gross premiums | written decline 3.9% to $879.2 million |
| performance has been better than | written by 5.9% in constant currency | (2020: $914.6 million). This is in line with |
| the prior year, with a particularly benign | despite the impact of continuing | our expectations and previous guidance, |
| first half and return to a more normal | course correction actions and | as a result of planned reductions in |
| claims frequency in the second half. | delivered strong new business | our US broker channel. We have now |
|  | growth. Ireland’s performance is up | exited over $100 million of large cyber, |
| The outlook for Hiscox UK is positive, | 4.4%, as the business continues to | stand-alone general liability and other |
| with opportunities to continue growing | undertake re-underwriting actions. | broker channel business which is no |

26 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |

Hiscox London Market
2021 2020*
$m $m
Gross premiums written 1,171.4 1,10 9.7
Net premiums written 711.5 649.9
Underwriting profit 89.6 94.8
Investment result 15.8 60.5
Profit before tax 104.8 155.2
Combined ratio (%) 89.1 89.2
* Numbers have been re-presented to reflect reclassification of the Special Risks division.
See note 4 to the financial statements.

| longer within our appetite. This number | this is expected to moderate through | and credit rating of Lloyd’s to insure |
| --- | --- | --- |
| is slightly higher than originally indicated, | the third quarter as we take deliberate | clients throughout the world. |
| as we successfully accelerated our exit | action to limit new business to facilitate |  |
| plans in certain portfolios. Excluding the | the migration of our partners and existing | Hiscox London Market delivered a |
| effect of the course correction actions in | policyholders from our legacy policy | strong performance in 2021, despite |
| 2021, Hiscox USA underlying portfolio | administration system to our modernised | the above-mean natural catastrophe |
| grew by 9.2%. | next-generation platform. The new | losses. Our underwriters have been |
|  | technology will offer a wider product | working tirelessly to deliver 13% |
| Our US digital partnerships and direct | portfolio, improved data collection, | average portfolio rate growth in 2021, |
| business continues to deliver excellent | better underwriting analytics, upgraded | with 16 of our 17 lines enjoying price |
| performance, with the top line growing | pricing capability and enhanced digital | rises and 11 lines benefitting from |
| 25.5% to $424 million, continuing the | experience for agents and customers. | double-digit rate increases. Gross |
| excellent growth rate achieved the | An expanded business owners’ policy | premiums written grew 5.6% to |
| year before. In the first half of the | (BOP) and new cyber product are being | $1,171.4 million (2020: $1,109.7 million), |
| year US DPD grew at 30%, above | launched as part of the new technology | as we continued to execute course |
| our expectations, as the business | roll-out. The migration requires the | correction actions in the property binder |
| benefitted from the pent-up demand, | deliberate slowdown of growth, as we | portfolios, and build a more balanced |
| with the second half more in line with | bed in new systems, appetite, products | and resilient portfolio. Importantly, net |
| the sustainable growth rate. We have | and rating, we expect to complete the | premiums written grew by 9.5%, almost |
| added around 90,000 customers in | process by the end of the year and begin | two times faster than top line, as the |
| 2021 with approximately 520,000 now | to realise the full benefits of this multi-year | strong rate momentum made retaining |
| insured. Over 80% of our new customers | technology investment as we head into | more premium attractive. Hiscox |
| accessed us digitally and over 90% of | 2023. In 2022, we still expect full-year US | London Market incurred $68.1 million |
| new policies were auto-underwritten. | DPD growth of between 15% to 20%. | of natural catastrophe losses in 2021 |

net of reinstatement premiums, mainly

| The US digital partnerships business | Hiscox Asia | from Hurricane Ida, US tornadoes and |
| --- | --- | --- |
| is growing particularly well, as we are | Despite the challenges of Covid-19 | Storm Uri. In contrast, non-catastrophe |
| benefitting from distribution relationships | lockdowns in its two Asian markets | experience in London Market was |
| with over 140 partners. As our business | alongside lower customer demand | favourable in the first three quarters of |
| matures and our brand strengthens, | and aggressive discounting by | the year, albeit several large cyber and |
| more and more of our premium is | competitors, DirectAsia delivered | casualty losses occurred in the last two |
| coming from larger producing partners, | gross premiums written of $47.7 million | months of 2021. |
| which contribute over a million of | (2020: $48.2 million), broadly in line |  |
| revenue per annum to Hiscox. Over | with 2020, as the fourth quarter saw | It is particularly pleasing that Syndicate |
| the last three years the number of | a recovery in revenues. DirectAsia | 33, our flagship Lloyd’s syndicate, |
| these large partners almost doubled | launched brand enhancements | achieved a 82.5% combined ratio |
| to 41 today. One example of such | campaigns in Singapore and Thailand | in 2021 calendar year, the best result |
| partnership is with Amazon. In August, | in November which will continue to | since 2016. |
| Hiscox joined a small network of | run throughout 2022. A reduced |  |
| insurance providers to offer general | claims frequency during the lockdowns | We are making good progress on digital |
| liability insurance to businesses selling | together with the continued focus on | distribution and underwriting. Hiscox |
| in Amazon’s marketplace through our | profitability has resulted in an improved | London Market’s digital strategy started |
| existing platform integrations with Bold | underwriting result. | in 2016 with the launch of FloodPlus |
| Penguin and Simply Business. |  | which offers flood cover to commercial |
|  | Hiscox London Market | and residential properties in the USA |
| The US DPD business started 2022 | Hiscox London Market uses the | across 49 states as an alternative to the |
| with continued strong growth, however, | global licences, distribution network | National Flood Insurance Program (NFIP) |

27Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |

Hiscox Re & ILS
2021 2020
$m $m
Gross premiums written 807.8 743.4
Net premiums written 274.2 192.7
Underwriting profit/(loss) 91.1 (67.7 )
Investment result 8.8 33.6
Profit/(loss) before tax 98.5 (3 5.1)
Combined ratio (%) 68.0 131.8

| product. In 2020, we further expanded | reinstatement premiums, premiums | 2022 ($1.4 billion at 31 December 2021), |
| --- | --- | --- |
| our product range by launching FloodPlus | are down 0.4% year on year, as an | supporting gross premiums written |
| Excess, offering additional cover in | improved rating environment has been | growth into 2022. |
| excess of the NFIP. In the five years | offset by re-underwriting actions in risk |  |
| since inception, FloodPlus has grown | and pro-rata and aggregate books. | Matthew Wilken joined the business as |
| to form the majority of our $100 million | Importantly, net premiums written grew | our new Chief Underwriting Officer in |
| flood book with 70,000 customers. | by 42.3% as we deployed more capital | January 2022. He joins from MS Amlin |
| Twenty-eight of our coverholder partners | into an improving rating environment, | Underwriting Ltd, where he held the Head |
| are seamlessly connected to our | which will build earnings power into | of Reinsurance role. Matthew spent his |
| FloodPlus API service that uses advanced | 2022. Hiscox Re & ILS made a profit of | early career at Kiln Syndicate, Argo Re and |
| algorithms to deliver bindable quotes in | $98.5 million and achieved combined | Ariel Re. With his underwriting acumen |
| less than ten seconds and it is currently | ratio of 68.0%; this is an excellent result. | and a strong market reputation, we are |
| averaging 17,000 quotes per week. | Hiscox Re & ILS business delivered | delighted to be further strengthening our |
| FloodPlus has advanced risk management | $91.1 million of underwriting result, as a | underwriting and executive teams. |
| capability, allowing the control of | strong non-catastrophe loss experience |  |
| aggregate exposure to an extremely | and favourable prior-year movements | Dividend, capital and |
| granular level. This approach combined | in our Japan and risk books more | liquidity management |
| with the ability to adjust prices in real time | than offset the elevated net natural | The Group remains strongly capitalised |
| allows the generation of optimal spread | catastrophe losses of $122.0 million net | against both regulatory and rating |
| of risk through the portfolio. | of reinstatement premiums in the period. | agency requirements. The Hiscox |

Group Bermuda solvency capital

| In 2020, we launched BindPlus Residential | Since 2016, Hiscox Re & ILS has | requirement (BSCR) ratio is estimated |
| --- | --- | --- |
| which offers private property insurance | non-renewed $378 million of | at 31 December 2021 at 200%, a |
| with coverage for wind, earthquakes, | non-profitable business, having fully | 13 percentage point improvement on |
| wildfires and any other perils. In March | exited casualty and healthcare and | the prior year. The 11 percentage point |
| 2021 we extended our BindPlus | significantly reduced risk exposure. | impact of the final stage of strengthening |
| API offering by launching BindPlus | In property, we have reduced the | of the formula (an industry-wide basis |
| Commercial, supplementing the flood | aggregate and bottom layer exposures | strengthening implemented by our |
| and the household products already | on North American catastrophe | Group regulator, the Bermuda Monetary |
| on the platform. Our plan for 2022 is to | business, most notably in Florida, and | Authority) was more than offset by a |
| streamline the platform technology and | our Japanese typhoon exposure is 23% | combination of strong organic capital |
| scale it to meet the growth ambition we | less than it was three years ago. In cyber, | generation and 13 percentage points |
| have for this business. | ahead of the market, we exited some | of benefit from proactive capital |
|  | low attaching risks to reduce exposures | management through loss portfolio |
| In February 2022, Helen Rose assumed | to increasing ransomware attacks while | transfer (LPT) transactions executed in |
| her role as Chief Financial Officer of | our core stop loss product continued | the period. On an S&P basis we remain |
| Hiscox London Market and Hiscox | to benefit directly from the significant | well capitalised to maintain an A rating. |
| Syndicates Limited. With more than a | improvements in the underlying rate | S&P are in the process of updating their |
| decade in the insurance industry, Helen | adequacy. In short, we have rebalanced | capital model, as a result of this Hiscox is |
| held a number of roles with Aspen Group, | the book to align to our expertise and | expected to benefit from recognition of |
| including Insurance CFO, UK CFO and | create more resilience while also driving | risk diversification benefit in our business |
| most recently Chief Accounting Officer. | rate improvement and margin expansion. | model and conservative reserve margin. |
| Hiscox Re & ILS | Our ILS proposition has attracted new | During 2021 and into 2022, we have |
| Gross premiums written increased | inflows, $190 million in 2021 and a | continued to proactively take action to |
| by 8.7% to $807.8 million (2020: | further $217 million in January 2022. | limit profit volatility from the back-book, |
| $743.4 million), however, excluding | AUM stands at $1.6 billion at 1 January | in particular where we have decided |

28 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |

Strategic focus
Total Group controlled income for 2021
100% = $4,795 million
Big-ticket business Retail business
Larger premium, globally traded, catastrophe-exposed Smaller premium, locally traded, relatively less volatile business
business written mainly through Hiscox London Market written mainly through Hiscox Retail.
and Hiscox Re & ILS.
Reinsurance Small commercial
19% 28%
Large property
10%
Tech and media casualty
Casualty 7%
8%
Art and private client
10%
Specialty – terrorism, product recall
6%
Marine and energy
Specialty – kidnap and ransom,
6%
contingency, personal accident
4%
29Hiscox Ltd Report and Accounts 2021
Small property
2%

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |

Portfolio – asset mix
Investment portfolio $7,290 million as at 31 December 2021
Asset allocation (%)
Debt and fixed income holdings 75.9
Cash and cash equivalents 17.8
Equity and investment funds 6.3
Debt and fixed income holdings credit quality (%)
Gvt 16.4
AAA 11.4
AA 9.6
A 28.0
BBB 28.7
BB and below 5.9
Debt and fixed income holdings currency split (%)
USD 70.4
GBP 17.3
EUR 8.4
CAD and other 3.9
30 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |


|  | to exit the business. In the first half | providing sufficient liquidity to pay |
| --- | --- | --- |
|  | of 2021, the Group undertook two | claims and providing capital to |
|  | LPT transactions, covering legacy | support the underwriting business, |
|  | healthcare claims in Bermuda and | while generating strong risk-adjusted |
| The Board believes that | the selected lines of Hiscox Syndicate | returns. Given the depressed yield on |
|  | 3624, including the majority of Hiscox | our short-dated bond portfolio at the |

## paying a dividend is

|  | USA’s surplus lines broker business. | start of the year, and the rising rate |
| --- | --- | --- |
| one important indicator | The two transactions cover 15% of | environment during 2021 driving |
|  | 2019 and prior years’ gross reserves, | mark to market losses, investment |

## of the financial health

|  | and will remove potential reserve | returns were subdued at $51.2 million |
| --- | --- | --- |
| of the Group. Having | volatility from longer tail lines which | (2020: $197.5 million) after investment |
|  | we have mostly exited in the coming | expenses, a return of 0.7% (2020: 2.8%). |

## carefully considered the

|  | years, thus allowing management to | Assets under management at |
| --- | --- | --- |
| capital requirements of | focus on the opportunities presented | 31 December 2021 were $7.3 billion |
|  | by the good trading conditions we have | (December 2020: $7.6 billion). |

## the business, the Board
ahead of us. This together with the
## has recommended to substantial reserve margin above the Despite global supply chain pressures
actuarial best estimate demonstrates and intermittent pandemic-driven
## shareholders for approval
our resilient foundations. lockdowns, the strong global economic
## the payment of the final recovery saw equity markets deliver
The Board believes that paying a strong returns over the year. While
## dividend at 23.0 cents

|  | dividend is one important indicator | bond markets were initially calmed by |
| --- | --- | --- |
| per share.” | of the financial health of the Group. | reassurance from central banks that |
|  | Having carefully considered the capital | inflationary pressures were temporary, |
|  | requirements of the business, the Board | the latter part of 2021 saw sharper |
|  | has recommended to shareholders | increases in bond yields as central |
|  | for approval the payment of the final | banks started to scale back asset |
|  | dividend at 23.0 cents per share. | purchases and indicate that they |
|  | This brings our total dividend for the | would implement tighter interest |
|  | year to 34.5 cents per share. The | rate policy going forwards. |

record date for the dividend will be

| 6 May 2022 and the payment date will | Government bond yields increased |
| --- | --- |
| be 13 June 2022. The Board proposes | over the period, however, they remain |
| to offer a Scrip alternative, subject to the | depressed relative to historical levels |
| terms and conditions of Hiscox’s 2019 | and credit spreads for high-quality |
| Scrip Dividend Scheme. The last date | bonds remain near their historical |
| for receipt of Scrip elections will be | lows. The yield to maturity on the |
| 20 May 2022 and the reference price will | bond portfolio improved in 2021, |
| be announced on 30 May 2022. Further | but remained modest at 1.0% at end |
| details on the dividend election process | December 2021 (December 2020: 0.4%). |

and Scrip alternative can be found on the
investor relations section of our corporate Central banks have started to tighten
website, www.hiscoxgroup.com. monetary policy since the year end,
and markets are pricing in several rate

| Investments | rises through 2022 and government |
| --- | --- |
| We manage our investment portfolio with | bond yields have shifted sharply higher |
| two main objectives in mind: | at shorter maturities. The resulting |

31Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |


| temporary mark to market losses on | In February 2022, Jon Dye was |  |
| --- | --- | --- |
| our short-dated bond portfolios will | appointed to become the new UK Chief |  |
| make a considerable dent in 2022 | Executive Officer, effective September |  |
| investment returns, but we are pleased | 2022, subject to regulatory approval. Jon |  |
| that the interest rate environment | has held a number of senior roles within | Hiscox could not have |
| has started to normalise, markedly | the industry, most recently as CEO of |  |

## become the business
improving reinvestment opportunities Allianz UK for eight years. He also served
## in the longer term. as Chair of the ABI between 2019 and it is today without
2021, and as such has driven industry
## the contribution of its

| Year to date, our bond portfolio yield | collaboration on issues including the |  |
| --- | --- | --- |
| has risen to 1.7%, up from 1.0% at end | industry’s response to the pandemic, | dedicated, resourceful |
| December 2021. The short-dated | FCA fair pricing review and climate |  |

## and talented people;
nature of our investment portfolio means change. Jon is a recognised industry
## we will be able to reinvest maturities leader with solid CEO experience and our future success fully
at higher rates to capitalise on the I look forward to working with him as
## rests on our people.”
higher yield environment during 2022, part of our Group Executive Team.
however, this will be partly offset by

| mark to market losses in the short term. | Hiscox has always had a differentiated |  |
| --- | --- | --- |
| The outlook for 2023 is now looking | culture and we are keen to preserve |  |
| brighter with respect to investment | its unique nature, such as a sense of |  |
| income and we continue to look through | proprietary ownership, entrepreneurial |  |
| ongoing volatility to steadily invest into | spirit, empathy for each other, customers |  |
| diversifying positions where valuations | and partners. At the same time, we are |  |
| present attractive long-term risk and | entering a new stage of our journey, so |  |
| capital-adjusted outcomes. | our culture will evolve as we become a | Agreement. We made good progress on |
|  | larger business. I am keen for our people | ESG issues in 2021, but of course there is |
| People | to be clear about the role they play in the | more still to do. |
| Hiscox could not have become | overall Group strategy and how they are |  |
| the business it is today without the | contributing to our joint future success. | On the environmental side, we made |
| contribution of its dedicated, resourceful |  | new greenhouse gas (GHG) emission |
| and talented people; our future success | With this in mind I have created a single | reduction commitments, using |
| fully rests on our people. It is a key | Group Executive Committee, with five | Science Based Targets initiative (SBTi) |
| competitive advantage that we have and | business unit CEOs complemented by | methodologies, that align with a |
| I am fully committed to nurturing and | five functional leaders, including the new | 1.5°C net-zero world by 2050. These |
| investing in our people. I am also pleased | role of a Group Chief Operating Officer. | include reducing our Scope 1 and 2 |
| to welcome new world-class talent to the | Our new executive leadership team will | emissions by 50% by 2030; reducing |
| Group. In December, we announced | ensure increased collaboration between | our operational Scope 3 emissions by |
| Paul Cooper was appointed as Group | business units and Group functions and | 25% per FTE by 2030; and transitioning |
| Chief Financial Officer, subject to | will steer coordinated execution of the | our investment portfolios to net zero by |
| regulatory approval. Paul has over 25 | Group strategy. | 2050. The aim is that more than 25% of |
| years of financial services experience |  | our corporate bond portfolio by invested |
| across both the retail and Lloyd’s | Environmental, social and governance | value will have net-zero/Paris-aligned |
| insurance markets and his broad | ESG matters at Hiscox; it is why we were | targets by 2025, and more than 50% |
| commercial acumen as well as his | a founding member of ClimateWise, a | by 2030. Our new commitments also |
| audit, regulatory and capital markets | public supporter of the Task Force on | include engaging with our suppliers, |
| experience will help us capture the | Climate-related Financial Disclosures | brokers and reinsurers on our net-zero |
| many opportunities ahead. | (TCFD) and a signatory to the 2015 Paris | targets as well as their own, and |

32 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Chief Executive’s report |  |  | information | summary |


| monitoring emerging standards around | Pride, and parents and caregivers – | Outlook |
| --- | --- | --- |
| underwritten emissions so we can | play an important part in this, but so | I am optimistic about the outlook |
| align with best practice as it emerges. | too does our diversity reporting. 2021 | for 2022. Cumulative rate increases |
| We will share periodic updates on our | marked our fifth year of UK gender pay | over a number of years in our big- |
| progress towards accomplishing these | reporting and although our gender pay | ticket businesses have created the |
| ambitions, and remain operationally | gap has been steadily reducing since | opportunity to build balanced portfolios |
| carbon neutral through offsetting, as | 2017, it continues to be predominantly | with improved margins and resilience |
| we have been since 2014. | driven by more men than women holding | and the profit outlook is positive. Our |
|  | more senior roles. I am pleased to see | Retail business is very well placed to |
| In addition, our ESG exclusions policy | our current Board diversity reach 55% | drive significant growth into large and |
| – which sets out our ambition to reduce | men and 45% women, and my newly | underserved markets. With much of the |
| steadily and eliminate by 2030 our | formed Group Executive Committee | course correction complete, I expect |
| insurance, reinsurance and investment | comprises 40% men and 60% women, | this to lead to strong headline growth, |
| exposure to coal-fired power plants and | but equally I recognise we have more to | improving profitability and we remain |
| coal mines; Arctic energy exploration, | do here. And finally, our communities, | on track to achieve the 90% to 95% |
| beginning in the Arctic National | where the combination of Hiscox Gives | combined ratio target in 2023. |
| Wildlife Refuge region; oil sands; and | (our fundraising and volunteering arm), |  |
| controversial weapons – officially | the Hiscox Foundation (our charitable | While the recent extreme weather |
| came into force on 1 January 2022. Our | foundation) and our employee-led | events are a stark reminder that we |
| big-ticket risks are now categorised by | green teams continue to drive a range | live in an unpredictable world, the |
| ESG status and we have developed new | of socially responsible initiatives – from | re-underwriting actions we have |
| underwriting dashboards that provide | beach clean-ups in Bermuda to plastic | undertaken mean our business |
| live views of our exposure to excluded | fishing on the River Thames. In 2021, | portfolio is less volatile and more |
| sectors; steps that enabled us to start | this work resulted in $1.5 million | resilient; and we are strongly capitalised |
| declining out-of-scope risks ahead of | donated to good causes and over | with sufficient financial flexibility to |
| time. In investments, we have been | 1,000 volunteering hours. | support our growth ambitions. |

embedding a range of ESG requirements

| in segregated investment manager | In governance, we boosted our existing | Finally, I would like to thank our |
| --- | --- | --- |
| mandates and have already eliminated | commitments by becoming members | employees, business partners and |
| all direct exposures outside of appetite. | of the Principles for Responsible | shareholders for their continued support. |
| This, alongside the semi-annual ESG | Investment (PRI) – both as an asset |  |
| reviews we have established with our | owner and asset manager – and the |  |
| managers, has enabled our investment in | Principles for Sustainable Insurance |  |
| sustainable and impact assets including | (PSI). We also strengthened our existing |  |
| green bonds to reach over $250 million. | ESG oversight structure with the | Aki Hussain |
|  | formation of our Sustainability Steering | Group Chief Executive Officer |
| When it comes to social, I think of this | Committee (SSC), bringing new senior | 2 March 2022 |
| in three parts: customers, colleagues | expertise to our activities. The SSC |  |
| and communities. We paid $1.25 billion | is responsible for executing our ESG |  |
| in claims during the year, but we also | strategy across our operations, driving |  |
| helped our customers to actively manage | actions and delivery at a Group level, |  |
| risk through tools such as our CyberClear | tracking our sustainability performance |  |
| Training Academy. For colleagues, we | over time, and identifying relevant risks |  |
| continue to focus on improving diversity | and opportunities – with an initial focus |  |
| at all levels. Our 15 employee network | on climate change. I am pleased to chair |  |
| chapters – encompassing Latino and | the SSC and personally contribute to our |  |
| Pan-African communities, WeMind, | sustainability agenda. |  |

33Hiscox Ltd Report and Accounts 2021

|  | Q: Looking back at 2021, | Q: Are there any other |
| --- | --- | --- |
|  | what are the achievements | changes happening |
|  | that stand out for you? | in parallel? |
|  | A: The thing that I’m most | A: On the front end, working |
| Q& | happy about is how we | with brokers, we’re continuing |
|  | managed to respond to | to move into digitisation. |
|  | Covid-19. At the start of the | That’s also the case with |
|  | crisis, we said: “We’ll look after | direct-to-consumer, |
|  | our people, we’ll look after our | because buying behaviour |
| A: | clients, and we’ll make sure | is changing so quickly. |
| with Robert Dietrich | we don’t stop the big strategic | If you’re a 28-year-old |
| Chief Executive Officer, Hiscox Europe | initiatives”. In Europe, I think we | consultant and you want |
|  | accomplished all three goals. | to buy insurance on a |

## Euro vision
The business results have Sunday evening, you don’t
been very good – we’ve grown want to go via a broker.
## Hiscox Europe is
and we’re profitable – but the New partnerships and new
bigger accomplishment has platforms are emerging all
## transforming its core
been in the culture and the the time. It’s not just brokers
## system through spirit, and how that’s survived and end consumers, either. In
the pandemic. France, for example, smaller
## Project Leap and has
Beyond that, the thing clients often go via banks, so
I’m most proud of is that in we need to partner with those
## developed a strong
2020, right at the beginning banks. These models are
of lockdown, we started a changing, and we need
## vision for the future.
technology project called to play a role in all of them.
Leap. There was a big

|  |  | question: can we manage a | Q: How do you see the |
| --- | --- | --- | --- |
|  |  | big project like that remotely, | human value being |
|  |  | with people from Germany, the | applied at Hiscox? |
|  |  | UK, Israel, Portugal, India, all | A: For me, it’s not necessarily |
| In 1997, when Robert | chapter of an exciting book | working together to achieve | always the big things. It’s |
| Dietrich joined Hiscox as | and there’s so much more to | something? The team did so | lots of small things. It’s about |
| an administration manager, | do. People are really motivated | well. We did it on time and | being a decent person. It’s |
| he was the business’s fifth | to be here. It’s fun to build | within budget. This wasn’t | about saying please and |
| employee in Germany. | something. We always say: | just a job, this was a mission. | thank you and well done, |
| Sixteen years ago, after | “Next year is going to be super | It’s something we will benefit | no matter what position |
| a stint as European | exciting”, and it’s true every | from for years to come. | you’re in. It’s about helping a |
| Underwriting Director, | year. Next year is going to be |  | colleague who needs a hand, |
| he became Managing | super exciting, we’re going to | Q: What is Project Leap | supporting someone who |
| Director of Germany. In | do something completely new | seeking to achieve? | feels a bit down, just being |
| 2021, he was made Chief | and challenging. I have not | A: It’s about rebuilding our | there when you’re needed. |
| Executive Officer of Hiscox | been bored one single day at | core system. At an insurance | It’s how we treat clients if |
| Europe, overseeing eight | Hiscox, not one single day. | company, the core system | they have a claim. It’s how |
| countries and more than |  | is the most complex thing | we deal with a complaint. |
| 600 employees. | Q: How does it work, | to change – it underpins | It’s about trying to feel a bit of |
|  | running a business across | everything. For 23 years, | what other people are going |
| Q: In your 25 years with | an entire continent? | we’ve worked with a system | through. That’s what being |
| Hiscox, how dramatically | A: We’re taking care of eight | we created ourselves. I’m quite | human means. |
| has the European | countries, and we’ve got | proud of what we built, but |  |
| operation changed? | over 600 people. It can be | with it we wouldn’t be able to | Q: During the lockdowns |
| A: When we started in Germany | complicated, having different | achieve our vision. The new | of the past two years, what |
| nobody knew us. Nobody. | nationalities, different sizes | platform will make it possible | did you miss most about |
| They couldn’t even pronounce | of operation, different | for our business to really scale | being around other people? |
| Hiscox. There was an orange | evolution stages, but we | up, get better connectivity | A: For me, the office is like a |
| juice in Germany that had a | believe that we’re greater | to the market, increase | cultural shower. It’s refreshing. |
| similar name, so everybody | together. We exchange | automation and set the | Every person you meet, you |
| here thought we made orange | so many ideas – that’s the | foundations for gathering and | have a chat, you have a laugh, |
| juice. Hiscox didn’t have any | fascinating part of being so | using data. We started with | you discuss something, you |
| brand; now we have a very | international, that you can | Germany as a pilot, and now | have a creative idea together. |
| good brand. Almost everything | get the best ideas from all the | we’re moving on to France. | I think we did a pretty good job |
| has changed. The only thing | different countries. Our vision | This is where this idea of | in trying to be connected, but |
| that hasn’t changed is that | is that we want to become | ‘greater together’ comes in: no | just having an unscheduled |
| start-up mentality, that feeling | the most recommended | country in isolation could afford | chat and a laugh, a bit of |
| that you haven’t achieved it yet, | insurer in Europe. That’s | a system change like that, | camaraderie, I think that’s |
| that you’ve just started the first | the common goal. | but combined we can do it. | the bit that I missed most. |

34 Hiscox Ltd Report and Accounts 2021
35Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Capital

| The Board monitors the Group’s | the results of each of these models |
| --- | --- |
| capital strength, ensuring Hiscox | indicates that we are comfortably able |
| remains suitably capitalised for | to maintain our current A ratings. In |
| regulatory and rating purposes, and | December 2021, S&P published details |
| to fund future growth opportunities. | of significant proposed changes to |

the model used to assess our capital

| Monitoring of the Group’s capital | adequacy for consultation. We expect |
| --- | --- |
| requirements is based on both external | these changes to be introduced |
| risk measures, set by regulators and | during 2022. We will be looking at any |
| rating agencies, and our own internal | consequences for our capital position |
| guidelines for risk appetite. | very closely and will factor this into our |

capital management plans. Being an
The Group measures its capital A-rated business is important to us,
requirements against its available and our intention is to maintain our
capital, which is defined by the Group current strong ratings.
as the total of net tangible asset

|  | value and subordinated debt. The | The Group manages the underwriting |
| --- | --- | --- |
|  | subordinated debt issued by the | portfolio so that, in a 1-in-200 aggregate |
|  | Group is hybrid in nature, which | bad year across all major risk types, it |
|  | means it counts towards regulatory | will still be able to meet its regulatory |
| We continue to | and rating agency capital requirements. | capital commitments. A market loss of |
|  | At 31December2021, available capital | this magnitude would be expected to |

## manage our capital

|  | was $2,599million (2020:$2,431million), | bring about increases in the pricing of |
| --- | --- | --- |
| proactively, leading | comprising net tangible asset value of | risk, and the Group’s capital strength and |
|  | $2,226million (2020:$2,055million) | financial flexibility following this scenario |

## to a robust position
and subordinated debt of $373million means we would be well positioned to
## which will enable us to (2020:$376million). take advantage of any opportunities
that might arise as a result.
## seize the underwriting
The Group can source additional
## opportunities that funding from its borrowing facilities The Group is regulated by the Bermuda
which comprise a revolving credit and Monetary Authority (BMA) under
## lie ahead.”
Letter of Credit facility, as well as a the Bermuda Group Supervisory
Tier 1 Funds at Lloyd’s facility. Standby Framework. The BMA requires Hiscox
Craig Martindale
funding from these sources comprised to monitor its Group solvency and
Group Head of Capital Management

| $941million (2020: $946 million), of | provide a return in accordance with the |
| --- | --- |
| which $331million was utilised as at | Group Solvency Self Assessment (GSSA) |
| 31December2021 (2020:$524million). | framework, including an assessment |

of the Group’s Bermuda Solvency
Our key rating agencies, A.M. Best, Capital Requirement (BSCR). The BSCR
S&P and Fitch, calculate capital model applies charges for catastrophe,
adequacy by measuring available premium, reserve, credit and market
capital, after making various balance risks to determine the minimum capital
sheet adjustments, and comparing required to remain solvent throughout
it with required capital, which the year.
incorporates charges for catastrophe,
premium, reserve, investment and The GSSA is based on the Group’s own
credit risk. Our interpretation of internally-assessed capital requirements
36 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Capital |  |  | information | summary |

167

| The Hiscox businesses are rated | Read more about our financial condition |
| --- | --- |
| ‘A’ by A.M. Best and S&P and A+ | in our financial condition report |
| by Fitch. Read more in note 3 to | hiscoxgroup.com/about-hiscox/ |
| the financial statements. | group-policies-and-disclosures |

and is informed by the Group-wide Projected capital requirement
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 $2.60 billion available capital
Group level.
$2.52 billion available capital (post-final dividend)
The Group’s estimate for the year-end
## 3.0 2021 BSCR solvency coverage ratio is
200%, which includes the final stage of
Economic Regulatory
changes to the BSCR standard formula
phased in by the BMA over a three-year
period, which began in 2019. These
changes since last year-end have
## 2.5
been effectively offset by our proactive
approach to capital management in
the form of two loss portfolio transfer
transactions. The first relates to legacy
healthcare claims in Bermuda, while
the second covers selected lines of
## 2.0
Hiscox Syndicate 3624, including the
majority of Hiscox USA’s surplus lines
broker business. Both transactions are
designed to remove reserve volatility in
the coming years, allowing us to focus on
## 1.5 the opportunities presented by the good
trading conditions we have ahead of us.
The Group continues to operate with a
robust solvency position and expects
to maintain an appropriate margin of
## 1.0
solvency going forward. In addition, each
of the respective insurance carriers holds
appropriate capital positions on a local
regulatory basis.
A.M. Best S&P Fitch Hiscox Hiscox Bermuda
integrated integrated enhanced
## 0.5
capital model capital model solvency
(economic) (regulatory) capital
requirement
Rating agency assessments shown are internal Hiscox assessments of the agency capital requirements
on the basis of projected year-end 2021. 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
## 0.0
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.
37Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Risk management
The Group’s core business is to take doing so remain within the parameters
risk where it is adequately rewarded, set by the Board.
guided by a strategy that aims to
maximise return on equity within a The risk management framework is
defined risk appetite. The Group’s underpinned by a system of internal
success is dependent on how well control, which provides a proportionate
we understand and manage our and consistent system for designing,
exposures to principal risks. implementing, operating and
assessing how we manage our key

| Risk strategy | risks. This framework is regularly |
| --- | --- |
| Our robust risk strategy positions us to | reviewed and enhanced to reflect |
| capture the upside of the risks we pursue | evolving practice on risk management |
| and effectively manage the downside of | and governance. During 2021, we |
| the risks to which we are exposed. It is | continued to embed and strengthen |
| based on three key principles: | our system of internal control. |

— we maintain underwriting discipline;
— we seek balance and diversity Risk appetite
through the underwriting cycle; The risk appetite sets out the nature and
— we are transparent in our approach degree of risk the Group is prepared to
to risk, which allows us to take to meet its strategic objectives and
## Our risk management continually improve awareness business plan. It forms the basis of our
and hone our response. exposure management and is monitored
## strategies continue to
throughout the year.
## evolve with our business, Risk management framework
The Group takes an enterprise-wide Our risk appetite is set out in risk
## enabling us to adapt
approach to managing risk. The risk appetite statements, which outline the
## our responses to management framework provides level of risk we are willing to assume,
a controlled system for identifying, both by type and overall, and define
## key emerging and
measuring, managing, monitoring our risk tolerances: the thresholds
## changing trends like and reporting risk across the Group. whose approach would represent a
It supports innovative and disciplined ‘red alert’ for senior management and
## climate and cyber.”
underwriting across many different the Board.
classes of insurance by guiding our
Hanna Kam
appetite and tolerance for risk. Risk appetites, which are set for each
Group Chief Risk Officer
of our insurance carriers and for the

| Exposures are monitored and | Group as a whole, are reviewed |
| --- | --- |
| evaluated both within the business | annually, enabling us to respond to |
| units and at Group level to assess | internal and external factors such as |
| the overall level of risk being taken | the growth or shrinkage of an area of |
| and the mitigation approaches being | the business, or changes in the |
| used. We consider how different | underwriting cycle that may have an |
| exposures and risk types interact, | impact on capacity and rates. In 2021, |
| and whether these may result in | we continued to enhance and refine |
| correlations, concentrations or | our risk appetite statements across |
| dependencies. The objective is to | the Group. |

optimise risk-return decision-making
while managing total exposure, and in
38 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Risk management |  |  | information | summary |

Risk management framework Three lines of defence model Hiscox Own Risk and Solvency
Understanding and managing the Assessment (ORSA) framework
significant exposures we face. The Group’s ORSA process is an evolution
of its long-standing risk management
and capital assessment processes.
Risk governance First line of defence ORSA governance
Owns risk and controls
Risk Risk Responsible for ownership and
ORSA Business
definition owner
management of risks on a day-to-day
documentation planning
basis. Consists of everyone at every
A p r o c
S e level in the organisation, as all have
R s
s
Risk O
Risk responsibility for risk management
reporting
appetite
at an operational level.
Assurance Risk
assessment
Risk
Risk
monitoring
measurement
Capital and
Risk Second line of defence solvency
mitigation assessment
Assesses, challenges and advises
on risk objectively
Provides independent oversight,
Risk management across the business The Own Risk and Solvency
challenge and support to the first line
The Group coordinates risk management Assessment (ORSA) process
of defence. Includes the Group risk
roles and responsibilities across three The Group’s ORSA process involves a
team and the compliance team.
lines of defence. These are set out self-assessment of the risk mitigation
in the model to the right. Risk is also and capital resources needed to achieve
overseen and managed by formal and the strategic objectives of the Group
informal committees and working groups and relevant insurance carriers on a
across the first and second lines of current and forward-looking basis,
defence. These focus on specific risks while remaining solvent, given their risk
such as catastrophe, cyber, casualty, Third line of defence profiles. The annual process includes
sustainability, reserving, investments Provides independent assurance multi-disciplinary teams from across the
and credit, as well as emerging risks. of risk control business, such as capital, finance and
The Group Risk and Capital Committee business planning.
and the Group Underwriting Review Provides independent assurance to
Committee make wider decisions on risk. 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.
39Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Risk management |  |  | information | summary |

10
More information on our approach to Read more about our key risks.
risk management can be found at
hiscoxgroup.com/about-hiscox/
risk-management

| The role of the Board in risk |  |  | year volatility), reserve risk (prior | principal risks facing the Company, |
| --- | --- | --- | --- | --- |
| management and key |  |  | years) and reinsurance strategy. | including those that would threaten its |
| developments during 2021 |  |  | Multiple workshops were held | business model, future performance, |
| The Board is at the heart of risk |  |  | with Board members providing | solvency or liquidity, has been carried |
| governance and is responsible for |  |  | valuable feedback for the use of | out during the year and that no |
| setting the Group’s risk strategy |  |  | risk limits and risk modelling. | material changes to the principal |
| and appetite, and for overseeing |  |  | For the Group, we formalised | risks are required. |
| risk management (including the risk |  |  | an aggregate risk measure for |  |
| management framework). The Risk |  |  | solvency monitoring at different | The role of the Group risk team |
| Committee of the Board advises on |  |  | return periods. | The Group risk team is responsible |
| how best to manage the Group’s risk |  | — Enhancements were made to our |  | for designing and overseeing the |
| profile by reviewing the effectiveness |  |  | risk and control self-assessment | implementation and continual |
| of risk management activities and |  |  | (RCSA) which is an annual | improvement of the risk management |
| monitoring the Group’s risk exposures, |  |  | programme of work undertaken | framework. The team is led by the |
| to inform Board decisions. |  |  | across the Group to assess the key | Group Chief Risk Officer who reports |
|  |  |  | risks and controls in our risk and | to the Group Chief Executive Officer, |
| The Risk Committee relies on frequent |  |  | control register (RCR). The RCSA | the Risk Committee of the Board and |
| updates from within the business and |  |  | ensures the business appropriately | of the relevant subsidiary boards. |
| from independent risk experts. At each |  |  | reflects the key risks it currently |  |
| of its meetings during the year, the Risk |  |  | faces; appropriate key controls are | The team works with the first-line |
| Committee reviews and discusses a |  |  | captured against each of these risks | business units to understand how they |
| risk dashboard and a critical risk tracker |  |  | and it enables the first line, as risk | manage risks and whether they need |
| which monitors the most significant |  |  | and control owners, to better focus | to make changes in their approach. |
| exposures to the business, including |  |  | attention on areas where additional | It is also responsible for monitoring |
| emerging risks and risks that have |  |  | oversight is needed to further uplift | how the business goes about meeting |
| emerged but continue to evolve. The |  |  | the control environment. | regulatory expectations around |
| Risk Committee also engages in focused |  | — A critical risk designation review |  | enterprise risk management. |
| reviews. Stress tests and reverse stress |  |  | was conducted during the year |  |
| tests (scenarios such as those shown |  |  | to ensure that those risks within | 2021 has seen a continued focus on |
| in the chart opposite, which could |  |  | the RCR that are identified as | improving the efficiency of the risk |
| potentially give rise to business failure |  |  | critical continued to reflect the | management framework, mainly |
| as a result of either a lack of viability or |  |  | most significant exposures to | through the streamlining and automation |
| capital depletion) are also performed |  |  | the business. | of repeatable cycles. This drive for |
| and reported on to the Risk Committee. |  | — Summary operational risk metrics |  | efficiency allows for an increase in |
|  |  |  | dashboard reports, aligned to | risk deep-dives and for more support |
| The Risk Committee also provided input |  |  | the RCR, were developed and | to be available to the portfolio of |
| into a number of key risk management |  |  | presented to the Risk Committee to | Group-wide change programmes, |
| developments during 2021. |  |  | strengthen the visibility of existing | as well as ensuring appropriate |
| — A structural review of the risk |  |  | operating metrics utilised across | support and challenge is provided to |
|  | appetite limits framework |  | the Group, as well as to develop | the first line of defence in assessing, |
|  | was undertaken, taking into |  | additional metrics where areas for | understanding and responding to risks |
|  | consideration the changing nature |  | enhancement were identified. | that continue to emerge out of Covid-19. |

of the Group’s business mix. This

| included an enhancement of the | In light of these arrangements and the |
| --- | --- |
| risk limits calibration to reflect | key developments made in 2021, the |
| the interdependent relationship | Directors are satisfied that a robust |
| between underwriting risk (current | assessment of the emerging and |

40 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Risk management |  |  | information | summary |

Property extreme loss scenarios
Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) January 2022
Upper 95%/lower 5%
Modelled mean loss
Hiscox Ltd loss ($m)
0
0
0
## 700
70 Superstorm Sandy – $20bn market loss 7-year return period 1987 J – $10bn market loss 15-year return period Loma Prieta Quake – $6bn market loss 15-year return period Hurricane Katrina – $50bn market loss 21-year return period 2011 Tohoku Quake – $25bn market loss 45-year return period Northridge Quake – $24bn market loss 40-year return period Hurricane Andrew – $56bn market loss 25-year return period
0
## 600
60
0
## 500
50
0
## 400
40
0
## 300
30
JP JP EU US US JP JP EU US US JP JP EU US US JP JP EU US US JP JP EU US US
EQ WS WS EQ WS EQ WS WS EQ WS EQ WS WS EQ WS EQ WS WS EQ WS EQ WS WS EQ WS
loss return
## 200
20 and peril 5–10 year 10–25 year25–50 year50–100 year 100–250 year
## 100 industry loss $bn 02 05 07 02 28 06 09 13 07 55 15 16 22 19 99 28 25 29 38 152 48 37 38 68 21
10
This chart shows a modelled range of net loss the Group might expect from any one catastrophe event.
## 0
0 The white line between the bars depicts the modelled mean loss.
Industry
The return period is the frequency at which an industry insured loss of a certain amount or greater is likely to occur.
period
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.
Mean 7
41Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Stakeholder engagement
Shareholders Employees
Our shareholders value our clear We want to build teams that are as
strategy, strong underwriting discipline diverse as our customers and create
and sound capital management, and a vibrant work environment where all
we maintain ongoing engagement employees can thrive.
with them.
Regular investor dialogue Annual employee engagement survey
We maintain regular dialogue with capital Our annual employee engagement
markets stakeholders, predominantly survey gives all our employees the
via our Group Chief Executive Officer, opportunity to provide honest feedback
Group Chief Financial Officer and Head on how they feel about Hiscox, with the
of Investor Relations, who meet with results discussed at all levels including
existing shareholders, potential investors Board level and informing future plans.
and research analysts regularly to
discuss our strategy, trading conditions, Board-level Employee Liaison
business performance and other Non Executive Director, Anne
factors affecting our operations. MacDonald, also serves as the Group’s
Employee Liaison, working with the
We run several comprehensive investor Group’s employee engagement network
roadshows a year in the UK and USA to ensure that workforce views are
and participate in a range of investor considered in Board decision-making.
conferences. During 2021, the Company

|  | conducted over 350 meetings and met | Employee networks |
| --- | --- | --- |
|  | with over 130 investors, representing | Many of our employees are actively |
|  | approximately 75% of our issued | engaged in at least one of our 15 |
|  | share capital. | employee network chapters, including |
| Engagement with our |  | WeMind, Pan-African, parents and |
|  | Financial reporting | carers, and Pride. These networks |

## stakeholders is critical
We report to the market on Company are supported by our Directors, who
## to our continued performance four times per year, contribute to panel debates and other
providing shareholders with an overview employee events.
## success, so we place
of recent business performance and
## real importance on trading conditions. These are available Communication updates
on our corporate website and as an Employees have access to
## considering and
email alert for subscribers. Company-wide ‘connected’ events,
## responding to our annual ‘launch’ events and ‘box’
Annual Report and Accounts meetings, many of which are led or
## stakeholders’ needs
Our Annual Report and Accounts gives attended by our Directors to share
## at all levels, including shareholders a more detailed view of the news, align on strategy and objectives
business and includes some additional and celebrate successes.
## Board level.”
corporate governance disclosures
beyond our statutory requirements. Partners’ meetings
Marc Wetherhill
Hiscox Partner is an honorary title given
Group General Counsel and
Annual General Meeting (AGM) to employees who make significant
Company Secretary

| Our AGM provides another regular | contributions to the development and |
| --- | --- |
| investor touchpoint. At the 2021 AGM, | profitability of the Group. Up to 5% of |
| all resolutions were passed with a | the total workforce are Hiscox Partners, |
| significant majority. | and have the opportunity to influence the |

direction of our business through regular
formal and informal Partners’ meetings,
which Directors also attend.
42 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Stakeholder |  |  | information | summary |

engagement

| Brokers | Customers | Regulators |
| --- | --- | --- |
| The risks we write through brokers | We have over 1.5 million retail customers | We are a global business with a |
| account for around 85% of our business, | worldwide and providing each of them | responsibility to engage with regulators |
| so it is essential that we build strong and | with products they can rely on is what | in all jurisdictions where we operate. |
| lasting relationships with those brokers | we are here for. | The Group is regulated in Bermuda and |
| that share our values. |  | has regulated subsidiaries worldwide. |

Annual Hiscox broker events Customer satisfaction Regular dialogue
We hold an annual preferred broker We talk to thousands of customers each Our Chief Compliance Officer and central
summit for our UK brokers, to share year, through surveys, focus groups and compliance team lead our relationships
insight and expertise, and a London other qualitative research – including with regulators worldwide and maintain
Market broker academy to educate feedback after they have bought a regular dialogue with them, with
and inform. These events are product or made a claim – which are involvement from senior management
supported and often attended by reviewed by our leadership teams and and the Board when required.
our Executive Directors. help to continually improve our offering.
Regulatory dialogue includes the annual

| Broker satisfaction survey | Consumer awareness | supervisory college, hosted by the BMA |
| --- | --- | --- |
| Each year we measure broker | We also measure the health of our | as our Group supervisor, which gives |
| satisfaction with our products and | brand through regular brand tracking | an important annual opportunity for |
| services. In 2021, this involved | surveys which assess consumer brand | us to present a consistent message to |
| interviewing over 700 UK- and | awareness and perception. These are | our regulators on issues of common |
| US-based brokers, with the results | shared with senior management and | interest, and in 2021 was attended |
| shared and discussed at Board level | inform marketing and sales activities. | by six members of the Group’s senior |
| and informing future plans. |  | management team. |

Contributing to product development
Attending key industry events We have undertaken qualitative Regulatory change
We participate in key industry events in research in the UK as we look to develop We contribute to the regulatory change
every part of our broker-facing business, products tailored to professions such as process, both directly and through active
including at Executive Director level. fitness professionals, digital marketing membership of trade associations, such
This includes: BIBA, a UK insurance and graphic designers. Insights gained as the Association of Bermuda Insurers
and broker conference; the CIAB, a US from professionals in these fields helps and Reinsurers and the Association of
marketplace meeting for commercial shape our insurance offering to their British Insurers. Our Executive Directors
property and casualty brokers and particular needs. are important contributors to this work.
insurers; and, in our big-ticket businesses,

| Monte Carlo, Baden Baden, and RIMS. | Informing our marketing | Scenario analysis and stress testing |
| --- | --- | --- |
|  | and communications | We maintain a regular cycle of stress |
| Thought leadership | Marketing and communications activity | testing and scenario analysis to ensure |
| We produce thought leadership that | across our markets is informed by the | we manage risk well and evolve at |
| enhances our broker relationships | qualitative and quantitative research | the same pace as the risks we cover. |
| and our position as experts in our | we carry out with both existing and | In 2021, this included participation in |
| chosen areas. In 2021, this included | potential customers. For example, a | the Bank of England’s Climate Biennial |
| cyber security trends to be aware of, | US segmentation study which explored | Exploratory Scenario (CBES) exercise. |
| managing malicious attacks, the future | attitudes and behaviours among small |  |
| of event cancellation, rebuild costs and | businesses with revenues of up to | Regulatory reporting |
| under-insurance, as well as climate | $25 million is contributing to a future | The Group and its subsidiaries met all |
| change and the role of wind energy | USmarketing campaign. | material regulatory reporting obligations |
| in the transitioning economy. |  | for 2021. |

43Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Environmental, social and governance (ESG)
ESG exclusions policy. With semi-annual
## 2021 marked another
ESG reviews of all segregated investment
## year of progress in our managers now established, assets under
management (AUM) in sustainable and
## ESG efforts across the
impact assets including ESG-related
## Group, particularly on bonds at over $250 million, and senior
investment team members undertaking
## environmental issues,
ESG specific investment training, we
## where climate volatility have good progress to build on in 2022.
## presents both risks
Greenhouse gas (GHG)
## and opportunities. reduction targets
Setting new GHG targets for the Group
during the year required extensive
stakeholder engagement, across
functions including HR, procurement

|  | Sustainable underwriting | and property services, an awareness |
| --- | --- | --- |
|  | We have made important developments | of evolving expectations around |
|  | towards defining a sustainable | ‘net zero’, and alignment to the Science |
|  | underwriting approach for Hiscox | Based Targets initiative (SBTi) which |
| Our ESG ambition is | over the last 12 months. This has | is increasingly considered the global |
|  | included the implementation of our | standard (see page 49). We will build |

## clear. We want to be

|  | ESG exclusions policy, which is | on this work in 2022 by developing and |
| --- | --- | --- |
| there for the long term, | supported by an ESG dashboard to | publishing a supporting action plan that |
|  | monitor exposures frequently and | outlines the steps we will take towards |

## for our customers,

|  | consistently (see page 47); becoming | achieving these targets. |
| --- | --- | --- |
| communities and our | a Principles for Sustainable Insurance |  |
|  | (PSI) signatory; and contributing to | ESG governance structure |

## people, operating in
key industry taskforces via the and resource
## a sustainable way for Sustainable Markets Initiative and We strengthened our existing ESG
ClimateWise. We will go further in governance structure during the
## the future.”
2022 as we look to embed a sustainable year with the formation of a new
underwriting strategy across each of Sustainability Steering Committee.
James Millard
our business areas. This has increased senior-level oversight
Chief Investment Officer
and accountability for ESG matters,
and ESG Executive Sponsor
Responsible investment specifically climate, and brought new
We have transformed our approach to expertise to our activities (see page 47).
responsible investment over the last
12months. This has included becoming
a Principles for Responsible Investment
(PRI) signatory, both as an asset owner
and an asset manager through our
ILS business; and embedding ESG
requirements (including ESG exclusions)
in all segregated investment manager
mandates – such that there are no longer
any direct exposures in breach of the
44 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Environmental, social |  |  | information | summary |

and governance (ESG)
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.
C o r e t h e m e s
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45Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Environmental, social |  |  | information | summary |

and governance (ESG)

| 2021 activity highlights |  | 2022 focus areas |  | ESG governance structure |  |
| --- | --- | --- | --- | --- | --- |
| s New Board-approved, SBTi-aligned |  | s Embed our new Group-wide |  | How we manage and monitor ESG issues |  |
|  | greenhouse gas (GHG) reduction |  | net-zero aligned GHG reduction | to ensure appropriate accountability |  |
|  | targets set for the Group (see |  | targets, including a supporting | and oversight. |  |
|  | page 49). |  | action plan. |  |  |
| s ESG exclusions policy established |  | s Further review and refine our |  |  |  |
|  | and new tracking introduced to |  | strategy for carbon emissions | Board | Board |
|  | classify risks by ESG status. |  | offsetting, as we look to remain |  | s Oversight of long-term ESG vision, strategy, priorities and performance against agreed metrics and targets. |
| s New Sustainability Steering |  |  | operationally carbon neutral. |  | s Ensures governance and accountability in place with sufficient support. |
|  | Committee improving senior | s Enhance our sustainable |  |  | s Minimum twice-yearly discussion on ESG strategy, trends, opportunities, vulnerabilities, and emerging issues. |
|  | oversight and accountability. |  | underwriting strategy for |  |  |
| s Signing up to the PRI and the PSI. |  |  | the Group. |  |  |
| s Working with our industry to define |  | s Integrate ESG considerations |  |  |  |
|  | sustainable underwriting through |  | more formally within our supplier |  |  |
|  | ClimateWise and the Sustainable |  | management activities, boosting | Risk Committee | Risk Committee |
|  | Markets Initiative. |  | engagement with our suppliers, |  | s Advises Board on ESG strategy, key priorities, risk profile, risk exposures and opportunities. |
|  |  |  | brokers and reinsurers on their |  | s Recommends proposals for consideration by the Board as required. |

plans to adopt Paris-aligned
climate targets.
s Continue to review and refine our
existing physical risks and casualty
exposure management processes
to ensure climate change remains Group Risk Group Executive Group Risk and Capital Committee (GRCC) Group Executive Committee (GEC)
appropriately reflected, particularly and Capital Committee s Quarterly reporting on ESG matters from Sustainability s Periodic ESG sessions.
New commitments and partnerships when it comes to stress testing and Committee (GEC) Steering Committee. s Sets business unit or function ESG-related strategy,
scenario analysis. (GRCC) s Sets high-level Group strategy, priorities and ensures priorities and drives delivery through business units
s Further embed climate change delivery across the Group. and functions.
assessment in the business
planning process to ensure the
continued consideration of
Principles for Responsible Investment potential climate change impact on Sustainability Steering Committee Sustainability Steering Committee (SSC)
our underwriting, reinsurance and s Sub-committee of the GRCC, responsible for execution of the agreed ESG strategy, driving actions and delivery at a
investments strategies. Group level.
s Continued industry collaboration s Meets quarterly and embeds sustainability risks and opportunities, with an initial focus on climate.
to identify areas where we can s Oversees effective use of resources and tracks Group and entity-level sustainability performance.
help our insureds and reinsurers s Ensures senior management-level involvement and accountability for sustainability issues, with senior representation
Principles for Sustainable Insurance progress towards decarbonisation, from areas including underwriting, investments and operations.
and to contribute to the
development of common ESG working group ESG working group
methodologies in areas such s Operational body, providing central point of coordination and expertise for ESG-related activity across the Group.
as underwritten emissions. s Manages ESG-related Group reporting, disclosures and communications.
s Embed ESG-specific objectives for s Meets monthly and provides input and recommendations to management on ESG matters.
HRH The Prince of Wales’ Sustainable each Group Executive Committee s Focuses on ESG-related research, including external monitoring and expectations.
Markets Initiative member to ensure they are
empowered to play an active
role in our ESG agenda.
s Prepare for PRI and PSI reporting.
46 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Environmental, social |  |  | information | summary |

and governance (ESG)
ESG governance structure
How we manage and monitor ESG issues
to ensure appropriate accountability
and oversight.
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 Minimum 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) Group Executive Committee (GEC)
s Quarterly reporting on ESG matters from Sustainability s Periodic ESG sessions.
Steering Committee. s Sets business unit or function ESG-related strategy,
s Sets high-level Group strategy, priorities and ensures priorities and drives delivery through business units
delivery across the Group. 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 Meets quarterly and embeds sustainability risks and opportunities, with an initial focus on climate.
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.
47Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Environmental, social |  |  | information | summary |

and governance (ESG)
CO 2
## Environmental Hiscox has set new
## targets, using SBTi
## methodologies, that
## align with a 1.5°C
## net-zero world by 2050.

| We carefully manage our environmental | Growing appetite for sustainable |
| --- | --- |
| impact and work with our customers, | insurance products |
| suppliers and business partners to | While we carefully manage the |
| respond to the changing climate. This | underwriting risks associated with |
| includes looking at our operations and | climate change, we also recognise the |
| finding ways to limit our consumption | new opportunities that exist to support |
| of materials such as energy and | customers as the risks they face evolve. |
| water, and reduce the amount of waste | Our US flood product, FloodPlus, is |
| we generate. It also means investing in | one example of this; providing broader, |
| areas such as research, catastrophe | more attractive flood cover than the |
| modelling and new technologies that | government-backed alternative to both |
| improve our underwriting capabilities | homeowners and businesses who face |
| and ensure we are well placed to help | a growing risk of flood. Demand for |
| our customers when it comes to | FloodPlus is such that we now serve |
| managing the risks they face. | over 70,000 customers across 49 states |

and we have ambitious plans to build
ESG exclusions policy embedded on this in 2022. For more information,
Last year, we set out our ambition to see page 92.
reduce steadily and eliminate by 2030

|  | our insurance, reinsurance and | Industry collaboration through the |
| --- | --- | --- |
| Understanding climate | investment exposure to coal-fired power | Sustainable Markets Initiative (SMI) |
|  | plants and coal mines; Arctic energy | During 2021, we were heavily involved in |

## science is really the
exploration, beginning in the ANWR HRH The Prince of Wales’ Sustainable
## starting point for lots region; oil sands; and controversial Markets Initiative. The SMI is designed
weapons such as landmines. to accelerate the transition to a more
## of our environmental
sustainable future, and we have
## activities. We have internal Since then, we’ve: contributed to a number of its big-ticket
s made system changes to allow and retail-focused workstreams. The
## expertise, including
us to categorise big-ticket risks first step was to promote the array
## climate scientists, who by ESG status; of green products and services that
s created new underwriting (re)insurers are already providing,
## inform our underwriting
dashboards that provide live so our early work culminated in a
## approach, but we also views of our exposure to public, industry-wide showcase to
excluded sectors; demonstrate that our industry is already
## have plenty of other
s started to decline underwriting thinking about, and responding to, the
## passionate people risks that fall outside of appetite; transitioning economy. The showcase
s shared the policy with our fund featured Hiscox contributions from
## thinking about our
managers, to ensure it is considered across our flood, nuclear and motor
## climate impact in in relation to pooled funds; products, as well as how we support
s eliminated our investment exposure decommissioning projects. These are
## other ways.”
within all directly held bonds that fall areas we will build on as we continue to
outside of appetite. focus on climate-conscious products and
Robert Caton
services. An overview of the showcase
Director of Underwriting Risk
We will develop on this work in 2022 can be found at: https://a.storyblok.
and Reinsurance
and provide periodic updates on com/f/109506/x/c0c3181f7e/smi-itf_
our progress. products-and-services-showcase.pdf.
48 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Environmental, social |  |  | information | summary |

and governance (ESG)
GHG emissions*
92
2021 2020 Year-on-year
Scope (tCO 2 e) (tCO 2 e) change
Read more about how we plan to achieve
Scope 1 678 615 10%
our new GHG targets.
Scope 2 (market-based) 866 1,111 -22%
Total Scope 1 and 2 1,544 1,726 -11%
Scope 3 (operational) 17,116 27, 4 61 -38%
Total operational footprint 18,660 29,187 -36%
Scope 3 (non-operational) 8,458 7, 0 4 6 20%
Investments 125,156 135,275 -7%
New Board-approved, SBTi-aligned GHG reduction Total GHG emissions inventory
targets set for the Group We continue to focus on managing and minimising our carbon
Getting to net zero is a shared challenge, and we need to footprint as a Group, and during 2021, our total operational
play our part in achieving this global goal. As a Group, footprint decreased by 36%.
Hiscox has had stretching GHG emission reduction targets
for a number of years but this year we set new targets, We experienced a year-on-year increase in natural gas usage,
using SBTi methodologies, that align with a 1.5°C net-zero driven by staff returning to our offices post-pandemic and
world by 2050. better quality data from a number of sites. When it comes to
electricity usage, we have benefitted from continued adoption
As a result, we commit to: of renewable energy sources.
s reducing our Scope 1 and 2 emissions by 50% by 2030,
against a 2020 adjusted baseline*; Business travel emissions, including travel in company-owned
s reducing our operational Scope 3 emissions by 25% vehicles, as well as staff travelling in their own vehicles, has
per FTE by 2030, against a 2020 adjusted baseline*; seen a significant drop due to the fact that 2021 was the first
s transitioning our investment portfolios to net-zero GHG full year of post-pandemic travel patterns. We expect to see
emissions by 2050. The aim is that more than 25% of a rebound in travel emissions as work patterns normalise.
our corporate bond portfolio by invested value will have
* GHG emissions are calculated according to the Greenhouse Gas Protocol:
net-zero or Paris-aligned targets by 2025, and more than
A Corporate Accounting and Reporting Standard (revised edition). Hiscox
50% by 2030;
uses market-based Scope 2 emissions for reporting in line with its new
s engaging with our suppliers, brokers and reinsurers GHG reduction target. Operational Scope 3 emissions cover operational
suppliers (office and other related services), capital purchases, fuel and
on our net-zero targets and on their plans to adopt
energy related activities, waste generated in operations, business travel,
Paris-aligned climate targets;
employee commuting and remote working. Non-operational emissions are
s monitoring emerging standards around underwritten those that do not directly contribute to the emissions associated with daily
business activity, including non-operational purchased goods and services
emissions and collaborate across our industry on their
and transportation and distribution.
development, aligning with best practice in this area as
it emerges. 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
We continue to focus on reducing the emissions we have
operational emissions baseline for business travel has been restated to
control over, and to work closely with our partners where project pre-Covid travel patterns. Note some emissions totals may not
tally due to rounding.
that control is shared. Where common standards and
methodologies do not yet exist – for example, in measuring
A copy of our SECR GHG emissions table can be found on page 57.
and assessing supply chain impacts, and underwritten
†
Although Hiscox’s information providers, including without limitation, MSCI
emissions – we want to help shape the solution.
ESG Research LLC and its affiliates (the ‘ESG Parties’), obtain information
(the ‘information’) from sources they consider reliable, none of the ESG Parties
We will share more information on how we plan to achieve warrants or guarantees the originality, accuracy and/or completeness, of
any data herein and expressly disclaim all express or implied warranties,
these targets in 2022, along with periodic updates on our
including those of merchantability and fitness for a particular purpose. The
progress towards achieving them.
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
We will also continue to offset the emissions we generate
information can in and of itself be used to determine which securities to buy or
via accredited offset schemes, to ensure we remain
sell or when to buy or sell them. None of the ESG Parties shall have any liability
operationally carbon neutral as we have been since 2014. 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.
* The 2020 baseline has been adjusted for Covid-19 to ensure it reflects
a more normal year with regards to office usage, business travel, etc.
49Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Environmental, social |  |  | information | summary |

and governance (ESG)
## Social
We strive to be a good employer, a Social accreditations
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.
Insuring Women’s Futures
In 2021 this included:
s new multi-year charity partnerships.
The Hiscox Foundation, which we
have had since 1987, continues to
support a raft of good causes and
in 2021 formed new partnerships Race at Work Charter
with social mobility programmes
including Social Ark and Dress
for Success, and environmental
Race at Work Charter signatory
champions such as the London
Wildlife Trust;
s a continued focus on improving UK Living Wage employer
our gender pay gap. 2021 marked
## I’m proud of how we our fifth year of UK gender pay
reporting and showed that on a
## support our customers,
mean basis this gap has been
## our communities steadily reducing since 2017
to now reach 19.1%. Diversity
## and each other. It’s
and inclusion action plans,
## something I see as a gender-focused KPIs, tailored
training and development,
## business unit CEO and
networking and peer support,
## as Executive Sponsor of and the targeting of diverse talent
pools are all making a difference
## Diversity and Inclusion,
here. More information on this
## and it’s something I feel can be found in our 2021 gender
pay report: hiscoxgroup.com/
## as a Hiscox employee
gender-pay-report-2021;
## every day.” s conducting our annual employee
engagement survey, which was

| Kate Markham | completed by 85% of employees, |
| --- | --- |
| Chief Executive Officer, | with 90% saying they believe in |
| Hiscox London Market | our corporate values and 73% |

saying they are proud to work for
Hiscox. These results, and the
plans developed to further improve
employee engagement in the year
ahead, were shared and discussed
at both the Group level and
subsidiary boards.
50 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Environmental, social |  |  | information | summary |

and governance (ESG)
Gender diversity Ethnic diversity
at 31 December 2021 at 31 December 2021
Members with ethnic

|  | Male Female |  | minority background |
| --- | --- | --- | --- |
| Board 55% 45% |  | Board 9% |  |
| Group Executive |  | Group Executive |  |
| Committee 40% 60% |  | Committee 20% |  |

Direct reports
to the Group
Executive
Committee 52% 48%
All employees 50% 50%

| Supporting our customers | Supporting our communities Supporting our colleagues |  |
| --- | --- | --- |
| $1.25 billion paid out | $1.5 million donated | 15 employee |
| in claims worldwide | to good causes in 2021. | network chapters – |
| in 2021. |  | encompassing Latino |

## and Pan-African
## communities, WeMind,
## Pride, Women,
## Parents and Caregivers
## and Generations.

| 20+ vulnerable | Over 1,000 hours | Over 43,500 hours |
| --- | --- | --- |
| customer champions | spent volunteering | spent on training and |
| to support those | by our teams. | talent development. |

## requiring additional
## support when
## accessing our
## products and services.
## Tools to manage the Our three strategic pillars 60+ mental health
## risks they face – from for charitable giving first aiders.
## our CyberClear Training
Social mobility
## Academy to our cyber and entrepreneurship
## exposure calculator.
Protecting and preserving
the environment
Causes our people are
passionate about
51Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Environmental, social |  |  | information | summary |

and governance (ESG)
## Governance

| As a global insurer, good governance | Active climate risk management |
| --- | --- |
| practices are essential to our | During 2021, we tested the potential |
| day-to-day business of serving | impact to our assets and liabilities from |
| customers and paying claims. That | physical and transition risks as a |
| means having appropriate internal | result of climate change on some of our |
| controls, policies and procedures, | big-ticket portfolios across a 30-year |
| and structures and oversight, but it | horizon. This exercise involved |
| also means ensuring all employees | cross-function teams including |
| are accountable for their actions | underwriting, investments, exposure |
| and empowered to raise their hand | modelling, strategy and risk, and |
| if something goes wrong. As a | resulted in the identification of a |
| Bermuda-domiciled, UK-listed | number of new focus areas for the |
| business, we comply with the | Group in 2022 (see page 46). These |
| Bermuda Companies Act, the | actions will be driven at a functional |
| UK listing rules and local country | and/or business unit level, with progress |
| laws in each of the locations where | monitored by the Sustainability Steering |
| we operate. | Committee, in accordance with the |

ESG governance structures we
In 2021, this meant: have embedded.
s updating our Board diversity
## Our governance policy to reflect more clearly the Climate training for Directors
underlying ethos of the Company, In 2021, we completed an externally
## structures and processes
the ongoing delivery of a diverse facilitated climate training session
## are taken seriously at Board, and to formalise the to boost existing understanding and
Committee’s oversight of the awareness of climate-related matters.
## all levels. We evolve our

|  |  | Group’s wider D&I programme | This training was available to our Board |
| --- | --- | --- | --- |
| governance practices |  | (see pages 84 to 87); | Directors at both Group and subsidiary |
|  | s the continuation of our employee |  | level, and was designed to establish |

## in line with our strategy

|  | engagement network which | a new baseline of climate knowledge |
| --- | --- | --- |
| and business model | ensures workforce views | post-COP26; brief Board members on |
|  | are considered in Board | the latest climate-related developments |

## and, as you would
decision-making; they should be aware of; and introduce
## expect, the relevant s eleven modules of mandatory the concept of a climate-competent
training for all employees, on board. We will look to build on this
## laws and regulations
issues including information work further in 2022.
## where we operate.” security, financial crime, and
data privacy;
Marc Wetherhill s establishing a new Sustainability
Group General Counsel and Steering Committee to boost
Company Secretary senior-level oversight and
accountability of ESG matters
and, in particular, climate change;
s boosting our existing ESG
disclosures by signing up to
the Principles for Responsible
Investment (PRI) and the Principles
for Sustainable Insurance (PSI).
52 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Environmental, social |  |  | information | summary |

and governance (ESG)

|  | 74 |  | 84 |
| --- | --- | --- | --- |
| Read more about Board activities and |  | Read more about our D&I policies, |  |
| matters approved by the Board in 2021. |  | including our updated Hiscox Ltd |  |

Board D&I policy.
Latest ESG disclosure scores Five years of progress – key ESG milestones
2021: B- grade 2021
2020: C grade s Board-approved ESG exclusions policy published.
s Sustainability Steering Committee established.
s Board-approved, SBTi-aligned, greenhouse gas targets for the Group.
s Became PRI and PSI signatories.
2021: 72%
2020: 66%
2020
s Board-approved responsible investment policy introduced.
s Senior Management Functions (SMFs) with responsibility for climate appointed
within our UK subsidiaries.
2021: 40/100
2020: 35/100
2019
2021: 3.3/5 s Hiscox ESG framework published, showcasing the Group’s ESG strategy.
2020: 4.1/5 s Became a public TCFD supporter.
s Boosted existing disclosures with Dow Jones Sustainability Index.
2021: A grade
2020: A grade
2018
s ESG Executive Sponsor appointed to spearhead ESG activities Group-wide.
s ESG working group established to drive action at an operational level.
20 21: 27.0
2020: 25.6
2017
s Hiscox-led industry ‘dry run’ event to test market resilience
hiscoxgroup.com/london-market-looks-ahead.
53Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Task Force on Climate-related Financial Disclosures (TCFD)

| Reporting against the Financial Stability | In 2021, we strengthened our existing | supported by a range of relevant policies |  |
| --- | --- | --- | --- |
| Board’s Task Force on Climate-related | Group-wide governance structures | and processes that we expect both our |  |
| Financial Disclosures will become | around climate with a new Sustainability | staff and our third-party providers to |  |
| mandatory in the UK from 2025, and | Steering Committee, which has | adhere to. These include the following. |  |
| the Financial Conduct Authority (FCA) | increased senior-level oversight and | s The Hiscox Group ESG exclusions |  |
| requires TCFD disclosure for UK | accountability. The Committee is chaired |  | policy, which sets out our aim to |
| premium-listed firms on a ‘comply | by the Group Chief Executive Officer |  | reduce steadily and eliminate by |
| or explain’ basis – effective from | and members include the Group Chief |  | 2030 our insurance, reinsurance |
| accounting periods beginning on | Underwriting Officer, Chief Risk Officer, |  | and investment in thermal |
| or after 1January2021. | Chief Investment Officer, Chief Executive |  | coal-fired power plants and |
|  | Officer or Chief Underwriting Officer |  | thermal coal mines, Arctic energy |
| We have been reporting against the | business unit representatives, Chief HR |  | exploration projects (beginning |
| TCFD-aligned ClimateWise Principles | Officer, Group General Counsel, and |  | with the ANWR region), oil sands |
| since 2019 and are public supporters | Head of Investor Relations. |  | and controversial weapons. |
| of TCFD. Our annual climate report sets |  |  | Oversight of this policy belongs |
| out our approach to climate-related | An overview of our governance structure |  | to the Sustainability Steering |
| matters in every part of our business: | for climate-related matters is detailed |  | Committee, with implementation |
| governance, risk management, | on pages 46 to 47. This includes the |  | of it driven at a business unit |
| operations, underwriting, investments, | frequency of climate-related meetings |  | and function level across both |
| marketing and so on. It is our richest | at each level, along with each group’s |  | underwriting and investments. |
| source of climate-related information | particular role in monitoring, managing, | s The Hiscox Group responsible |  |
| and expands on the information set out | reporting and escalating climate-related |  | investment policy, which outlines |
| below, so for more information go to: | matters. While this structure also covers |  | our expectations of both our |
| hiscoxgroup.com/2021climatereport. | broader ESG matters, climate-related |  | in-house investment team and |
|  | matters are an important component of |  | our external asset managers. |
| Governance | this and as such are regularly debated |  | This includes our investment |
| We have an established and | and discussed. |  | processes and stewardship |
| embedded governance structure for |  |  | activities as we look to invest in |
| climate-related matters, with robust | Within this structure we also consider |  | companies that have sound ESG |
| and rigorous processes for identifying, | the training and development |  | practices; how we evaluate our |
| measuring, monitoring, managing | requirements of those with oversight |  | managers’ ESG integration; and |
| and reporting climate-related matters | responsibilities and accountability |  | our approach to impact investing. |
| across the Group. This spans from | for climate matters to ensure we have |  | This policy is owned by the Group |
| an operational level up to the newly | appropriate awareness and expertise |  | investment team with oversight |
| established Sustainability Steering | to drive progress. In 2021, this included |  | from both the Sustainability |
| Committee, the Risk Committee of the | an externally facilitated climate training |  | Steering Committee and the |
| Board, and the Board itself. | session, available to our Board Directors |  | Group Investment Committee. |
|  | at both Group and subsidiary level, | s The Hiscox Group environmental |  |
| Within this structure, there are clear | to establish a new baseline of climate |  | policy, which outlines our approach |
| roles and responsibilities. In our UK | knowledge post-COP26; brief Board |  | to managing the environmental |
| legal entities, this structure is bolstered | members on the latest climate-related |  | impact of our business activities |
| by the appointment of senior managers | developments they should be aware |  | and those that arise from our |
| with overall regulatory responsibility | of; and introduce the concept of a |  | ownership and occupation of |
| for managing the financial risks from | climate-competent board. |  | office premises. We actively |
| climate change, in line with the |  |  | manage and aim to minimise our |
| UK’s Senior Managers Certificate | The governance structure we have |  | environmental impacts, due to |
| Regime (SMCR). | embedded for climate issues is also |  | the resources we consume and |

54 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Task Force on Climate- |  |  | information | summary |

related Financial
Disclosures (TCFD)

|  | 41 |  | 46 |
| --- | --- | --- | --- |
| See an overview of our modelling |  | See an overview of our governance |  |
| of extreme natural catastrophe |  | structure for climate-related matters. |  |

loss scenarios.

|  | the amount of waste our activities | public reporting and disclosures. | Near-term climate risks and |  |
| --- | --- | --- | --- | --- |
|  | produce, as well as complying with | This includes owned reports such as | opportunities (0-5 years) |  |
|  | relevant environmental legislation | our annual climate report, as well as | s Higher claims are likely to result |  |
|  | and other external requirements. | global standards that provide a means |  | from more frequent and more |
|  | While the policy is owned by | of peer comparison: CDP, ClimateWise, |  | intense natural catastrophes, |
|  | our property services teams, its | ISS, MSCI and Sustainalytics. An |  | such as floods and storms, due |
|  | effective implementation relies | overview of our 2021 performance |  | to climate change. These claims |
|  | on Group-wide adherence to the | can be found on page 53. |  | will not only come from damage |
|  | environmental principles we wish |  |  | to property but also from other |
|  | to live by. | Strategy |  | knock-on effects, such as global |
| s The Hiscox Group ethical guide |  | Climate change is considered to be an |  | supply chain disruption or scarce |
|  | for suppliers, which outlines | emerging risk with the potential to impact |  | resources. However, given the |
|  | how our corporate values and | each existing risk type. It could have a |  | majority of the policies we write |
|  | commitments to doing business in | material impact on the Group, by altering |  | are annual (re)insurance policies, |
|  | a socially responsible way extends | the frequency and severity of extreme |  | we regularly consider our |
|  | to our relationships with suppliers. | weather events. It could also present an |  | exposures to climate-related risks |
|  | It covers our supplier selection | opportunity, driving greater demand for |  | which gives us the opportunity |
|  | process; fairness and recognition; | cover against changing weather trends |  | to adjust pricing and appetite |
|  | supplier diversity; engagement; | and creating a need for innovative new |  | accordingly. An overview of our |
|  | our expectations of how our | products that meet emerging needs. |  | modelling of extreme natural |
|  | suppliers behave as well as their |  |  | catastrophe loss scenarios can |
|  | obligations in adhering to laws | In addition to the physical impacts of |  | be found on page 41. |
|  | and regulations regarding | a changing climate, the Group is also | s There are also the financial |  |
|  | employment, health and safety, | aware that the transition to a low-carbon |  | risks which could arise from |
|  | the environment and anti-bribery | economy, necessary to limit the worst |  | the transition to a lower-carbon |
|  | and corruption. It is owned by our | physical impacts of global warming, also |  | economy, such as a slump in the |
|  | Group procurement team, shared | presents significant business challenges |  | price of carbon-intensive financial |
|  | with suppliers during the tender | as well as opportunities. One example of |  | assets. Our ESG exclusions policy, |
|  | process and suppliers are | this is litigation risk, where one party may |  | which will see us reduce our |
|  | reminded of it periodically. | seek to recover climate-change-related |  | exposures to the worst carbon |
|  |  | losses from another who they believe |  | emitters in both underwriting and |
| These governance policies and |  | may have been responsible. |  | investments, prepares us for this |
| processes are complemented by our |  |  |  | – as do our new greenhouse gas |
| long-standing active risk management |  | The governance and risk management |  | (GHG) emission reduction targets. |
| practices, which include climate-related |  | structures we have in place ensure a |  | For more information, see page 48. |
| stress testing and scenario analysis |  | coordinated approach to climate across | s In terms of opportunities, we have |  |
| (see page 41). Examples of the outputs of |  | the Group. They are supported by |  | significant expertise in areas such |
| this work, such as the property extreme |  | investments in technology – to ensure the |  | as flood, where we have a suite |
| loss scenarios detailed on page 41, |  | right modelling and data are available to |  | of products and considerable |
| show the potential financial impact to |  | support our pricing and exposure – |  | risk experience; renewable |
| the Group of events including Japanese |  | and in-house expertise – to combine |  | energy where we are supporting |
| earthquake, Japanese windstorm, |  | off-the-shelf climate views with our |  | a number of major wind and |
| European windstorm, US earthquake |  | own claims expertise and insight. |  | solar energy projects; and in the |
| and US windstorm. |  |  |  | decommissioning of offshore |
|  |  | We consider the potential impact |  | carbon assets which is an area |
| Our governance work culminates in |  | from climate-related issues over short-, |  | we insure. These are just some |
| regular, repeatable climate-related |  | medium- and long-term time horizons. |  | examples of lines of business |

55Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Task Force on Climate- |  |  | information | summary |

related Financial
Disclosures (TCFD)
132
GHG emissions are calculated according to the
Greenhouse Gas Protocol: A Corporate Accounting
More information on our approach Hear more from our catastrophe and Reporting Standard (revised edition) and
UK government SECR guidelines. Note some
to ESG and, in particular, modelling and research lead.
emissions totals may not tally due to rounding.
climate can be found at
hiscoxgroup.com/responsibility A copy of our total GHG emissions inventory can be
found on page 49.

|  | where we could see increased |  | exposed to climate-related risks, | These insights will contribute to our |
| --- | --- | --- | --- | --- |
|  | opportunity over time, and in some |  | we believe our exposures can be | future plans to assess our resilience |
|  | cases we are already benefitting |  | managed through time as a result | taking into consideration different |
|  | from changing customer trends. |  | of how we conduct our business. | climate-related scenarios, including a |
|  | An example of this is US flood, |  | For example, through the flexibility | 2°C or lower scenario. In order to meet |
|  | where demand is growing and our |  | we have in our predominantly | future disclosures in this area, we intend |
|  | product offering, use of data and |  | annual underwriting contracts, | to review a range of scenario impacts |
|  | technology means we are well |  | and through the liquidity of our | through internal workshops, from which |
|  | placed to serve more customers |  | investment portfolio which lends | potential management actions can |
|  | with flood cover. More information |  | itself to constant adjustment. This | be identified and our strategy and risk |
|  | on our approach to US flood can be |  | flexibility is our key tool for managing | management approach can be further |
|  | found on page 92. |  | the multi-decade challenge of | refined. This work will be a focus for |
|  |  |  | climate risks holistically. | 2022 and an update on our progress |
| Medium- to long-term climate risks |  |  |  | against it will be provided in our 2022 |
| and opportunities (5+ years) |  | As climate risks and opportunities |  | Annual Report. |
| s Climate-related risks have the |  | evolve, so too does our strategy. We are |  |  |
|  | longer-term potential to impact | working to improve our assessment and |  | Risk management |
|  | regulatory risk, credit risk, | disclosures regarding the resilience of |  | Climate-related risks, among other |
|  | legal risk, reputational risk, and | the organisation’s strategy, taking into |  | major exposures, are monitored and |
|  | technology risk. We have several | consideration different climate-related |  | measured both within our business |
|  | emerging risks forums across the | scenarios. We are leveraging work done |  | units and at Group level, so we |
|  | organisation which are designed | to date in developing scenarios and |  | understand how much overall risk |
|  | to identify emerging, longer-term | participating in wider industry initiatives |  | we take and what is being done to |
|  | risks and opportunities, including | such as the Bank of England’s Climate |  | manage it. We look at how different |
|  | climate-related risks and | Biennial Exploratory Scenario (CBES) |  | risks interact and whether these may |
|  | opportunities. Alongside our | exercise for Hiscox Syndicate 33. The |  | result in correlations or concentrations |
|  | in-house modelling and research | objective of the CBES industry exercise |  | of exposure that we need to know about, |
|  | expertise, these groups ensure | was to test the resilience of current |  | monitor and manage. |
|  | our work takes into account | business models within the largest |  |  |
|  | climate-related issues over a | UK banks, insurers and the financial |  | While there are certain nuances to |
|  | range of business planning | system to the physical and transition |  | climate risk, we consider it to be a |
|  | time frames. | risks from climate change. The CBES |  | cross-cutting risk with potential to |
| s There is also the longer-term risk |  | exercise was designed to progress |  | impact each existing risk type, |
|  | that those who have suffered loss | climate thinking across the industry |  | rather than a stand-alone risk. By |
|  | from climate change might then | and establish an initial aggregate view |  | design, our Group risk management |
|  | seek to recover those losses from | of the risk exposures that the market |  | framework provides a controlled and |
|  | others who they believe may have | may be facing over the next 30 years, |  | consistent system for the identification, |
|  | been responsible. Where such | the resilience of the financial system |  | measurement, mitigation, monitoring |
|  | claims are successful, those | as a whole to these risks, and the |  | and reporting of risks (both current |
|  | parties against whom the claims | adjustments and management actions |  | and emerging) and so is structured |
|  | are made may seek to pass | that may be required. Through our |  | in a way that allows us to continually |
|  | on some, or all, of the cost to | participation in this exercise, we have |  | and consistently manage the various |
|  | insurance firms through policies | gained new insights in relation to stress |  | impacts of climate risk on the risk profile. |

o

|  | such as professional indemnity or | testing in a 2 | C or lower scenario, which | For example, relevant climate |
| --- | --- | --- | --- | --- |
|  | directors and officers’ insurance. | we will use to further develop our |  | considerations are included in our risk |
| s While in the long term as a property |  | thinking in this area and boost our |  | and control register and our risk and |
|  | casualty insurer, Hiscox is certainly | climate risk preparedness. |  | control self-assessment process, |

56 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Task Force on Climate- |  |  | information | summary |

related Financial
Disclosures (TCFD)
Streamlined Energy and Carbon Reporting (SECR) GHG emissions

|  | 2021 |  | 2021 |  | 2020 |  | 2020 |  | % change |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | energy | emissions |  |  | energy | emissions |  |  | emissions |  |  |
| Activity | (kWh) |  | (tCO | 2 e) | (kWh) |  | (tCO | 2 e) |  | (tCO | 2 e) |

Scope 1 total – 678 – 615 10%
Natural gas 2,342,644 441 1,710,200 315 40%
Company cars 377,056 87 560,441 151 -42%
Refrigerants 150 149 1%
Scope 2 (market-based) total 866 1,111 -22%
Electricity (location-based) 5,603,303 1,484 5,176,116 1,565 -5%
Electricity (market-based) 5,603,303 847 5,176,116 1,090 -22%
District heating 108,999 19 119,942 21 -10%
Scope 3 total 15 231 -93%
Personal vehicles 66,085 15 899,189 231 -93%
Total (market-based) 8,498,087 1,559 8,465,888 1,957 -20%

| as well as in our risk policies. This |  | the latest observations and | This is in keeping with our commitments |  |
| --- | --- | --- | --- | --- |
| means that climate-related risk drivers |  | scientific knowledge, which models | as a signatory to the 2015 Paris |  |
| are assessed and recorded against the |  | should be used for each peril, and, | Climate Agreement. |  |
| risks on our risk and control register, and |  | if necessary, how they should be |  |  |
| ensures that we do not consider any |  | adapted to reflect our best view of | GHG targets |  |
| single climate risk factor in isolation. |  | the risk. They also identify new areas | Our new targets commit us to: |  |
|  |  | of risk research. | s reduce our Scope 1 and 2 |  |
| Our Risk Committee has the main |  |  |  | emissions by 50% by 2030, |
| responsibility for assessing the |  | All changes to modelling policy and |  | against a 2020 adjusted baseline; |
| climate-related risks and opportunities |  | all of our research prioritisations and | s reduce our Operational Scope 3* |  |
| we face. It advises the Board on |  | results are signed off and authorised |  | emissions by 25% per FTE |
| how best to manage the Group’s |  | by this group, decisions are recorded, |  | by 2030, against a 2020 |
| risks, by reviewing the effectiveness |  | and models are adapted to reflect |  | adjusted baseline; |
| of risk management activities and |  | policy. Their work not only enables us | s transition our investment |  |
| monitoring the Group’s actual risk |  | to continuously refine our models (using |  | portfolios to net-zero GHG |
| exposure. The Risk Committee relies |  | data to make better decisions): it also |  | emissions by 2050; |
| on frequent updates from within the |  | supports future product development. | s engage with our suppliers, |  |
| business and from independent risk |  | For example, we have calibrated and |  | brokers and reinsurers on our |
| experts for its understanding of the |  | delivered a loss model that will improve |  | net-zero targets and on their |
| risks facing both our business and |  | the pricing capabilities for one of our |  | plans to adopt Paris-aligned |
| the wider industry. |  | flood insurance products, FloodPlus. |  | climate targets; |
|  |  | We also included the use of additional | s monitor emerging standards |  |
| This includes: |  | model sources for location-level pricing. |  | around underwritten emissions |
| s underwriting – exposure radar |  | In addition, we are working with data |  | and collaborate across our |
|  | in casualty exposure | providers to augment FloodPlus with |  | industry on their development, |
|  | management group (EMG); | first-floor elevation data, and are |  | aligning with best practice in |
| s enterprise view – risk team |  | exploring the use of machine learning |  | this area as it emerges. |
|  | emerging risk; | to augment the information we receive |  |  |

* Operational Scope 3 emissions predominantly
s compliance – regulatory from vendor floodhazard maps. consist of business travel (air, rail and car travel).
horizon scanning;

| s indemnity – claims and |  | The risk management processes we | Interim targets and actions |  |
| --- | --- | --- | --- | --- |
|  | actuarial reserving; | have established and embedded for | We recognise that achieving these |  |
| s market – strategic and |  | climate-related matters feed into | targets will take collective, consistent |  |
|  | business planning. | the annual review of the operating | effort. While we will further define our |  |
|  |  | plan, the long-term strategy planning | supporting action plan during 2022, |  |
| We also review natural catastrophe |  | process, as well as forward-looking | there are areas where we already have |  |
| risk at least quarterly, through our |  | assessment scenarios and stress | a glide path, or where work is already |  |
| Natural Catastrophe Exposure |  | tests and reverse stress test scenarios. | underway, as follows. |  |
| Management Group (NCEMG), |  |  | s In addressing our Scope 1 and 2 |  |
| which is chaired by the Group Chief |  | Metrics and targets |  | targets, we are already engaging |
| Underwriting Officer and attended by |  | The cornerstone of our climate-related |  | with our facilities managers across |
| other Hiscox senior managers with |  | metrics and targets is our GHG emission |  | the Group to continue to transition |
| responsibility for catastrophe-exposed |  | reduction targets. In 2021, we set |  | our offices to renewable electricity |
| business. This group looks at the risk |  | new Board-approved targets to 2030 |  | contracts. Where we have total |
| landscape, exposure monitoring and |  | which have been created using SBTi |  | control over our utility providers, |
| capital modelling for climate-related |  | methodologies that align with a 1.5°C |  | this is easier to do, but where |
| perils, and recommends, based on |  | net-zero world by 2050. |  | that control is shared, or where it |

57Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Task Force on Climate- |  |  | information | summary |

related Financial
Disclosures (TCFD)

|  | belongs to our landlords, we will | More information on our 2021 carbon |  | TCFD disclosure mapping | Disclosures have been made against the TCFD recommendations. Where additional information outside of this report aids |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | petition for change. We are also | emissions can be found on page 49. |  | compliance statement | our TCFD disclosure, links to this information have been provided, and where we have not yet disclosed fully against the |  |  |
|  | reassessing our existing use of |  |  |  | recommended TCFD disclosure, we have outlined why this is and the actions already being taken towards meeting the |  |  |
|  | company cars, which is currently | Other metrics and targets we |  |  | disclosure requirements within the timeframe given. |  |  |
|  | limited to a small fleet in some | consider include: |  |  |  |  |  |
|  | of our European operations. | s the monitoring and measurement |  |  |  |  |  |
|  | We are already making progress |  | of underwriting and investment | Theme Recommended disclosure Status Reference |  |  |  |
|  | here, having retired our fleet |  | exposure to carbon-heavy |  |  |  |  |
|  | of company cars in Germany |  | sectors including coal-fired | Governance | Describe the organisation’s governance around | Disclosed. 2021 climate report* pages 9, 10 and 11. |  |
|  | during 2021, and in those |  | power plants and coal mines, | Disclose the organisation’s | climate-related risks and opportunities. |  | CDP climate questionnaire 2021. |
|  | areas where it is not possible |  | oil sands and Arctic energy | governance around climate-related |  |  |  |
|  |  |  |  |  | Describe management’s role in assessing and | Disclosed. 2021 climate report* pages 14 and 15. |  |
|  | to eliminate the fleet entirely, |  | exploration (beginning with the | risks and opportunities. |  |  |  |
|  |  |  |  |  | managing climate-related risks and opportunities. |  | CDP climate questionnaire 2021. |
|  | we intend to transition |  | Arctic National Wildlife Refuge), |  |  |  |  |
|  | to electric vehicles over time. |  | in line with our Group ESG | Strategy | Describe the climate-related risks and opportunities | Disclosed. 2021 climate report* pages 5 and 22. |  |
| s On operational Scope 3, which |  |  | exclusions policy; | Disclose the actual and potential | the organisation has identified over the short, |  | CDP climate questionnaire 2021. |
|  | is dominated by business travel, | s annual investment portfolio |  | impacts of climate-related risks and | medium, and long term. |  |  |
|  | we are currently focused on |  | sustainability reviews, taking into | opportunities on the organisation’s |  |  |  |
|  |  |  |  |  | Describe the impact of climate-related risks and | Disclosed. CDP climate questionnaire 2021. |  |
|  | improving the consistency of |  | account climate-related issues, | businesses, strategy, and financial |  |  |  |

opportunities on the organisation’s businesses,
travel data across the Group to in line with our responsible planning where such information
strategy, and financial planning.

|  | enhance our understanding of |  | investment policy; | is material. |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | both volume and class of travel, | s the growth and exposure of |  |  | Describe the resilience of the organisation’s strategy, | Plan to | 2021 climate report* page 12. |
|  | to ensure our action plan is |  | sustainable underwriting products |  | taking into consideration different climate-related | disclose in | More information on how we intend to |
|  | appropriately targeted. |  | such as flood and renewable |  | scenarios, including a 2°C or lower scenario. | the next | meet this disclosure requirement, and |
| s On Scope 3 more broadly, where |  |  | energy products. |  |  | two years. | steps already being taken towards it, |
|  | emissions are dominated by |  |  |  |  |  | are outlined on page 56. |
|  | our investments, the Board has | These activities are owned by the |  |  |  |  |  |
|  |  |  |  | Risk management | Describe the organisation’s processes for identifying | Disclosed. 2021 climate report* pages 9, 11, 27-29. |  |
|  | agreed that we will aim for more | relevant business areas, from |  |  |  |  |  |
|  |  |  |  | Disclose how the organisation | and assessing climate-related risks. |  | CDP climate questionnaire 2021. |
|  | than 25% of our corporate bond | underwriting to investments, with |  |  |  |  |  |

identifies, assesses, and manages
portfolio by invested value to have progress reported through the Describe the organisation’s processes for managing Disclosed. 2021 climate report* pages 14-15.
climate-related risks.

| net-zero/Paris-aligned targets by | embedded ESG governance structures. | climate-related risks. |  | CDP climate questionnaire 2021. |
| --- | --- | --- | --- | --- |
| 2025 and that we will target an | These metrics and targets are |  |  |  |
|  |  | Describe how processes for identifying, assessing, | Disclosed. 2021 climate report* page 9. |  |
| additional 25% by AUM coverage | complemented by external key |  |  |  |
|  |  | and managing climate-related risks are integrated |  | CDP climate questionnaire 2021. |
| every five years as we aim to be | performance indicators, such as our |  |  |  |

into the organisation’s overall risk management.

|  | on a linear path to 100% portfolio | public ESG disclosure scores (see |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | coverage by 2040. | page 53) and our annual climate report, | Metrics and targets | Disclose the metrics used by the organisation to | Disclosed. 2021 climate report* pages 39-40. |  |
|  |  | which assess our progress against | Disclose the metrics and targets | assess climate-related risks and opportunities in line |  | CDP climate questionnaire 2021. |
| Progress against these targets will |  | climate-related activities during the | used to assess and manage relevant | with its strategy and risk management process. |  | See Hiscox Group website. |
| be driven by our ESG working group |  | prior year and outlines our plans for | climate-related risks and opportunities |  |  |  |
|  |  |  |  | Disclose Scope 1, Scope 2 and, if appropriate, | Disclosed. 2021 climate report* pages 39-40. |  |
| and overseen by our Sustainability |  | climate-related action in the year ahead. | where such information is material. |  |  |  |
|  |  |  |  | Scope 3 GHG emissions and the related risks. |  | CDP climate questionnaire 2021. |

Steering Committee, with at least
See Hiscox Group website.
annual updates to the Board.

|  | Describe the targets used by the organisation to | Disclosed. 2021 climate report* pages 39-40. |  |
| --- | --- | --- | --- |
| Progress will also be recorded through | manage climate-related risks and opportunities |  | CDP climate questionnaire 2021. |
| our annual carbon reporting cycle, | and performance against targets. |  |  |

* Our 2021 climate report was published in August 2021 and covers our
and we will seek to remain operationally
climate-related activities between July 2020 and July 2021. Where we
carbon neutral through offsetting,
reference information from that report, that information remains correct
as we have been since 2014. at 2 March 2022.
58 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose | Task Force on Climate- |  |  | information | summary |

related Financial
Disclosures (TCFD)

| Read more in our CDP climate | Read more about our approach to |
| --- | --- |
| questionnaire 2021 | climate change in our 2021 climate |
| hiscoxgroup.com/cpddisclosure2021. | report, available online at |

hiscoxgroup.com/2021climatereport.
TCFD disclosure mapping Disclosures have been made against the TCFD recommendations. Where additional information outside of this report aids
compliance statement 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 Describe the organisation’s governance around Disclosed. 2021 climate report* pages 9, 10 and 11.
Disclose the organisation’s climate-related risks and opportunities. CDP climate questionnaire 2021.
governance around climate-related
Describe management’s role in assessing and Disclosed. 2021 climate report* pages 14 and 15.
risks and opportunities.

|  | managing climate-related risks and opportunities. |  | CDP climate questionnaire 2021. |
| --- | --- | --- | --- |
| Strategy | Describe the climate-related risks and opportunities | Disclosed. 2021 climate report* pages 5 and 22. |  |
| Disclose the actual and potential | the organisation has identified over the short, |  | CDP climate questionnaire 2021. |
| impacts of climate-related risks and | medium, and long term. |  |  |

opportunities on the organisation’s
Describe the impact of climate-related risks and Disclosed. CDP climate questionnaire 2021.
businesses, strategy, and financial
opportunities on the organisation’s businesses,
planning where such information
strategy, and financial planning.
is material.

| Describe the resilience of the organisation’s strategy, | Plan to | 2021 climate report* page 12. |
| --- | --- | --- |
| taking into consideration different climate-related | disclose in | More information on how we intend to |
| scenarios, including a 2°C or lower scenario. | the next | meet this disclosure requirement, and |
|  | two years. | steps already being taken towards it, |

are outlined on page 56.
Risk management Describe the organisation’s processes for identifying Disclosed. 2021 climate report* pages 9, 11, 27-29.
Disclose how the organisation and assessing climate-related risks. CDP climate questionnaire 2021.
identifies, assesses, and manages
Describe the organisation’s processes for managing Disclosed. 2021 climate report* pages 14-15.
climate-related risks.

| climate-related risks. |  | CDP climate questionnaire 2021. |
| --- | --- | --- |
| Describe how processes for identifying, assessing, | Disclosed. 2021 climate report* page 9. |  |
| and managing climate-related risks are integrated |  | CDP climate questionnaire 2021. |

into the organisation’s overall risk management.

| Metrics and targets | Disclose the metrics used by the organisation to | Disclosed. 2021 climate report* pages 39-40. |  |
| --- | --- | --- | --- |
| Disclose the metrics and targets | assess climate-related risks and opportunities in line |  | CDP climate questionnaire 2021. |
| used to assess and manage relevant | with its strategy and risk management process. |  | See Hiscox Group website. |

climate-related risks and opportunities
Disclose Scope 1, Scope 2 and, if appropriate, Disclosed. 2021 climate report* pages 39-40.
where such information is material.
Scope 3 GHG emissions and the related risks. CDP climate questionnaire 2021.
See Hiscox Group website.
Describe the targets used by the organisation to Disclosed. 2021 climate report* pages 39-40.
manage climate-related risks and opportunities CDP climate questionnaire 2021.
and performance against targets.
* Our 2021 climate report was published in August 2021 and covers our
climate-related activities between July 2020 and July 2021. Where we
reference information from that report, that information remains correct
at 2 March 2022.
59Hiscox Ltd Report and Accounts 2021

|  | big-ticket side of our business, | having the client at the core of |
| --- | --- | --- |
|  | and now that the market is | everything we do. With that, |
|  | turning, I want Hiscox Re & | we’ll be back to greatness in |
|  | ILS to get back to the type of | no time. |
| Q& | greatness which I believe it is |  |
|  | known for. That’s an awesome | Q: What are your main |
|  | challenge, and I’m proud | priorities for 2022? |
|  | to say we’re starting with a | A: Our strategic priorities |
|  | solid foundation. | will be to continue to build a |
| A: | We refreshed our strategy | better portfolio, mature our |
| with Kathleen Reardon | for Hiscox Re in 2021, which | model, engage our people, |
| Chief Executive Officer, Hiscox Re & ILS | included an element of | and nail the business plan. |
|  | ‘getting to yes’. We can’t | This year, we’re going to have |

## Re birth
stay out on the sidelines all fewer big projects happening
the time; we have to come on technology. It’s all going
## After a difficult period
in and be decisive. We were to be more bite-sized, and
retreating, rightfully so, in we’re going to balance that
## in a soft market,
a soft market, but this is an with maturing our model.
## Hiscox Re & ILS has improving marketplace, so So, what does that mean?
now we need to lean in to We need to define our roles
## new leadership and
the sales element of what more clearly, so it’s easier for
we do. We need to be going people to take ownership and
## a new mission: getting
in, saying: ‘how can I solve be accountable. We also need
your problems?’. And for to build out our knowledge
## back to greatness.

|  |  | that, we need to dial up the | hub as a single source of |
| --- | --- | --- | --- |
|  |  | inquisitiveness and create | processes, research and |
|  |  | a more holistic view of the | insight. There’s an awesome |
|  |  | client. You might still say no | entrepreneurial culture at |
|  |  | a lot, but not without coming | Hiscox, which has served |
|  |  | to the table with other | us well for many years, |
| Kathleen Reardon was | team with conviction and | solutions. It’s just a shift. | but as we go from being a |
| appointed Chief Executive | compassion. These are | On the underwriting side | ‘big-small company’ to a |
| Officer of Hiscox Re & ILS in | people who truly want | specifically, it’s a ramping up | ‘small-big company’ we need |
| January 2021, after a highly | Hiscox to succeed. They | of something that’s already | to make sure our processes |
| successful six-year tenure | are ‘all in’ and truly invested | there; it’s just brushing off | evolve with us. It also means |
| as Chief Executive Officer of | in the business. | the cobwebs, given the | assessing those processes |
| Hamilton Re. She is a former |  | market conditions. | for complexity. For example, |
| chair of the Reinsurance | Q: What were your first |  | in our ILS offering, all of the |
| Association of America, and | impressions when | Q: Is there a need to shift | work in the value chain, from |
| co-founder of the Women in | you arrived? | perceptions of Hiscox Re | submission to release of |
| Reinsurance organisation. | A: Because it wasn’t an | among brokers and clients? | collateral, are we actually |
|  | unknown entity to me, I was | A: We ran a broker survey | doing it in an efficient way? |
| Q: What brought you to | able to hit the ground running. | early last year and we had |  |
| Hiscox Re & ILS? | What was nice when I looked | some good, pure, heartfelt | Q: How do you see the |
| A: It’s been a 20-year | at the stats, was that about | feedback. I think there’s a | human value being |
| attraction. The underwriting | a third of our underwriters | general acceptance that | applied at Hiscox? |
| acumen, the technical | have been with Hiscox for | we were retreating, but they | A: It’s that sense that every |
| expertise: that’s always | more than 18 years and a third | really do want Hiscox to be | voice is heard. It’s making |
| been appealing to me. So | have arrived in the past two | great. They want us back with | sure that you acknowledge |
| too is the leadership. At | years. I like that balance of | a louder voice and in a lead | different personalities and |
| events and conferences, | ‘been there, done that, have | position. So, what can we do | perspectives. Some people |
| there was always something | the experience to show for | for people to wholeheartedly | are forthright with their |
| interesting happening with | it’ versus ‘I’m coming with a | say: ‘they’re back’? We’re | ideas, some people are more |
| Hiscox, always a crowd | different perspective’. What | enhancing client service, | conservative. Over the past |
| gathering. Bronek would be | also didn’t disappoint is that | which means ensuring quotes | year, I met with every team |
| out there, saying things that | Hiscox Re & ILS really is an | remain relevant and timely, | and I made sure everybody |
| needed to be said: climate, | analytical shop. Underwriters | sharing climate change and | at the table said something. |
| rate change, attachment | are more technical than | inflation views, and continuing | It’s about increasing the |
| point. We were early starters | most and that makes a | to pay claims swiftly. It also | confidence of people to share |
| of ILS, early starters of | real difference. | means staying focused on | an opinion, to have a say. |
| our quota share strategy. |  | our core areas of expertise | I think it’s important to have |
| I like that punchiness, that | Q: What do you see as your | and using smart underwriting | that open door and I’m proud |
| audacity. When the role | task here? | and analytics in new areas, | to see that is a philosophy that |
| became available, I knew I’d | A: We have a really strong | as well as optimised capital | runs throughout Hiscox. |
| be working for a leadership | heritage, especially on the | management, and of course |  |

60 Hiscox Ltd Report and Accounts 2021
61Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Board of Directors

| Non Executive Chairman |  | Executive Director |  | Executive Director |  |
| --- | --- | --- | --- | --- | --- |
| Robert Childs (Aged 70) |  | Aki Hussain (Aged 49) |  | Joanne Musselle (Aged 51) |  |
| Appointed Chairman: February 2013 |  | Group Chief Executive Officer |  | Group Chief Underwriting Officer |  |
| Appointed to the Board: September 2006 |  | Appointed to the Board: September 2016 |  | Appointed to the Board: March 2020 |  |
| Relevant skills, experience and contribution |  | Relevant skills, experience and contribution |  | Relevant skills, experience and contribution |  |
| s Extensive knowledge of Hiscox, having |  | s Considerable experience of |  | s Considerable underwriting expertise, |  |
|  | worked for the Group for over 30 years. |  | providing strategic, financial and |  | including experience of managing |
| s Significant expertise in insurance cycle |  |  | commercial management and |  | underwriting portfolios in our key markets. |
|  | management, having worked through |  | in-depth knowledge of the regulatory | s Significant knowledge of Hiscox, |  |
|  | unprecedented large loss events |  | and compliance environment. |  | particularly Hiscox Retail, having |
|  | such as 9/11 and Hurricanes Katrina, | s Significant experience of driving |  |  | worked for the Group for 19 years. |
|  | Rita and Wilma. |  | business change. |  |  |

Joanne joined Hiscox in 2002 and has held a
Robert joined Hiscox in 1986 and has held a Aki joined Hiscox in 2016 as Group Chief Financial number of roles across the Group, including
number of senior roles across the Group, including Officer and became Group Chief Executive Head of UK Claims, Chief Underwriting Officer
Active Underwriter for Syndicate 33 and Group Officer in 2022. Aki also sits on the Board of a for Hiscox UK & Ireland, and Chief Underwriting
Chief Underwriting Officer, before becoming Non number of Hiscox subsidiary companies. Prior to Officer for Hiscox Retail. Joanne also sits on

| Executive Chairman in February 2013. Robert is | Hiscox, Aki held a number of senior roles across | the Board of a number of Hiscox subsidiary |
| --- | --- | --- |
| also Chair of the Nominations and Governance | a range of sectors, including Chief Financial | companies. Prior to Hiscox, Joanne spent |
| Committee, the Investment Committee, and the | Officer of Prudential’s UK and Europe business, | almost ten years working in a variety of actuarial, |
| Hiscox Syndicates Limited Board. He joined the | and Finance Director for Lloyds Banking Group’s | pricing and reserving roles at Axa and Aviva in |
| Council of Lloyd’s in 2012 and served as Deputy | consumer bank division. Aki is a Chartered | both the UK and Asian markets. |
| Chairman of Lloyd’s from 2017 to 2020. | Accountant, having trained with KPMG. |  |

External board appointments
External board appointments External board appointments Realty Insurances Ltd.
None. Visa Europe Limited.

| Senior Independent Director |  | Independent Non Executive Director |  | Independent Non Executive Director |  |
| --- | --- | --- | --- | --- | --- |
| Colin Keogh (Aged 68) |  | Donna DeMaio (Aged 63) |  | Caroline Foulger (Aged 61) |  |
| Appointed to the Board: November 2015 |  | Appointed to the Board: November 2021 |  | Appointed to the Board: January 2013 |  |
| Relevant skills, experience and contribution |  | Relevant skills, experience and contribution |  | Relevant skills, experience and contribution |  |
| s Valuable financial services experience. |  | s Extensive financial services experience, |  | s Extensive accounting and financial |  |
| s Significant knowledge of how to run an |  |  | particularly in the USA. |  | reporting expertise. |
|  | international financial business. | s Proven expertise in overseeing global |  | s Deep understanding of Bermuda as a |  |
|  |  |  | auditing activities. |  | reinsurance centre. |

Colin has spent his career in financial services,

| principally at Close Brothers Group plc where | Donna has over 35 years’ financial services | Caroline is a resident of Bermuda and led |
| --- | --- | --- |
| he worked for 24 years and served as CEO for | experience, gained across banking and | PwC’s insurance and reinsurance practice in |
| seven years until 2009. Colin is also Chair of | insurance. She was AIG Global Chief Operating | Bermuda until her retirement in 2012. With a |
| the Remuneration Committee and of the | Officer, General Insurance and also served as | strong background in accounting, she is a Fellow |
| Hiscox Insurance Company Limited Board. | their Global Chief Auditor. Donna was Chief | of the Institute of Chartered Accountants in |
|  | Executive and Chair of the Board at United | England and Wales, a member of the Institute |

External board appointments
Guaranty, CEO and Chair of the Board at of Chartered Accountants of Bermuda and a
Ninety One Plc; Ninety One Ltd ; Premium
MetLife Bank and was a PwC Financial Services member of the Institute of Directors. Caroline
Credit Limited.

| Partner. Donna will also serve as Chair of the | also serves on the Hiscox Insurance Company |
| --- | --- |
| Audit Committee following Caroline Foulger’s | (Bermuda) Limited and Hiscox Syndicates |
| retirement at the 2022 Annual General Meeting. | Limited boards as a Non Executive Director |

and is Chair of the Audit Committee.
External board appointments
Azure. External board appointments
Oakley Capital Investments Limited; Catalina
Holdings Bermuda Ltd; Atlas Arteria International
Limited; Ocean Wilsons Holdings Ltd.
62 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Board of Directors |  | information | summary |

Member of the Audit Committee
Member of the Nominations and Chair of Committee is highlighted in solid.
Governance Committee
Member of the Remuneration Committee
Member of the Risk Committee
Member of the Investment Committee

| Independent Non Executive Director |  | Independent Non Executive Director |  | Independent Non Executive Director |  |
| --- | --- | --- | --- | --- | --- |
| Michael Goodwin (Aged 63) |  | Thomas Hürlimann (Aged 58) |  | Anne MacDonald (Aged 66) |  |
| Appointed to the Board: November 2017 |  | Appointed to the Board: November 2017 |  | Appointed to the Board: May 2015 |  |
| Relevant skills, experience and contribution |  | Relevant skills, experience and contribution |  | Relevant skills, experience and contribution |  |
| s Significant knowledge of the Asian |  | s Considerable experience of leading a |  | s Extensive marketing expertise, |  |
|  | insurance market. |  | global business. |  | particularly in the USA. |
| s Deep understanding of risk management |  | s Extensive knowledge of the European |  | s Sizable experience in developing |  |
|  | as a trained actuary. |  | insurance market. |  | well-known global brands. |
| Michael has over 25 years’ experience in the |  | Thomas has 30 years’ experience in banking, |  | Anne has served as Chief Marketing Officer |  |
| insurance industry, having worked in Australia |  | reinsurance and insurance. He was CEO |  | at four Fortune 100 companies, and been in |  |
| and the Asia Pacific region for QBE Insurance |  | Global Corporate at Zurich Insurance Group, |  | charge of some of the most recognised brands |  |
| Group for over 20 years. Michael started |  | a $9 billion business working in over 200 |  | in the world, including Citigroup, Traveler’s, |  |
| his career as an actuary, is a Fellow of the |  | countries. Prior to that, he held senior positions |  | Macy’s and Pizza Hut. Anne also serves as |  |
| Institute of Actuaries of Australia and served |  | at Swiss Re Group and National Westminster |  | the Employee Liaison for Hiscox. |  |
| as Vice President of the General Insurance |  | Bank. Thomas also serves on the Hiscox SA |  |  |  |

External board appointments
Association of Singapore between 2006 and Board as a Non Executive Director.
Boot Barn Holdings, Inc.; IGNITE National;
2012. Michael also serves on the DirectAsia
External board appointments Visiting Nurse & Hospice of Litchfield County.
Board as a Non Executive Director.
None.
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.

| Independent Non Executive Director |  | Independent Non Executive Director |  | Group General Counsel and |
| --- | --- | --- | --- | --- |
| Constantinos Miranthis (Aged 58) |  | Lynn Pike (Aged 65) |  | Company Secretary |
| Appointed to the Board: November 2017 |  | Appointed to the Board: May 2015 |  | Marc Wetherhill (Aged 49) |
| Relevant skills, experience and contribution |  | Relevant skills, experience and contribution |  | Marc has significant legal and governance |
| s Deep understanding of Bermuda’s |  | s Strong background in the US financial |  | experience, and is the Principal Representative |
|  | (re)insurance industry. |  | services sector. | to the Bermuda Monetary Authority for the |
| s Senior leadership experience in the |  | s Significant knowledge of providing |  | Hiscox Group. He previously served as |
|  | reinsurance sector. |  | commercial solutions for small | Chief Legal Counsel and Chief Compliance |
|  |  |  | businesses, particularly in the USA. | Officer at PartnerRe Ltd, having trained as a |

Costas served as President and CEO of
solicitor in London, and is a member of the
PartnerRe Ltd, one of the world’s leading Lynn worked in the US banking industry for
Bermuda Bar.

| reinsurers, until 2015 and prior to that was a | nearly four decades, most recently as President |
| --- | --- |
| Principal of Tillinghast-Towers Perrin in London, | of Capital One Bank. Before that, she was |
| where he led its European non-life practice. | President of Bank of America’s small business |
| He is a Fellow of the UK Institute and Faculty | banking division, a multi-billion-Dollar business |
| of Actuaries and a resident of Bermuda. | with 110,000 clients and over 2,000 employees. |
| Costas also serves on the Hiscox Insurance | Lynn also serves on the Hiscox Insurance |
| Company (Bermuda) Limited Board as a | Company Inc. Board as a Non Executive |
| Non Executive Director. | Director and is Chair of the Risk Committee. |
| External board appointments | External board appointments |
| Argus Group Holdings Limited; Pacific Life Re; | American Express Company (NYSE: AXP); |
| Gatland Holdings Jersey Limited. | American Express National Bank; |

CareerWork$; California State University
Channel Island Foundation.
63Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Board of Directors |  | information | summary |

Departures and appointments Retired Director
Executive appointments
Aki Hussain to Group Chief Executive Officer
(effective 1 January 2022)
Director duties
As a company incorporated under the laws
Paul Cooper to Group Chief Financial Officer
of Bermuda, Hiscox complies with Bermuda
(effective first half of 2022)
Company Law and as such the UK Companies
Act 2006 and associated reporting regulations
Non Executive appointments
do not apply. Although there is no prescription
Donna DeMaio
of statutory duties in Bermuda, Directors are
(effective 18 November 2021)
bound by fiduciary duties to the Company and
statutory duties of skill and care. This includes
Executive retirements
exercising care, diligence, and skill that a
Bronek Masojada
reasonably prudent person would be expected
(effective 31 December 2021)
Bronek Masojada (Aged 60)
to exercise in a comparable circumstance.
Group Chief Executive Officer
The Directors act in a way that they consider in
Non Executive retirements
Appointed to the Board: October 2006
good faith would be most likely to promote the
None.
Bronek joined Hiscox in 1993 as Group success of the company for the benefit of its
Managing Director and became Chief Executive members as a whole.
in 2000. Prior to that he worked with McKinsey
& Company, where he advised Lloyd’s on its
renowned Reconstruction and Renewal plan.
Bronek also previously served as Deputy
Chairman of Lloyd’s and Chairman of the
Lloyd’s Tercentenary Research Foundation,
and currently serves as a City of London
Alderman. Bronek retired as Group Chief
Executive Officer at the end of 2021 but
continues to be an employee of Hiscox,
providing strategic advice as a Director for
key subsidiaries.
64 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Board statistics
Board statistics
Board diversity at 2 March 2022

| Gender | Age | Location |
| --- | --- | --- |
| Female 5 | 46-55 2 | USA 3 |
| Male 6 | 56-65 6 | Bermuda 2 |
|  | 66-75 3 | Europe 5 |

Asia 1
* Includes those Directors who hold
Tenure Nationality
a Permanent Residency Certificate.

| 0-3 years 2 | British 4 |
| --- | --- |
| 3-6 years 4 | Bermudian* 2 |
| 6-8 years 3 | American 3 |
| 8+ years 2 | Swiss 1 |

Australian 1
65Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Group Executive Committee (GEC)
## The combination of
## business unit CEOs
## and functional leaders
## that we have on our
Liz Breeze Amanda Brown
## newly formed Group
Interim Group Chief Financial Officer Chief Human Resources Officer
Joined Hiscox: May 2012 Joined Hiscox: October 2006
## Executive Committee
Relevant skills, experience and contribution Relevant skills, experience and contribution
## drives accountability s Significant experience of financial s Deep expertise in developing and
and commercial management implementing HR strategy across
## and ensures effective within a complex regulatory and multiple geographies.
compliance environment. s Global compensation management
## progress in all areas.” s Qualified Chartered Accountant, with including executive compensation
significant knowledge of the UK and policy and shareholder consultation.
Bermuda (re)insurance markets.
Aki Hussain Amanda leads our team of 90 HR professionals
Liz joined Hiscox in 2012 and has held a number around the world, overseeing our HR policies
Group Chief Executive Officer
of senior finance roles across the Group, and procedures, employee rewards and
including Group Technical Accountant, Head benefits, recruitment, learning and development,
of Finance for Hiscox UK, and Chief Financial and our approach to remuneration to ensure
Officer for Hiscox Re & ILS. As interim Group our continued ability to attract and retain talent
Chief Financial Officer, she leads our team at all levels.
of 400 finance experts around the world to
ensure robust financial systems and continued
capital efficiency.

| Robert Dietrich | Stéphane Flaquet |
| --- | --- |
| Chief Executive Officer, Hiscox Europe | Chief Transformation Officer and |
| Joined Hiscox: June 1997 | Interim Chief Executive Officer, Hiscox UK |

Joined Hiscox: March 2010
Relevant skills, experience and contribution
s In-depth knowledge of the European Relevant skills, experience and contribution
insurance market. s Strong financial services background.
s Significant experience of bringing niche s Sizable insurance industry
insurance products to market. experience gained within a range
of European territories.
Robert served as Managing Director for Hiscox

| Germany for many years, driving disciplined | Stéphane originally joined Hiscox as Chief |
| --- | --- |
| expansion and building it into the flagship | Operating Officer for Europe, and has also |
| European business it is today. In 2021, he took | served as the Group’s Chief Information Officer |
| on wider responsibility for Hiscox Europe, whose | and latterly as Chief Executive Officer of Hiscox |
| operations span eight countries, overseeing | Europe. In 2021, he took on the newly created |
| critical cross-country systems transformation | role of Chief Transformation Officer, driving |
| and redefining its long-term vision. | critical change programmes across the Group, |

and is also Interim Chief Executive Officer for
Hiscox UK.
66 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Group Executive |  | information | summary |

Committee (GEC)

| Aki Hussain |  | Hanna Kam |  | Kevin Kerridge |  |
| --- | --- | --- | --- | --- | --- |
| Group Chief Executive Officer |  | Group Chief Risk Officer |  | Chief Executive Officer, Hiscox USA |  |
| Joined Hiscox: September 2016 |  | Joined Hiscox: February 2015 |  | Joined Hiscox: December 1996 |  |
| Relevant skills, experience and contribution |  | Relevant skills, experience and contribution |  | Relevant skills, experience and contribution |  |
| s Considerable experience of |  | s Qualified actuary with in-depth |  | s Significant expertise in developing |  |
|  | providing strategic, financial and |  | enterprise risk management and |  | customer-focused eCommerce solutions. |
|  | commercial management and |  | insurance expertise. | s Multi-market, ground-up experience of |  |
|  | in-depth knowledge of the regulatory | s International property and casualty |  |  | building retail businesses. |
|  | and compliance environment. |  | insurance industry experience gained |  |  |

Kevin has held a number of strategic planning
s Significant experience of driving within corporates and consultancies
and operational roles across the Group and was
business change. across the UK and Australia.
an early pioneer of our eCommerce approach.

| Aki joined Hiscox in 2016 as Group Chief Financial | Hanna leads our global team of risk and | He set up and ran our UK Direct business before |
| --- | --- | --- |
| Officer and became Group Chief Executive | compliance experts, located in our key | relocating to establish our direct-to-consumer |
| Officer in 2022. Aki also sits on the Board of a | geographies and jurisdictions. She has | operations in the USA. With our US Digital |
| number of Hiscox subsidiary companies. Prior to | Group-wide responsibility for Hiscox’s | Partnerships and Direct (DPD) business now an |
| Hiscox, Aki held a number of senior roles across | enterprise risk management and regulatory | important growth driver, Kevin was appointed |
| a range of sectors, including Chief Financial | compliance, and manages our relationships | to lead Hiscox USA in 2021. |
| Officer of Prudential’s UK and Europe business, | with regulators. |  |

and Finance Director for Lloyds Banking Group’s
consumer bank division. Aki is a Chartered
Accountant, having trained with KPMG.

| Kate Markham |  | Joanne Musselle |  | Kathleen Reardon |  |
| --- | --- | --- | --- | --- | --- |
| Chief Executive Officer, Hiscox London Market |  | Group Chief Underwriting Officer |  | Chief Executive Officer, Hiscox Re & ILS |  |
| Joined Hiscox: June 2012 |  | Joined Hiscox: April 2002 |  | Joined Hiscox: January 2021 |  |
| Relevant skills, experience and contribution |  | Relevant skills, experience and contribution |  | Relevant skills, experience and contribution |  |
| s Strong experience of building |  | s Considerable underwriting expertise, |  | s Extensive experience of building |  |
|  | customer-focused businesses. |  | including experience of managing |  | reinsurance businesses throughout |
| s Track record of establishing |  |  | underwriting portfolios in our key markets. |  | the cycle. |
|  | operational and digital infrastructures | s Significant knowledge of Hiscox, |  | s In-depth knowledge of the Bermuda |  |
|  | that support growth. |  | particularly Hiscox Retail, having |  | reinsurance market. |

worked for the Group for 19 years.

| Kate originally joined Hiscox to run our UK |  | Kathleen joined Hiscox in 2021 from Hamilton |
| --- | --- | --- |
| Direct business, and was promoted to | Joanne joined Hiscox in 2002 and has held a | Re, where she was Chief Executive Officer. |
| Chief Executive Officer of Hiscox London Market | number of roles across the Group, including | She leads our reinsurance and ILS business, |
| in 2017. She leads our team of 300 London | Head of UK Claims, Chief Underwriting Officer | based in London and Bermuda, and is |
| Market underwriters, analysts and support | for Hiscox UK & Ireland, and Chief Underwriting | responsible for ensuring the team takes |
| functions in the UK, Guernsey and the USA. | Officer for Hiscox Retail. Joanne also sits on | advantage of the hardening market and |
| In addition, Kate is the Group’s Executive | the Board of a number of Hiscox subsidiary | opportunities as they present themselves. |
| Sponsor for Diversity and Inclusion. | 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.
67Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Chairman’s letter to shareholders

| Dear Shareholder | 1January2022. His experience, skills and | Directors on our Group-level Board also |
| --- | --- | --- |
| During 2021, we announced a change | values align to those which we sought | serve on one or more of our subsidiary |
| of leadership of the Group. It gives me | in a Group Chief Executive Officer, as | boards, and during the year Colin Keogh, |
| great pleasure that such is the strength | demonstrated in his five years with Hiscox | our Senior Independent Director, took |
| of the talent within Hiscox that we were | as Group Chief Financial Officer. In his | over from me as Chairman of the Hiscox |
| able to make an appointment from within | new role, the Group will also benefit from | Insurance Company Limited Board, the |
| our ranks – Aki Hussain, who previously | his significant experience gained prior to | subsidiary board for our UK entities. |
| served as the Group’s Chief Financial | Hiscox, which bring valuable and fresh |  |
| Officer. We then needed to fill the Group | perspective, as well as his clear thinking | Task Force on Climate-related |
| Chief Financial Officer role, and here | and drive to continue to build the business. | Financial Disclosures (TCFD) |
| we have made an appointment from |  | Last year I talked about our annual climate |
| outside of the Group. Paul Cooper, who | With Aki’s appointment, the Board | report, which we have produced for many |
| served as Finance Director for Hiscox UK | and Nominations and Governance | years and which since 2019 has been |
| and Europe from 2006 to 2011, comes | Committee focused on Group Chief | structured around a set of TCFD-aligned |
| back to us having gained significant | Financial Officer succession, a process | principles. This year we have boosted |
| experience of financial services and in | which resulted in the Board appointing | our long-standing disclosures with more |
| particular insurance at a high level. We | Paul Cooper to succeed Aki Hussain as | information on our compliance with TCFD, |
| have also appointed a new Independent | Group Chief Financial Officer. Paul will | in line with the new FCA requirements, |
| Non Executive Director to the main | join the business in the first half of 2022, | which can be found on pages 54 to 59. |
| Board, Donna DeMaio, who will chair | at which point he will join the Board |  |
| our Audit Committee following Caroline | of Directors and the Group Executive | Culture and employee engagement |
| Foulger’s departure during 2022. | Committee. I would like to personally | The employee engagement network we set |
|  | thank Liz Breeze, Chief Financial Officer | up in 2019, chaired by our Independent |
| Other themes remained a constant: ESG | for Hiscox Re & ILS, for stepping in as | Non Executive Director, Anne MacDonald, |
| and in particular, climate change; and our | Interim Group Chief Financial Officer. | is now fully embedded and proving to be an |
| focus on culture and the role of the Board |  | effective means of workforce engagement, |
| in employee engagement. In these areas, | New Independent Non | ensuring workforce views are considered in |
| I can report solid progress. | Executive Director | Board decision-making. Anne was chosen |
|  | The Board and Nominations and | to carry out this role due to her relevant |
| Group Chief Executive Officer and | Governance Committee also oversaw | experience in her professional career and |
| Group Chief Financial Officer succession | the appointment of a new Independent | people skills. The network convenes twice |
| The Board and Nominations and | Non Executive Director during the year. | a year and their contributions are shared |
| Governance Committee’s focus in recent | Following a robust process, Donna | with both Group-level and subsidiary |
| years was to ensure that there were strong | DeMaio was appointed to succeed | boards. Their inputs have contributed to |
| internal succession options for the Group | Caroline Foulger both as Independent | ongoing thinking in areas including how we |
| Chief Executive Officer. This process | Non Executive Director and Chair of the | communicate across the business, and |
| involved articulating the key qualities for a | Audit Committee when Caroline retires | future ways of working as hybrid working |
| Group Chief Executive Officer successor; | at the 2022 AGM. We will benefit from | becomes the new normal. |
| engaging professional advisors to evaluate | Donna’s significant financial services |  |
| both internal and external talent against | and US market expertise. | I trust that the information set out in this |
| these qualities; and the contribution of |  | report will give you a strong understanding |
| a leading independent search firm in | Group-level and subsidiary boards | of our corporate governance arrangements |
| reviewing external candidates. | We continually review our existing | a nd assurance that Hiscox continues to be |
|  | structures to ensure the knowledge and | focused on the importance of maintaining |
| This process resulted in the Board | expertise we have within our Group-level | a robust corporate governance framework. |
| appointing Aki Hussain as Group | and subsidiary boards is shared. Many |  |
| Chief Executive Officer, effective from | of the Independent Non Executive | Robert Childs, Chairman |

68 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Corporate governance

| Corporate governance framework | subsidiary level. The manual and the | Supporting policies and processes |
| --- | --- | --- |
| The corporate governance framework | supporting subsidiary governance | The corporate governance framework |
| throughout Hiscox supports the delivery | manuals ensure that the underlying | complements the Company’s internal |
| of our values, culture, strategy and | processes throughout the subsidiary | controls framework and its supporting |
| business objectives. | boards follow consistent and effective | framework of policies and processes. |
|  | governance practices. The division of | Key policies for the Group are published |
| The Board’s formal corporate | responsibility between the Group Board | online and available to view at |
| governance framework includes the | and the boards of the Group’s principal | hiscoxgroup.com/about-hiscox/ |
| Board, the Hiscox Group subsidiaries | subsidiaries is understood throughout | group-policies-and-disclosures. |
| and the Executive internal governance | the Group and is visually represented |  |
| structures, which together ensure | in the Hiscox Group governance | In particular, the internal control and risk |
| the governance requirements for the | model (available at hiscoxgroup.com/ | management systems relating to the |
| Group are robust and fit for purpose. | investors/corporate-governance). | financial reporting process are strong, |
| As a company listed on the London |  | with the Audit Committee and the Risk |
| Stock Exchange, the UK Corporate | The model shows the relationship | Committee forming the central points |
| Governance Code (the Code) is | between the Board exercising strategic | of review and challenge. Further detail |
| applicable to Hiscox, and an overview | direction and oversight of the Hiscox | can be found in the Audit Committee |
| of the Company’s compliance with the | Group, and the subsidiary boards’ | report on pages 89 to 91 and in the risk |
| Code is detailed on pages 76 to 81. | delivery of their respective entity’s | management section on pages 38 to 41. |

responsibilities. This is further translated

| The Board has a formal schedule | into explicit terms of reference and | In addition, the Board and the Audit |
| --- | --- | --- |
| of matters reserved for the Board’s | governance manuals for the principal | Committee – whose Chair also serves |
| determination that covers areas | subsidiaries – ensuring alignment to | as the Group’s whistleblowing champion |
| including: setting the Group’s purpose | the overall Group approach to values, | – have oversight of whistleblowing |
| and strategic vision; monitoring | purpose, culture of risk awareness, | matters and receive reports arising |
| performance of the delivery of the | ethical behaviour and Group controls. | from its operation. The Company’s |
| strategy; approving major investments, | Informal interaction, information flows | whistleblowing policy ensures that the |
| acquisitions and divestments; risk | and collaboration between Group | workforce feel empowered to raise |
| oversight and setting the Group’s risk | and the principal subsidiaries are also | concerns in confidence and without |
| appetite; and reviewing the Group’s | delivered by Group Board Non Executive | fear of unfair treatment. The structures |
| governance. The Group governance | and Executive Director representation | and processes in place allow for |
| manual (the manual) details the wider | on the boards of the principal insurance | the proportionate and independent |
| corporate governance framework | carrier entities. | investigation of any such matters, and |
| including the overall legal entity structures |  | for appropriate follow-up action to be |
| and relationship with the business units, | The Executive’s internal governance | taken where necessary. |
| the division of responsibilities between | structures support decision-making |  |
| Group and principal subsidiary boards, | at the Executive level between the | Board composition |
| Board process and procedures for | Group Executive Committee, the | The Board has responsibility for the |
| issues such as Non Executive Director | business units and the functional | overall leadership of the Group and its |
| appointments, diversity requirements | departments. Membership of the Group | culture. The operations of the Board |
| and Board evaluations, and the principles | Executive Committee was refreshed | are underpinned by the collective |
| to be applied to the wider subsidiary | in January 2022 following a review of | experience of the Directors and the |
| management. The manual is approved | existing leadership structures by the | diverse skills which they bring. The Board |
| by the Board and regularly reviewed. | incoming Group Chief Executive Officer, | comprises the Non Executive Chairman, |
|  | and the resulting Group Executive | two Executive Directors, and eight |
| The Company also benefits from a | Committee members are detailed | independent Non Executive Directors |
| strong governance framework at a | on pages 66 to 67. | including a Senior Independent Director. |

69Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Corporate governance |  | information | summary |


| Notable changes in the reporting | succession planning can be found | With respect to 2021, the Committee |
| --- | --- | --- |
| period include the appointment of Aki | in the Nominations and Governance | determined that there were no |
| Hussain as Group Chief Executive | Committee report on pages 82 to 88. | relationships which could cause an |
| Officer, effective from 1January2022 |  | actual or potential conflict. Additionally |
| following Bronek Masojada’s retirement | Board independence and | there were no concerns regarding |
| on 31December2021, the appointment | Director duties | overboarding and all Directors had |
| of Paul Cooper into the Group Chief | The Nominations and Governance | adequate time available to carry |
| Financial Officer role in the first half | Committee review the independence | out their duties. Where Directors took |
| of 2022, and Donna DeMaio’s | of each Non Executive Director, taking | on additional Board positions during |
| appointment on 18November2021 | into account, among other things, the | the year, these were reviewed as part |
| as Independent Non Executive Director | circumstances set out in the Code that | of our corporate governance processes |
| and Audit Committee Chair designate, | are likely to impair, or could appear | and were not deemed to be significant |
| which ensures an orderly transition | to impair, their independence. The | to the extent that they would overburden |
| in preparation for Caroline Foulger’s | Committee remains of the view that the | that Directors’ time. This has been |
| retirement at the AGM in 2022, following | most important factor is the extent to | demonstrated throughout 2020 and |
| the conclusion of her nine-year term | which they are independent of mind. | 2021 where all Directors have given |
| with the Company. Biographical details | As noted in the 2020 report, the Board | additional time to the Company due |
| for each member of the Board are | approved that Caroline Foulger (Audit | to increased meetings caused by |
| provided on pages 62 to 63. | Committee Chair) could continue | the pandemic. Approval occurs prior |
|  | in office until May2022, to allow for | to a Director undertaking additional |
| In accordance with the Company’s | the completion of the 2021 financial | external appointments. |
| Bye-laws and the Code, all Directors | statement process. |  |
| will seek re-appointment at the 2022 |  | Onboarding and board training |
| Annual General Meeting, with the | Each Director has undertaken to | On joining the Board, all Non Executive |
| exception of Caroline Foulger who | allocate sufficient time to the | Directors take part in a full, formal |
| will retire at the 2022 AGM. No issues | Group in order to discharge their | induction programme which is tailored |
| have arisen that would prevent the | responsibilities effectively. Each | to their specific requirements. More |
| Chairman from recommending the | Non Executive Director’s letter of | information on this, including the |
| re-appointment of any individual | appointment outlines the commitments | recent induction of Donna DeMaio |
| Director. In addition, the Senior | expected of them throughout the | on her appointment as Independent |
| Independent Director has reviewed | year and this is further detailed in | Non Executive Director, can be found |
| the position of the Chairman with | the manual. Executive Directors are | in the Nominations and Governance |
| the Non Executive Directors, and | prohibited from taking more than one | Committee report on pages 82 to 88. |
| recommends the re-appointment | additional Non Executive directorship |  |
| of Robert Childs, confirming that | in a FTSE 100 company. Each year as | The Board also has an ongoing training |
| the Chairman continues to show | part of the Director review process, | programme with regular items on |
| the independence of character and | the Directors are required to provide | topical issues. In 2021, this included |
| judgement necessary to chair the | a complete list of all third-party | sessions on underwriting through the |
| Board effectively. The Board is satisfied | relationships that they maintain. This | cycle, developments in D&I, climate |
| that it has the appropriate balance of | is analysed to determine if there is any | change and the disclosure landscape |
| skills, experience, independence, | actual or potential conflict of interest | including TCFD and IFRS 17. Items |
| and knowledge of the Company to | and that appropriate time continues to | for training are identified in the Board, |
| enable it to discharge its duties and | be available to devote to the Company. | Committee and Director reviews, as well |
| responsibilities effectively, and that | The Nominations and Governance | as through specific requirements and |
| no individual or group dominates the | Committee review the findings and | individual requests, and can be delivered |
| Board’s decision-making. Additional | determine if there is any conflict | via the frequent programme of Board |
| details on board composition and | of interest. | informational sessions. |

70 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Corporate governance |  | information | summary |

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 of two Directors and the Company Secretary.
Audit Committee Nominations and Remuneration Committee Risk Committee
Governance Committee

| • Advises the Board on |  | • Recommends Board |  | • Establishes |  | • Advises the Board on |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | financial reporting. |  | appointments. |  | remuneration policy. |  | the Group’s overall risk |
| • | Oversees the | • | Succession planning. | • | Oversees alignment |  | appetite, tolerance |
|  | relationship with internal | • Ensures an appropriate |  |  | of rewards, incentives |  | and strategy. |
|  | and external audit. |  | mix of skills and |  | and culture. | • | Provides advice, |
| • | Oversees internal |  | experience on | • | Sets Chairman, |  | oversight and challenge |
|  | controls including |  | the Board. |  | Executive Director and |  | to embed and maintain |
|  | reserving and claims. | • | Promotes diversity. |  | senior management |  | a supportive risk culture |
|  |  | • Manages any potential |  |  | remuneration. |  | throughout the Group. |
| The Audit Committee report |  |  | conflicts of interests. | • | Oversees workforce |  |  |
| can be found on pages 89 |  |  |  |  | remuneration-related | More information on risk |  |
| to 91. |  | The Nominations and |  |  | policies and practices | management can be found |  |
|  |  | Governance Committee |  |  | across the Group. | on pages 10 and 38 to 41. |  |

report can be found on
pages 82 to 88. The remuneration report can
be found on pages 100 to 113.
To ensure that the Board operates efficiently, each Director has distinct role responsibilities.
Chairman Senior Independent Chief Executive Independent Non
Director (SID) Executive Directors
• Leadership of the Board. • Advisor to the Chairman. • Proposing and delivering • Active participation in
• Ensuring effective • Leading the Chairman’s the strategy as set by Board decision-making.
relationships exist performance evaluation. the Board. • Advising on key
between the Non • Serving as an • Facilitating an effective strategic matters.
Executive and intermediary to link between the • Critiquing and
Executive Directors. other Directors business and the Board challenging proposals
• Ensuring that the views when necessary. in support of effective and activities, and
of all stakeholders • Being available to communication. approving plans
are understood and shareholders and other • Leading the Group where appropriate.
considered appropriately stakeholders if they Executive Committee,
in Board discussions. have any concerns which delivers
• Overseeing the annual which are unable to operational and financial
performance evaluation be resolved through performance.
and identifying any normal channels, or if • Representing Hiscox
action required. contact through these internally and externally
• Leading initiatives to channels is deemed to stakeholders,
assess the culture of the inappropriate. including shareholders,
Company and ensure employees, government
that the Board leads and regulators, suppliers
by example. and contractors.
71Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Corporate governance |  | information | summary |


| Board structure and decision-making | Board agendas focus on strategically | Owing to this system, the Group has an |
| --- | --- | --- |
| The Board operates within an | important issues, key regulatory items | effective Board which supports a culture |
| established structure which includes | and regular reports from key business | of accountability, transparency and |
| clear responsibilities at Board level, | areas. Board papers are circulated in | openness. Executive and Non Executive |
| transparent, well-informed and balanced | advance of each meeting to ensure | Directors continue to work well together |
| decision-making, and appropriate | Directors have appropriate time to review | as a unitary Board and debate issues |
| onward delegations to effectively | them, and to seek clarification where | freely. The Board culture is congenial; |
| deliver the Company’s purpose, | necessary. The management reports | however, both Non Executive Directors |
| values and strategy. | follow a short standard format which | and Executive Directors continually |
|  | aids discussion and understanding. | challenge each other in order to deliver |
| The Board has delegated a number of its | The quality of Board papers is kept | our shared aim. In the context of unitary |
| responsibilities to its Audit, Nominations | under regular review. At each meeting | Boards, Non Executive Directors provide |
| and Governance, Remuneration and Risk | the Board receives an update from | Executive Directors with support and |
| Committees. Each Board Committee | the Committee Chairs to keep them | guidance, not just challenge, and our |
| operates within established written terms | abreast of the items discussed, the | Non Executive Directors are close |
| of reference and each committee Chair | outcomes agreed, and to summarise | enough to the business to do this. |
| reports directly to the Board. The formal | recommendations for Board approval |  |
| schedule of matters reserved for Board | from the Committees. | Board attendance in 2021 |
| decision and the Committee terms of |  | In line with the agreed meeting schedule, |
| reference were reviewed in late 2021 | The scheduled meetings follow an | the Board held four comprehensive |
| as part of the annual review of terms of | agreed format; agendas are developed | meetings in 2021 (these meetings |
| reference, and copies of each can be | from the Board’s annual plan of | comprise meetings of the Board and of |
| found at hiscoxgroup.com/investors/ | business, with flexibility built in to ensure | each of the Committees of the Board). |
| corporate-governance. To ensure | the agendas can accommodate relevant | In keeping with the practices developed |
| that the Board operates efficiently, the | upcoming issues. Each quarterly cycle | during the early stages of the pandemic, |
| role of the Chairman, Senior Independent | typically covers a series of decisions, | there were an additional ten informational |
| Director and Chief Executive are | discussions and regulatory items | calls between Board meetings. These |
| distinct to demonstrate the segregation | either at the Board, during Committee | informational calls provided an opportunity |
| of responsibilities. | discussions, or during informal | to ensure the Board was kept informed of |
|  | informational sessions, depending | any business developments and allowed |
| Board cycle | on the nature of the matter. Items for | the Directors to monitor exposures, |
| The Board receives appropriate and | discussion may be identified from | emerging issues and opportunities. |
| timely information to enable Directors | actions from previous meetings, issues | There were also four additional sessions |
| to review business strategy, trading | escalated from management, items | held in 2021 in relation to the appointment |
| performance, business risks and | requested either formally or informally | of the Group Chief Executive Officer. |
| opportunities. Executive Directors and | by Non Executive Directors, ongoing |  |
| senior management from the business | regulatory topics throughout the Group, | The Company’s Bye-laws prohibit any |
| are invited to present on key items, | and horizon scanning including review | Director who is in the UK or the USA from |
| allowing the Board the opportunity | of the competitive landscape. Agendas | counting towards the quorum necessary |
| to debate and challenge initiatives | are built to ensure that the most | for the transaction of business at a Board |
| and proposals directly. | appropriate method of progressing | meeting. This restricts the ability of the |
|  | an item is utilised. The Chairman and | Company’s Directors based in the UK or |
| The Board agenda is set by the | Non Executive Directors usually meet | USA to participate in Board meetings |
| Chairman following discussion with the | at the start or end of each Board meeting | by telephone or other electronic means. |
| Chief Executive Officer and Company | without the Executive Directors, creating | This year, a number of Board meetings |
| Secretary, and taking into consideration | an opportunity for Non Executive | were held during periods where |
| feedback from the individual Directors. | Directors to raise any issues privately. | government-imposed Covid-19-related |

72 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Corporate governance |  | information | summary |


| travel restrictions and guidance were in | attendance (and the number of meetings | The Board is kept abreast of stakeholder |
| --- | --- | --- |
| place. As a result, it was not possible in | that they were eligible to attend) was | feedback and issues through reports |
| many instances for our UK- and | as follows: Caroline Foulger, Michael | from a variety of sources, including |
| USA-based Directors to travel to | Goodwin, Thomas Hürlimann, Costas | the Chairman, Group Chief Executive |
| Bermuda or join all Board meetings. | Miranthis (4/4); Robert Childs, Colin | Officer, Group Chief Financial Officer, |
| Informational calls were held to allow | Keogh (3/3); Anne MacDonald, Lynn | senior management and external |
| for the continued sharing of information | Pike (2/2). Robert Childs is a member | consultants. This feedback loop is |
| and ensured that all Directors had an | of the Nominations and Governance | complemented by the regular dialogue |
| opportunity to be apprised of all Board | Committee, Risk Committee and | that the Board maintains with the Group’s |
| issues, even when, through no fault of | Investment Committee and he attended | key stakeholders, with the support of |
| their own, they were not able to attend | all three of the meetings that he was | Executives and senior management. |
| the comprehensive Board meetings in | eligible to attend. Aki Hussain and | While the nature and format of this |
| person or, as a result of the prohibition | Joanne Musselle are members of the | dialogue has adapted throughout the |
| in the Bye-laws, by telephone. | Investment Committee and attended all | year to ensure that communication was |
|  | four meetings, as did Bronek Masojada. | sustained during periods of lockdown |
| All Directors were able to fulfil their |  | restrictions, it has remained a consistent |
| fiduciary responsibilities during 2021 | Outside of the formal Board and | feature. More information on how the |
| and attended all Board and Committee | Committee meetings and informational | Board engages with key stakeholders |
| meetings that they were eligible to | calls, Non Executive Directors have | can be found on pages 42 to 43. |
| attend (that is, those Board and | unfettered access to employees at all |  |
| Committee meetings that they were not | levels of the business, regularly liaise | Board evaluation 2021 |
| precluded from attending as a result of | with management on activities aligned | The Board encourages a culture of |
| Covid-19-related travel restrictions and | to their key skills, and attend appropriate | continuous improvement, and an |
| guidance, and the Company’s Bye-laws). | management strategy and training | important part of this is the annual review |
| With respect to the four comprehensive | events. They also have the opportunity | of the Board, its Committees and each |
| Board meetings in 2021, the Directors’ | to attend briefings with Group Executive | Director. The Board evaluation in 2021 |
| attendance (and the number of meetings | Committee members and senior | was internally facilitated, the details of |
| that they were eligible to attend) was | management, to understand key issues | which can be found in the Nominations |
| as follows: Caroline Foulger, Michael | and conduct ‘deep dives’ on specialist | and Governance Committee report on |
| Goodwin, Thomas Hürlimann, Costas | subjects. In 2021, among other things, | pages 82 to 88. |
| Miranthis, Joanne Musselle, Aki Hussain, | this included marketing and branding; |  |
| Bronek Masojada (4/4); Robert Childs, | strategic assessment; workforce | Board remuneration |
| Colin Keogh (3/3); Anne MacDonald, | engagement; and digitisation. Specific | The remuneration of Independent Non |
| Lynn Pike (2/2). Donna DeMaio was | sessions are held for succession | Executive Directors is determined by |
| appointed following the final Board | planning and strategy. | the Nominations and Governance |
| meeting of 2021 and as such was not |  | Committee and is regularly benchmarked |
| eligible to attend Board and Committee | Board engagement with stakeholders | to ensure it reflects the time commitment |
| meetings during 2021. | A key element of the corporate | and responsibilities of each role; there are |
|  | governance framework is open and | no performance-related elements. The |
| There were also four meetings of each of | transparent communication with | Chairman’s remuneration is determined |
| the Committees of the Board during 2021. | stakeholders at all levels including | under the remuneration policy. |
| All of the Company’s Independent Non | Board level. As such, the Board regularly |  |
| Executive Directors are members of each | discusses stakeholder matters including |  |
| of the Audit Committee, Nominations and | shareholder matters, employee |  |
| Governance Committee, Remuneration | engagement, customers, and the |  |
| Committee, Risk Committee and | Group’s impact on, and relationship |  |
| Investment Committee and their | with, wider society. |  |

73Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Corporate governance |  | information | summary |

Board activity
The Board factored the needs and concerns of our key stakeholders into its discussions and decisions throughout the year.
In addition to business as usual reviews, the Board’s key activity and decisions for the reporting period are detailed below.
The table demonstrates the different stakeholders the Board took into account when these activities and decisions were taken.
Shareholders Workforce Brokers Customers Regulators
Values/culture/strategy
• Ongoing review of the values and strategy.
• Initiation of the strategy refresh following the change
of Chief Executive Officer.
• Ongoing review of business unit strategies.
• Loss portfolio transfers and adverse development cover
implemented to reduce reserve uncertainty and bolster
capital ratios.
• Continued focus on simplifying our operating model.
Succession/workforce
• Appointment of Aki Hussain as Group Chief Executive
Officer, effective 1 January 2022 following Bronek
Masojada’s retirement, effective 31 December 2021.
• Appointment of Donna DeMaio as Independent Non
Executive Director and Audit Committee Chair designate
on 18 November 2021, facilitating an orderly transition
ahead of Caroline Foulger’s retirement at the 2022 AGM.
• Oversight of the development of a robust and open culture
including further embedding of the Board Employee
Liaison role.
• Review of senior management succession plans, Group
talent management initiatives and Group diversity and
inclusion initiatives.
• Review of the employee engagement survey and approval
of a shift to a more regular rhythm of review.
74 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Corporate governance |  | information | summary |

Shareholders Workforce Brokers Customers Regulators
Performance
• Approval of the 2022 business plan.
• Ongoing review of the Company’s financial results, going
concern status and viability and open and transparent
reporting of the same.
• Ongoing review of operational risk reviews of the Group
and business units.
• Ongoing examination of the Covid-19 underwriting
impact, reserve position and reinsurance recoveries.
• Approval of the final dividend payment.
Governance, compliance and internal controls
• Updates on key underwriting exposures.
• Delivery of a Group-wide programme to ensure contract
certainty and further identify any potential systemic risks.
• Approval of the updated risk limits framework.
ESG
• Increased focus on the risks associated with climate
change and embedding a Group-wide approach to
this following a detailed exercise carried out in one of
our UK subsidiaries.
• Introduction of the clear documentation of individual
climate risk assessments for the big-ticket business.
• Approval of new greenhouse gas targets for the Group.
• Approval of the ESG exclusions policy for the Group.
75Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Compliance with the UK Corporate Governance Code 2018

| As a company listed on the London | the Chair appointment and the Board set | of the Chairman and the robustness of |
| --- | --- | --- |
| Stock Exchange, the UK Corporate | out its reasons for his appointment. | the Non Executive Director succession |
| Governance Code (the Code) is | The Board continues to believe that the | plan; the results of which were positive. |
| applicable to Hiscox. The Board is | Chairman’s experience and expertise | A similarly positive result was found in |
| pleased to report that the Company | in underwriting and risk management | the 2021 Board evaluation as detailed |
| has applied the principles and complied | remain a valuable asset in the | on pages 87 to 88. The Board therefore |
| with the provisions of the Code as | performance of its functions. In 2019, | retains complete confidence in the |
| issued by the Financial Reporting | following the introduction of the new | Chair’s ability to act independently, and |
| Council in July2018 for its financial | provision of the Code, a more robust | unanimously supports his re-election at |
| year 2021 (as applicable to a | annual process was introduced which | the AGM. |
| Bermuda-registered entity), except | allows the question of the Chairman’s |  |
| in relation to Provision 9 on Chair | independence and Board tenure to be | The Company complies with all of |
| independence; Provision 19 on | discussed in a specific session with the | the Provisions in Section 3 (audit, risk |
| Chair tenure (as explained below) and | Non Executive Directors (without the | and internal control) except for part of |
| Provision 25 regarding the Chairman’s | Chairman being present). This process | Provision 25, as the Chair of the Board |
| membership of the Risk Committee. | is now in its third year of execution | sits on the Risk Committee. The Board |
|  | and is led by the Senior Independent | considers that this brings value to |
| The corporate governance statement | Director. The meeting took place in | that Committee. |
| (pages 69 to 75), the remuneration | November 2021 and, having also |  |
| report (pages 100 to 113) and the | considered the views of the Executive |  |
| shareholder information contained on | Directors, the meeting determined that |  |
| pages 128 to 131, together with the cross | the Directors continue to highly value |  |
| references to other relevant sections of | the Chair’s skills and experience, and |  |
| the Annual Report and Accounts, explain | that he demonstrates independence, |  |
| the main aspects of the Company’s | constructive challenge and engagement |  |
| corporate governance framework and | in the Board as well as valuable guidance |  |
| seek to give a greater understanding | to senior management. The Board |  |
| as to how the Company has applied | is therefore satisfied that the Chair |  |
| the Principles and reported against the | continues to show the independence |  |
| Provisions of the Code. The Code itself | of character and judgement necessary |  |
| can be found at frc.org.uk. | to chair the Board effectively. |  |
| Chair independence and tenure | Separately, there are a number of further |  |
| The Company complied with all of the | measures to ensure the robustness of |  |
| Provisions of section 2 with the exception | these arrangements including: a strong |  |
| of Provision 9 and 19 regarding Chair | Senior Independent Director in place; |  |
| independence and tenure respectively. | an annual review of independence of |  |
| As previously disclosed, the Chair, | mind as part of the effectiveness review, |  |
| Robert Childs, was not deemed to be | and oversight of this at the Nominations |  |
| independent upon his appointment as | and Governance Committee; the Chair |  |
| Chair in 2013. The Chair has been in post | is not a member of the Remuneration |  |
| since 2013, and has served less than | Committee or the Audit Committee; |  |
| nine years as Chair, however, the Chair | and a majority of Board Directors are |  |
| has served as an Executive Director | independent Directors. A key focus of |  |
| (Chief Underwriting Officer) prior to | the 2020 externally facilitated Board |  |
| that. At the time of appointment major | evaluation was an assessment of the |  |
| shareholders were consulted ahead of | independence of the Board, the role |  |

76 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Compliance with the |  | information | summary |

UK Corporate
Governance Code 2018
Requirements Operation and practices Additional detail on provisions: Compliance
A: Board’s role
Code: A successful company is led by an effective and entrepreneurial
1 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
Section 1 long-term success of the Company. There is a robust decision-making Provision 1: The Company
of the Code: process in place with constructive challenge and debate. Pages 20 to pages 38 to 41 applied all of the
Board leadership 33 demonstrate the Company’s strong performance and position. In the (risk management), principles and
and Company corporate governance overview on pages 69 to 75, we detail the governance pages 8 to 9 complied with
purpose structure and how this contributes to the delivery of the Company’s strategy. (business model) the provisions
of section 1.
B: Purpose and culture
Provision 2:
Code: The board should establish the company’s purpose, values and
pages 74 to 75 Provision 5 refers
strategy, and satisfy itself that these and its culture are aligned. All directors
(Board activity), to S172 of the UK
must act with integrity, lead by example and promote the desired culture.
pages 94 to 125 Companies Act
Hiscox: The Company’s purpose and values were last reviewed in 2019.
(chapter 4, which is not
Having a clear purpose and strong set of values has always been important
remuneration). applicable to Hiscox
at Hiscox as they act as a culture barometer by which the Board and wider
as a Bermuda-
workforce can hold each other to account (see pages 6 to 7). Procedures
Provision 3: incorporated
for regulation of Board conduct are detailed in the Group governance
pages 42 to 43 company, therefore
manual and individual appointment letters, and is overseen by the Chair
(shareholder compliance is against
of the Board.
engagement). Bermudian Director
C: Resources and controls duties, as detailed
Code: The board should ensure that the necessary resources are in Provision 4: on page 64.
place for the company to meet its objectives and measure performance No AGM votes
against them. The board should also establish a framework of prudent and below 80%.
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 Provision 5:
strategy and annual operating plans, holding management to account on pages 42 to 43
their delivery of those plans. This is assisted by a robust internal control (stakeholder
and risk management framework (see pages 38 to 39). The Board and engagement)
its Committees have unfettered access to the resources they deem pages 74 to 75
necessary to fulfil their obligations. (Board activity).
D: Stakeholder engagement
Provision 6:
Code: In order for the company to meet its responsibilities to shareholders
page 69
and stakeholders, the board should ensure effective engagement with,
(corporate
and encourage participation from, these parties.
governance
Hiscox: The Board regularly considers the Group’s relationship with
framework).
various stakeholder groups including shareholder matters, employee
engagement, customers, and the Group’s impact on, and relationship
Provision 7:
with, wider society as highlighted in the overview of Board decisions on
pages 69 to 73
pages 74 to 75. Further stakeholder engagement measures are detailed
(Non Executive
on pages 42 to 43. The Board continues to engage with the workforce
Director time,
through the pre-existing infrastructure and via the employee engagement
corporate
network. This ensures Hiscox is motivating and engaging employees
governance
in an effective way. The Employee Liaison is responsible for providing a
framework).
summary of findings at Board meetings.
E: Workforce engagement Provision 8:
Code: The board should ensure that workforce policies and practices are Group governance
consistent with the company’s values and support its long-term sustainable manual and Director
success. The workforce should be able to raise any matters of concern. appointment letters.
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 2021 results
can be found on page 6. The overview of Board decisions on pages
74 to 75 highlights where the Board took account of the workforce in
decision-making.
77Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Compliance with the |  | information | summary |

UK Corporate
Governance Code 2018
Requirements Operation and practices Additional detail on provisions: Compliance
F: Role of the Chair
Code: The chair leads the board and is responsible for its overall
2 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
Section 2 the effective contribution of all non-executive directors, and ensures that Provision 9: The Company
of the Code: directors receive accurate, timely and clear information. see explanation applied all of the
Division of Hiscox: The Chair is responsible for the leadership and overall effectiveness left, (Chair principles and
responsibilities of the Board. The Chair drives a boardroom culture which encourages independence complied with
openness and debate and ensures constructive relations between Executive and tenure), the provisions of
and Non Executive Directors, see Board cycle on page 72. The Chair, page 71 section 2 except for
with the support of the General Counsel and Company Secretary, (CEO and Chair Chair independence
delivers high-quality information to the Board to enable a strong basis separate roles). within Provision 9
for decision-making. Pages 69 to 75 detail the corporate governance (see page 76).
structures in place. Provision 10:
page 62 to 63
G: Composition of the Board
(Board of Directors).
Code: The board should include an appropriate combination of executive
and non-executive (and, in particular, independent non-executive)
Provision 11:
directors, such that no one individual or small group of individuals
page 62 to 63
dominates the board’s decision-making. There should be a clear division
(Board composition).
of responsibilities between the leadership of the board and the executive
leadership of the company’s business.
Provision 12:
Hiscox: There is a clear division of responsibilities between the Chair,
page 62 to 63
Chief Executive Officer and Senior Independent Director (see page 71).
(Board composition),
No individual or small group has unfettered powers of decision. The Board
page 87 to 88
has a majority of independent Directors. As noted in the 2020 report, the
(Board evaluation).
Board approved that Caroline Foulger could continue in office until May
2022, to allow for the completion of the 2021 financial statement process,
Provision 13:
and the Board considers that she continues to demonstrate independence
page 72
of thought and judgement to fulfil her role as Audit Committee Chair effectively.
(Board cycle).
Donna DeMaio’s appointment as independent Non Executive Director and
Audit Committee Chair designate on 18 November 2021 ensures an orderly
Provision 14:
transition in preparation for Caroline’s retirement following the conclusion of
page 71
her nine-year term with the Company.
(structure of Board
H: Role of Non Executive Directors decision-making),
Code: Non-executive directors should have sufficient time to meet their page 72 to 73
board responsibilities. They should provide constructive challenge, strategic (Board attendance
guidance, offer specialist advice and hold management to account. in 2021).
Hiscox: The Group governance manual and the Directors’ letters of
appointment detail the requirements for the Non Executive Directors Provisions 15 and 16:
regarding their role and time expectations. These factors are subject Group governance
to ongoing review, which is overseen by the Chair of the Board, and manual and Director
is formally reviewed in the annual Director reviews conducted by the appointment letters.
Nominations and Governance Committee (see page 82). 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.
78 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Compliance with the |  | information | summary |

UK Corporate
Governance Code 2018
Requirements Operation and practices Additional detail on provisions: Compliance
J: Appointment to the Board and succession planning
Code: Appointments to the board should be subject to a formal, rigorous
3 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,
Section 3 within this context, should promote diversity of gender, social and ethnic Provision 17: The Company
of the Code: backgrounds, cognitive and personal strengths. page 82 applied all of the
Composition, Hiscox: The Group governance manual details the commitment to (key responsibilities principles and
succession a formal, rigorous and transparent procedure for appointments to and membership, complied with
and evaluation the Board and effective succession planning for Board and senior Nominations the provisions of
management, both of which are based on merit and promote diversity. and Governance section 3 except

| This is also detailed within the Matters reserved for the Board as part | Committee report). | for Chair tenure |
| --- | --- | --- |
| of the Board terms of reference and the terms of reference of the |  | within Provision 19 |
| Nominations and Governance Committee, available at | Provision 18: | (see page 76). |
| hiscoxgroup.com/investors/corporate-governance. | pages 62 to 63 |  |

(Board composition).
The Board diversity and inclusion policy was updated in 2021 and
republished as detailed on pages 84 to 87. It details the parameters for Provision 19:
appointments and succession planning, as well as oversight of Board See explanation above
and workforce diversity and inclusion policies and programmes. The (Chair independence
Nominations and Governance Committee lead on the delivery of this and tenure).
principle on behalf of the Board as detailed on pages 82 to 88.
Provision 20:
K: Skills, experience and knowledge of the Board
pages 82 to 84
Code: The board and its committees should have a combination of skills,
(talent review and
experience and knowledge. Consideration should be given to the length
Board composition
of service of the board as a whole and membership regularly refreshed.
and succession,
Hiscox: The current composition of the Board is set out on pages 62 to 63
Nominations
and is considered to be an appropriate size for the business, with the right
and Governance
balance of Executive and Non Executive Directors with a wide range of
Committee report).
skills and experience that contribute to the Board’s performance. Length
of service is considered as part of the succession planning process and
Provisions 21 and 22:
this is delivered by the Nominations and Governance Committee on behalf
page 82 to 88
of the Board as detailed on pages 82 to 88.
(Board evaluation,
L: Board evaluation Nominations
Code: Annual evaluation of the board should consider its composition, and Governance
diversity and how effectively members work together to achieve Committee report).
objectives. Individual evaluation should demonstrate whether each
director continues to contribute effectively. Provision 23:
Hiscox: The Board, Committee and Director evaluation process is a robust pages 82 to 88
annual process which ensures that a thorough evaluation is completed (Nominations
each year. This internal evaluation process is supported by external and Governance
evaluations, which are completed every three years, with the next external Committee report).
review scheduled for 2023 (see pages 87 to 88).
79Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Compliance with the |  | information | summary |

UK Corporate
Governance Code 2018
Requirements Operation and practices Additional detail on provisions: Compliance
M: Internal and external audit
Code: The board should establish formal and transparent policies and
4 procedures to ensure the independence and effectiveness of internal and
external audit functions and satisfy itself on the integrity of financial and
narrative statements.
Section 4 Hiscox: The Audit Committee oversees the relationships with the Provisions 24 and 26: The Company
of the Code: internal and external audit functions ensuring their independence and pages 89 to 91 applied all of the
Audit, risk and effectiveness. The Committee also has oversight of the relationship (Audit Committee principles and
internal control with the actuarial function. The three parties work together to provide report). complied with
assurances to the Audit Committee and Board on the integrity of the the provisions

| financial statements, with external audit also providing assurances in | Provision 25: | of section 4, except |
| --- | --- | --- |
| relation to the narrative statements. The Audit Committee report for 2021 | Audit Committee | for Provision 25 as |
| can be found on pages 89 to 91. | terms of reference | the Risk Committee |
|  | are available at | membership includes |
| The Directors’ responsibilities statement, going concern and viability | hiscoxgroup.com/ | the Board Chairman. |
| statements are set out on pages 128 to 131. | investors/corporate- |  |

governance. Risk
N: Fair, balanced and understandable assessment
Committee terms of
Code: The board should present a fair, balanced and understandable
reference are also
assessment of the company’s position and prospects.
available. The Chair of
Hiscox: The Board is responsible for the preparation of the Annual Report
the Board sits on the
and Accounts and for stating whether it considers the Annual Report and
Risk Committee as the
Accounts, taken as a whole, to be fair, balanced and understandable, and
Board considers that
provides information necessary for shareholders to assess the Company’s
this brings value to
position, performance, business model and strategy. The Audit Committee
that Committee.
details how this is achieved on pages 89 to 91.
O: Risk management and internal control framework Provisions 27, 30
Code: The board should establish procedures to manage risk, oversee and 31:
the internal control framework, and determine the nature and extent of pages 128 to 131
the principal risks the company is willing to take in order to achieve its (going concern and
long-term strategic objectives. viability statements,
Hiscox: The Board is ultimately responsible for our risk management and Directors’ report).
internal controls, and for ensuring that the systems in place are robust and
take into account the principal and emerging risks faced by the Company. Provisions 28, 29
An overview of risk management can be found on pages 38 to 41. The Risk and 31:
Committee leads detailed discussions on the principal and emerging risks pages 38 to 41
of the Company on behalf of the Board, and recommends to the Board (risk management).
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.
80 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Compliance with the |  | information | summary |

UK Corporate
Governance Code 2018
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
P: Remuneration policies and practices
Code: Remuneration policies and practices should be designed
5 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
Section 5 long-term strategy. Provisions 32 and 33: The Company
of the Code: Hiscox: Our remuneration policy and practices are developed by the pages 94 to 96 applied all of the
Remuneration Remuneration Committee in consultation with our shareholders. They are (annual statement principles and
designed to support the Company’s strategic aims, promote the long-term from the Chair of complied with
sustainable success of the Company, and attract and retain talent, while the Remuneration the provisions
also being aligned with the Company’s purpose, values and culture (see Committee). of section 5.
pages 6 to 7).
Provision 34:
Q: Executive remuneration
page 105 and 109,
Code: A formal and transparent procedure for developing policy on
(Non Executive
executive remuneration and determining director and senior management
Director fees,
remuneration should be established. No director should be involved in
Chair remuneration).
deciding their own remuneration outcome.
Hiscox: The Remuneration Committee is responsible for setting the
Provisions 35:
remuneration for all Executive Directors and senior management. The
pa ge 110
remuneration report contains details of the procedures that have been
(consultants are
established for developing the Company’s policy on Executive pay and
highlighted in
determining Director and senior management remuneration outcomes.
chapter 4:
No Director is involved in deciding their own remuneration outcome. The
remuneration).
Remuneration Committee receives information on broader workforce
remuneration policies and practices during the year which informs its
Provisions 36, 37,
consideration of the policy (see page 112).
38, 39:
pages 114 to 125
The remuneration policy was reviewed in May 2020, and changes were
(remuneration policy).
made to rebalance the weighting of incentives towards the long term
in order to encourage an ownership culture and increase the focus on
Provisions 40 and 41:
long-term performance. Shareholders’ views on proposed changes to the
pages 94 to 125
policy were sought and shareholders were supportive of this approach.
(chapter 4:
remuneration).
In 2021, the Employee Liaison facilitated a discussion with respect to the
content of the remuneration policy and how this aligns to wider Company
pay policy, and shared 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 94 to 128. The
Remuneration Committee comprises of 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.
81Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Nominations and Governance Committee report
Key responsibilities and membership of AkiHussain as Group Chief
The Nominations and Governance Executive Officer.
Committee (the Committee) leads • Group Chief Financial Officer
in the delivery of formal, rigorous succession, a process which
and transparent procedures on resulted in the recommendation
appointments and succession, ensuring to the Board of the appointment
the development of a diverse pipeline of of Paul Cooper to succeed
Board members and senior managers. Aki Hussain as Group Chief
This includes an annual review of Financial Officer.
succession plans for Executives and • Appointment of a new Audit
Non Executives, a process which Committee Chair, Donna DeMaio,
is guided by the appointment and with a transition period involving
succession principles set out in the the outgoing Audit Chair to ensure
Group governance manual for an orderly transition.
Non Executive Directors and by our • Review of the Board diversity
Group HR policies for Executive Directors and inclusion policy and ongoing
and senior management. The Committee diversity monitoring of the
also reviews the Board evaluation Board and senior management.
process, Company strategy relating to • Review of the Board
diversity and inclusion, and the gender evaluation outcomes.
## It has been a busy balance of both the Board and senior
management. In addition, the Committee Talent reviews
## year for the Committee,
carries out several other Group activities, The Nominations and Governance
## but achieving a smooth including a review of intra-Group Committee leads on Executive
conflicts of interest and the approval succession planning via an established
## Group CEO transition was

|  | of Group policies. | and robust talent review process. |
| --- | --- | --- |
| particularly rewarding.” |  | This process reviews key talent plans |
|  | The Committee is comprised of | throughout the Group across three time |
| Robert Childs | eight members, of which seven are | horizons: zero-to-two years; two-to-five |
| Chair of the Nominations and | Independent Non Executive Directors. | years; and the watch list. The Group |
| Governance Committee | The Chair of the Board is the Chair | review focuses on the Group Executive |
|  | of the Nominations and Governance | Committee, and their direct reports, and |
|  | Committee; the Senior Independent | the Company Secretary. The main focus |
|  | Director leads on matters relating to | of the talent reviews in 2021 and into 2022 |
|  | the Chair. The Committee’s terms of | was the succession and appointment |
|  | reference are reviewed and approved | of the Group Chief Executive Officer |
|  | annually and are available on the | and the transition plans following Aki |
|  | Company’s website at hiscoxgroup. | Hussain’s promotion to Group Chief |
|  | com/investors/corporate-governance. | Executive Officer, along with other senior |

management changes. The outputs of the

| Key activities of the Committee: |  | talent review process contribute to senior |
| --- | --- | --- |
| The Committee’s key priorities in 2021 |  | management performance development |
| were as follows. |  | plans and include relevant diversity |
| • | Group Chief Executive Officer | actions. This process is replicated at a |
|  | succession, a process which | business unit level to ensure a sufficient |
|  | resulted in the recommendation | pipeline of talent in each area. Talent plans |
|  | to the Board of the appointment | are also reviewed when vacancies arise. |

82 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Nominations and |  | information | summary |

Governance
Committee report
Following the announcement of Aki
Hussain’s appointment to Group
Chief Executive Officer, effective
1January2022, a transitional plan was
Summary of the Group Chief Executive Officer succession process
put in place to address the resulting
Group Chief Financial Officer vacancy.

| The Board and Committee’s focus | The Committee considered input from |  | A search process was initiated in the |
| --- | --- | --- | --- |
| over the last number of years was to | all of the external advisors, in addition |  | summer of 2021 for a replacement |
| ensure that there were strong internal | to conducting its own evaluation of |  | Group Chief Financial Officer with the |
| succession options for the Group Chief | candidates. Following this rigorous |  | appointment of an independent search |
| Executive Officer. | review process Aki Hussain was |  | agency, Spencer Stuart, which had |
|  | selected as new Group Chief Executive |  | strong credentials, international reach |
| The Committee articulated the key | Officer, effective from 1January2022, |  | and participation in the voluntary code of |
| qualities for a CEO successor, and | due to: |  | conduct to address gender and ethnicity |
| engaged professional advisors to | • | his experience, skills and values, | diversity on UK-listed company boards |
| evaluate both internal and external |  | which align with those which were | of directors. The search firm used was |
| talent against these qualities. This |  | sought in a Group Chief Executive | deemed to be independent as it does not |
| process was supported by a leading |  | Officer, as demonstrated in | have any connection with the Company |
| independent search firm, Russell |  | his five years with Hiscox as Group | or its individual Directors other than in |
| Reynolds Associates, who conducted a |  | Chief Financial Officer; | its engagement in this capacity. This |
| thorough review of external candidates | • | the benefit of vast experience | process resulted in the announcement |
| and presented these to the Committee. |  | gained prior to Hiscox which | on 21December 2021 of Paul Cooper |
| The firm was appointed due to its strong |  | brought a valuable and | as the new Group Chief Financial Officer. |
| credentials, international reach and |  | fresh perspective; | Paul has over 25 years of financial |
| participation in the voluntary code of | • | his clear thinking and drive to | services experience across both the |
| conduct to address gender and ethnic |  | continue to build the business. | retail and Lloyd’s insurance markets. |
| diversity on UK-listed company boards |  |  | As such, the Group will benefit from both |
| of directors. The search firm used was | More information on Aki and his vision |  | his insurance market knowledge and |
| deemed to be independent as it does | can be found on page 2. |  | his audit, regulatory and capital markets |
| not have any connection with the |  |  | experience. He will join the Group in |
| Company or its individual Directors other |  |  | the first half of 2022, at which point he |
| than in its engagement in this capacity. |  |  | will also become a Board and Group |

Executive Committee member. In the
meantime, Liz Breeze, Chief Financial
Officer for Hiscox Re & ILS, has been
appointed Interim Group Chief Financial
Officer, effective 1 January 2022.
Board composition and succession
As part of the annual Board succession
planning process, the Nominations
and Governance Committee reviewed
the composition of the Board in 2021.
This included a skills and experience
review – encompassing independence,
length of service, the balance of skills
and experience, diversity, and the
83Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Nominations and |  | information | summary |

Governance
Committee report

| capacity required to oversee the delivery | DonnaDeMaio. Donna’s induction is | and progress. This includes our |
| --- | --- | --- |
| of the Company’s strategy – and Board | ongoing and, while she will formally take | D&I approach to manager training, |
| succession planning on an immediate | over as Chair of the Audit Committee | alignment of HR policies with inclusion |
| and longer-term basis for the Chair and | following Caroline’s retirement at the | requirements, amplifying efforts via |
| all members of the Board. The review | 2022 AGM, Donna has been a key | employee and broker networks, and |
| focuses on Non Executive succession | participant in the review of the 2021 | ensuring alignment to credible external |
| and aligns to the talent reviews for the | Annual Report and Accounts. | D&I commitments. In addition, each |
| Executive Directors. Following these |  | business unit Chief Executive Officer |
| formal reviews, the Board remain | Following the appointment of the Audit | and functional leader has developed |
| confident that the current skills and | Committee Chair, a further review was | an action plan for gender and ethnic |
| expertise are in place to deliver value to | undertaken on the composition of the | diversity which includes aspects such |
| the Company and its shareholders. This | Board. As part of the discussions on | as recruitment, career development, |
| formal annual process is augmented by | the requirements of new Directors, | education and awareness and |
| ongoing open dialogue between the Non | the Committee determined that the | community engagement. These plans |
| Executive Directors on succession and | Company has a strong Board which | are monitored centrally and also via |
| the skills required to deliver the strategy. | is sufficiently capable to meet the | specific local reports to subsidiary |
|  | demands of the Group and future | Boards. This approach is supported |
| Pages 62 to 63 demonstrate the nature | strategy, but that it would be useful to | by an annual report on D&I which this |
| and breadth of each Director’s relevant | investigate how the Board could be | Committee receives. |
| skills and experience. Additionally, all | further bolstered in certain areas and |  |
| Directors have demonstrated that they | in the continued delivery of a diverse | Board D&I policy |
| have adequate capacity to address their | Board. This was also central to the | In 2021, the Committee reviewed the |
| duties, evidenced by all Non Executive | Board effectiveness review. | existing Board diversity policy and |
| Directors having been able to lead the |  | updated this to reflect more clearly the |
| Company through the challenges of | Diversity and inclusion (D&I) | underlying ethos of the Company, the |
| the pandemic which, as detailed in last | D&I has been a strategic priority for a | ongoing delivery of a diverse Board, and |
| year’s Annual Report and Accounts | number of years and remains critical | to formalise the Committee’s oversight |
| and continued in 2021, included more | to our development as a sustainable | of the Group’s wider D&I programme. |
| frequent informal interactions with | organisation. Hiscox operates in a |  |
| the Executive Directors and senior | global market and the success of our | The new Board D&I policy builds on |
| management as well as attendance at | business is dependent on our people, | the prior iteration, which focused on |
| more sessions than in a standard year. | which is why we want to build teams | key requirements for appointments |
|  | that are as diverse as the customers | and links to the Board succession |
| As part of this Board review, an | and communities we serve, with a | planning process which monitors skills, |
| appointment process was initiated for | working environment where all our | knowledge and experience in addition |
| the replacement of Caroline Foulger as | people can thrive. Our belief is that | to diversity (both gender and ethnicity). |
| Independent Non Executive Director | diverse perspectives and different ways | The policy continues to recognise the |
| and Chair of the Audit Committee. This | of thinking help us anticipate and meet | benefits of diversity in its broadest sense |
| was the main Non Executive Director | market needs in new ways. This diversity | and sets out the Board’s ambitions while |
| succession focus for 2020 and 2021. | of thought allows us to look at problems | clarifying its qualitative objectives. The |
| An early appointment was sought to | differently, and helps make us more | Committee’s terms of reference were |
| ensure that an orderly transition could | innovative and a stronger partner for | updated to formally note the relevant |
| take place with the outgoing Chair, and | our customers. | changes to the Board’s responsibilities |
| to give sight to the new Chair of the 2021 |  | regarding D&I oversight. |
| financial review cycle. The appointment | We have a Global Head of D&I and a |  |
| process is detailed in the table on page | D&I Executive Sponsor for the Group |  |
| 85, and resulted in the appointment of | who together drive our D&I strategy |  |

84 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Nominations and |  | information | summary |

Governance
Committee report
Audit Committee Chair succession process
A formal and transparent process was deployed for the appointment of the Audit Committee Chair.
Requirements Process Interview and appointment Induction

| In 2020, as part of the | The process was initiated with | A formal, multi-stage | Donna’s induction consisted |
| --- | --- | --- | --- |
| orderly succession plan | the appointment of an agency. | interview process was used to | of a tailored induction |
| for the retirement of the |  | assess candidates. Following | programme which allowed |
| Audit Committee Chair, it | Russell Reynolds was | interviews with the Chairman, | her to become more familiar |
| was agreed to target an | engaged based on its market | the Chair of the Audit | with the working of the Board |
| appointment to be in place | reputation, and alignment | Committee and the incoming | and the Group, and to fully |
| by late 2021. | to our D&I objectives. The | Group Chief Executive Officer, | understand the Company’s |
|  | search firm used was deemed | a number of candidates | operating environment |
| The key requirements of | to be independent as it does | progressed to meet other | (internal and external). |
| the role were agreed as | not have any connection with | Board members. All interview | This included meetings |
| being recent audit and | the Company or its individual | candidates were deemed | with individuals from the |
| finance experience. | Directors other than in its | appropriate for appointment | Board, senior management |
|  | engagement in this capacity. | based on their skills and | and external auditors, |
| It was agreed that a |  | experience, and subject | and was supported by |
| diverse candidate with | The search firm identified | to a referencing process | an induction pack. The |
| these skills would also be | potential candidates | and review of any potential | programme is tailored |
| highly regarded. | assessed against the role | conflicts and time availability | to Donna’s appointment and |
|  | specification, based on | (assessed against significant | it was continually reviewed |
| A review was completed | merit, and with due regard | time commitments). | to identify additional areas |
| by the Committee on the | for the benefits of all forms |  | where induction is required. |
| geographical location of the | of diversity on the Board, | The outstanding candidate for |  |
| new Audit Chair, assisted by | including gender and | the role was Donna DeMaio, | A key part of the orderly |
| an externally delivered market | ethnicity. This produced | and the Nominations and | transition from one Audit |
| map of available Directors. | a long list of high-quality | Governance Committee | Committee Chair to |
|  | candidates from a broad | agreed that she demonstrated | another was Donna’s active |
| A brief was prepared for the | range of potential sources | significant financial services | participation in the ongoing |
| role specifying the above. | of talent. Candidates | and US market expertise. | review cycle for the 2021 |
|  | were then shortlisted for | The position further assists | Annual Report and Accounts. |
|  | interviews, which focused on | in the development of |  |
|  | each candidate’s skills and | our diverse Board. The |  |
|  | experience for the role. | appointment was announced |  |

on 22November2021.
85Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Nominations and |  | information | summary |

Governance
Committee report
Board D&I objectives and 2021 progress
Board objective Implementation Progress
1. s At least annually review the Page 65 of the report demonstrates the diversity of our Board
Ensure a structure, size and composition of as at 2March2022.
1
diverse and the Board, including the balance of
effective Board skills, knowledge and experience Via the delivery of our Board diversity and inclusion policy,
to assist in the development of a we have:
1
Diversity of gender,
diverse pipeline. s maintained a gender balance in line with the Davies
social and ethnic
backgrounds, s Annually review Board diversity as and Hampton-Alexander reviews since 2015;
cognitive and
part of the Board evaluation process. s had one ethnic minority Director for five years.
personal strengths.
s Ensure the values of the
Company promote an open
and inclusive environment.

| 2. | s At least annually review the |  | Each June, the Board and Committee review the talent plans |  |
| --- | --- | --- | --- | --- |
| Ensure that |  | succession plans for the Board and | for senior management and, each November, the Board |  |
| all Board |  | senior management and ensure the | succession plans. Talent reviews are replicated throughout |  |
| appointments |  | talent review process is in place for | the business. |  |
| are considered |  | the wider workforce. |  |  |
| on merit within | s Gender and ethnic diversity will |  | In 2021, the Board made three permanent appointments: |  |
| the context of |  | be taken into consideration when | s new Group Chief Executive Officer (Aki Hussain); |  |
| the strategy |  | evaluating the skills, knowledge and | s new Group Chief Financial Officer (Paul Cooper); |  |
| requirements |  | experience desirable to fill each role | s new Independent Non Executive Director and incoming |  |
| and diversity |  | and when considering the methods |  | Chair of the Audit Committee (Donna DeMaio). |
| considerations |  | to attract diverse candidates. |  |  |
|  | s A search firm will normally be |  | All appointments had gender and ethnic diversity considered |  |
|  |  | engaged to assist in the review | when evaluating the skills, knowledge and experience required, |  |
|  |  | of the market and they should be | with the respective search firms committed to addressing |  |
|  |  | committed to addressing gender | gender and ethnic diversity. The best candidates for the roles |  |
|  |  | and/or ethnicity diversity. | were selected against merit, the needs of the Board and |  |
|  | s All appointments must be made |  | Company, and its strategy and values. |  |

on merit as aligned to the needs
of the Board, the Company, and An Interim Group Chief Financial Officer appointment
its strategy and values. (Liz Breeze) was also made from internal succession
plans while a longer-term appointment was sought.
3. s Review the execution of the Group The Committee has an annual report from the Global Head
2
Ensure that the diversity and inclusion policy . of D&I. We have a Head of D&I and a D&I Executive Sponsor
overall workforce s Ongoing Board and Committee for the Group, who together drive our progress and a key
is diverse and review of matters relating to commitment from every business unit and functional area
inclusive employee retention, engagement Chief Executive Officer to deliver on our employee D&I targets.
and culture. These plans are monitored centrally and also via specific local
reports to subsidiary boards. Further work is ongoing
2
hiscoxgroup.com/diversity-and-
to develop the next iteration of this strategy.
inclusion-policy.
The tables on page 87 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.
86 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Nominations and |  | information | summary |

Governance
Committee report
Gender diversity Ethnic diversity
at 31 December 2021 at 31 December 2021
Members with ethnic

|  | Male Female |  | minority background |
| --- | --- | --- | --- |
| Board 55% 45% |  | Board 9% |  |
| Group Executive |  | Group Executive |  |
| Committee 40% 60% |  | Committee 20% |  |

Direct reports
to the Group
Executive
Committee 52% 48%
All employees 50% 50%

| Group D&I policy | FTSE 350 companies to achieve 33% | 2021 Board and Committee |
| --- | --- | --- |
| We have a Group D&I policy that applies | representation of women on FTSE 350 | effectiveness review |
| to the workforce and is reflective of | boards and in the two layers of leadership | Every third year, the Board evaluation is |
| our Company values (see page 7). | below the Board (the Group Executive | undertaken by an external evaluator. This |
| Alongside this, the employee networks | Committee and the direct reports to | was last undertaken in 2020 and is next |
| we have established – covering topics | the Group Executive Committee) by | scheduled for 2023. In the interim years, |
| such as mental health and well-being, | the end of 2020. While the target for | such as 2021, an internal evaluation is |
| and touching communities including | compliance has now passed, our | carried out which also reviews each |
| parents and carers, Pride, pan-African | ambition to achieve greater gender | Committee, the Board and individual |
| and Latino – drive D&I progress | diversity at all levels remains, which is | Directors. The evaluation also assesses |
| across our offices. | why we continue to track and report | the completion of the prior year’s actions. |
|  | our progress. | Each are addressed in turn below. |

We will look to build on this good

| work in 2022 and beyond, with a | Equally, we complied with the provisions | 2021 evaluation |
| --- | --- | --- |
| Board-approved D&I strategy which | of the Parker Review, which set a | Building on the work of prior years, the |
| continues to focus on representing, | minimum target of having at least one | interim year evaluation was carried out |
| leading and guiding the D&I culture, | ethnic minority Director on the Board by | using our improved evaluation process |
| strengthening and leveraging data and | 2021, which we have had since 2016. | of Board, Committee Chair and |
| insights, inspiring with our story, and |  | individual Director performance. |
| embedding D&I into business as usual. | We are committed to improving our | The Board and Committee reviews |
| Together, these initiatives will strengthen | ethnic diversity at all levels, to | focused on, among other things: Board |
| further the diversity measures in | ensure our workforce reflects the | oversight of strategy, risk management |
| place and build the maturity of the | customers and communities that we | performance and objective delivery; |
| D&I landscape at Hiscox. | serve. In some of the jurisdictions in | Board accountability, focus and |
|  | which we operate, current laws mean it | priorities; Board composition and culture |
| The Hiscox Ltd Board D&I policy and | is not possible to collect ethnicity data | of the Board including independence, |
| Group D&I policy are publicly available | from employees, but where we can we | expertise, decision-making and dynamics, |
| on our website at hiscoxgroup.com/ | encourage employees to self-identify. | and succession planning; Board |
| about-hiscox/group-policies-and- | Improving the volume of voluntary | progress on diversity, climate change |
| disclosures. Both reflect the ethos of the | disclosure from employees remains | approach and digitalisation; and Board |
| Company in advocating that opportunity | a focus area. | support. The format of the evaluation |
| should be limited only by an individual’s |  | was a confidential survey of the Board. |
| ability and drive. | Board evaluation |  |
|  | The Board and its Committees have | Individual Director reviews are an |
| We have also fulfilled our UK obligations | a culture of continuous improvement | opportunity to discuss individual skills, |
| to report our gender pay gap ratios with | and as part of this undertake a formal | training requirements, succession and |
| respect to our UK subsidiaries, and | and rigorous annual evaluation of | any other issues. Each Non Executive |
| published our fifth annual gender pay | Board and Committee performance; | Director completes a self-assessment |
| report during the year. This report | the results of which help to inform | form which is followed by a detailed |
| sets out in detail the D&I programmes | action and development. Board and | discussion on performance with the |
| and initiatives we pursued during | Committee effectiveness evaluations | Chairman. The Senior Independent |
| 2021, and can be viewed at hiscoxgroup. | are carried out each year and the | Director carries out the Chairman’s |
| com/gender-pay-report-2021. | results are reviewed and discussed | review and this supports the annual |
|  | at the Board and its Committees | review process of the Chairman. |
| In addition, we complied with the | – specifically the Nominations and | Individual objectives and action |
| provisions of the Hampton-Alexander | Governance Committee, with a | plans are agreed following each |
| Review, which set a minimum target for | focus on Board composition. | meeting where appropriate. |

87Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Nominations and |  | information | summary |

Governance
Committee report

| 2021 Board review outcomes |  |  | engagement, and key long-term | the Chair was seen to continue to |  |
| --- | --- | --- | --- | --- | --- |
| The 2021 Board review continued to find |  |  | succession planning for senior | demonstrate strong leadership; and |  |
| a strong and dynamic Board in place |  |  | management, the Non Executive | the Non Executive Director succession |  |
| which re-affirmed the independence of |  |  | Directors and the Chair. Additionally, | plans were considered to be robust. |  |
| the Board, the appropriate leadership |  |  | the Board will ensure a smooth |  |  |
| provided by the Chair, and the |  |  | transition of the new Group Chief | However, the Board and its Committees |  |
| robustness of the Non Executive |  |  | Executive Officer, Group Chief | have made tangible progress against |  |
| Director succession plans and |  |  | Financial Officer and Audit Chair; | many of the action points identified |  |
| Executive Director talent reviews. |  | • | climate change/ESG – further | during 2021: |  |
|  |  |  | work on the Company’s strategic | • | focused on the succession of |
| All Directors were fully engaged with the |  |  | response to climate change and |  | Executive Directors and other key |
| Board, Committee and Director evaluation |  |  | further deep dives on social |  | leadership positions as detailed in |
| process. The review was positive with |  |  | and governance; |  | this report; |
| continued robust decision-making and a |  | • | IFRS 17 Insurance Contracts | • | transitioned back to in-person |
| Board culture which fosters constructive |  |  | – oversight of IFRS 17 and |  | meetings when Covid-19-related |
| discussion. The review also focused on |  |  | understanding the business |  | restrictions allowed for this, |
| three areas: climate change, diversity |  |  | changes and peer positioning |  | while retaining the use of |
| and digital. The evaluation revisited |  |  | on this in addition to the |  | video-conferencing for interim |
| the external reviewer’s findings in 2020 |  |  | financial changes; |  | Board calls and updates; |
| and were content to re-confirm that the |  | • | topics for review – additional topics | • | driving accountability and |
| independence of the Board (as currently |  |  | for review were identified as part of |  | excellence in execution, including |
| composed) was deemed satisfactory; |  |  | the review which then influenced |  | the continued monitoring of |
| the Chair was seen to continue to |  |  | the agenda and training plans for |  | progress against the Company’s |
| demonstrate strong leadership; and |  |  | the year. |  | business priorities and key projects; |
| the Non Executive Director succession |  |  |  | • | continued discussions on strategy, |
| plans were considered to be robust. |  | The Board welcomed the review’s |  |  | including business mix and |
|  |  | findings with the actions feeding directly |  |  | capital allocation; |
| The Board continues to engage in |  | into ongoing succession planning |  | • | devoted more time to considering |
| continuous improvements with the |  | discussions and Board developments. |  |  | changes in the external |
| annual review process being an explicit |  | The Chair owns the action plan relating to |  |  | environment and their impact |
| point of reflection on ongoing actions |  | the actions and leads the implementation |  |  | on Hiscox, including competitor |
| and new areas of focus. The Directors |  | of these actions, and will report on their |  |  | activity in key markets; and |
| determined to focus on the following |  | delivery in the 2022 Annual Report |  | • | maintained a focus on talent |
| matters in 2022: |  | and Accounts. |  |  | management, employee |
| • | strategy – continue to review |  |  |  | engagement and the retention |
|  | the Group’s strategy to further | 2020 external Board effectiveness |  |  | of high performers. |
|  | address risk, operations and | review – progress against |  |  |  |
|  | competitor environment in a | identified actions |  | Robert Childs |  |
|  | fast changing world; | In 2020, an external evaluation was |  | Chair of the Nominations and |  |
| • | management information – building | competed by Lintstock, an independent |  | Governance Committee |  |
|  | on new management information | third-party agency. Overall the external |  |  |  |
|  | to further increase the linkage | evaluator rated Board and Committee |  |  |  |
|  | between objective setting | effectiveness as good or extremely good |  |  |  |
|  | and monitoring; | with no fundamental issues highlighted. |  |  |  |
| • | people and succession planning – | In particular, Lintstock noted that the |  |  |  |
|  | further focus on workforce | independence of the Board (as currently |  |  |  |
|  | diversity and inclusion, employee | composed) was deemed satisfactory; |  |  |  |

88 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Audit Committee report

| In relation to financial reporting, the | the necessary professional scepticism |
| --- | --- |
| primary role of the Audit Committee (the | its role requires. The primary areas |
| Committee) is to monitor the integrity | considered by the Committee in relation |
| of the financial statements of the Group | to the 2021 Annual Report and Accounts |
| and any formal announcements relating | were as follows. |

to the Group’s financial performance,

| and review significant financial reporting | i) Reserving for insurance losses |
| --- | --- |
| judgements contained within them. The | As set out in our significant accounting |
| Committee meets four times a year. | policies on pages 154 to 155, the |
| Working with both management and | reserving for insurance losses is the |
| the external auditor, the Committee | most critical estimate in the Company’s |
| reviewed the appropriateness of the | consolidated balance sheet. |

interim and annual financial statements,
concentrating on: The Chief Actuary presents a quarterly
• the quality and acceptability of report to the Committee covering Group
accounting policies and practices; loss reserves which discusses both the
• the clarity of the disclosures approach taken by management in
and compliance with financial arriving at the estimates and also the
reporting standards and relevant key judgements within those estimates.
financial and governance The Committee reviewed and challenged
## This will be my final reporting requirements; the key judgements and estimates in
• material areas in which significant valuing the insurance liabilities.
## report before stepping
judgements and estimates have
## down from the Board in been applied or where there has During the year, a number of natural
been discussion with the external catastrophes occurred which impacted
## 2022 and I am delighted
auditor; and the Group, including Hurricane Ida,
## to state that the Audit • any correspondence from Storm Uri, and European floods. It
third parties in relation to our is important that the Company can
## Committee continued to

|  |  | financial reporting. | quickly, and with a reasonable degree |
| --- | --- | --- | --- |
| work effectively in 2021. |  |  | of reliability, estimate the gross and net |
|  | The Committee is comprised of eight |  | losses arising from these events. The |

## We were pleased to

|  | independent Non Executive members. | Committee received presentations from |
| --- | --- | --- |
| welcome Donna, whose | Following the transition of the Chair | the Chief Actuary and management |
|  | role to Donna DeMaio in May 2022, | on the process undertaken, and the |

## experience within both
this will return to seven members. The judgements arrived at, to establish
## financial services and the Committee has recent and relevant these key estimates. The Committee
finance expertise and competence is satisfied with both the process that
## US market will be valuable
relevant to the insurance sector. was conducted and the reporting and
## for the next stage of the disclosure of the resulting estimates.
To aid the review, the Committee
## Group’s journey.”
considered the key judgements and The Company continues to keep
estimates in the financial statements as Covid-19 losses under review, continually
Caroline Foulger
identified by the Chief Financial Officer, as evaluating loss estimates based on
Chair of the Audit Committee
well as reports from the external auditor entity-specific historical experience
on the outcomes of its annual audit and and contemporaneous developments
half-year review. The Committee ensured observed in the wider industry when
that the external auditor, PwC, displayed relevant. The Committee received
89Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Audit Committee |  | information | summary |

report

| detailed presentations from the Chief | business interruption and the status | The Committee reviewed and discussed |
| --- | --- | --- |
| Actuary and management relating | of recoveries resulting from Covid-19. | the analysis performed by management |
| to the latest information and the | There were updates on the process | and challenged the appropriateness of |
| recommendations arising therefrom. | to monitor the levels of recoverability, | the assumptions made. |
| The Committee is satisfied with both | including the level of collateral held, and |  |
| the process that was conducted and | the regular contact with counterparties, | The Committee is satisfied with the |
| the reporting and disclosure of the | the ratings of reinsurers and the | approach taken and the recoverability |
| resulting estimates. While there remains | concentration of risk. The reinsurer panel | of the assets. |
| uncertainty around the final cost of these | and associated exposures appear to |  |
| events to the Group, the Committee | be robust, and management are not | v) Accounting for the defined |
| notes that the Group continues to adopt | aware of any material issues regarding | benefit scheme |
| a prudent approach where uncertainty | concentration risk, credit risk or default | As explained in note 2.15, the Group |
| exists as to the final cost of settlement. | risk. The Committee is satisfied with the | recognises the present value of the |
|  | approach taken and the recoverability of | defined benefit obligation, less the fair |
| The Committee also reviewed the level | reinsurance assets. | value of plan assets at the balance sheet |
| of margin held within the insurance |  | date. The Committee reviewed the report |
| liabilities in the Group’s balance sheet. | iii) Going concern assessment and | of the key judgements and estimates in |
| Management confirmed that they remain | longer-term viability statements | the financial statements from the Group |
| satisfied that the claims reported and | The Committee reviewed and advised | Chief Financial Officer, and the results of |
| claims adjustment expenses, together | the Board on the Group’s going concern | the independent pension valuation, and |
| with claims incurred but not reported | and longer-term viability statements | is satisfied that the assumptions used to |
| liabilities included in the financial | included in this Annual Report and | measure the net liabilities are reasonable. |
| statements, provide an appropriate | Accounts, and the assessment reports |  |
| margin over projected claims costs to | prepared by management in support | vi) Valuation of the investment portfolio |
| allow for the risks and uncertainties within | of such statements. As part of this | The Group values and reports its |
| the portfolio. As with prior years, the | review, the Committee assessed the | investment assets at fair value. Due to the |
| Committee also considers the report of the | methods, assumptions and judgements | nature of the investments, as disclosed in |
| external auditor following its re-projection | underpinning the going concern | notes 17 and 20, the fair value is generally |
| of reserves using its own methodologies, | assessment. The Committee was | straightforward to determine for most of |
| and the independent actuary who | satisfied by the level of analysis presented | the portfolio which is highly liquid. For the |
| reviews the estimates of insurance | during the year, the related approach | element of the portfolio held in equities |
| liabilities for the Hiscox Syndicates. | taken, and statements made in the | and investment funds, a small proportion |
| On the basis of this work, it reported | Group’s key external reporting. More | relies on a higher degree of judgement. |
| no material misstatements in respect of | information on the going concern and | The Committee, through the Investment |
| the level of reserves held by the Group at | viability statements can be found on | Committee, receives reports on the |
| the balance sheet date. On the basis of | pages 128 to 129. | portfolio valuation and is content with |
| these assessments and the consistent |  | the process and the estimates reported. |
| application of the Group’s reserving | iv) Recoverability of goodwill and other | Sensitivity analysis on valuation of assets |
| principles, the Committee was satisfied | intangible assets | is captured within the financial risk |
| that the valuation of insurance liabilities | Judgements in relation to impairment | section (note 3.3) of this report. |
| at 31 December 2021 was appropriate. | testing relate primarily to the |  |
|  | assumptions underlying the calculation | vii) The recoverability of deferred |
| ii) The recoverability of | of the value in use of the Group’s | tax assets |
| reinsurance assets | businesses, being the achievability of | A deferred tax asset can be recognised |
| The Committee received regular | the long-term business plans and the | only to the extent that it is recoverable. |
| updates on the credit risk exposures | macroeconomic factors underlying the | The recoverability of deferred tax assets |
| to reinsurers, including the impact of | valuation process. | in respect of carry-forward losses |

90 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  | Audit Committee |  | information | summary |

report

| requires consideration of the future levels | any other relevant activities including | The Committee also meets annually |
| --- | --- | --- |
| of taxable profit which will be available to | its key performance measures and the | with the auditor and with the finance |
| utilise the tax losses. The assumptions | development of its resources. Updates | team without management present. |
| regarding recoverability of deferred | on aspects such as the assessment |  |
| tax assets remain consistent with prior | of internal audit’s effectiveness and | Non-audit services are not contracted |
| years. The Committee challenged | the review of the internal audit policy | with PwC unless it is clear that |
| the underlying assumptions for the | are shared annually. The internal audit | there is no practical alternative and |
| recognition of deferred tax assets, | plan is derived using a risk-based | there are no conflicts of interest or |
| principally the availability of future | approach. In 2021, key themes included | independence considerations. |
| taxable profits and utilisation period. | core underwriting and claims controls, |  |
|  | Covid-19-related impacts, change | Throughout the year, the Committee |
| viii) Estimated premium income | controls and embedding, the financial | assesses the independence, |
| An estimate included within the | control framework, data governance and | effectiveness and quality of the |
| Group’s close process is an estimate | controls, various regulatory themes, | external audit process. This process |
| of gross premiums written during the | and information security. | forms the basis for its recommendation |
| year. For certain contracts, premium |  | to shareholders to reappoint the |
| is initially recognised based on | External auditor | external auditor. |
| estimates of ultimate premium. This | PwC has been the Company’s external |  |
| occurs where pricing is based on | auditor since 2016. PwC is invited to | Chair of Audit Committee |
| variables which are not known with | attend all meetings of the Committee and | As part of the succession plan for the |
| certainty at the point of binding the | it is the responsibility of the Committee | retirement of the Audit Committee Chair, |
| policy. In determining the estimated | to monitor their performance, objectivity | it was announced on 22 November 2021 |
| premium, the Group uses information | and independence. The Committee | that Donna DeMaio will become the new |
| provided by brokers and coverholders, | discusses and agrees with PwC the | Chair. A key part of the orderly transition |
| as well as past underwriting experience, | scope of its audit plan for the full-year | from one Audit Committee Chair to |
| the contractual terms of the policy | and the review plan for the interim | another was Donna’s active participation |
| and prevailing market conditions. The | financial statements. | in the ongoing review cycle for the 2021 |
| estimated gross written premium is |  | Annual Report and Accounts. See page |
| regularly reviewed and the Committee | The Audit Committee receives reports | 85 for further details. |
| is satisfied with the approach taken. | from PwC at each meeting which |  |
|  | include the progress of the audit, | Fair, balanced and understandable |
| Systems and process change projects | key matters identified and the views | The Committee assessed whether |
| The Committee received updates on | of PwC on the judgements outlined | the Annual Report and Accounts, |
| various change projects including the | above. PwC also reports on matters | taken as a whole, is fair, balanced |
| Group’s programme implementing | such as their observations on the | and understandable and provides the |
| IFRS 17 Insurance Contracts. The | Company’s financial control environment, | information necessary for shareholders |
| IFRS 17 updates covered key IFRS 17 | developments in the audit profession, | to assess the Group’s financial position |
| accounting policies which have been | key upcoming accounting and | and performance, business model and |
| approved, educational material, and | regulatory changes and certain | strategy. The Committee reviewed the |
| programme risks and governance. | other mandatory communications. | processes and controls that underpin |

its preparation, ensuring that all
Internal audit To provide a forum in which any contributors, and senior management
The Group’s Chief Auditor provided matters of concern could be raised are fully aware of the requirements and
quarterly updates to the Committee on in confidence, the Non Executive their responsibilities.
the progress of the internal audit plan, Directors met with the external and
the outcomes of recent audits, the internal auditors throughout the year Caroline Foulger
progress of audit-related actions, and without management present. Chair of the Audit Committee
91Hiscox Ltd Report and Accounts 2021

|  | underwritten isn’t manual | More and more customers |
| --- | --- | --- |
|  | at all. It uses an online rating | are buying the product, more |
|  | portal, which we control. | brokers and distributors are |
|  | It’s a very different rating | wanting to talk to us. Most |
| Q& | mechanism, which allows us | importantly, it’s genuinely |
|  | to be faster, more responsive | helping people. Hurricane |
|  | and a lot more granular in | Ida, which caused extensive |
|  | what we do. | flooding in New York, New |
|  | It’s not been simple. | Jersey and Connecticut |
| A: | Any underwriting product | in September 2021, was |
| with Dan Alpay | demands tonnes of data, but | testament to that. We’ve been |
| Line Underwriter – Flood, Hiscox London Market | we started out with nothing | going through the process of |
|  | except a few models, which | paying those claims, putting |

## Rising tide
were still in their infancy, and people back on their feet.
our gut feel for underwriting.
## US flood is a major growth
The NFIP didn’t release any Q: How do you see the
of its data until 2020, so human value being
## area for our big-ticket

|  | everyone was going in blind. | applied at Hiscox? |
| --- | --- | --- |
| business, driven in | Then Hurricanes Harvey and | A: I think Hiscox as a culture |
|  | Maria hit in 2017, and that was | tends to be very empathetic, |

## part by innovations in
an important learning point but also fair, and that’s quite
for us. With a catastrophe a hard balance to strike.
## digital underwriting.

|  |  | product, you’re not getting | We’ve had a tough few years, |
| --- | --- | --- | --- |
|  |  | claims every day, so although | the market has been in a |
|  |  | any big event is a negative | bad place, and it’s easy at |
|  |  | in terms of cost, it gives us | times like that for people to |
|  |  | another chance to evaluate the | feel disillusioned or worried. |
|  |  | product. We doubled down, | In that moment, you need |
|  |  | kept investing in technology, | empathetic leadership. I |
|  |  | and have grown ever since. | think that’s been expressed |
| Dan Alpay joined Hiscox | Sandy, so the government | It’s been a fun ride, and we’re | really well. There are a lot of |
| in 2009 as part of the very | decided to throw open the | in an exciting place now. | individuals here who take it |
| first graduate training | marketplace. After watching |  | upon themselves to put an |
| scheme. In 2016, he took | closely for a couple of years, | Q: Is flooding a growing | arm around someone, and |
| over as underwriter for | we sensed an opportunity to | problem in the USA? | that is so important. |
| the household line of | move in. Through the NFIP, | A: We deal with hurricane- |  |
| Hiscox London Market. | you can only buy $250,000 of | borne flooding and flooding | Q: During the lockdowns of |
| Also contained within his | buildings cover and $100,000 | from just normal rain and river | the past two years, what did |
| portfolio was US flood – | of contents. When those | rise, and both appear to be | you miss most about being |
| then, in Dan’s words, | limits were put in place in the | getting more prominent as | around other people? |
| ‘a tiny fledgling business’. | seventies, they would have | time goes by – clearly driven | A: Mostly, just having a chat |
| By 2019, the flood product | covered most buildings in the | by climate change. The big | about something completely |
| had grown to the point | USA; now they don’t come | events tend to be happening | unrelated to work. We did |
| where it demanded his | close. Using the strength of | more frequently. Cat 4 and | virtual catch-ups all the time, |
| full-time attention. | our underwriting, we’re able | Cat 5 landfalling hurricanes | but it’s never the same as |
|  | to offer something much | are supposed to be rare, but | the experience you have |
| Q: How did US flood come | broader: our FloodPlus | we’ve seen five in the past | when you’re together, |
| to be part of the Hiscox | product covers up to | three years and that does | bouncing off each other. |
| London Market offering? | $2.5million in value. | raise the question: is this a | The other thing it brought |
| A: Since 1968 flood had |  | blip or is it the new norm? The | home is how much we learn |
| been underwritten by the US | Q: US flood is expected to | challenge for us is to ensure | by osmosis. That’s especially |
| government. If you’re in a flood | continue to grow strongly. | we’re pricing for the growing | important for people who |
| zone and have a federally | What’s the secret behind | risk and providing adequate | are just starting out. If you’re |
| backed mortgage – which | that rapid growth? | cover for customers who | sitting in your house on your |
| most mortgages are – it’s a | A: It’s really a success story | want protection. | own and you have a small |
| legal requirement to buy flood | about digital trading. We |  | question you can’t answer, |
| insurance. But until a few | decided quite quickly that | Q: How was 2021 for you? | you’re not going to call your |
| years ago, you could only buy | we were going to build an | A: Really good. We managed to | manager or set up a meeting. |
| it through the government’s | online platform to do the | grow the portfolio significantly. | But when you’re in the office |
| National Flood Insurance | underwriting for us – we had | We weathered more events, | and they’re sitting right next |
| Program (NFIP) – no private | no legacy to build on, so we | and we weathered them | to you, you’ll just lean over |
| carrier could offer flood | had the luxury of a blank slate. | while retaining profitability. | and ask. You miss all of that |
| insurance. In 2012, the NFIP | Although we also distribute | We’re at the point now where | working remotely. |
| was $30billion in debt, mainly | flood through third-party | there’s strong belief within the |  |
| due to Hurricanes Katrina and | intermediaries, the way it’s | business that this is working. |  |

92 Hiscox Ltd Report and Accounts 2021
93Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Annual statement from the Chair of the
## Remuneration Committee

| Dear fellow Shareholder | improving rates in big-ticket lines. In |
| --- | --- |
| At Hiscox, our remuneration strategy is | the UK, the business has continued to |
| designed to attract and keep talented, | prioritise UK business interruption claims |
| ambitious people and foster a culture | and has made significant progress in |
| that encourages sustainable high | settling claims during 2021. |

performance. Our aim is to deliver

| strong returns across the insurance | During 2020, we made a commitment |
| --- | --- |
| cycle and create long-term value for | that Executive Directors would not be |
| our shareholders. | paid a bonus until the dividend had |

resumed, irrespective of the Group’s

|  | The Committee believes that for all | performance. Dividend payments have |
| --- | --- | --- |
|  | employees, basic pay should be | now been resumed, with an interim |
|  | competitive, with bonuses reflecting | dividend of 11.5 cents per share paid on |
|  | personal and business performance. | 22 September 2021 and a final dividend |
|  | We expect all employees to meet or | (subject to shareholder approval) to be |
|  | exceed a series of objectives based | paid on 13 June 2022 of 23.0 cents per |
|  | on our strategy and values, which are | share, in line with pre-Covid-19 levels. |
|  | essential to Hiscox’s business operations | Hiscox has not furloughed any staff or |
|  | and reputation, including delivering | accessed any UK, USA, or European |
|  | great customer service, complying with | government support schemes. |
| Our remuneration strategy | regulation and managing risk. Long-term |  |
|  | share awards provide alignment with | For 2021, a pre-tax ROE of 8.1% was |

## is designed to attract

|  | the shareholder experience and reward | achieved (above the hurdle rate of 2.5%) |
| --- | --- | --- |
| and keep talented, | demanding performance targets linked | and a bonus pool was therefore created. |
|  | to net asset value per share growth and | In considering the bonus awards for |

## ambitious people and
shareholder returns. Executive Directors, the Committee
## foster a culture that took into account the ranges agreed
We believe this approach works well for at the start of the year alongside
## encourages sustainable
both our employees and shareholders, the personal performance of the
## high performance. Our and I would like to thank shareholders individuals, the delivery of Group’s
for their high levels of support on the business priorities, and the overall
## aim is to deliver strong
remuneration resolutions at the AGM performance of Hiscox, as well as a
## returns across the in recent years. consideration of risk. More information
on business performance during 2021
## insurance cycle and

|  | Performance and | can be found on pages 16 to 33, and |
| --- | --- | --- |
| create long-term value | remuneration outcomes | for more on Executive Director |
|  | In 2021, the Executive Directors led | performance see page 103. Taking |

## for our shareholders.”
the business to deliver a pre-tax these factors into account, Bronek
profit of $190.8million (2020: loss of Masojada and Aki Hussain were awarded
Colin Keogh
$268.5million), pre-tax ROE of 8.1% bonuses of 90% of salary, representing
Chair of the Remuneration Committee

| (2020:-10.8%) and a combined ratio | 30% of the maximum opportunity. |
| --- | --- |
| of 93.2% (2020:114.5%). Despite | Joanne Musselle as Group Chief |
| elevated natural catastrophes losses | Underwriting Officer, was awarded a |
| and a subdued investment return, this | bonus of 107% of salary, representing |
| represents a resilient performance, | 27% of the maximum opportunity, |
| helped by portfolio optimisation action | reflecting the best underwriting result |
| taken over a number of years and | for five years. |

94 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Annual Statement | information | summary |

from the Chair of
the Remuneration
Committee

| This bonus outcome follows two years | will be subject to a post-employment | and complexity of the role, the calibre |
| --- | --- | --- |
| of zero bonus pay-out for the Executive | shareholding requirement for a period | and experience of Aki, as evidenced by |
| Directors during 2019 and 2020 – in line | of two years from stepping down from | his performance as Group CFO and his |
| with our approach of rewarding financial | the Board. | knowledge of the Hiscox Group, and |
| achievements, not just effort – despite |  | considering market data both for the |
| very strong personal performance over | The Board was delighted to appoint Aki | UK and globally, with reference to our |
| those two years. For the wider workforce | Hussain, previously Group Chief Financial | key international peers, the Committee |
| during this period, we paid bonuses | Officer (CFO), as Group CEO, effective | considered that the package for the role |
| relative to personal performance and | 1 January 2022. Aki’s appointment | was appropriate. |
| business area profitability. | followed a thorough and independent |  |
|  | process led by the Nominations and | As announced in December 2021, |
| The 2019-2021 Performance Share | Governance Committee, and supported | Paul Cooper has been appointed as |
| Plan (PSP) was set against stretching | by a leading recruitment firm, which | Group CFO and will assume the role |
| net asset value plus dividends per share | involved a global search and the | during 2022. His salary has been |
| targets. The net asset value per share | assessment of both internal and external | set at £525,000 per annum, with all |
| threshold of 7.5% compound growth | candidates. More information on that | other elements of his package being |
| over the three-year performance period | process can be found on pages 82 to 83. | consistent with that of the outgoing |
| was not met. |  | CFO, namely a pension allowance |
|  | As announced in July 2021, Aki’s salary | of 10% of salary, a maximum bonus |
| As already noted, the Committee | for the Group CEO role has been set at | opportunity of 300% of salary and a |
| assessed performance in the round | £750,000 per annum. All other elements | performance share plan opportunity |
| when determining variable pay | of his package are unchanged, namely | of up to 250% of salary. The salary |
| outcomes, including an assessment | a pension allowance of 10% of salary in | positioning is c.2.2% above the outgoing |
| of wider Company performance, the | line with the wider workforce, a maximum | CFO, consistent with the increase to Jo |
| employee experience, the shareholder | bonus opportunity of 300% of salary and | Musselle’s salary (and below the average |
| experience and wider stakeholder | a performance share plan opportunity of | UK employee increase). In line with |
| experience, alongside a consideration | up to 250% of salary. | standard practice and consistent with |
| of risk. The Committee concluded that |  | our remuneration policy, Paul will receive |
| there would be no exercise of discretion | In determining the package for the | awards to compensate for remuneration |
| to override the outcomes of the | incoming Group CEO, the Remuneration | arrangements forfeited on leaving his |
| performance conditions for 2021. | Committee was mindful that Bronek had | previous employer. These awards will |
|  | been in the role for over two decades and | mirror the time horizon and form of |
| Board changes in 2021 | had built up a considerable shareholding | the original awards with performance |
| After 21 years as Group Chief Executive | in the Company. The Committee | conditions applied (where relevant). |
| Officer (CEO), Bronek Masojada stepped | has a track record of demonstrating |  |
| down as an Executive Director of Hiscox | a disciplined approach to salary | Further details on Aki and Paul’s |
| with effect from 31 December 2021. | management, with CEO increases set | remuneration arrangements are set |
| Following his retirement from the Board, | at or below the wider workforce since | out in the annual report on remuneration |
| Bronek is continuing as an employee | 2014. While the salary for the incoming | on page 107. |
| of Hiscox Ltd and accordingly, he has | Group CEO has been set above |  |
| received no loss of office payment in | that of Bronek, the search process | 2022 remuneration |
| respect of his services as a Director. In | demonstrated the competitive landscape | For 2022, Joanne Musselle’s salary |
| his new role, Bronek will provide strategic | and recruitment market in which we | will be increased by 2.2%. There will |
| advice as a Director for key subsidiaries, | operate, and provided direct insight | be no further increases in 2022 for Aki |
| enabling Hiscox to continue to benefit | into the level of packages required | Hussain or Paul Cooper following their |
| from his considerable experience. In line | to attract high-quality candidates. | appointments as Group CEO and Group |
| with our policy and best practice, Bronek | Therefore, taking into account the scale | CFO respectively. |

95Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Annual Statement | information | summary |

from the Chair of
the Remuneration
Committee

| There are no proposed changes to the | the Board, to incentivise and reward | towards redressing the balance. We have |
| --- | --- | --- |
| award levels or structure of annual bonus | individual contribution. For Executive | established structures and processes |
| awards, which will continue to be based | Directors, bonuses are only payable once | which ensure that men and women are |
| on pre-tax ROE performance, alongside | a minimum ROE has been achieved, | paid the same for similar roles, so the |
| individual and strategic performance, | with individual performance taken into | focus of our work has been on getting |
| including non-financial factors, the | account thereafter. | more women into more senior roles |
| shareholder and wider stakeholder |  | across the Group. Improving diversity |
| experience, and the consideration of risk. | Share schemes | and inclusion remains a priority, and |
|  | All PSP participants are subject to the | while our progress so far has been |
| Bonuses will not be paid unless the | same performance measures and targets | helped by the policies, processes and |
| Group’s performance exceeds a hurdle | for the performance element of awards. | partnerships we have established, we |
| rate of return set, taking into account | Below the Board an element of the award | recognise there is more to do. For more |
| prevailing market conditions. | is non-performance tested and vests | information, see pages 84 to 87. |

subject to continued employment.

| There are no proposed changes to the |  | 2023 remuneration policy |
| --- | --- | --- |
| award levels or structure of Performance | Hiscox also operates an all-employee | The current remuneration policy was |
| Share Plan (PSP) awards, which will | Sharesave Scheme to foster a culture of | approved by shareholders at the 2020 |
| continue to be based on stretching | ownership among the wider workforce. | AGM and, as such, a new policy is |
| growth in net asset value (NAV) plus | The scheme provides all employees with | required to be put to the vote at the 2023 |
| dividends targets and relative total | the opportunity to save over a three-year | AGM. We look forward to consulting |
| shareholder return (TSR) against a group | period and to purchase Hiscox shares | with shareholders over the coming year, |
| of global insurance peers. Further detail | at a discounted price. The Scheme is | ahead of the policy’s renewal. |
| on the 2022 PSP measures and targets | popular, with 66% of UK employees |  |
| are set out on pages 108 to 109. | currently participating. Shareholding | In summary |
|  | guidelines also extend to Hiscox Partners | The Remuneration Committee is satisfied |
| Wider workforce | who are expected to own shares valued | that the 2021 outcomes are aligned with |
| During the year, the Committee | at 100% of salary, such is our ownership | the experience of shareholders and |
| was updated on wider workforce | culture, while Executive Directors are | reflective of business performance. |
| remuneration trends and policies to aid | expected to own shares valued at 200% |  |
| our understanding of how Executive | of salary. | Colin Keogh |
| Directors’ remuneration aligns to |  | Chair of the Remuneration Committee |
| employees. There has been a consistent | Pensions |  |
| pay philosophy and reward structure | Executive Directors’ pension benefits |  |
| across the Group for a number of years | have always been consistent with the |  |
| and the approach for the Executive | wider UK workforce, and Executive |  |
| Directors is aligned with this. | Directors receive either a 10% of salary |  |

cash allowance in lieu of the standard

| Pay | employer pension contribution or a |
| --- | --- |
| In the UK, Hiscox has been an accredited | combination of cash and pension |
| Living Wage employer since 2019. | contribution, totalling 10% of salary. |

This approach ensures that everyone

| at Hiscox receives a wage that | UK gender pay reporting |
| --- | --- |
| recognises the actual cost of living | In 2021, Hiscox published its fifth annual |
| in the UK. The Board also aims to ensure | gender pay report for the UK, and the |
| workforce views on a range of issues, | mean pay gap of 19.1% (2020: 21.2%) |
| including remuneration, are reflected | represents steady progress at getting |
| in decision-making. This is done not | more women into more senior and |
| only through the annual employee | higher-paid roles. Since 2017, on a mean |
| engagement survey, but also through | basis, our gender pay gap has reduced |
| the employee engagement network | steadily and is now 12 percentage points |
| which is led by our Employee Liaison, | lower than when reporting commenced. |
| Anne McDonald, and which discussed | The median figure was 20.7% in 2021 |
| remuneration during 2021 – with the | (2020: 25.0%). On a median basis, the |
| outputs of those discussions fed back | gender pay gap has also reduced over |
| to the Board. | time, with the exception of 2020 when |

the data reflects the introduction of
Bonuses part-time teams in our entry-level
Annual bonus payments are funded customer-facing roles, increasing
from profit-related pools and employees flexible working opportunities, with the
who are eligible for an annual bonus majority of these roles filled by women.
are subject to the same deferral terms

| as set out in the policy that applies | While some of the fundamentals |
| --- | --- |
| to Executive Directors. For 2021, a | remain – that our pay gap reflects the |
| new element was introduced to the | higher proportion of men in more senior |
| annual bonus for management below | roles – we are making steady progress |

96 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Annual Statement | information | summary |

from the Chair of
the Remuneration
Committee
How we have addressed the following factors in the UK Corporate Governance Code 2018
Factor Consideration of how this is addressed for Hiscox
Clarity – remuneration s Shareholders’ views on the key changes to the remuneration package are sought.
arrangements should be s In 2021, the Employee Liaison facilitated a discussion with respect to the content of
transparent and promote the remuneration policy and how this aligns to wider company pay policy, and shared
effective engagement feedback on this with the Board. The Remuneration Committee also receives information
with shareholders and on broader workforce remuneration policies and practices during the year which informs
the workforce. its consideration of the policy for Executive Directors.
Simplicity – remuneration s Hiscox’s remuneration framework is simple, comprising three main elements:
structures should avoid i) fixed pay (base salary, benefits and pension);
complexity and their rationale ii) annual bonus; and
and operation should be easy iii) performance share awards.
to understand. s The remuneration philosophy is a simple one: to reward performance. For over a decade,
the foundation of the Group’s remuneration strategy has been the belief that the best way
to foster a high-performance culture across the Group is to ensure that pay reflects our
results, not just effort.
s The remuneration policy’s operation in 2021, including form of awards, time horizons,
and performance measures, is designed to avoid complexity and is fully disclosed in
the Directors’ remuneration report on on pages 114 to 125.
Risk – remuneration s Incentive awards are capped and are not considered excessive.
arrangements should ensure s Executive Directors’ annual bonus awards are judgement-based within a formulaic
reputational and other risks framework based on ROE performance, to ensure they reflect their overall performance
from excessive rewards, and rather than being measured according to a formulaic outcome. Risk is also taken into
behavioural risks that can consideration as part of this.
arise from target-based s The Committee has the ability to apply independent judgement to ensure that the
incentive plans, are identified vesting outcome of performance share awards is a fair reflection of both the Company’s
and mitigated. performance and that of the individual over that period.
s Part of the annual bonus is subject to deferral, and share awards are subject to a
holding period following vesting. All variable remuneration is subject to malus and
clawback provisions.
s Following an annual review by the Chief Risk Officer, no risk adjustments are proposed to
2021 variable remuneration outcomes.
Predictability – the range of s The range of possible values are set out in the performance scenario charts in the

| possible values of rewards |  | remuneration policy on page 124. |
| --- | --- | --- |
| to individual Directors and | s Limits and ability to exercise discretion are also set out in the policy. No discretion was |  |
| any other limits or discretions |  | exercised in 2021. |

should be identified and
explained at the time of
approving the policy.
Proportionality – the link s Historic variable incentive pay-outs have had a strong link to the Company’s actual
between individual awards, performance. There is a track record of payment for performance, with evidence of
the delivery of strategy and zero bonuses where ROE performance has been below the predetermined hurdle.
the long-term performance of s The 2021 performance outcome and bonus awards are described on page 102. The
the Company should be clear. 2019-2021 share grant will not vest as the performance hurdle was not met.
Outcomes should not reward
poor performance.
Alignment to culture – s The variable incentive schemes, including quantum, time horizons, form of award and
incentive schemes should performance measures are all designed with the Company’s purpose, values and strategy
drive behaviours consistent in mind.
with Company purpose, s The pay arrangements for the Executive Directors are aligned with those of the broader
values and strategy. workforce and senior team.
97Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Remuneration summary
Key principles underpinning
## Summary of remuneration arrangements
remuneration at Hiscox
The Hiscox remuneration policy is
## A summary of the Base salary
designed to drive a culture of high
## performance and create sustainable remuneration Competitive fixed pay.
long-term value for shareholders.
## arrangements for
The policy follows three clear principles:
## A simple and results-driven, Executive Directors
with variable rewards if Hiscox
## is provided opposite.
delivers profits and shareholder
returns in excess of specified
## Benefits
return thresholds;
A incentivise Executive Directors Same as majority of employees.
appropriately, over the short and
long term; and
A align Executive Directors’ interests
## Annual bonus
with those of our shareholders,
focusing on effective risk Aligned to shareholder interests.
management, return on equity
(ROE) and net asset value growth,
which drives total shareholder
return over time.
Remuneration outcomes for 2021
## Bonus of c.30% of
## Performance Share
## maximum opportunity
## Plan (PSP)
## for the Executive
Aligned to long-term shareholder
## Directors.
interests and performance.
## Long-term performance
## impacted by Covid-19
## events and catastrophe
## claims. PSP awards
## Shareholding guidelines
## granted in 2019 will
Aligned to shareholder interests.
## not vest.
## Single figure of
## £1,332,964 for the CEO.
98 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration summary | information | summary |

114
Read our updated remuneration policy.
## Implementation of policy for 2021 Implementation for 2022
Salaries for 2021: Salaries for 2022:
## Base salary

|  | — | Bronek Masojada: £667,000 | — | Aki Hussain: £750,000 |
| --- | --- | --- | --- | --- |
| Competitive fixed pay. | — Aki Hussain: £513,500 |  | —Joanne Musselle: £525,000 |  |
|  | — Joanne Musselle: £513,500 |  | —Paul Cooper: £525,000 |  |
|  | Salary increase of 2.0%, in line with average UK employee increase. |  | Salary increase for Joanne Musselle of |  |

2.2%, below the average UK employee.
Executive Directors’ benefits can include health insurance, life insurance, long-term disability schemes and participation in
## Benefits
all-employee share schemes. Retirement benefits are delivered via a cash allowance of 10% of salary, paid in lieu of the standard
Same as majority of employees. pension contribution, or a combination of pension contribution and cash allowance, totalling 10% of salary. These benefits mirror
those available to most other employees in the organisation.
Maximum opportunity: Maximum opportunity, performance
## Annual bonus
— up to 300% of salary for CEO and CFO; metrics and deferral unchanged.
Aligned to shareholder interests. — up to 400% of salary for CUO.
Over the past ten years, the average bonus to the CEO has been equivalent to 28%
of the current maximum opportunity.
Performance metrics: combination of ROE and individual performance delivered
against set objectives approved by the Board. Disclosure of the ROE target ranges
and detail around the individual performance factors including specific risk-based
objectives used to determine outcomes for 2021 is provided on pages 101 to 103.
Deferral: part deferral of amounts in excess of £50,000.
2021 actual as percentage of salary:
— Bronek Masojada: 90%
— Aki Hussain: 90%
— Joanne Musselle: 107%
Award subject to three-year performance period and two-year holding period. Maximum opportunity, performance
## Performance Share
metrics and time horizons unchanged.
Maximum opportunity: 250% of salary for all Executive Directors.
## Plan (PSP)
Vesting subject to: net asset value per share growth plus dividends (60% weighting)
Aligned to long-term shareholder
and relative TSR (40% weighting).
interests and performance.
2021 award as percentage of salary:
— Bronek Masojada: 250%
— Aki Hussain: 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, Share ownership and post-employment
## Shareholding guidelines
after five years in role. shareholding guidelines unchanged.
Aligned to shareholder interests.
2021 actual:
— Bronek Masojada: 3,910%
— Aki Hussain: 154% Aki Hussain was appointed in September 2016.
— Joanne Musselle: 165% Joanne Musselle was appointed in March 2020.
Post-employment shareholding requirement: retain a shareholding at the level of
the in-employment guideline for one year and half this amount for the following year.
99Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Annual report on remuneration 2021
This report explains how the remuneration policy was implemented for the financial year ending 31 December 2021
and how it will be applied for the 2022 financial year.
PwC has been engaged to audit the sections in the annual report on remuneration 2021 below entitled ‘Executive Director
remuneration’ and ‘additional notes to the Executive Director remuneration table’, ‘annual bonus’, ‘long-term incentives’, ‘Non
Executive Director remuneration’, ‘Directors’ shareholding and share interest’, ‘Performance Share Plan’ and ‘Sharesave
Schemes’, ‘Payments to past Directors’ and ‘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
2021
Total split
Long-term

|  |  |  |  |  |  | incentive |  |  |  |  |  | Fixed | Variable |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Salary |  | Benefits |  | Bonus |  | plan | 1 | Retirement |  | Total | remuneration | remuneration |  |
| Name |  | £ |  | £ |  | £ |  | £ |  | £ |  | £ | £ | £ |

2
Bronek Masojada 663,750 10,588 600,300 0 58,326 1,332,964 732,664 600,300
Aki Hussain 511,000 8,308 462,150 0 46,453 1,0 27,911 565,761 462,150
Joanne Musselle 511,000 9,060 550,000 0 46,938 1,116,998 566,998 550,000
2020
Total split
Long-term

|  |  |  |  |  |  | incentive |  |  |  |  |  | Fixed | Variable |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Salary |  | Benefits |  | Bonus |  | plan | 1 | Retirement |  | Total | remuneration | remuneration |  |
| Name |  | £ |  | £ |  | £ |  | £ |  | £ |  | £ | £ | £ |

Bronek Masojada 649,625 10,533 0 0 57, 0 8 5 717, 24 3 717, 24 3 0
Aki Hussain 50 0,125 7,532 0 0 45,464 55 3,121 5 5 3,121 0
3
Joanne Musselle 418,458 7,6 37 0 0 38,404 464,499 464,499 0
1
2021 long-term incentives relate to performance share awards granted in 2019 where the performance period ends on 31December2021. The award is due to
vest on 8 April 2022. Based on performance achieved, this award will lapse in full. As the award will lapse in full there is no part of the award attributable to share
price appreciation.
2
Bronek Masojada retired as Group Chief Executive Officer and stepped down from the Board on 31December2021.
3
Joanne Musselle joined the Board 2 March 2020, following her appointment as Group Chief Underwriting Officer effective 1January2020. The figures in the 2020
table above relate to 2 March-31 December 2020.
Additional notes to the Executive Director remuneration table
Salary
Salary reviews take place in the first quarter of the year, effective from 1 April. As noted in last year’s remuneration report, Executive
Directors’ salaries were increased by 2.0% from April 2021, the same as the average UK-based employee salary increase.
Base salaries for Executive Directors from 1 April 2021 were as follows:
April 2021
£
Bronek Masojada 667,000
Aki Hussain 513,500
Joanne Musselle 513,500
100 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Annual report on | information | summary |

remuneration 2021
Benefits
For 2021, benefits provided for Executive Directors included the healthcare scheme, Sharesave Scheme, life insurance, income
protection insurance and critical illness policies, as well as a Christmas gift hamper.
Retirement benefits
Bronek Masojada and Aki Hussain 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 is shown in the Executive Director remuneration table on page 100.
Executive Director retirement benefits are consistent with those offered to the majority of UK employees. This has been the policy
at Hiscox for a number of years.
The table below details the legacy entitlements from the closed defined benefit pension plan.
Pensions
Increase/

|  | Increase |  |  |  |  |  | Transfer value |  | Transfer value |  |  | (decrease) |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | in accrued |  | Total accrued |  |  |  | of accrued |  | of accrued |  | in transfer value |  |  |
|  | pension |  | annual pension |  | Increase in |  | pension |  | pension |  |  | of accrued |  |
| Normal | during |  | at 31 December |  | accrued pension |  | at 31 December |  | at 31 December |  |  | pension |  |
| retirement | the year |  |  | 2021 | net of inflation |  |  | 2020 |  | 2021 | during the year |  |  |
| age |  | £000 |  | £000 |  | £000 |  | £000 |  | £000 |  |  | £000 |

Bronek Masojada 60 3 63 – 2,712 2,933 221
There are no further accruals under this plan. In the event of retirement after normal retirement age, an increased pension would
be payable (in accordance with the scheme rules) to reflect the later payment date.
Variable pay
To ensure that remuneration is aligned with Company performance and the shareholder experience, a significant proportion of pay
is delivered through incentive awards, consisting of an annual bonus and share awards under the Performance Share Plan, which
can vary significantly based on the level of performance achieved. Bonuses are only paid if results exceed a specified threshold set
taking into account prevailing market conditions.
Although the remuneration structure has naturally evolved over time to reflect market and best practice, the simple framework has
been in place for more than 15 years.
Annual bonus
The maximum opportunity for 2021 remained unchanged from 2020, being 300% of salary for both the Group Chief Executive
Officer and Group Chief Financial Officer and 400% of salary for the Group Chief Underwriting Officer.
The bonus is structured in a way that ensures significant variability in outcomes, including the possibility of no bonus being paid.
The Remuneration Committee believes that the most appropriate measure for the calculation of the bonus pool is pre-tax return
on equity (ROE), as this aligns management’s interests with those of shareholders, minimises the possibility of anomalous results,
and ensures that incentives for Executive Directors and other employees are tied to the Company’s profit performance.
The Executive Directors, along with other employees across the Group, participate in profit-related bonus pools, which are
calculated at a business unit level and for the Group as a whole. In determining the bonuses to be paid to Executive Directors, the
Remuneration Committee bases its judgement on both the performance of the Group and a robust assessment of personal and
strategic objectives, including adherence to specific risk management objectives. The Remuneration Committee also seeks input
from the Chief Risk Officer and Chief Actuary to aid its assessment of whether bonus outcomes are appropriate.
Bonuses are not paid unless the Group’s performance exceeds a given threshold, irrespective of individual performance. Over
the past ten years there have been 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. The threshold for
2021 was set at pre-tax ROE of 2.5%.
A commitment was made in 2020 that Executive Directors would not be paid a bonus until the dividend had resumed, irrespective
of the Group’s performance. The dividend was resumed in 2021, with an interim dividend paid in September 2021. As set out
elsewhere in this report, the final dividend will be paid in June 2022.
101Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Annual report on | information | summary |

remuneration 2021
When setting targets, the Committee seeks to motivate strong performance while also encouraging sustainable behaviours,
in line with the defined risk appetite of the business. In determining the size of the Executive Director bonuses for 2021, the
Committee used the following framework. Actual bonus outcomes also take into account personal and strategic performance
and risk management.
Pre-tax return on equity Indicative bonus range (% of max)
<RFR +2.5% 0%
RFR +2.5% to RFR +10% 0-30%
RFR +9% to RFR +14% 25-55%
RFR +13% to RFR +18% 45-75%
RFR +16% to RFR +21% 65-90%
Greater than RFR +19% 80-100%
The risk-free rate (RFR) is reviewed annually using government bonds as a reference point, reflecting the rate available to investors without commercial risk.
For 2021, the RFR was set at 0%. For 2021, a maximum bonus would have required ROE performance of at least RFR plus 20%.
Employees below the Board also participate in a personal performance bonus scheme. Awards under this scheme are normally
based on individual performance ratings. The scheme is designed to ensure that employees continue to be motivated to perform
well, irrespective of overall Group performance. The benefit is typically up to 15% of salary.
Pay for performance – track record
The chart below shows the relationship between the Group ROE performance and bonus awards for Executive Directors over an
extended period. It demonstrates the strong link between Company performance and bonus outcomes.
Executive Directors’ cash incentives and return on equity
s as a percentage of salary
0
2007
0
2009
0
2006
2016
0 2013
2003
0 2012
2015 2004
2014
0 2010
2021
2002
0

|  |  |  |  |  |  | 2008 | 2005 |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 50 |  |  |  |  | 2018 |  |  |
|  | 2001 | 2011 2017 |  |  |  |  |  |
| 0 | 2020 |  |  | 2019 |  |  |  |
|  | Below zero |  | 0% 5% 10%15% 20% 25% 30% 35% 40 |  |  |  |  |

Return on equity
Bonu
Performance outcomes for 2021
### 400
40 The pre-tax ROE for 2021 was 8.1% therefore the performance threshold of 2.5% was achieved and a bonus pool created.
Using the indicative bonus ranges set out above, and taking into account the achievement of personal and business objectives
### 350
35
during the year together with a consideration of risk, the size of the bonus pool and the overall performance of Hiscox, the
300 Committee determined that a bonus of 90% of salary (30% of maximum) for the Group Chief Executive Officer, 90% of salary
30
(30% of maximum) for the Group Chief Financial Officer, and 107% salary (27% of maximum) for the Group Chief Underwriting
### 250 Officer would be payable.
25
### 200
20
### 150
15
### 100
10
### 50
### 0
%
102 Hiscox Ltd Report and Accounts 2021
### 0510 15 20 25 30 35 40

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Annual report on | information | summary |

remuneration 2021
2021 key objectives and individual achievements by the Executive Directors
Key objectives Achievements
Bronek Masojada During 2021, Bronek led the business to deliver premium growth of 5.9% and a pre-tax profit of
Deliver the 2021 $190.8million. Despite an elevated year for natural catastrophes and a subdued investment return,
business plan this resilient performance is the outcome of big-ticket portfolio optimisation action taken over the
last few years, good risk selection, and continued growth in our Retail operations.
Deliver the Group’s The business priorities for 2021 were: underwriting portfolio optimisation; digitising and
business priorities for 2021 streamlining our operating model; and nurturing talent in new ways. In underwriting, tough action
taken in big-ticket lines has resulted in risk-reflective pricing, and the Group has enjoyed rate
increases of 9% in aggregate and GWP growth of 5.9%. On simplification, the Group has realised
c.$20 million in underlying expense efficiencies (excluding performance-related pay and normalised
for foreign exchange movements) through a range of measures including enhanced controls
on headcount and third-party spend. On talent, the Group has attracted 644 new permanent
employees, made 368 internal promotions, bolstered succession plans, and embedded new
hybrid working practices.
Ensure Hiscox operates As in 2020, Bronek led the business’s response to Covid-19, including our response to paying
within risk, regulatory and claims in line with the Judgment delivered by the Supreme Court in January 2021, in the appeal
societal expectations of the UK insurance industry test case. Bronek has also overseen the development of new
greenhouse gas targets for the Group, which ensure Hiscox complies with its legal requirements
in the UK and other jurisdictions to support net zero.
Aki Hussain Aki oversaw the continued optimisation of the Group’s capital and liquidity position, which in 2021
Balance sheet included the execution of two loss portfolio transfer (LPT) transactions covering prior year reserves
management to drive net capital efficiency of c.$100 million. Careful balance sheet management and improving
financial performance enabled the Group to resume paying dividends with the 2021 interim results.
Enhancing profitability Aki has continued to drive ROE-enhancing opportunities for the Group. This includes influencing
the underwriting strategies through a continued focus on allocating capital to where Hiscox can
achieve the best risk-adjusted returns, and the achievement of ambitious expense ratio reduction
targets, which are being realised through improving procurement processes and an ongoing focus
on simplification. Following the appointment of a new Chief Investment Officer in 2020, Aki has also
overseen a reassessment of fund managers, fees, capabilities and investment strategies, resulting
in an overall reduction in manager fees, a revised line-up of fund managers with capabilities and
expertise more aligned to Hiscox strategy, and improving risk-adjusted returns.
Ensure Hiscox operates Aki has established a robust and effective multi-disciplinary IFRS 17 programme that is on track
within a risk and control to deliver the Group’s requirements. Aki has also led important enhancements to the risk and
environment that adheres control frameworks, further improving transparency of performance and oversight by the Group
to regulatory and Audit Committee.
corporate standards
Joanne Musselle Joanne has led the Group’s progress in underwriting portfolio optimisation, resulting in an
Active portfolio underwriting profit of $215.6 million for 2021 and rate increases of 9% in aggregate across the
management Group. A multi-year focus on active portfolio management, combined with disciplined constant
course correction, has significantly improved the quality of the Group’s portfolio.
Exposure management Joanne has driven the continued evolution of the Group’s view of risk in line with internal appetite
and view of risk and external expectations. In 2021, this included the introduction of a Group ESG exclusions policy
to reduce steadily and eliminate by 2030 our exposure to thermal coal, oil sands, Arctic drilling and
controversial weapons. Joanne supported early operationalisation of the policy, which officially came
into force on 1 January 2022, with both new and existing risks starting to be declined during 2021.
Underwriting governance Joanne has overseen important progress in the Group’s underwriting controls and governance
and controls around product, pricing, appetite and wordings. This includes the introduction of new appetite
bullseyes for each line of business in every business unit, and underwriting governance structures
that drive business unit accountability and provide new opportunities for challenge, validation and
escalation. In 2021, this process has supported the Group’s Retail business units in reducing both
the number and complexity of our wordings.
Developing Joanne has continued to find innovative ways to develop the Group’s underwriting talent, this year
underwriting talent developing a new ‘faculty of underwriting’ framework delivering underwriting-focused technical and
behavioural training. This supports the existing succession planning structures and talent monitoring
processes, through which we identify and subsequently invest in high-potential underwriters.
103Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Annual report on | information | summary |

remuneration 2021
Long-term incentives
Performance Share Plan awards (PSP) where the performance period ends with the 2021 financial year
The Executive Directors were granted nil-cost options under the PSP on 8 April 2019 for the three-year performance period
1January2019 to 31December2021.
The performance conditions for this award were set at the start of the performance period and are as follows:
Proportion of PSP
Growth in vesting measured
net asset value on a per-share basis
plus dividends %
Minimum threshold vesting RFR + 6 = 7.5 20
Maximum vesting RFR + 14 = 15.5 100
Straight-line vesting between these points
The risk-free rate (RFR) for the awards granted in 2019 was set at 1.5%.
Performance outcome
Based on the three-year average growth in net asset value plus dividends of 0.1%, the awards ending with the 2021 performance
year will not vest as the minimum performance threshold has not been met.
PSP awards granted during the 2021 financial year
As disclosed in the 2020 Directors’ remuneration report, PSP awards granted to the Executive Directors in 2021 were set at 250%
of salary. Awards are based on a three-year performance period, followed by a two-year holding period.
60% of awards are based on stretching growth in net asset value (NAV) plus dividends targets, measured on a per-share basis,
with 40% based on relative total shareholder return (TSR) against a group of global insurance peers.
On 8 April 2021, the Executive Directors were granted nil-cost options under the PSP as shown below.
Market prices Market value
Number of at date of grant* at date of grant
awards granted £ £
Bronek Masojada 187, 612 8.588 1,611,212
Aki Hussain 144,436 8.588 1,240,416
Joanne Musselle 144,436 8.588 1,240,416
*The middle market quotation on the date of grant (8 April 2021) was £8.588.
The performance condition for these awards, measured over the period 1 January 2021 to 31 December 2023, is as follows:
Growth in NAV plus dividends measured on a per-share basis Award vesting (% of maximum)*
Less than RFR + 6% p.a 0%
RFR + 6% p.a. 16%
RFR + 14% p.a 80%
Equal to or greater than RFR +17% p.a. 100%
*Applies to 60% of awards. Straight-line vesting in between each point.
The risk-free rate (RFR) for the awards granted in 2021 was set at 0%.
Relative TSR Award vesting (% of maximum)*
Below median 0%
Median 20%
Upper quartile 100%
*Applies to 40% of awards. Straight-line vesting in between each point.
The peer group consists of the following 24 companies: Admiral Group, Alleghany, American Financial Group, Arch Capital, Argo, Axis Capital, Beazley,
Conduit, Cincinnati Financial, CNA Financial, Direct Line Insurance Group, Everest Re, Fairfax Financial Holdings, Hanover Insurance, James River Group,
Kinsale Capital Group, Lancashire Holdings, Markel, QBE, Renaissance Re, RLI, SCOR, White Mountains Insurance Group, and WR Berkley.
Executive Directors will be required to retain any shares vesting (net of tax charges) at the end of the performance period for a
further two years (five years post the start of the performance period).
104 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Annual report on | information | summary |

remuneration 2021
Non Executive Director remuneration
The table below sets out the remuneration received by the Non Executive Directors for the financial years ending
31December2021 and 31 December 2020.
2021
Total split

| Ltd Board | Ltd Committee | Subsidiary Board |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| fee | fee | fee |  | Benefits | 1 Total |  | Fixed |  | Variable |  |
|  | £ | £ | £ |  | £ | £ |  | £ |  | £ |

Robert Childs (Chairman) 295,000 – – 12,868 3 07,86 8 307, 8 68 –
Donna DeMaio 15,580 8,877 – – 24,457 24,457 –
Caroline Foulger 62,319 42,754 88,681 – 193,754 193,754 –
Michael Goodwin 62,319 28,261 32,609 – 123,189 123,189 –
Thomas Hürlimann 62,319 28,261 50,862 – 141,442 141,442 –
Colin Keogh 74,638 34,783 106,000 – 215,421 215,421 –
Anne MacDonald 62,319 35,507 – – 97,826 97,826 –
Constantinos Miranthis 62,319 35,507 35,507 – 133,333 133,333 –
Lynn Pike 62,319 33,333 56,522 – 152,174 152,174 –
2020
Total split

| Ltd Board | Ltd Committee | Subsidiary Board |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| fee | fee | fee |  | Benefits | 1 Total |  | Fixed |  | Variable |  |
|  | £ | £ | £ |  | £ | £ |  | £ |  | £ |

Robert Childs (Chairman) 295,000 – – 11,655 306,655 306,655 –
Caroline Foulger 62,774 35,766 88,956 – 187,4 9 6 187, 49 6 –
Michael Goodwin 62,774 28,467 32,847 – 124,088 124,088 –
Thomas Hürlimann 62,774 28,467 52,212 – 143,453 143,453 –
Colin Keogh 75,182 35,037 48,000 – 158,219 158,219 –
Anne MacDonald 70,073 28,467 – – 98,540 98,540 –
Constantinos Miranthis 62,774 28,467 35,766 – 127,0 07 127,0 07 –
Lynn Pike 62,774 33,577 56,934 – 153,285 153,285 –
¹Benefits include life assurance and healthcare.
Donna DeMaio was appointed as a Non Executive Director in November 2021.
Fees are paid in multiple currencies – 2021 fees were converted using £1: €1.16 and £1: $1.38. 2020 fees were converted using £1: €1.13 and £1: $1.37.
Membership of the Remuneration Committee
The Remuneration Committee members during the year were Caroline Foulger, Lynn Pike, Anne MacDonald, Thomas Hürlimann,
Michael Goodwin, Constantinos Miranthis, Donna DeMaio (appointed November 2021) and Colin Keogh (Chairman).
Directors’ shareholding and share interests
To align their interests with those of Hiscox shareholders, senior managers are expected to own a minimum number of Hiscox
shares. Executive Directors are required to hold Hiscox shares valued at 200% of salary within five years of becoming an
Executive Director. Bronek Masojada has over 20 years’ service so his shareholding of 3,910% far exceeds the guidelines.
Joanne Musselle has not yet been an Executive Director for five years, and her holding is 165%, using the closing share price
on 31December2021. Aki Hussain has reached five years’ service this year and his holding is 154%, using the closing share price
on 31December2021. Aki Hussain has previously met the full shareholding guideline and has not sold any shares since this date.
Following his appointment to Group Chief Executive Officer, the number of shares he is expected to hold will increase, reflecting
his higher salary. The Committee expects the shareholding guideline to be met within three years of appointment.
There is a post-employment shareholding guideline for Executive Directors which will apply for a period of two years from
stepping down from the Board. This will be set at the level of the in-employment shareholding guideline for one year (or the
actual shareholding on stepping down from the Board if lower) and at half of this amount for the following year.
105Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Annual report on | information | summary |

remuneration 2021
The interests of Executive and Non Executive Directors are set out below, including shares held by connected persons.
There have been no changes in the Director share interests between 31 December 2021 and 2 March 2022.

|  |  | 31 December |  |  | 31 December |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | 2021 |  |  |  | 2020 |
|  |  | 6.5p ordinary |  |  | 6.5p ordinary |  |  |
|  |  |  | shares |  |  |  | shares |
|  | number of shares |  |  | number of shares |  |  |  |
| Directors |  | beneficial |  |  |  | beneficial |  |

Executive Directors:
Bronek Masojada 3,029,920 3,014,825
Aki Hussain 91,786 80,786
Joanne Musselle 98,449 40,798
Non Executive Directors:
Robert Childs 1,213,162 1,208,502
Donna DeMaio* 0 0
Caroline Foulger 29,000 29,000
Michael Goodwin 12,678 12,678
Thomas Hürlimann 15,927 15,786
Colin Keogh 47,6 00 39,695
Anne MacDonald 40,251 39,893
Constantinos Miranthis 6,832 6,832
Lynn Pike 1,538 1,538
*Donna DeMaio was appointed as a Non Executive Director in November 2021.
Performance Share Plan (PSP)
Awards in the form of nil-cost options are granted under the PSP as a percentage of salary. All awards are subject to performance
conditions. The interests of Executive Directors are set out below:

|  |  |  |  |  |  |  |  |  | Number of |  |  |  | Average market |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Number of |  |  |  |  |  |  | awards at |  | Mid market price |  | price at date of |  |  |  |  |
|  |  | awards at |  | Number of |  | Number of |  | Number of | 31 December |  | at date of grant |  |  | exercise |  |  | Date from |
| Name | 1 January 2021 |  | awards granted |  | awards lapsed |  | awards exercised |  |  | 2021 |  | £ |  |  | £ | which released |  |

1
Bronek Masojada 130,950 – – – 130,950 6.94 17-Mar-17
1
117, 0 0 6 – – – 117,0 06 8.82 13-Apr-18
1
59,301 – – – 59,301 9.56 08-Apr-19
83,250 – (83,250) – – 14.88 06-Apr-21
82,000 – – – 82,000 15.46 08-Apr-22
156,000 – – – 156,000 7.0 0 15-May-23
– 187, 612 – – 187,612 8.59 08-Apr-24
1
Aki Hussain 36,873 – – – 36,873 10.46 08-Apr-19
58,000 – (58,000) – – 14.88 06-Apr-21
63,250 – – – 63,250 15.46 08-Apr-22
120,500 – – – 120,500 7.0 0 15-May-23
– 144,436 – 144,436 8.59 08-Apr-24
–
Joanne Musselle 32,361 – – (32,361) – 5.68 8.44 02-Apr-16
29,694 – – (29,694) – 6.94 8.44 17-Mar-17
24,750 – – (24,750) – 8.82 8.44 13-Apr-18
9,883 – – (9,883) – 9.56 8.44 08-Apr-19
30,000 – (30,000) – – 14.88 06-Apr-21
2
30,000 411 – (12,411) 18,000 15.46 8.59 08-Apr-22
120,500 – – – 120,500 7.0 0 15-May-23
– 144,436 – – 144,436 8.59 08-Apr-24
Total 1,184,318 476,895 (171,250) (109,099) 1,380,864
1
Awards have vested but are unexercised.
2
40% of the award vested in 2021. Remaining 60% will vest in 2022 subject to performance conditions.
Sharesave Schemes
The interests of Executive Directors under the Sharesave Schemes are set out on the next page:
The scheme offers a three-year savings contract where the exercise price of the options is calculated on an average share price
over five days prior to the invitation date, with a 20% discount. Sharesave options are not subject to performance.
106 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Annual report on | information | summary |

remuneration 2021
Number of

| Number of |  |  |  |  | options |  |  |  | Market price |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| options |  |  |  |  | at |  |  |  | at date |  |
| at |  | Number of | Number of | Number of |  | 31 December |  | Exercise price | of exercise | Date from which |
|  | 1 January 2021 | options granted | options lapsed | options exercised |  |  | 2021 |  | £ | £ exercisable Expiry date |

Bronek Masojada 778 – (778) – – 11.5 6 01-May-21 31-Oct-21
– 2,500 – – 2,500 7.20 01-Jun-24 30-Nov-24
Aki Hussain – 2,500 – – 2,500 7.20 01-Jun-24 30-Nov-24
Joanne Musselle 1,557 – (1,557) – – 11.56 01-May-21 31-Oct-21
– 2,380 – – 2,380 7.5 6 01-Dec-24 31-May-25
Total 2,335 7,3 8 0 (2,335) – 7,3 80
Payments for loss of office
No payments were made during the year for loss of office.
Payments to past Directors
No payments were made to former Directors during the year.
Remuneration arrangements for the new Group Chief Executive Officer and new Group Chief Financial Officer
The Company announced on 22 July 2021 that Aki Hussain had been appointed as Group Chief Executive Officer with effect from
1 January 2022. His remuneration package, which is in line with the Directors’ remuneration policy, was disclosed at the time and
details are set out below.
• Basic salary of £750,000 per annum.
• No change in pension allowance (10% of salary, which is aligned to the pension allowance for the UK’s workforce).
• No change to his annual bonus maximum opportunity (300% of salary) and Performance Share Plan award level (up to 250%
of salary).
As this is an internal hire, there are no buy-outs of forfeited incentive awards associated with the appointment.
Aki’s appointment followed a full and independent process led by the Nominations and Governance Committee, supported by
a leading search firm. This involved a global search and the assessment of internal and external candidates. The Remuneration
Committee took into account a number of different factors and reference points when setting the Group Chief Executive Officer’s
remuneration package, including the calibre and experience of Aki, evidenced by his performance as Group Chief Financial
Officer, alongside his knowledge of the Hiscox Group, as well as considering market data, both for the UK and globally, with
reference to our key international peers.
The Company announced on 21 December 2021, that Paul Cooper had been appointed as the Group Chief Financial Officer
subject to regulatory approval. Details of his remuneration package, which is line with the Directors’ remuneration policy, were
disclosed at the time and are set out below.
• Basic salary of £525,000 per annum.
• Pension allowance of 10% of salary, which is aligned to the pension allowance for the UK’s workforce.
• Annual bonus maximum opportunity of 300% of salary.
• Performance Share Plan award of up to 250% of salary per annum.
Paul will receive awards to compensate for remuneration arrangements forfeited on leaving his previous employer. These will
remain subject to performance conditions where appropriate and mirror the form and time horizons of forfeited awards. Full
disclosure will be made in the 2022 annual report on remuneration.
Remuneration arrangements for the outgoing Group Chief Executive Officer
Bronek Masojada stepped down as Group Chief Executive Officer and as an Executive Director of Hiscox Ltd with effect from
31 December 2021. Following his retirement from the Board, Bronek is continuing as an employee of Hiscox. Accordingly, he
has received no loss of office payment in respect of his services as a Director. In his new role, he will provide strategic advice as a
Director for key subsidiaries. This will enable Hiscox to continue to benefit from Bronek’s considerable experience including over
20 years as Group Chief Executive Officer of the Company.
As he had served a full year as an Executive Director, Bronek Masojada was considered for an annual incentive award in respect
of 2021, in line with other Executive Directors. Details of such payment and the deferral which applies are set out in this report.
As Bronek will continue to be a Hiscox employee, he will retain (in accordance with the plan rules) his Performance Share Plan
awards consisting of 156,000 shares (in respect of the 2020 award) and 187,612 shares (in respect of the 2021 award). These
Performance Share Plan awards will remain subject to the existing vesting dates, performance conditions and holding periods.
As an employee, he will retain his outstanding options under the Sharesave Scheme in accordance with the rules of the scheme.
The post-employment shareholding requirement as set out in the Annual Report on Remuneration will apply for a period of two
years from the date he steps down from the Board.
107Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Implementation of remuneration policy for 2022
Salary
Annual salary reviews take effect from April each year. The Committee takes account of a number of factors, primarily the increase
applied to other UK-based employees. The Committee applies judgement when using external market data.
There is no further salary increase for Aki Hussain following his appointment as Group Chief Executive Officer on 1January2022.
Paul Cooper’s annual salary as Group Chief Financial Officer is shown below, effective from his start date in 2022. From
1April2022, Joanne Musselle’s salary will be increased by 2.2%, which is below the average UK employee increase.
2022
£
Aki Hussain 750,000
Paul Cooper 525,000
Joanne Musselle 525,000
Annual bonus
The maximum opportunity for the year ending 31 December 2022 will remain unchanged from 2021, being 300% of salary for both
the Group Chief Executive Officer and Group Chief Financial Officer and 400% of salary for the Group Chief Underwriting Officer.
The bonus for the incoming Group Chief Financial Officer will be pro-rata for 2022 for time in role. In determining the bonuses to be
paid to Executive Directors, the Committee bases its judgements on both the performance of the Group and a robust assessment
of individual performance. Bonuses will not be paid unless the Group’s performance exceeds a given ROE threshold. This
threshold and the ranges used to support the Committee’s decision-making are considered to be commercially sensitive at this
time and will be disclosed in the 2022 Directors’ remuneration report, together with an overview of the individual objectives set
and performance against these.
Performance Share Plan (PSP)
In line with our shareholder-approved remuneration policy, the maximum opportunity for the awards to be granted to the
Executive Directors in 2022 will be 250% of salary. Awards will continue to be based on a three-year performance period followed
by a two-year holding period.
For 2022, 60% of awards will continue to be based on stretching growth in NAV plus dividends targets, measured on a per-share
basis with 40% based on relative TSR against a group of global insurance peers.
The Committee considers that growth in NAV continues to be a key metric for the PSP given that our strategy is built around the
objective of generating long-term shareholder value and NAV is aligned with shareholder value creation. The targets for the 2022
awards are unchanged from those set out in the 2020 Directors’ remuneration report and the Committee considers that they are
very stretching targets in the current environment.
Growth in NAV plus dividends measured on a per-share basis Award vesting (% of maximum)*
Less than RFR + 6% p.a. 0
RFR + 6% p.a. 16
RFR + 14% p.a. 80
Equal to or greater than RFR +17% p.a. 100
The risk-free rate (RFR) will be 0% for 2022.
*Applies to 60% of awards. Straight-line vesting in between each point.
108 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Implementation of | information | summary |

remuneration policy
for 2022
Relative total shareholder return has been selected as a measure for the 2022 awards to complement the absolute NAV metric
and is aligned to our strategy of generating long-term value for shareholders, benchmarking those returns versus our closest listed
peers. The vesting schedule for the element of the award based on TSR is set out below.
Relative TSR Award vesting (% of maximum)*
Below median 0
Median 20
Upper quartile 100
*Applies to 40% of awards. Straight-line vesting in between each point.
The peer group will consist of the following 24 companies: Admiral Group, Alleghany, American Financial Group, Arch Capital, Argo, Axis Capital, Beazley,
Conduit, Cincinnati Financial, CNA Financial, Direct Line Insurance Group, Everest Re, Fairfax Financial Holdings, Hanover Insurance, James River Group,
Kinsale Capital Group, Lancashire Holdings, Markel, QBE, Renaissance Re, RLI, SCOR, White Mountains Insurance Group, and WR Berkley.
Non Executive Director fees
The Non Executive Director fees which apply for 2022 are set out below. These remain unchanged from 2021, but may be subject
to further review during 2022.
2022
fees
Board Chairman and subsidiary services £295,000
Basic fee $86,000
Additional fees for:
Audit Committee Chair $26,000
Audit Committee member $16,000
Remuneration Committee Chair $18,000
Remuneration Committee member $9,000
Risk Committee Chair $17,000
Risk Committee member $10,000
Nominations and Governance Committee member $4,000
Senior Independent Director fee $17,000
Employee Liaison fee $10,000
Bermuda Committee fee $10,000
109Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Other remuneration matters
External Non Executive Directorships
Executive Directors may not accept any external appointment that may give rise to a conflict of interest, and all external
appointments require the consent of the Chairman. During the year, Bronek Masojada held Directorships on the Board of the
Association of British Insurers and Pool Reinsurance Company Limited and was Chair of Policy Placement Limited. Bronek
Masojada was remunerated £43,000 for his Directorship at Pool Reinsurance Company Limited. Aki Hussain held a Directorship
at Visa Europe Limited and received a fee of £115,000. Joanne Musselle was remunerated £18,500 for her Directorship at Realty.
External advisors
The Committee received independent advice from Deloitte, who were appointed by the Committee in 2013 following a competitive
tender process. Deloitte is a founder member of the Remuneration Consultants Group and, as such, voluntarily operates under its
code of conduct. During the year, Deloitte’s executive compensation advisory practice advised the Committee on developments
in market practice, corporate governance and institutional investor views, and on the development of the Company’s incentive
arrangements. Total fees for advice provided to the Committee during the year were £96,200 based on a time and materials basis.
The Committee regularly reviews the advice it receives and is satisfied that this has been objective and independent. During the
year Deloitte also provided the Company with other tax and consulting services.
In addition to the external advisors, the Group Chief Executive Officer and Group Chief Human Resources Officer attend the
Committee meetings by invitation and provided material assistance to the Remuneration Committee during the year. No Director
or Committee member was involved in determining their own remuneration during the year.
Statement of shareholder voting
At the AGM on 13 May 2021, the annual report on remuneration received the votes below from shareholders. While the Director’s
remuneration policy was not voted on in the most recent AGM, results from the last policy vote are included below.
Annual remuneration report Remuneration policy
(13 May 2021) (14 May 2020)
For 276,848,268 230,333,655
% 98.80% 95.86%
Against 3,364,342 9,949,668
% 1.20% 4.14%
Withheld 10,572 32,597
Total votes 280,223,182 240,315,920
110 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Other remuneration | information | summary |

matters
Total shareholder return performance
The graph below shows the total shareholder return of the Group against the FTSE All-Share and FTSE Non-Life Insurance
indices. These reference points have been shown to assess performance against the general market and industry peers.
Between December 2011 and 2021, Hiscox delivered total shareholder return of 148%.
Total shareholder return Hiscox
 FTSE All-Share
(%)
 FTSE Non-Life Insurance
400
350
300
250
200
150
100
50
0
-50
Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 Dec 19 Dec 20 Dec 21
Group Chief Executive Officer historic remuneration
The table below shows the single total remuneration figure for the Group Chief Executive Officer for the past ten years.
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
CEO single
figure of
remuneration (£) 1,938,759 2,341,737 3,130,535 3,358,894 3,970,466 2,394,428 1,818,086 6 9 8,196 717, 24 3 1,332,964
Annual bonus
as percentage
of current max 46 51 44 39 64 0 9 0 0 30
PSP vesting
as percentage
of maximum
opportunity 39 53 100 100 100 85 47 0 0 0
Prior to 2015, the annual bonus was operated on an uncapped basis. In order to facilitate comparison, a cap has been
applied retrospectively.
111Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Other remuneration | information | summary |

matters
Comparator data
Remuneration for the wider workforce
The Remuneration Committee receives information on Group-wide remuneration policies and uses internal and external
measures to assess the appropriateness of the remuneration policy and outcomes for Executive Directors. During the year, the
Committee reviewed information on market levels of pay in our peer group, bonus pools split by business area, levels of share plan
participation and pay ratios between Executives and average employees. No employees were furloughed and all were offered
flexible working options to help juggle the demands of work life and home life during 2021. Our annual employee engagement
survey gives all our employees the opportunity to provide honest feedback on how they feel about Hiscox. We also have an
employee engagement network, led by our Employee Liaison and Non Executive Director, Anne MacDonald, where employees
can provide feedback on a range of topics including pay, which we included as a specific agenda item this year.
Group Chief Executive Officer pay ratio
The Group Chief Executive Officer’s total remuneration compared with the median (50th percentile) remuneration of the
Company’s UK employees as at 31December2021 is shown below, along with the 25th and 75th percentiles.
We selected calculation method ‘Option A’ as it is the more robust approach and favoured by investors. This method captures all
pay (excluding overtime due to its volatility) and benefits for the financial year to 31 December 2021 and aligns with how the ‘single
figure’ table is calculated (from which there has been no deviation). Part-time employee single figures were annualised to provide
more meaningful comparison.
Calculation P25 P50 P75
Full year methodology (lower quartile) (median) (upper quartile)
2021 A 34:1 20:1 12:1
2020 A 20:1 12:1 8:1
2019 A 19:1 11:1 7:1
The table below shows the salary and total remuneration of each employee at the 2021 quartile positions.
P25 P50 P75
2021 £ £ £
Salary 32,869 57,000 90,000
Total remuneration 39,344 67,442 108,927
The Committee has considered the pay data for the three employees identified and believes that it fairly reflects pay at the
relevant quartiles among the UK employee population. The ratios have increased this year primarily as a result of annual bonuses
being paid to all employees. The total remuneration of our most senior executives, including the Group Chief Executive Officer,
is more highly weighted to variable remuneration, so in years when bonuses are paid, the ratios will increase. The Committee is
comfortable that the pay ratio for 2021 aligns to the pay and progression policies for employees, in particular that pay is truly linked
to performance and that individuals are appropriately motivated and rewarded according to their knowledge and seniority within
the business.
112 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Other remuneration | information | summary |

matters
Percentage change in remuneration of the Board Directors
The table below shows the percentage change in remuneration for each Executive and Non Executive Director, between the year
ended 31 December 2020 and 31 December 2021. Salary and bonus are compared against all employees globally, benefits are
compared against all UK-based employees, reflecting the location of the Executive Directors.
2020 % change 2021 % change
Salary/fees Benefits Bonus 2 Salary/fees Benefits Bonus 2
1
All employees 4.3 5.9 (3 6.1) 1.8 (3.7) 147
Executive Directors:
Bronek Masojada 2.8 2.7 N/A 2.2 1.9 N/A
Aki Hussain 2.8 (6.9) N/A 2.2 3.3 N/A
3
Joanne Musselle – – N/A 22.1 21.6 N/A
4
Non Executive Directors:
Robert Childs 1.7 (1.7) – – 10.4 –
5
Donna DeMaio N/A N/A N/A N/A – –
Caroline Foulger (3.2) – – (1.5) – –
Michael Goodwin 4.2 – – (0.7) – –
Thomas Hürlimann (2.0) – – (1.4) – –
6
Colin Keogh (2.5) – – 32.4 – –
Anne MacDonald 2.2 – – (0.7) – –
Constantinos Miranthis (5.2) – – 5.0 – –
Lynn Pike (6.3) – – (0.7) – –
1
Median employee salary, benefits and bonus have been calculated on a full-time equivalent basis. Salary and benefits are calculated as at 31 December, bonus is
that earned during the year ending 31 December.
2
No bonuses were paid to Executive Directors in respect of 2020.
3
Joanne Musselle was appointed to the Board on 2 March 2020.
4
Non Executive Director fees are subject to exchange rate fluctuations.
5
Donna DeMaio was appointed as a Non Executive Director in November 2021.
6
Colin Keogh assumed the responsibility of Chair of a regulated subsidiary in 2021 and received an increased fee of £52,000.
Relative importance of the spend on pay
The charts below show the relative movement in profit, shareholder returns and employee remuneration for the 2020 and 2021
financial years. Shareholder return for the year incorporates the distribution made in respect of that year. Employee remuneration
includes salary, benefits, bonus, long-term incentives and retirement benefits. Profit is the ultimate driver behind the performance
metrics of the bonus and long-term incentive schemes. Profit before tax can be located on page 142.
Profit/(loss) before tax ($m) Dividend and return of Total employee remuneration ($m)
+171 (% change) capital to shareholders ($m) +9.5 (% change)
381
348
191
118
0
2020 2020 20202021 2021* 2021
* Includes a final dividend in respect of the year
(268) ended 31 December 2021 of 23.0¢ per share,
subject to shareholder approval.
113Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Remuneration policy
Hiscox has a forward-looking remuneration policy for its Board members.
The policy was approved at the 2020 AGM and is replicated below, including how it will be implemented for Executive Directors in
2022 shown in italics. The original policy can be viewed in the 2019 Annual Report and Accounts at hiscoxgroup.com.
Future policy table
Executive Director remuneration
Base salary
Purpose and link to strategy Fixed-pay elements enable the Company to be competitive in the recruitment market when
looking to employ individuals of the calibre required by the business.
Operation Base salary is normally reviewed annually, taking into account a range of factors including
inflation rate movements by country, relevant market data and the competitive position of
Hiscox salaries by role.
Individual salaries are set by taking into account the above information as well as the individual’s
experience, performance and skills, increases to salary levels across the wider Group and
overall business performance.
By exception, an individual’s salary may be amended outside of the annual review process.
Maximum potential value The salaries for current Executive Directors which apply for 2022 are set out on page 108.
Executive Directors’ salary increases will normally be in line with overall employee salary
increases in the relevant location.
Increases above this level may be considered in other circumstances as appropriate (for
example, to address market competitiveness, development in the role, or a change in role
size, scope or responsibility).
Performance metrics Individual and business performance are taken into account when setting salary levels.
Application to broader Process for review of salaries is consistent for all employees.
employee population
114 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration policy | information | summary |

Future policy table
Executive Director remuneration
Benefits (including retirement benefits)
Purpose and link to strategy Fixed-pay elements enable the Company to be competitive in the recruitment market when
looking to employ individuals of the calibre required by the business.
Operation Retirement benefits
These vary by local country practice but all open Hiscox retirement schemes are based
on defined contributions or an equivalent cash allowance. This approach will be generally
maintained for any new appointments other than in specific scenarios (for example, local
market practice dictates other terms). For current Executive Directors, a cash allowance
of up to 10% of salary is paid in lieu of the standard employer pension contribution, or a
combination of pension contributions and cash allowance, totalling 10% of salary.
Certain Board members retain legacy interests in closed defined benefit schemes. However,
there is no entitlement to any further accrual under these schemes.
Other benefits
Benefits are set within agreed principles but reflect normal practice for each country. Hiscox
benefits include, but are not limited to: health insurance, life assurance, long-term disability
schemes and participation in all-employee share plans such as the Sharesave Scheme.
Executive Directors are included on the directors and officers’ indemnity insurance.
The Committee may provide reasonable additional benefits based on the circumstances
(for example, travel allowance and relocation expenses) for new hires and changes in role.
Maximum potential value Set at an appropriate level by reference to the local market practice and reflecting individual
and family circumstances.
Pension benefits will be in line with the standard employer contribution taking into account any
local requirements.
Performance metrics None.
Application to broader Executive Directors’ benefits are determined on a basis consistent with all employees.
employee population
115Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration policy | information | summary |

Future policy table
Executive Director remuneration
Annual bonus
Purpose and link to strategy To reward for performance against the achievement of financial results over the financial year
and key objectives linked to the strategic priorities.
To provide a direct link between reward and performance.
To provide competitive compensation packages.
Operation Executive Directors participate in profit-related bonus pools.
Bonus pools are calculated at a business unit level and for the Group as a whole on the basis of
Group financial results. For 2022, the bonus pool will be funded by a set percentage of profits
on achievement of a hurdle rate of ROE. The bonus for prior years was determined on a similar
basis. Further detail is set out on page 102.
For Executive Directors, individual allocations from the pool are determined by the
Remuneration Committee based on a judgement of various factors including:
p size of the Group bonus pool;
p results of business area (where relevant);
p individual performance, including non-financial and strategic factors; and
p consideration of risk.
Amounts are paid in accordance with the bonus deferral mechanism described on page 117.
Bonus awards are non-pensionable.
Bonus awards are subject to malus and clawback provisions as described in the notes to the
policy table on page 121.
Maximum potential value The maximum bonus opportunity for the Executive Directors will be as follows:
p Group Chief Executive Officer and Group Chief Financial Officer – 300% of salary;
p Group Chief Underwriting Officer – up to 400% of salary.
Where performance is deemed to be below a predetermined hurdle, payouts will be nil.
The total of individual bonuses paid to Executive Directors for a year will not normally
exceed 15% of the total pool. If the number of Executive Directors increased in the future,
this percentage would be adjusted as required.
Performance metrics Performance is measured over one financial year.
Bonus pools are determined based on financial performance against a hurdle (reviewed
annually). Performance at or above this hurdle is rewarded and where performance falls below
this hurdle, payouts will be nil. Financial performance is therefore the main determinant of
overall bonus payouts.
In determining the level of bonuses awarded, the Committee also considers a range of
other factors including the achievement of stretching personal and strategic objectives
during the relevant year together with a consideration of risk, ensuring a robust assessment
of performance.
Application to broader The operation of the annual incentive is consistent for the majority of employees across
employee population the Group.
Arrangements tailored to roles and responsibilities are operated for selected positions.
Bonuses for more junior employees are calculated using a more formulaic approach.
Further details are set out on page 102.
116 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration policy | information | summary |

Future policy table
Executive Director remuneration
Bonus deferral
Purpose and link to strategy To encourage retention of employees.
To facilitate and encourage share ownership in order to align senior employees with
Hiscox shareholders.
Operation Larger bonuses are normally deferred over a three-year period and paid subject to continuing
service as explained in the table below.
Deferral points are determined based on the currency in which the Executive Director’s salary
is paid and are normally as follows:

| Bonus of £50,000, €75,000, $100,000, | Paid shortly after the end of the financial year |
| --- | --- |
| and below | in which the bonus was achieved. |
| Bonus above £50,000 and below £100,000 | £50,000, €75,000, $100,000, paid shortly |

after the end of the financial year in which the
Bonus above €75,000 and below €150,000 bonus was achieved.
Bonus above $100,000 and below $200,000 Balance of bonus split 50% to be paid after
year two (24 months after the start of the
bonus year), and 50% after year three
(36 months after the start of the bonus year).
Bonus above £100,000, €150,000, $200,000 50% of bonus paid shortly after the end of the
financial year following the announcement
of results.
Balance of bonus split 50% to be paid after
year two, and 50% after year three.
Participants are able to (subject to any local tax/legal/regulatory restrictions) draw deferred
bonuses early in certain circumstances in order to enable the acquisition of Hiscox shares.
Such amounts remain subject to continued employment.
The Remuneration Committee can agree to early payment of deferred bonuses to Executive
Directors on an exceptional basis at their discretion.
Deferred awards are subject to malus and clawback provisions as described in the notes to the
policy table on page 121.
Maximum potential value In accordance with the operation of the annual bonus.
Performance metrics In accordance with the operation of the annual bonus.
Application to broader Approach is consistent for all employees across the Group who are awarded a sizeable bonus.
employee population
117Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration policy | information | summary |

Future policy table
Executive Director remuneration
Performance Share Plan (PSP)
Purpose and link to strategy To motivate and reward for the delivery of long-term objectives in line with business strategy.
To encourage share ownership among participants and align interests with shareholders.
To provide competitive compensation packages for senior employees.
Operation Awards are granted under, and governed by, the rules of the PSP as approved by shareholders
from time to time.
Share awards (typically structured as either conditional awards or nil cost options) are made at
the discretion of the Remuneration Committee.
Awards normally vest after a three-year period subject to the achievement of performance
conditions. An additional holding period, which is currently two years, may also apply.
Further details are set out on pages 104 to 106.
Awards are generally subject to continued employment; however, awards may vest to leavers in
certain scenarios (for example, ‘good’ leaver circumstances).
Dividends (or equivalents) may accrue on vested shares prior to release. Awards are subject to
malus and clawback provisions as described in the notes to the policy table on page 121.
Maximum potential value Maximum annual grant of up to 250% of salary in respect of any one financial year.
Performance metrics The performance conditions for awards are set to align with the long-term objectives of
the Company.
The Committee reviews the targets prior to each grant to ensure that they remain appropriate.
Currently, the performance measures are linked to the achievement of growth in net asset value
plus dividends, measured on a per-share basis, over the performance period. For 2021 and
2022 awards, an additional measure of relative TSR will also apply.
For delivery of the threshold hurdle, up to 20% of the relevant award will vest. For full vesting,
the stretch hurdle needs to be met in full.
The discretions available to the Committee in assessing the achievement of the performance
target are as set out in the notes to the policy table on page 121.
Where the Committee considers it appropriate to do so, under the plan rules the Committee is
able to modify performance criteria for outstanding awards on the occurrence of certain events
(for example, major disposal).
Application to broader Participation in this plan is restricted to Executive Directors and other senior individuals.
employee population
118 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration policy | information | summary |

Future policy table
Executive Director remuneration
Shareholding guidelines
Purpose and link to strategy To ensure Executive Directors are aligned with shareholder interests.
Operation Within five years of becoming an Executive Director, individuals will normally be expected to have
acquired an interest in Hiscox shares valued at 200% of salary. Shares owned by the Executive
Director (and any connected person) count towards the guidelines as do shares subject to any
vested but unexercised PSP award (net of assumed taxes).
Executive Directors are normally expected to remain aligned with the interests of shareholders
for an extended period after leaving the Company. Executive Directors will typically be expected
to retain a shareholding at the level of the in-employment shareholding guideline for one year
(or the actual shareholding on stepping down, if lower) and at half of this amount for the following
year, unless the Committee determines otherwise in exceptional circumstances.
Maximum potential value N/A.
Performance metrics N/A.
Application to broader Executive Directors are required to hold more shares than other senior managers.
employee population
Post-employment shareholding guidelines only apply to Executive Directors.
119Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration policy | information | summary |

Future policy table
Non Executive Director remuneration
General approach The total aggregate fees payable are set within the limit specified by the Company’s Bye-laws.
The fees paid are determined by reference to the skills and experience required by the Company
as well as the time commitment associated with the role. The decision-making process is
informed by appropriate market data. Non Executive Directors are not eligible for participation in
the Company’s incentive plans. Travel and other reasonable expenses incurred in the course of
performing their duties are reimbursed to Non Executive Directors (including any tax thereon
where these are deemed to be taxable benefits). Non Executive Directors are included on the
directors and officers’ indemnity insurance.
The current fees payable to Non Executive Directors are set out on page 105.
Chairman The Chairman typically receives an all-inclusive fee in respect of the role. In addition to his fees
the Chairman may be provided with incidental benefits, for example, private healthcare and
life assurance (including any tax thereon where these are deemed to be taxable benefits).
The remuneration of the Chairman is determined by the Committee.
Non Executive Directors Non Executive Directors receive an annual fee in respect of their Board appointments together
with additional compensation for further duties (for example, Board Committee membership
and chairmanship). The fees for the Non Executive Directors (excluding the Chairman) are
determined by the Governance and Nominations Committee.
120 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration policy | information | summary |


| Notes to the policy table | the Committee has scope to consider |  | Malus and clawback provisions |  |
| --- | --- | --- | --- | --- |
| Performance measures, target setting | any such factors as it deems relevant. |  | Deferred bonus awards and PSP awards |  |
| and assessment |  |  | granted for 2020 onwards are subject to |  |
| The performance targets for the annual | Detailed provisions |  | malus and clawback provisions as set |  |
| bonus and share plan awards to | The Committee may make minor |  | out below. The Committee may, in its |  |
| Executive Directors are closely aligned | changes to this remuneration policy |  | absolute discretion, determine at |  |
| with the Company’s short-term and | to aid in its operation or implementation |  | any time prior to the vesting of an |  |
| long-term objectives. The intention is | (for example, for regulatory or |  | award to reduce, defer, cancel or |  |
| to provide a direct link between reward | administrative purposes), provided |  | impose further conditions in the |  |
| levels and performance. | that any such change is not to the |  | following circumstances: |  |
|  | material advantage of Directors. |  | p | a retrospective material restatement |
| The Company operates a bonus pool | The Committee may continue to |  |  | of the audited financial results of |
| approach for the annual incentive. | operate the share awards under the |  |  | the Group for a prior period error in |
| This ensures that both individual | 2006 and 2016 PSP in accordance |  |  | accordance with IAS 8; |
| bonus levels and overall spend are | with the rules (for example, the |  | p | an error in assessing a performance |
| commensurate with the performance | treatment of awards in the context of |  |  | condition applicable to the award or |
| of the Company. The Committee | a change of control or other forms of |  |  | in the information or assumptions |
| applies judgement based on a range | corporate restructure). |  |  | on which the award was granted, |
| of factors (as described in the table |  |  |  | or vests; |
| on page 116) to ensure that outcomes | The Committee may continue to satisfy |  | p | actions of gross misconduct or |
| for Executive Directors are based | remuneration payments and payments |  |  | material error, including fraud, by |
| on performance in-the-round | for loss of office (including the exercise |  |  | the participant or their team; |
| rather than on a formulaic outcome. | of any discretions available to the |  | p | significant reputational or financial |
| The profit pool approach currently | Committee in connection with such |  |  | damage to the Company (as a result |
| used ensures that overall bonus | payments) where the terms of the |  |  | of the participant’s conduct). |
| amounts are aligned to the | payment were: |  |  |  |
| performance of the Company and | p | agreed before 15 May 2014 when | Annual bonus and PSP awards granted |  |
| remain appropriate and affordable. |  | the first approved remuneration | to Executive Directors shall also be |  |
|  |  | policy came into effect; | subject to clawback provisions for up to |  |
| PSP performance measures are intended | p | agreed before the policy set out | two years from the date of vesting in the |  |
| to motivate and reward participants to |  | above came into effect, provided | above circumstances. |  |
| deliver long-term Company success. |  | that the terms of the payment |  |  |
| The Committee considers performance |  | were consistent with the | The malus and clawback provisions that |  |
| metrics and targets prior to the grant of |  | shareholder-approved Directors’ | apply to awards made prior to 2020 are |  |
| each award to ensure that these remain |  | remuneration policy in force at | as set out in the relevant remuneration |  |
| suitable and relevant. |  | the time they were agreed; or | policy as at the date of award. |  |
|  | p | agreed at a time when the relevant |  |  |
| It is the intention of the Committee |  | individual was not a Director of the |  |  |
| that the vesting of PSP awards should |  | Company and, in the opinion of |  |  |
| normally reflect the outcome of the |  | the Committee, the payment |  |  |
| performance measures set, although |  | was not in consideration for the |  |  |
| the Committee has the ability to apply |  | individual becoming a Director of |  |  |
| independent judgement to ensure |  | the Company. |  |  |

that the outcome is a fair reflection
of the performance of the Company For these purposes, such payments
and individual over the performance include the Committee satisfying awards
period. When making this judgement, of variable remuneration.
121Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration policy | information | summary |


| Recruitment policy |  | On the appointment of a new Non | In the event of a termination where |  |
| --- | --- | --- | --- | --- |
| A new hire will ordinarily be remunerated |  | Executive Chairman or Non Executive | Hiscox requests that the Executive |  |
| in accordance with the policy described |  | Director, the fees will normally be | Director ceases work immediately, a |  |
| in the table on the previous pages. In |  | consistent with the policy. Fees to Non | payment in lieu of notice may be made |  |
| order to define the remuneration for |  | Executives will not include share options | that is equal to fixed pay, pension |  |
| an incoming Executive Director, the |  | or other performance-related elements. | entitlements and other benefits |  |
| Committee will take account of: |  |  | (benefits may continue to be provided). |  |
| p | prevailing competitive pay levels | Service contracts | Payments may be made in instalments |  |
|  | for the role; | It is the Company’s policy that Executive | and would ordinarily be subject to |  |
| p | experience and skills of | Directors should have service contracts | mitigation should the individual find |  |
|  | the candidate; | with an indefinite term which can be | alternative employment during the |  |
| p | awards (shares or earned bonuses) | terminated by the Company by giving | unexpired notice period. |  |
|  | and other elements which will be | notice not exceeding 12 months or by the |  |  |
|  | forfeited by the candidate; | Director by giving notice of six months. | 2. Bonus payment for the financial year |  |
| p | transition implications on initial |  | of exit |  |
|  | appointment; and | Non Executive Directors are appointed | The Committee may pay a bonus |  |
| p | the overall Hiscox approach. | for a three-year term, which is renewable, | calculated in line with the normal bonus |  |
|  |  | with three months’ notice on either side, | scheme timings and performance |  |
| A ‘buy-out’ payment/award may be |  | no contractual termination payments | metrics. The bonus amount would |  |
| necessary in respect of arrangements |  | being due and subject to re-election | normally be pro-rated depending on |  |
| forfeited on joining the Company. The |  | pursuant to the Bye-laws at the Annual | the proportion of the financial year |  |
| size and structure of any such buy-out |  | General Meeting. The contract for the | which has been completed by the |  |
| arrangement will take account of relevant |  | Chairman is subject to a six-month | time of the termination date. |  |
| factors in respect of the forfeited terms |  | notice provision on either side. |  |  |
| including potential value, time horizons |  |  | 3. Release of any deferred bonuses |  |
| and any performance conditions which |  | The terms set out in the service contracts | All outstanding bonuses deferred from |  |
| apply. The objective of the Committee |  | for the current Executive Directors do not | the annual incentive scheme will normally |  |
| will be to suitably limit any buy-out |  | allow for any payments that are not in line | be paid in full at the normal vesting date. |  |
| to the commercial value forfeited by |  | with this policy. |  |  |
| the individual. |  |  | 4. Unvested Performance Share |  |
|  |  | Policy on payment for loss of office | Plan awards |  |
| On initial appointment (including interim |  | Subject to the execution of an appropriate | Treatment would be in accordance |  |
| Director appointments) the maximum |  | general release of claims an Executive | with the plan rules and relevant grant |  |
| level of variable remuneration (excluding |  | Director may receive on termination of | documentation. The intended approach |  |
| any buy-outs) is capped at the maximum |  | employment by the Company: | is summarised below. |  |
| level set out in the policy table on pages |  |  | p | Awards will vest in line with the |
| 114 to 120. Within these limits and where |  | 1. Notice period of up to 12 months |  | normal plan vesting date (unless the |
| appropriate the Committee may tailor |  | In the normal course of events, an |  | Committee determines otherwise). |
| the award (for example, time frame, |  | Executive will remain on the payroll but |  | Awards vest to the extent that the |
| form, performance criteria) based |  | may be placed on gardening leave for |  | relevant performance target is |
| on the commercial circumstances. |  | the duration of the notice period (or until |  | considered to have been met. |
| Shareholders would be informed of |  | they leave early by mutual agreement, | p | The award will normally be |
| the terms for any such arrangements. |  | whichever is sooner). During this period |  | pro-rated to reflect the period |
| Ordinarily, it would be expected that |  | they will be paid as normal, including |  | which has elapsed from the |
| the package on recruitment would be |  | base pay, pension contributions (or cash |  | commencement of the award to |
| consistent with the usual ongoing |  | allowance as appropriate) and other |  | the date of termination unless the |
| Hiscox incentive arrangements. |  | benefits (for example, healthcare). |  | Committee determines otherwise. |

122 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration policy | information | summary |


| If the departing Executive Director | Salary reviews are applied consistently | Consideration of shareholder views |
| --- | --- | --- |
| does not sign a release of claims, they | throughout the Group, ensuring | Hiscox regularly discusses remuneration |
| would normally be entitled to payments | employees are paid fairly in line with | policy matters with a selection of |
| defined under point 1 only. In the event | their responsibilities, experience | shareholders. The Remuneration |
| that the Executive is dismissed for | and the market rate for the role. All | Committee takes into consideration |
| gross misconduct, they would forfeit | employees (including Executive Directors) | the range of views expressed in making |
| any payments under UK and Bermuda | are encouraged to become Hiscox | its decisions. |
| employment law. In the event of a | shareholders through our SAYE schemes. |  |
| voluntary resignation to join another | Employees participate in a discretionary | The Committee consulted with major |
| company, no payments would normally | profit-related bonus scheme, with the | shareholders during 2019 and took |
| be made other than remaining on the | overall level of payout based primarily | shareholders’ feedback into account |
| payroll, with associated benefits, | on financial performance. From 2021, a | when finalising the revised 2020 policy. |
| during the contractual notice period | separate individual and strategic element | In anticipation of introducing TSR as an |
| of six months. | has been introduced for employees | additional performance metric for the |
|  | below Board level to incentivise and | PSP in 2021, the Committee wrote to |
| The Committee may also make a | reward individual contribution and | major shareholders, ISS, Glass Lewis |
| payment in respect of outplacement | delivery of key strategic objectives. | and the Investment Association. All |
| costs, legal fees and costs of settling |  | responses received were positive and |
| any potential claims where appropriate. | Remuneration for the most senior | no major concerns were raised. |

executives, including the Group

| 5. Change of control | Chief Executive Officer is more highly |
| --- | --- |
| In the event of a change of control, | performance-geared towards the longer |
| outstanding PSP awards will normally | term in order to encourage delivery of |
| vest early to the extent that the | strong returns across the insurance |
| performance condition, as determined | cycle and create sustainable long-term |
| by the Committee in its discretion, | value for our shareholders. Senior |
| has been satisfied and, unless the | employees participate in a performance |
| Committee determines otherwise, | share plan with awards normally vesting |
| would be pro-rated to reflect the | after a three-year period subject to the |
| period which has elapsed from the | achievement of performance conditions. |
| commencement of the award to the | An additional holding period applies for |
| date of the relevant corporate event. | Executive Directors. |
| Deferred bonus awards will vest in | While the Committee did not consult |
| full. Outstanding awards under | directly with the broader workforce on |
| all-employee share plans will be | the remuneration policy for Executive |
| treated in accordance with the | Directors, we have introduced a process |
| relevant plan rules. | by which employee views are gathered |

on a range of topics and presented to
Consideration of employment the Board.
conditions elsewhere
At Hiscox we encourage employees The Remuneration Committee also
to share in the Group’s success receives an update on the broader
through competitive pay, profit and workforce remuneration policies and
performance-related bonuses, practices during the year which informs
all-employee share plans and a the Committee’s consideration of the
generous benefits package. policy for Executive Directors.
123Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration policy | information | summary |

Illustration of application of the remuneration policy Long-term variable remuneration
Annual variable remuneration
(£000s)
Fixed remuneration
Chief Executive Chief Financial Officer Chief Underwriting Officer
5,238
48%
4,549
4,404
42%
4,034
38%
3,907
48%
33%
3,393
38%
2,570
45% 38%
2,239 53% 45%
32%
1,980
29%
45% 38%
32%
39%
46%
39%
736

|  |  |  |  |  |  | 568 |  |  |  |  | 569 |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 100% |  | 29% | 17% |  | 14% |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  | 100% | 29% | 17% |  | 14% | 100% | 25% | 14% |  | 13% |
|  | target | On target | MaximumMax with |  |  |  | On targetBelow target | MaximumMax with |  |  |  | On targetBelow target | MaximumMax with |  |  |
|  |  |  |  | share price |  |  |  |  | share price |  |  |  |  | share price |  |
|  |  |  |  | appreciation |  |  |  |  | appreciation |  |  |  |  | appreciation |  |

The charts above have been compiled using the following assumptions.
Fixed remuneration Fixed reward (base salary, benefits and retirement benefit).
p Salary with effect from 1 April 2021.
p Benefits as received during 2021, as disclosed in the Executive Director remuneration
table on page 100.
p Retirement benefit as received during 2021, as disclosed in the Executive Director
remuneration table on page 100.
Variable remuneration Assumptions have been made in respect of the annual incentive and the PSP for the purpose
of these illustrations.
p Annual incentive: the amounts shown in the scenarios are for illustration only. In practice,
the award would be determined based on a range of performance factors and therefore
vary depending on the circumstances. The maximum award reflects the incentive caps
described at the beginning of this report.
p PSP: scenario analysis assumes awards are granted at the maximum level set out in the
policy table on page 118. In practice, award levels are determined annually and are not
necessarily granted at the plan maximum every year.
Below
124 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  | Remuneration policy | information | summary |

Performance scenarios
Below target performance Fixed reward only.
On target performance Fixed reward plus variable pay for the purpose of illustration as follows.
p Annual incentive: assume a bonus equivalent to 50% of the maximum opportunity.
p PSP: assume vesting of 50% of the maximum award.
Maximum performance Fixed reward plus variable pay for the purpose of illustration as follows.
p Annual incentive: maximum bonus equivalent to 300% of salary for the Group Chief
Executive Officer and Group Chief Financial Officer and 400% of salary for the Group
Chief Underwriting Officer.
p PSP: vesting of 100% of the maximum award.
Maximum performance with Fixed reward plus variable pay for the purpose of illustration as follows.
share price appreciation p Annual incentive: maximum bonus equivalent to 300% of salary for the Group Chief
Executive Officer and Group Chief Financial Officer and 400% of salary for the Group
Chief Underwriting Officer.
p PSP: vesting of 100% of the maximum award plus assumed share price growth of 50%.
125Hiscox Ltd Report and Accounts 2021
know the markets they operate mean we have vacancies to
in. That helps us get ahead fill, but it is manageable and
of the curve, carry out talent our recruitment team is really
mapping for roles that might stepping up to the challenge
## Q& need a pipeline of talent, and of finding the best people for
keep candidates warm for the roles we have.
when a job does come up. Now, I think the biggest
HR challenge is employee

|  | Q: How was 2021 | engagement, which has been |
| --- | --- | --- |
| A: | for recruitment? | falling. We need to inspire |
| with Vanessa Newbury | A: Really tough. I think if you’d | and excite our people. That’s |
| HR Director and Head of Recruitment | asked me 12 months ago what | a major part of what Aki is |
|  | the market would look like as | doing now, and he talks |

## Recruitment driver
we came out of lockdown, I’d so passionately about the
have said: “Loads of people opportunities that Bronek has
## The pandemic has caused
looking for employment, left us with for the next ten
and no jobs”. It’s been the years. The biggest thing we’ve
## havoc in the recruitment
opposite. It’s a massively got to do is instil that belief in
## market, so attracting and candidate-driven market, our people and keep them
swamped with opportunities with us on the journey.
## retaining staff has become
and with very few candidates.
We’ve never seen a market Q: How do you see the
## more important than ever.

|  |  | like it. Applications are | human value being |
| --- | --- | --- | --- |
|  |  | down by around 35% on | applied at Hiscox? |
|  |  | pre-pandemic levels. | A: I think Hiscox is a very |
|  |  | This is my take: I think a lot | human business. It’s a very |
|  |  | of companies put recruitment | caring organisation. It expects |
|  |  | on hold in 2020. Those | the very highest standards, |
|  |  | vacancies have now opened, | but people are treated very, |
|  |  | but people are still reluctant | very fairly. For example, if |
| Vanessa Newbury joined | When I started, we didn’t | to move. There’s still a real | you’re not performing, it’s |
| Hiscox in 2016 as Interim | have our own recruitment | nervousness around what’s | important that you know, but |
| Head of HR for a nine-month | team. I was asked to stay on | going to happen, so people are | when and how you’re told is |
| maternity cover and has | and build that team, with the | wary of leaving a settled job and | what matters. |
| been here ever since. Her | proviso that we save 200% | walking into something new. It’s |  |
| role now also involves | of our costs by not using | not just us experiencing that. | Q: During the lockdowns of |
| leading a recruitment | agencies. In fact, we save | It’s lots of other companies as | the past two years, what did |
| team, a function that | significantly more than that. | well – and it’s global. | you miss most about being |
| prior to her appointment |  |  | around other people? |
| had been outsourced | Q: What other benefits | Q: What have you had to do | A: It’s those informal |
| to agencies. | are there to managing | to confront those challenges? | conversations. You can’t pick |
|  | recruitment internally? | A: We’ve found new | up on the chatter, you can’t |
| Q: How did you come to | A: A big one is having control | partnerships with specialist | hear someone talking about |
| join Hiscox? | of the recruitment brand. | agencies for some niche | something over your shoulder |
| A: I’d worked in luxury retail for | Because our recruiters | roles. We’ve played around | and be like: ‘what was that?’ |
| most of my career, so insurance | work for Hiscox, they can | with job descriptions. We’ve | I miss that. It’s hardest for the |
| was completely new to me. I | talk very authentically about | had to refine our messaging | new starters. I had a couple of |
| hadn’t heard of Hiscox – I had to | what it’s like here. We’re an | – redefining our employment | people join the team. Working |
| Google who they were. I came | organisation where you’re | proposition and how we sell | with someone for 18 months |
| for nine months and it was | empowered to get on with | the Hiscox brand. Mainly, | who you’ve never met face |
| always with a view to moving | things. You’re not hand-held, | though, the team have just | to face is really tough. We all |
| on afterwards and doing | you’re not micromanaged. | had to work a lot harder to | worked hard to keep the team |
| something else. But I never | If you’re someone who likes | fill roles. We’ve had to go out | connected, we probably had |
| left. It really, really surprised | a step-by-step process and | and headhunt a lot more than | more meetings than ever just |
| me. Genuinely, I absolutely | someone watching over | in the past. | so we could check in and |
| love it. I’d never considered the | you the whole time, we’re |  | make sure everyone was |
| global impact an insurance | probably not the organisation | Q: Presumably it’s now | okay, but it’s not the same |
| company can have, or how | for you. We try to be as honest | even more essential that the | as doing it in person. |
| many bright, smart people I’d | as we can about that. | business retains people? |  |
| get to work with. I think that’s | The fact that we understand | A: Absolutely. We know that |  |
| one of the challenges we have | the business and know what | our people are in demand. |  |
| in attracting candidates into | our hiring managers want | For example, we develop and |  |
| insurance: lots of people have | is also important. My team | grow very good underwriters, |  |
| the same misconceptions | have good relationships with | so we’ve been targeted by a |  |
| as me. | business stakeholders and | lot of the start-ups. This does |  |

126 Hiscox Ltd Report and Accounts 2021
127Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 52 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Directors’ report

| The Directors have pleasure in | note 3 to the consolidated financial | 36 to 37. The Group has considerable |
| --- | --- | --- |
| submitting their Annual Report | statements provides a detailed | financial resources and a well-balanced |
| and consolidated financial | explanation of the principal risks which | book of business. |
| statements for the year ended | are inherent to the Group’s business |  |
| 31 December 2021. | and how those risks are managed. | The Board has reviewed the Group’s |

current and forecast solvency and

| Management report | Compliance with the UK Corporate | liquidity positions for the next twelve |
| --- | --- | --- |
| The Company is a holding company for | Governance Code 2018 (the Code) | months and beyond. As part of the |
| subsidiaries involved in the business of | Details of how the Company has applied | consideration of the appropriateness |
| insurance and reinsurance in Bermuda, | the principles set out in the Code and the | of adopting the going concern basis, |
| the USA, the UK, Guernsey, Europe and | extent to which it has complied with | the Directors use scenario analysis |
| Asia. The information found on pages | the provisions of the Code are set out | and stress testing to assess the |
| 20 to 33, 38 to 41, 142 to 206 and | on pages 76 to 81. | robustness of the Group’s solvency |
| 208 fulfils the requirements of the |  | and liquidity positions. Scenarios and |
| management report as referred to in | Emerging and principal risks | stresses assessed include further |
| Chapter 4 of the Disclosure Guidance | The confirmation required by Provision 28 | losses from business interruption |
| and Transparency Rules (DTR). This | of the Code in relation to the Board’s | claims and reinsurance recoveries, |
| includes additional explanation of | robust assessment of the Company’s | economic downturn/shocks and |
| the figures detailed in the financial | emerging and principal risks can be | natural catastrophe events. A number |
| statements and the office locations | found on page 10. | of potential mitigating factors and |
| of the Group in different countries. |  | management actions have been |
|  | Corporate governance statement | identified to address the potential |
| The key performance indicators are | The information that fulfils the | adverse effects on the Group’s solvency |
| shown on pages 4 to 5. Details of | requirements of the corporate | and liquidity. Stress and scenario |
| the use of financial instruments are | governance statement as referred | testing is based on expert opinion |
| set out in notes 3.3 and 17 to the | to in DTR 7.2 can be found on pages | and as such is highly subjective. |
| consolidated financial statements. | 69 to 75 in this report. | Multiple experts within the business |
| An analysis of the development and |  | review the provisional results in order |
| performance of the business during | Diversity | to reduce individual biases and to |
| the financial year, its position at the | The diversity of the business is outlined | try and ensure all possibilities are |
| end of the year, any important events | in the Nominations and Governance | considered and captured. |
| since the end of the year and the likely | Committee report on pages 82 to 88. |  |
| future development can be found |  | In undertaking this analysis, no material |
| within the Chief Executive’s report on | Financial results | uncertainty in relation to going concern |
| pages 20 to 33. The Chief Executive’s | The Group delivered a pre-tax profit for | has been identified. This is due to the |
| report also describes the main trends | the year of $190.8 million (2020: loss | Group’s strong capital and liquidity |
| and factors likely to affect the future | of $268.5 million). Detailed results for | positions, which provide resilience to |
| development, performance and | the year are shown in the consolidated | shocks, underpinned by the Group’s |
| position of the Company’s business. | income statement on page 142. | approach to risk management which |
| A description of the Company’s |  | is described in note 3. |
| strategy and business model is set | Going concern |  |
| out on pages 8 to 9. A description of | A review of the financial performance | After making enquiries, the Directors |
| the principal risks and uncertainties | of the Group is set out in the Chief | have a reasonable expectation that |
| and how they are managed or mitigated | Executive’s report on pages 20 to 33. | the Group has adequate resources to |
| can be found in the key risks section | The financial position of the Group, its | continue in operational existence over a |
| on page 10 and the risk management | cash flows and borrowing facilities are | period of at least 12 months from the date |
| section on pages 38 to 41. In addition, | included in the capital section on pages | of this report. For this reason, the Group |

128 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Directors’ report

| continues to adopt the going concern | Group’s solvency self-assessment | Bye-laws |
| --- | --- | --- |
| basis in preparing the consolidated | process, a robust assessment using | The Company’s Bye-laws contain |
| financial statements. | scenario analysis and stress testing | no specific provisions relating to their |
|  | to consider the Group’s capacity | amendment and any such amendments |
| Longer-term viability statement | to respond to a series of relevant | are governed by Bermuda Company |
| The preparation of the longer-term | financial, insurance-related or | Law and subject to the approval of |
| viability statement includes an | operational shocks should future | shareholders in a general meeting. |
| assessment of the Group’s long-term | circumstances or events differ |  |
| prospects in addition to an assessment | from these current assumptions. | Share capital |
| of the ability to meet future commitments | Stresses to liquidity include a 1-in-200 | Details of the structure of the Company’s |
| and liabilities as they fall due. | catastrophic event with the impact | share capital and changes in the share |
|  | on Group funding forecast to December | capital during the year are disclosed in |
| It is fundamental to the Group’s | 2023. These allow the Board to review | note 22 to the consolidated financial |
| longer-term strategy that the Directors | and challenge the risk management | statements. The ordinary shares of |
| manage and monitor risk, taking into | strategy and consider potential | 6.5p each are the only class of shares |
| account all key risks the Group faces, | mitigating actions. Based on these | presently in issue and carry voting rights. |
| including insurance risks, so that it | assessments, the Board confirms that | There is power under Bye-law 45 of the |
| can continue to meet its obligations | it has reasonable expectation that | Company’s Bye-laws for voting rights |
| to policyholders. The Group is also | the Group will be able to continue in | to be suspended if calls on shares are |
| subject to extensive regulation and | operation and meet its liabilities as | unpaid. However, there are no nil or |
| supervision including Bermuda | they fall due over the three-year | partly paid shares in issue on which calls |
| Solvency Capital Requirement. | assessment period. Longer term, | could be made. The Bye-laws also allow |
|  | the Group’s viability is underpinned | the Company to investigate interests |
| Against this background, the Directors | by the Group’s strategy of balancing | in its shares and apply restrictions |
| have assessed the prospects of the | big-ticket with retail business, market | including suspending voting rights |
| Group in accordance with Provision 31 | growth opportunities and underwriting | where information is not provided. |
| of the UK Corporate Governance Code | expertise. See pages 8 to 9 for further | No such restrictions are presently in |
| 2018, with reference to the Group’s | details of the business model and | place. The Company was authorised by |
| current position and prospects, its | longer-term prospects. | shareholders at the 2021 Annual General |
| strategy, risk appetite and key risks, |  | Meeting to purchase in the market up to |
| as detailed in the key risks section | Dividends | 10% of the Company’s issued ordinary |
| on page 10 and the risk management | The Board took the decision to | shares. No shares have been bought |
| section on pages 38 to 41, as well | resume paying dividends with the | back under this authority as at the date |
| as note 3 to the consolidated | 2021 interim results, following a 2020 | of this report. |
| financial statements. | financial loss and uncertainty arising |  |
|  | from Covid-19. An interim dividend | Directors |
| The assessment of the Group’s | of 11.5 cents per share was paid | The names and details of all Directors |
| prospects by the Directors covers the | on 22 September 2021 and, as in | of the Company who served during the |
| three years to 2024 and is underpinned | previous years, a Scrip Dividend | year and up to the date of this report are |
| by management’s 2022-2024 business | alternative was offered. The Board | set out on pages 62 to 65. Details of the |
| plan. It includes projections of the | is also proposing payment of a final | Chairman’s professional commitments |
| Group’s capital, liquidity and solvency | dividend in respect of the year ended | are included in his biography on page 62. |
| and reflects the Group’s risk profile | 31 December 2021 (subject to | The Bye-laws of the Company govern |
| of a portfolio of diversified short-tailed | shareholder approval) of 23.0 cents | the appointment and replacement of |
| and medium-tailed insurance liabilities. | per share, to be paid on 13 June 2022 | Directors. In accordance with the Code, |
| In making the viability statement, the | to shareholders on the register at | the Directors will submit themselves |
| Board carried out, as part of the | 6 May 2022. | for re-election at the Annual General |

129Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 52 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Directors’ report
Major interests in shares Disclosure under LR 9.8.4 of the
The Company has been notified of the following interests of 5% or more of voting Listing Rules
rights in its ordinary shares:
% of issued Details of Annual report
share capital

|  |  |  | as at |  |  | long-term | on remuneration |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Number |  | 31 January |  |  |  |
|  | of shares |  |  |  | 2022* | incentive schemes | (page 104) |
| Fidelity Investments 33,141,6 3 5 9.57 |  |  |  |  |  | Allotment of shares | Note 22 to the |
|  |  |  |  |  |  | for cash pursuant | consolidated |

Capital Research Global Investors 25, 947, 28 5 7.4 9
to employee financial statements
Columbia Threadneedle Investments 18,115,429 5.23
share schemes on employee
*There were 346,464,055 shares in issue (excluding Treasury shares) as at 31 January 2022.
share schemes
(page 189)
As at 1 March 2022, no changes have been notified to the Company.

| Meeting. Biographical details of the | Power of Directors |
| --- | --- |
| Directors are set out on pages 62 | The powers given to the Directors are |
| to 63, as are the reasons why the | contained in the Company’s Bye-laws |
| Board believes their contribution is | and are subject to relevant legislation |
| (and continues to be) important to the | and, in certain circumstances (including |
| Company’s long-term sustainable | in relation to the issuing and buying back |
| success. This information will also be set | by the Company of its shares), approval |
| out in the circular which will accompany | by shareholders in a general meeting. |
| the notice of Annual General Meeting. | At the Annual General Meeting in 2021, |

the Directors were granted authorities

| Major interests in shares | to allot and issue shares and to make |
| --- | --- |
| The Company has been notified of the | market purchases of shares and intend |
| interests of 5% or more of voting rights | to seek renewal of these authorities |
| in its ordinary shares, which are outlined | in 2022. |

in the table above.
Disclosure under LR 9.8.4 of the

| Any acquisitions or disposals of major | Listing Rules |
| --- | --- |
| shareholdings notified to the Company | The information that fulfils the reporting |
| in accordance with DTR 5.1 are | requirements relating to the following |
| announced and those announcements | matters can be found at the pages |
| are available on the Company’s website, | identified in the table above. |

hiscoxgroup.com.
Annual General Meeting

| Political donations and | The notice of the Annual General |
| --- | --- |
| charitable contributions | Meeting, to be held on 12 May 2022, will |
| The Group made no political | be contained in a separate circular to be |
| donations during the year (2020: $nil). | sent to shareholders. The deadline for |
| Information concerning the Group’s | submission of proxies is 48 hours before |
| charitable activities is contained in the | the meeting. |

environmental, social and governance
(ESG) section on pages 44 to 53 and at By order of the Board
hiscoxgroup.com/responsibility. Marc Wetherhill
Company Secretary
Climate-related matters

| In preparing and signing off this report, | Chesney House |
| --- | --- |
| the Board has considered the relevance | 96 Pitts Bay Road |
| of material climate-related matters. | Pembroke HM 08 |
| Climate-related matters are regularly | Bermuda |
| discussed by the Board, and most | 2 March 2022 |

recently this included Board approval
of a new ESG exclusions policy for
underwriting and investments and
new greenhouse gas targets for the
Group. The Company also aligns its
climate-related activities to the TCFD
framework, details of which can be
found on pages 54 to 59.
130 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Directors’ responsibilities statement Advisors

| The Board is responsible for ensuring | The Directors responsible for authorising | Hiscox Ltd |
| --- | --- | --- |
| the maintenance of proper accounting | the responsibility statement on behalf |  |
| records which disclose with reasonable | of the Board are the Chairman, | Secretary |
| accuracy the financial position of the | Robert Childs, and the Group Chief | Marc Wetherhill |
| Group. It is required to ensure that the | Executive Officer, Aki Hussain. The |  |
| financial statements present a fair | statements were approved for issue | Registered office |
| view for each financial period. The | on 2 March 2022. | Chesney House |
| Directors explain in the Annual Report |  | 96 Pitts Bay Road |
| their responsibility for preparing the | The Directors consider that the Annual | Pembroke HM 08 |
| Annual Report and Accounts. | Report and Accounts, taken as a whole, | Bermuda |

is fair, balanced and understandable and

| We confirm that to the best of |  | provides the information necessary for | Registered number |
| --- | --- | --- | --- |
| our knowledge: |  | shareholders to assess the Company’s | 38877 |
| — | the financial statements, prepared | and the Group’s position, performance, |  |
|  | in accordance with UK-adopted | business model and strategy. | Auditors |
|  | international accounting standards, |  | PricewaterhouseCoopers Ltd. |
|  | give a true and fair view, in all |  | Washington House |
|  | material respects, of the assets, |  | 4th Floor, 16 Church Street |
|  | liabilities, financial position and |  | Hamilton HM 11 |
|  | profit or loss of the Company and |  | Bermuda |

the undertakings included in the

|  | consolidation taken as a whole; and | Stockbrokers |
| --- | --- | --- |
| — | the management report includes | UBS Limited |
|  | a fair review of the development | 1 Finsbury Avenue |
|  | and performance of the business | London EC2M 2PP |
|  | and the position of the Company | United Kingdom |

and the undertakings included in
the consolidation taken as a whole, Registrars
together with a description of the Equiniti (Jersey) Limited
principal risks and uncertainties c/o Equiniti Limited
that they face. Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
United Kingdom
131Hiscox Ltd Report and Accounts 2021

|  | frequent major landfalling | high frequency of hurricanes, |
| --- | --- | --- |
|  | hurricanes would happen | are they going to stay that |
|  | each year and ‘something | frequent or drop back down |
|  | had changed’. The years since | next year? Is what you’re |
| Q& | have seen both sustained | seeing a pattern of climate |
|  | quiet and busy periods. | clustering, or a climate trend? |
|  | The relatively quiet period | We have to disentangle that |
|  | between 2012 and 2017 had | into something that can drive |
|  | some commentators talking | our business decisions. These |
| A: | about a ‘hurricane drought’. | are not pieces of academic |
| with Robert Caton | What this teaches us is to | interest for us, they’re things |
| Director of Underwriting Risk and Reinsurance | look past the noise and try | that have real commercial |
|  | to identify the pattern. | impact – if we believe the risk |

## Model citizen
The climate models we is higher, we have to reflect
use are provided by third that in our pricing, our risk
## Last year’s high frequency
parties who are better placed appetite, our capital or our
than we are to build them. reinsurance strategy, so we
## of natural catastrophe
They’ve got even more PhDs have to be very confident
## events and the ongoing on the job than us, and more that we can justify moving
access to data. Also, by in that direction. We do the
## impact of the pandemic
using third-party models, work ourselves, but we
you get the ‘herd benefit’ – if also talk to other parties
## make abundantly clear
you’ve got 100 organisations who do this for a living. We
all licensing a model, and want the best information
## the importance of testing
there’s something in there that to make the best decisions.
## and adapting the Group’s doesn’t make sense, at least To support this work, we
one company is likely to find it have developed the Hiscox
## risk models.

|  |  | and then you all benefit. | climate change framework. |
| --- | --- | --- | --- |
|  |  | While these models are | This allows us to assess for |
|  |  | invaluable in our approach | each peril the confidence in |
| Since joining Hiscox in | inflate property claims for | and provide the foundation | the climate change signal, |
| 1999, Rob Caton has led | theirs and their client’s | for much of our thinking, it | the magnitude of the impact |
| a number of analytics | benefit. This is particularly | is important that where we | and also the materiality of |
| and modelling teams and | evident in Florida where the | believe we understand parts | the peril to Hiscox. It allows |
| is now responsible for | impact has been recognised | of our risk better that we | us to focus our research |
| underwriting risk across | by legal reform. Prior to | adapt the results. This led to | efforts where it will most |
| the Group, including natural | these reforms, we captured | us building a research team | influence our decisions. |
| catastrophe risk, casualty | these increased costs in our | and developing the Hiscox | Recent publications from the |
| risk, cyber risk and the | ‘view of risk’ which drives | view of risk. Examples include | IPCC and COP26 have been |
| outwards reinsurance | our pricing, risk, and capital. | incorporating new research | instructive in this assessment. |
| purchasing needed to | While legislative changes | and academic literature |  |
| hedge those risks. | improve the situation, the risk | – particularly relevant in a | Q: How do you see the |
|  | doesn’t fully go away as the | changing climate, but the | human value being |
| Q: In 2021, what were the | same motivations exist albeit | biggest impacts come from | applied at Hiscox? |
| major areas of focus for | with more limited scope to | our close analysis of claims | A: Recently, I think it’s been |
| you and your team? | increase claims costs. Our job, | data. We’ve had lots of events, | most visible in the warmth and |
| A: Covid-19 has, of course, | then, has been to understand | particularly over the past few | enjoyment that people have |
| been a really meaningful | the implications and ensure | years, that have enabled us | got from being back together |
| issue for our area and a major | our pricing models and risk | to build out this Hiscox view | in the office. Our teams have |
| contributor to our workload | assessment tools represent | of risk, as ultimately each new | worked incredibly effectively |
| as we reassess our view of | the best view of the risk. | claim represents a new data | remotely, they responded |
| pandemic risk after such an |  | point for our work. | to the challenge, they really |
| unprecedented event. Then | Q: What is your approach to |  | stepped up, but there’s |
| on the natural catastrophe | modelling climate risk? | Q: How do you assess | been an obvious energy |
| side of things, we’ve seen | A: I first took responsibility for | whether a heightened | and buzz that comes from |
| an ongoing pattern of | the natural catastrophe team | frequency of events | people seeing each other in |
| increased frequency of | in 2005. That was a seminal | constitutes an ongoing | person and having proper |
| events and sources of loss | year for us, with Hurricanes | change to the risk profile? | conversations. It’s great to |
| from non-typical areas. | Katrina, Rita and Wilma | A: When it comes to natural | see, and I think it reflects |
| One area of particular focus | coming hot on the heels of | catastrophes, the noise is | really well the human nature |
| has been the question of | Charley, Frances, Ivan and | often bigger than the signal. | of this business. |
| ‘social inflation’ in property | Jeanne in the previous year – | What we have to decide is |  |
| catastrophe claims. This | it certainly caused us to reflect | whether the signal is strong |  |
| relates to practices involving | on our approach. There was | enough. If you’re looking back |  |
| third parties who seek to | a sense in the industry that | at three years of an unusually |  |

132 Hiscox Ltd Report and Accounts 2021132 Hiscox Ltd Report and Accounts 2021
133Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Independent auditor’s report
## to the Board of Directors and the Shareholders of Hiscox Ltd
Report on the audit of the consolidated financial statements Basis for opinion
We conducted our audit in accordance with International
Our opinion Standards on Auditing (ISAs). Our responsibilities under those
In our opinion, the consolidated financial statements present standards are further described in the ‘auditor’s responsibilities
fairly, in all material respects, the consolidated financial position for the audit of the consolidated financial statements’ section of
of Hiscox Ltd (the Company) and its subsidiaries (together our report.
the Group) as at 31 December 2021, and their consolidated
financial performance and their consolidated cash flows for the We believe that the audit evidence we have obtained is
year then ended in accordance with UK-adopted international sufficient and appropriate to provide a basis for our opinion.
accounting standards.
Independence
What we have audited We are independent of the Group in accordance with the
The Group’s consolidated financial statements comprise: International Code of Ethics for Professional Accountants
A the consolidated income statement for the year ended (including International Independence Standards) issued by

|  | 31December2021; | the International Ethics Standards Board for Accountants |
| --- | --- | --- |
| A | the consolidated statement of comprehensive | (IESBA Code) and the ethical requirements of the Chartered |
|  | income for the year ended 31December2021; | Professional Accountants of Bermuda Rules of Professional |
| A the consolidated balance sheet as at |  | Conduct (CPA Bermuda Rules) that are relevant to our audit |
|  | 31December2021; | of the consolidated financial statements in Bermuda. We have |
| A | the consolidated statement of changes in equity | fulfilled our other ethical responsibilities in accordance with |
|  | for the year then ended; | the IESBA Code and the ethical requirements of the CPA |
| A | the consolidated statement of cash flows for the year | Bermuda Rules. |

then ended; and
A the notes to the consolidated financial statements, Audit scope
which include significant accounting policies and As part of designing our audit, we determined materiality and
other explanatory information. assessed the risks of material misstatement in the consolidated
financial statements. In particular, we considered 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, we also addressed
the risk of management override of internal controls,
including, among other matters, consideration of whether
there was evidence of bias that represented a risk of material
misstatement due to fraud.
How we tailored our group audit scope
We tailored the scope of our audit 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.
134 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Independent
auditor’s report
Our audit approach The Group is a global specialist insurer and reinsurer, and
Overview 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
Materiality performed over components in the United Kingdom, 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.
Group
scoping 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
Key audit
iv) the parent company, Hiscox Ltd (including consolidation).
matters
For certain other components, we identified account
balances 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 performed
A Overall Group materiality: $35 million, which represents financial statement line item audit procedures over these
approximately 0.8% of the gross premiums written for specified balances. Analytical procedures over the remaining
the year ended 31 December 2021 components that were not inconsequential were performed
by the Group engagement team.
A We performed full scope audit procedures over
four components. In establishing the overall approach to the Group audit,
A For certain other components, we performed audit we determined the type of work that needed to be performed
procedures over specified financial statement line at the reporting units by us, as the Group engagement team,
item balances. or by the component audit teams within the PwC United
A For the remaining components that were not Kingdom, PwC United States and PwC Bermuda firms
inconsequential, analytical procedures were operating under our instruction. Where the work was
performed by the Group engagement team. performed by component audit teams, we determined
the level of involvement we needed to have in the audit
A Valuation of gross claims liabilities. work at those reporting units to be able to conclude whether
A Valuation of reinsurance claims recoverable. 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 at the Group level, as described
above, gave us the evidence we needed for our opinion
on the consolidated financial statements as a whole.
135Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Independent
auditor’s report
As part of our audit, we made enquiries of management (both Materiality
within and outside of the Group’s finance function) in order The scope of our audit was influenced by our application
to understand the extent of the potential impact of climate of materiality. An audit is designed to obtain reasonable
change risks and opportunities, on the Group’s consolidated assurance whether the consolidated financial statements are
financial statements. As part of this, we reviewed minutes of free from material misstatement. Misstatements may arise due
meetings of the Group’s Sustainability Steering Committee, to fraud or error. They are considered material if, individually or
submissions to regulators and read the Group’s climate report in aggregate, they could reasonably be expected to influence
2021. We also assessed the risk in respect of the climate the economic decisions of users taken on the basis of the
change commitments made by the Group and how these consolidated financial statements.
may affect the consolidated financial statements and the
audit procedures that we perform. We assessed the risks Based on our professional judgement, we determined certain
of material misstatement to the consolidated financial quantitative thresholds for materiality, including the overall
statements as a result of climate change and concluded group materiality for the consolidated financial statements as
that for the year ended 31 December 2021, there was no a whole as set out in the table opposite. These, together with
impact on our key audit matters or our assessment of the qualitative considerations, helped us to determine the scope
risk of material misstatement. 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.
We use performance materiality to reduce to an appropriately
low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds overall materiality.
Specifically, we use performance materiality in determining
the scope of our audit and the nature and extent of our testing
of account balances, classes of transactions and disclosures,
for example in determining sample sizes. Our performance
materiality was 75% of overall materiality, amounting to
$26 million for the consolidated financial statements.
In determining performance materiality, we considered
a number of factors – the history of misstatements, risk
assessment and aggregation risk and the effectiveness
of controls – and 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
$1.7 million, as well as misstatements below that amount that,
in our view, warranted reporting for qualitative reasons.
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| and purpose |  |  |  | information | summary |

Independent
auditor’s report
Materiality 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
Overall Group materiality $35 million auditors, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the

| How we determined it | Approximately 0.8% of gross | audit; and directing the efforts of the engagement team. |
| --- | --- | --- |
|  | premiums written for the year | These matters, and any comments we make on the results |
|  | ended 31 December 2021. | of our procedures thereon, were addressed in the context of |

our audit of the consolidated financial statements as a whole,
Rationale for the materiality In determining our materiality, and in forming our opinion thereon, and we do not provide a
benchmark applied we have considered financial separate opinion on these matters.
metrics which we believe to
be relevant to the primary This is not a complete list of all risks identified by our audit.
users of the consolidated
financial statements. We ‘The impact of Covid-19 on the Group’ and ‘assessment of the
concluded a premium carrying value of certain finite lived intangible assets’, which
based metric was the were key audit matters last year, are no longer included as key
most relevant to the users. audit matters for the current year. With respect to ‘the impact
of Covid-19 on the Group’, the uncertainty caused by Covid-19
A premium based on inwards (re)insurance exposures have been incorporated
metric provides a good into the ‘valuation of gross claims liabilities’ and the ‘valuation
representation of the size of reinsurance claims recoverable’ key audit matters. With
and complexity of the respect to ‘assessment of the carrying value of certain finite
business and it is not lived intangible assets’ the relative risk of impairment has
distorted by insured reduced over the prior year. Finally, we have bifurcated the
catastrophe events prior year key audit matter entitled ‘valuation of gross incurred
to which the Group is but not reported (IBNR) loss reserves and the associated
exposed or to the levels reinsurers share of IBNR loss reserves’ into two separate key
of external reinsurance audit matters entitled ‘valuation of gross claims liabilities’ and
purchased by the Group. ‘valuation of reinsurance claims recoverable’.
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Independent
auditor’s report
Key audit matters
Key audit matter How our audit addressed the key audit matter
1. Valuation of gross claims liabilities We have understood, evaluated and tested the design and
operational effectiveness of key controls in place in respect
Refer to note 2.13, 2.21 and 23 to the consolidated financial of the valuation of insurance claims liabilities.
statements for disclosures of related accounting policies
and balances. In addition, we performed the following procedures:
A tested the completeness and accuracy of premiums
As at 31 December 2021, gross claims liabilities comprised data used in the actuarial projections for IBNR;
$2.5 billion of claims reported and claims adjustment expenses, A tested the completeness and accuracy of claims
and $4.5 billion of claims incurred but not reported (IBNR). data used in the actuarial projections for IBNR,
Insurance claims liabilities are inherently uncertain and contain the establishment of large loss reserves, and the
material estimates, the most subjective element being IBNR. determination of reported but not settled claims;
Management base the estimate of IBNR on the estimated A tested the completeness and accuracy of policy data,
ultimate cost of all unsettled claims, inclusive of the related where applicable, used to establish large loss reserves
claims handling costs. There is also uncertainty in elements including those related to Covid-19; and
of the reported but not settled claims including those related A reconciled the gross claims liabilities from the
to Covid-19. underlying financial records to the consolidated
financial statements.
For IBNR, the methodologies and assumptions used to
estimate insurance liabilities involve a significant degree of In performing our work over the valuation of IBNR we used
judgement. As a result, we focused on this area as the valuation PwC actuarial specialists, where appropriate. Our procedures
can be materially impacted by numerous factors including: included the following:
A the underlying volatility attached to estimates for A development of independent point estimates for classes
certain classes of business, where small changes in of business considered to be higher risk, particularly
assumptions can lead to large changes in the levels of the focusing on the largest and most uncertain classes,
estimate held, including the change to reserving classes as well as for certain other classes to introduce
implemented this year; unpredictability, as at 30 September 2021 and
A the risk of inappropriate assumptions used in determining performed a roll-forward test to 31 December 2021;
current year estimates. Given that limited data is available, A tested specific claims reserves including those impacted
especially for ‘long-tailed’ classes of business, there is a by Covid-19, natural catastrophes and other large claims
greater reliance on expert judgement in management’s by understanding and challenging the methodology and
estimates; and assumptions used by management and, where available,
A the risk that key assumptions in respect of natural comparing to data reported by counterparties, industry
catastrophes and other large claims losses (specific benchmarks and other publicly available information;
claims reserves), including those reserving estimates A performed key-indicator testing procedures over
associated with classes of business exposed to the remaining classes of business to evaluate gross
claims and potential claims arising from Covid-19, are IBNR reserves;
inappropriate. There is significant judgement involved A evaluated the appropriateness of the booked gross
in these loss estimates, particularly as they are often loss reserve margin, taking into account estimation
based on limited data. 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,
we 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
we obtained.
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| and purpose |  |  |  | information | 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 We have understood, evaluated and tested the design and
operational effectiveness of key controls in place in respect
Refer to note 2.13, 2.21 and 23 to the consolidated financial of the valuation of reinsurance claims recoverable.
statements for disclosures of related accounting policies
and balances. In addition, we performed the following procedures:
A tested the accuracy of application of reinsurance
The valuation of the reinsurance claims recoverable is uncertain contract terms;
due to the significant degree of judgement applied in valuing the A tested the netting down of reinsurance on gross paid,
associated gross claims liabilities that have been reinsured, the outstanding, and specific claims reserves;
complexity of the application and coverage of the reinsurance A for the Covid-19-related recoverables, inspected
programme, and the willingness and ability of the reinsurers communications with reinsurers where available and
to pay. As at 31 December 2021, claims recoverable are assessed management’s estimation on the recoverability
$3.5 billion in the consolidated financial statements. For of the reinsurers’ share of Covid-19 losses;
the year ended 31 December 2021, there are additional A for those classes of business selected for independent
circumstances contributing to the degree of uncertainty projections on a gross basis, we used our actuarial
for elements of reinsurance claims recoverable as follows: specialists to develop independent point estimates for
A reinsurance recoverables associated with policies the associated reinsurer’s share of IBNR loss reserves;
affected by Covid-19, as cedants and reinsurers continue A for the remaining classes of business where our
to evaluate how losses will be applied to (re)insurance actuarial specialists performed key-indicator testing on
contracts; and a gross basis, they performed testing on the associated
A the execution of loss portfolio transfer (LPTs) contracts reinsurer’s share of IBNR loss reserves;
with external counterparties during the year. Such A evaluated management’s assessment of risk transfer
transactions require judgement on the accounting for each of the LPT contracts executed in the year using
for the contracts, in particular the degree of risk transfer our actuarial specialists; and
and the presentation of the amounts in the consolidated A assessed management’s accounting policy for
financial statements. retroactive reinsurance contracts which has been
applied to the LPT contracts.
The results of our procedures indicated that the valuation
of reinsurance claims recoverable was supported by the
evidence we obtained.
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Independent
auditor’s report
Other information responsive to those risks, and obtain audit evidence that
Management is responsible for the other information. The is sufficient and appropriate to provide a basis for our
other information comprises the Report and Accounts (but opinion. The risk of not detecting a material misstatement
does not include the consolidated financial statements and our resulting from fraud is higher than for one resulting
auditor’s report thereon). The other information also includes from error, as fraud may involve collusion, forgery,
reporting based on the Task Force on Climate-related Financial intentional omissions, misrepresentations, or the
Disclosures (TCFD) recommendations. Our opinion on the override of internal control;
consolidated financial statements does not cover the other A obtain an understanding of internal control relevant to
information and we do not express any form of assurance the audit in order to design audit procedures that are
conclusion thereon. appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
In connection with our audit of the consolidated financial Group’s internal control;
statements, our responsibility is to read the other information A evaluate the appropriateness of accounting policies
identified above and, in doing so, consider whether the other used and the reasonableness of accounting estimates
information is materially inconsistent with the consolidated and related disclosures made by management;
financial statements or our knowledge obtained in the audit, A conclude on the appropriateness of management’s
or otherwise appears to be materially misstated. use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a
If, based on the work we have performed, we conclude that material uncertainty exists related to events or conditions
there is a material misstatement of this other information, that may cast significant doubt on the Group’s ability
we are required to report that fact. We have nothing to report to continue as a going concern. If we conclude that a
in this regard. material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures
Responsibilities of management and those charged with in the consolidated financial statements or, if such
governance for the consolidated financial statements disclosures are inadequate, to modify our opinion.
Management is responsible for the preparation and fair Our conclusions are based on the audit evidence
presentation of the consolidated financial statements in obtained up to the date of our auditor’s report.
accordance with UK-adopted international accounting However, future events or conditions may cause the
standards and for such internal control as management Group to cease to continue as a going concern;
determines is necessary to enable the preparation of A evaluate the overall presentation, structure and content
consolidated financial statements that are free from of the consolidated financial statements, including the
material misstatement, whether due to fraud or error. disclosures, and whether the consolidated financial
statements represent the underlying transactions and
In preparing the consolidated financial statements, events in a manner that achieves fair presentation; and
management is responsible for assessing the Group’s A obtain sufficient appropriate audit evidence regarding
ability to continue as a going concern, disclosing, as the financial information of the entities or business
applicable, matters related to going concern and using activities within the Group to express an opinion on the
the going concern basis of accounting unless management consolidated financial statements. We are responsible for
either intends to liquidate the Group or to cease operations, the direction, supervision and performance of the group
or has no realistic alternative but to do so. audit. We remain solely responsible for our audit opinion.
Those charged with governance are responsible for overseeing We communicate with those charged with governance
the Group’s financial reporting process. regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including
Auditor’s responsibilities for the audit of the consolidated any significant deficiencies in internal control that we identify
financial statements during our audit.
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a whole We also provide those charged with governance with a
are free from material misstatement, whether due to fraud statement that we have complied with relevant ethical
or error, and to issue an auditor’s report that includes our requirements regarding independence, and to communicate
opinion. Reasonable assurance is a high level of assurance, with them all relationships and other matters that may
but is not a guarantee that an audit conducted in accordance reasonably be thought to bear on our independence, and
with ISAs will always detect a material misstatement when it where applicable, actions taken to eliminate threats or
exists. Misstatements can arise from fraud or error and are safeguards applied.
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic From the matters communicated with those charged with
decisions of users taken on the basis of these consolidated governance, we determine those matters that were of most
financial statements. significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters.
As part of an audit in accordance with ISAs, we exercise We describe these matters in our auditor’s report unless law or
professional judgement and maintain professional scepticism regulation precludes public disclosure about the matter or when,
throughout the audit. We also: in extremely rare circumstances, we determine that a matter
A identify and assess the risks of material misstatement should not be communicated in our report because the adverse
of the consolidated financial statements, whether due consequences of doing so would reasonably be expected to
to fraud or error, design and perform audit procedures outweigh the public interest benefits of such communication.
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| and purpose |  |  |  | information | summary |

Independent
auditor’s report
Report on other legal and regulatory requirements prepared using the single electronic format specified in the
Directors’ remuneration ESEF RTS.
The Company voluntarily prepares a report on Directors’
remuneration in accordance with the provisions of the UK The engagement partner on the audit resulting in this
Companies Act 2006. The Directors have requested that independent auditor’s report is Arthur Wightman.
we audit 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. PricewaterhouseCoopers Ltd.
Chartered Professional Accountants
In our opinion, the part of the report on Directors’ Bermuda
remuneration to be audited has been properly prepared 2 March 2022
in accordance with the UK Companies Act 2006.
Corporate governance statement
Under the United Kingdom’s Listing Rules we are required
to review the part of the Corporate Governance Statement
relating to the provisions of the UK Corporate Governance
Code (the Code) specified for auditor review and the Directors
have requested that we also review their statements on going
concern and the longer-term viability of the Group as required
for UK registered companies with a premium listing on the
London Stock Exchange. Our additional responsibilities with
respect to the Corporate Governance Statement and the
statements on going concern and the longer-term viability
of the Group as other information are described in the
Other information section of this report. Based on the work
undertaken as part of our audit, we have 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 we have nothing material to add or draw attention
to in relation to:
A the Directors’ statement as to 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’ statement as to whether they have a
reasonable expectation that the Group 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.
Our 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 statements are consistent with the knowledge
and understanding of the Group and its environment obtained
in the course of the audit.
Other matter
In due course, 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
141Hiscox Ltd Report and Accounts 2021

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| and purpose |  |  |  | information | summary |

## Consolidated income statement
2021 2020
For the year ended 31 December 2021 Note $m $m
Income
Gross premiums written 4 4 ,26 9. 2 4 , 0 3 3 .1
Outward reinsurance premiums 4, 23.2 (1, 3 14 . 2) (1, 2 8 2 . 7)
Net premiums written 2,9 5 5.0 2,75 0 . 4
Gross premiums earned 4 , 24 6 . 9 4 , 0 7 1. 2
Premiums ceded to reinsurers (1, 3 2 7. 0) (1, 3 1 9 . 0)

| Net premiums earned | 4, 23.2 2,91 9.9 2,752. 2 |  |
| --- | --- | --- |
| Investment result |  | 4, 7 51. 2 19 7. 5 |
| Other income |  | 4, 9 56.8 5 0.2 |

Total income 3 , 0 2 7. 9 2 ,999 .9
Expenses

| Claims and claim adjustment expenses | 23.2 (2, 1 8 5.5) (2,966.5) |
| --- | --- |
| Reinsurance recoveries | 23.2 7 5 5 .1 1, 0 4 3 . 8 |
| Claims and claim adjustment expenses, net of reinsurance | 4, 23.2 (1, 4 3 0 . 4) (1, 9 2 2 .7) |
| Expenses for the acquisition of insurance contracts | 15 (1 , 0 1 7. 9) (1, 0 0 2 . 9) |
| Reinsurance commission income | 15 28 3. 2 28 9.0 |
| Operational expenses | 4, 9 (622. 7) (573 .0) |

Net foreign exchange gain/(loss) 0 .7 (1 4.5)
Total expenses (2,787 . 1) (3 , 2 2 4 .1)
Results of operating activities 24 0 . 8 (2 24 . 2)
Finance costs 4, 10 (50.8) (4 4.0)
Share of profit/(loss) of associates after tax 4, 14 0. 8 (0. 3)
Profit/(loss) before tax 19 0 . 8 (268.5)
Tax expense 25 (1. 3) (25. 2)
Profit/(loss) for the year (all attributable to owners of the Company) 189.5 (2 9 3 .7)
Earnings per share on profit/(loss) attributable to owners of the Company
Basic 28 55.3¢ (9 1. 6)¢
Diluted 28 5 4 .7¢ (9 0.6)¢
## Consolidated statement of comprehensive income
2021 2020
For the year ended 31 December 2021 Note $m $m
Profit/(loss) for the year 189.5 (2 9 3 .7)
Other comprehensive income
Items that will not be reclassified to the income statement:
Remeasurements of the net defined benefit obligation 27 3 1. 6 (38 .0)
Income tax effect (3 .4) 8.8
28. 2 (2 9.2)
Items that may be reclassified subsequently to the income statement:
Exchange (losses)/gains on translating foreign operations (18 . 5) 55.5
(18 . 5) 55.5
Other comprehensive income net of tax 9.7 26.3
Total comprehensive income for the year (all attributable to owners of the Company) 1 9 9. 2 (2 6 7. 4)
The notes on pages 146 to 206 are an integral part of these consolidated financial statements.
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| and purpose |  |  |  | information | summary |

## Consolidated balance sheet
2021 2020
At 31 December 2021 Note $m $m
Assets

| Goodwill and intangible assets |  | 12 3 1 3 .1 298.9 |
| --- | --- | --- |
| Property, plant and equipment |  | 13 9 0.4 10 9 . 4 |
| Investments in associates |  | 14 5 .7 4.9 |
| Deferred tax assets |  | 26 6 7. 3 70 .7 |
| Deferred acquisition costs |  | 15 4 36 .9 4 39. 2 |
| Financial assets carried at fair value |  | 17 6 , 0 41. 3 6 ,116 . 8 |
| Reinsurance assets | 16, 23 3,9 08.0 3,64 4.6 |  |
| Loans and receivables including insurance receivables |  | 18 1, 6 7 8 . 2 1 ,591 .2 |

Current tax assets 4.9 3.3
Cash and cash equivalents 21 1, 3 0 0 . 7 1, 5 7 7. 2
Total assets 1 3,846.5 13,856.2
Equity and liabilities
Shareholders’ equity

| Share capital | 22 3 8 .7 3 8 .7 |
| --- | --- |
| Share premium | 22 5 1 6.8 5 1 6.5 |
| Contributed surplus | 22 18 4 . 0 18 4 . 0 |

Currency translation reserve (28 9.3) (270.8)
Retained earnings 2,0 8 8. 0 1 ,884 .4
Equity attributable to owners of the Company 2,5 3 8. 2 2, 35 2. 8
Non-controlling interest 1 .1 1 .1
Total equity 2,5 39.3 2 ,353. 9

| Employee retirement benefit obligations | 27 3 5 .1 73 .5 |
| --- | --- |
| Deferred tax liabilities | 26 0 .1 2 .7 |
| Insurance liabilities | 23 8,8 68.4 9 ,11 3 . 4 |
| Financial liabilities | 17 74 6 . 7 9 4 6 .7 |

Current tax liabilities 2 1. 3 3 0.4
Trade and other payables 24 1, 6 3 5 . 6 1, 3 3 5 . 6
Total liabilities 11, 3 0 7. 2 11, 5 0 2 . 3
Total equity and liabilities 1 3,846.5 13,856.2
The notes on pages 146 to 206 are an integral part of these consolidated financial statements.
The consolidated financial statements were approved by the Board of Directors on 2 March 2022 and signed on its behalf by:
Aki Hussain
Group Chief Executive Officer
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| and purpose |  |  |  | information | summary |

## Consolidated statement of changes in equity
Equity

|  |  |  |  |  |  |  | Currency |  |  |  | attributable to |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Share | Share | Contributed |  |  | translation |  | Retained |  | owners of the |  |  | Non-controlling |  |  |  | Total |
|  |  | capital | premium |  | surplus |  | reserve |  | earnings |  |  | Company |  |  | interest |  |  | equity |
|  | Note | $m | $m |  |  | $m |  | $m |  | $m |  |  | $m |  |  | $m |  | $m |
| Balance at 1 January 2020 3 4 .1 70 .5 18 4 . 0 (3 26.3) 2 ,226.3 |  |  |  |  |  |  |  |  |  |  | 2,188.6 |  |  |  |  | 1 .1 | 2,189.7 |  |

Loss for the year
(all attributable to owners
of the Company) – – – (2 9 3 .7) (2 9 3 .7) – (2 9 3 .7)
Other comprehensive income
net of tax (all attributable to
owners of the Company) – – – 5 5.5 (29. 2) 26 .3 – 26. 3
Employee share options:
Equity settled
share-based payments – – – – 10 . 3 10 . 3 – 10 . 3
Deferred and current tax on
employee share options – – – – (5 .4) (5 .4) – (5.4)
Net movements of treasury
shares held by Trust – – – – (23 .9) (23.9) – (23.9)
Shares issued in the period 22 4.6 4 46.0 – – – 4 50.6 – 4 50.6
Balance at 31 December 2020 3 8 .7 5 1 6.5 18 4 . 0 (270.8) 1 ,884 .4 2, 3 52. 8 1 .1 2 ,353. 9
Profit for the year
(all attributable to
owners of the Company) – – – – 189.5 189.5 – 189.5
Other comprehensive income
net of tax (all attributable to
owners of the Company) – – – (18 . 5) 28. 2 9.7 – 9.7
Employee share options:
Equity settled
share-based payments – – – – 24 .0 24. 0 – 24. 0
Proceeds from
shares issued 22 – 0 .1 – – – 0 .1 – 0 .1
Deferred and current tax on
employee share options – – – – 1. 3 1. 3 – 1. 3
Shares issued in relation
to Scrip Dividend 22, 29 – 0. 2 – – – 0.2 – 0. 2
Dividends paid to owners
of the Company 29 – – – – (3 9.4) (39. 4) – (39. 4)
Balance at 31 December 2021 38 .7 5 1 6.8 18 4 . 0 (289. 3) 2, 08 8 .0 2, 5 38 . 2 1 .1 2, 53 9.3
The notes on pages 146 to 206 are an integral part of these consolidated financial statements.
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| and purpose |  |  |  | information | summary |

## Consolidated statement of cash flows
2021 2020
For the year ended 31 December 2021 Note $m $m
Profit/(loss) before tax 19 0 . 8 (268.5)
Adjustments for:
Net foreign exchange (gain)/loss (0.7) 14 . 5

| Interest and equity dividend income |  |  | 7 (8 8 .1) (1 0 7. 4) |
| --- | --- | --- | --- |
| Interest expense |  |  | 10 50.8 44.0 |
| Net fair value losses/(gains) on financial assets |  |  | 7 5 7. 9 (51. 2) |
| Depreciation, amortisation and impairment | 9, 12, 13 58.3 56.8 |  |  |
| Charges in respect of share-based payments |  | 9, 22 24 .0 10 . 3 |  |

Realised gain on sale of subsidiary undertaking and intangible assets (6. 5) –
Changes in operational assets and liabilities:
Insurance and reinsurance contracts (264. 2) 6 33 .6
Financial assets carried at fair value (30.0) (475 . 4)
Financial liabilities carried at fair value (0 .4) (0 .1)
Financial liabilities carried at amortised cost 0 .7 0.8
Other assets and liabilities (6 .7) 33 .3
Cash paid to the pension fund 27 – (3 0 .4)
Interest received 90. 5 10 2 . 5
Equity dividends received 1. 9 1. 6
Interest paid (4 9.6) (42. 4)
Current tax paid (12.1) (3 9 .1)
Net cash flows from/(used in) operating activities 16 . 6 (11 7. 1)
Cash flows from the sale of subsidiaries 2 1. 4 –
Purchase of property, plant and equipment (5. 4) (9.0)
Proceeds from the sale of property, plant and equipment 0.2 8.6
Purchase of intangible assets (53.5) (62.5)
Proceeds from the sale of intangible assets 0 .7 10 . 2
Net cash used in investing activities (36.6) (5 2.7)

| Proceeds from the issue of ordinary shares |  | 22 0 .1 4 50.6 |
| --- | --- | --- |
| Shares repurchased |  | 22 – (23.9) |
| Distributions made to owners of the Company | 22, 29 (39. 2) – |  |

Proceeds from drawdown of short-term borrowings – 47 0 . 0
Repayment of short-term borrowings 17 (19 5 .7) (28 9.4)
Principal elements of lease payments (11 . 4) (1 4.5)
Net cash flows (used in)/from financing activities (24 6 . 2) 5 92. 8
Net (decrease)/increase in cash and cash equivalents (26 6 . 2) 423. 0
Cash and cash equivalents at 1 January 1, 5 7 7. 2 1,11 5 . 9
Net (decrease)/increase in cash and cash equivalents (26 6 . 2) 423. 0
Effect of exchange rate fluctuations on cash and cash equivalents (10 . 3) 38.3
Cash and cash equivalents at 31 December 21 1, 3 0 0 . 7 1, 5 7 7. 2
The purchase, maturity and disposal of financial assets is part of the Group’s insurance activities and is therefore classified as
an operating cash flow. The purchase, maturity and disposal of derivative contracts is also classified as an operating cash flow.
Included within cash and cash equivalents held by the Group are balances totalling $2 1 5 million (2020: $1 72 million) not
available for immediate use by the Group outside of the Lloyd’s syndicate within which they are held. Additionally, $7million
(2020:$9million) is pledged cash held against Funds at Lloyd’s, and $0. 4 million (2020: $0.5 million) held within trust funds
against reinsurance arrangements.
The notes on pages 146 to 206 are an integral part of these consolidated financial statements.
145Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Notes to the consolidated financial statements
1 General information of adopting the going concern basis, the Directors use scenario
The Hiscox Group, which is headquartered in Hamilton, analysis and stress testing to assess the robustness of the
Bermuda, comprises Hiscox Ltd (the parent company, Group’s solvency and liquidity positions.
referred to herein as the ‘Company’) and its subsidiaries
(collectively, the ‘Hiscox Group’ or the ‘Group’). For the In undertaking this analysis, no material uncertainty in relation
period under review the Group provided insurance to going concern has been identified, due to the Group’s strong
and reinsurance services to its clients worldwide. It has capital and liquidity positions providing resilience to shocks,
operations in Bermuda, the UK, Europe, Asia and the underpinned by the Group’s approach to risk management
USA and currently has over 3,000 staff. described in note 3.
The Company is registered and domiciled in Bermuda and After making enquiries, the Directors have a reasonable
its ordinary shares are listed on the London Stock Exchange. expectation that the Group has adequate resources to
The address of its registered office is: Chesney House, continue in operational existence over a period of at least
96 Pitts Bay Road, Pembroke HM 08, Bermuda. 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.
2 Basis of preparation
On 31 December 2020, IFRS as adopted by the European In accordance with IFRS 4 Insurance Contracts, the Group
Union at that date was brought into UK law and became continues to apply the existing accounting policies that
UK-adopted International Accounting Standards, with were applied prior to the adoption of IFRS (‘grandfathered’)
future changes being subject to endorsement by the UK or the date of the acquisition of the entity. IFRS accounting
Endorsement Board. The Group transitioned to UK-adopted for insurance contracts in UK companies was grandfathered
International Accounting Standards in its consolidated financial at the date of transition to IFRS and determined in accordance
statements on 1 January 2021. This change constitutes a with accounting principles generally accepted in the UK.
change in accounting framework. However, there is no impact
on recognition, measurement or disclosure in the period Items included in the financial statements of each of the
reported as a result of the change in framework. Group’s entities are measured in the currency of the primary
economic environment in which that entity operates (the
The financial statements of the Group have been prepared functional currency). The consolidated financial statements
in accordance with UK-adopted International Accounting are presented in US Dollars millions ($m) and rounded to the
Standards, Section 4.1 of the Disclosure and Transparency nearest hundred thousand Dollars, unless otherwise stated.
Rules and the Listing Rules, both issued by the Financial
Conduct Authority (FCA) and in accordance with the provisions The balance sheet of the Group is presented in order of
of the Bermuda Companies Act 1981. increasing liquidity. All amounts presented in the income
statement and statement of comprehensive income relate
The consolidated financial statements have been prepared to continuing operations.
under the historical cost convention, except that pension
scheme assets included in the measurement of the employee The financial statements were approved for issue by the
retirement benefit obligation which is determined using Board of Directors on 2March2022.
actuarial analysis, and certain financial instruments including
derivative instruments, are measured at fair value. 2.1 Significant accounting policies
The principal accounting policies applied in the preparation
The consolidated financial statements have been prepared of these consolidated financial statements are set out below.
on a going concern basis. In adopting the going concern basis, The most critical individual components of these financial
the Board has reviewed the Group’s current and forecast statements that involve the highest degree of judgement
solvency and liquidity positions for the next 12 months and or significant assumptions and estimations are identified
beyond. As part of the consideration of the appropriateness in note 2.21.
146 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
2 Basis of preparation continued Loans and receivables also includes amounts due from
2.1 Significant accounting policies continued brokers, agents and intermediaries and other financial
Except as described below and overleaf, the accounting policies assets which are within the scope of IFRS 9. Under IFRS
adopted are consistent with those of the previous financial year. 9, these assets continue to be recognised at amortised
cost less impairment, with the measurement of impairment
(a) New accounting standards, interpretations and reflecting expected credit losses. The Group expects a
amendments to published standards recognition of an earlier and higher loss allowance under this
New standards, amendments to standards and interpretations, approach compared to the current incurred loss approach,
as adopted by the UK, that are effective for annual periods resulting in a negative impact on equity on adoption. IFRS 9
beginning on 1 January 2021 have been applied in preparing has been endorsed by the UK Endorsement Board.
these consolidated financial statements and had no material
impact on the Group. A IFRS 17 Insurance Contracts
IFRS 17 will significantly change the accounting for
A Amendments to IFRS 7, IFRS 9, IAS 39, IFRS 4 and insurance contracts. The adoption of the standard will
IFRS 16 Interest Rate Benchmark Reform – Phase 2 result in changes compared to the Group’s current
The amendments require insurers who apply the accounting policies including the following:
temporary exemption from IFRS 9 to apply the Ainsurance contracts assets and liabilities are
amendments in IFRS 9 in accounting for modifications measured based on a current estimate of future cash
directly required by the IBOR reform. flows, including a risk adjustment and a contractual
A Amendments to IFRS 4 Insurance Contracts – deferral service margin. As a result, the claims and the
of IFRS 9 reinsurance recoveries will be recognised on
The effective date of IFRS 17, which will be replacing a present value basis with the unwind of the
IFRS 4, is 1January2023; the fixed expiry date for the discounting recognised in the income statement;
temporary exemption in IFRS 4 from applying IFRS 9 Athe premium allocation approach, an optional
has also been deferred to 1January2023. simplified measurement model for an eligible group of
A Covid-19-related rent concessions beyond 30 June 2021 insurance contracts, will be adopted. This approach
amendments to IFRS 16. does not require separate identification of the risk
adjustment and the contractual service margin until
(b) Future accounting developments a claim is incurred. The premium is recognised over
The following new standards, and amendments to the coverage period on the basis of the passage of
standards, are effective for annual periods beginning after time unless the expected pattern of release from risk
1January2021 and have not been applied in preparing differs significantly from the passage of time, in which
these financial statements: case it is recognised based on the expected timing of
A IFRS 9 Financial Instruments incurred claims and benefits;
This standard incorporates new classification and Aany expected losses arising from loss-making
measurement requirements for financial assets, the contracts and the corresponding expected
introduction of an expected credit loss impairment model recoveries from reinsurance contracts held are to
which will replace the incurred loss model of IAS 39 and be accounted for in the income statement when
new hedge accounting requirements. The Group satisfies the entity determines that losses are expected;
the criteria set out in IFRS 4 Insurance Contracts for the Areinsurance commission income that is contingent
temporary exemption from IFRS 9. At 31December2015 on claims is treated as a reduction of claims
(the date specified by IFRS 4), the carrying value of the recoveries cash flows and those that are not
Group’s liabilities connected with insurance comprised contingent on claims is accounted for as part
over 90% of the total liabilities. These include significant of premium paid cash flows;
insurance liabilities; the subordinated debt as this Aall insurance contract assets and liabilities are
debt counts towards the Group’s regulatory and rating monetary items. As a result, those account balances
agency capital requirements; and creditors arising from denominated in foreign currencies are subject to
insurance operations. The activities of the Group remain revaluation, with the impact of changes in foreign
predominantly connected with insurance. exchange rates recognised in the income statement.
Under the current requirements (IAS 39), a majority The presentation of the income statement will also change,
of the Group’s investments were designated as at fair with premium and claims figures being replaced with
value through profit or loss on initial recognition and insurance contract revenue, insurance service expense
subsequently remeasured to fair value at each reporting and insurance finance income and expense.
date, reflecting the Group’s business model for managing
and evaluating the investment portfolio. Adoption of The cash flow and economic value generated by the
IFRS 9 is not expected to result in any material changes Group’s insurance business does not change. No
to the measurement of the Group’s investments, which significant effects on the Group’s regulatory capital
continues to be at fair value through profit or loss. position, nor the ability of subsidiaries to pay dividends
Financial assets within the scope of IFRS 17 Insurance to Group, are expected. The Bermuda Solvency Capital
Contracts such as premiums receivable and reinsurance Requirements and Solvency II will continue to drive the
and other recoveries on paid claims, which together business’s ability to pay dividends to the Group.
form the majority of the carrying value of the Group’s
loans and receivables, and reinsurance recoveries on The requirements of IFRS 17 are complex and
outstanding claims, are outside the scope of IFRS 9. interpretations thereof are subject to change as the
147Hiscox Ltd Report and Accounts 2021

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| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
2 Basis of preparation The Group’s share of its associates’ post-acquisition profits
2.1 Significant accounting policies or losses after tax is recognised in the income statement for
(b) Future accounting developments continued each period, and its share of the movement in the associates’
project progresses and as the Group continues to analyse net assets is reflected in the investments’ carrying values
the impacts of the standard and recent amendments. on the balance sheet. When the Group’s share of losses
Group-wide accounting guidance and application equals or exceeds the carrying amount of the associate,
methodologies continue to be developed, and a project the carrying amount is reduced to nil and recognition of
team has been mobilised to progress the detailed design further losses is discontinued except to the extent that the
and implementation of required changes to financial Group has incurred obligations in respect of the associate.
reporting systems. Market developments also continue
to be monitored in order to assess the impact of evolving (c) Transactions eliminated on consolidation
interpretations and other changes. Intragroup balances, transactions and any unrealised gains
arising from intragroup transactions are eliminated in preparing
IFRS 17 is effective on 1 January 2023 and has not yet the consolidated financial statements. Unrealised losses are
been endorsed by the UK Endorsement Board. also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Foreign currency gains and
A Initial application of IFRS 17 and IFRS 9 – losses on intragroup monetary assets and liabilities may not
comparative information fully eliminate on consolidation when the intragroup monetary
This narrow-scope amendment is not expected to be item concerned is transacted between two Group entities
used by the Group. that have different functional currencies. Unrealised gains
arising from transactions with associates are eliminated to the
2.2 Basis of consolidation extent of the Group’s interest in the entity. Unrealised losses
(a) Subsidiaries are eliminated in the same way as unrealised gains, but only
Subsidiaries are those entities controlled by the Group. to the extent that there is no evidence of impairment.
Control exists when the Group has power over an entity,
exposure or rights to variable returns from its involvement 2.3 Foreign currency translation
with the investee and ability to use its power to affect those (a) Functional currency
returns. The consolidated financial statements include the Items included in the financial statements of each of the
assets, liabilities and results of the Group up to 31December Group’s entities are measured using the currency of the
each year. The financial statements of subsidiaries are included primary economic environment in which the entity operates (the
in the consolidated financial statements only from the date ‘functional currency’). Entities operating in France, Germany,
that control commences until the date that control ceases. The Netherlands, Spain, Portugal, Ireland and Belgium have
functional currency of Euros; those subsidiary entities operating
The Group applies the acquisition method to account for from the USA, Bermuda, Guernsey and Syndicates have
business combinations. The consideration transferred for functional currency of US Dollars with the exception of Hiscox Ltd,
the acquisition of a subsidiary is the fair value of the assets a public company incorporated and domiciled in Bermuda with
transferred, the liabilities incurred to the former owners of the functional currency of Sterling. Functional currencies of entities
acquiree and the equity interests issued by the Group. The operating in Asia include US Dollars, Singapore Dollars and Thai
consideration transferred also includes the fair value of any Baht. All other entities have functional currency of Sterling.
asset or liability resulting from a contingent consideration
arrangement. Identifiable assets acquired, liabilities and (b) Transactions and balances
contingent liabilities assumed in a business combination Foreign currency transactions are translated into the functional
are measured initially at their fair values at the acquisition currency using the exchange rates prevailing at the dates of
date. The Group recognises any non-controlling interest in the transactions. Foreign exchange gains and losses resulting
the acquiree on an acquisition-by-acquisition basis, either at from the settlement of such transactions and from the
fair value or at the non-controlling interest’s proportionate share retranslation at year-end exchange rates of monetary assets
of the recognised amounts of acquiree’s identifiable net assets. and liabilities denominated in foreign currencies are recognised
Transactions with non-controlling interests that do not result in in the income statement, except when deferred in equity as
loss of control are accounted for as equity transactions – that IAS 39 effective net investment hedges or when the underlying
is, as transactions with the owners in their capacity as owners. balance is deemed to form part of the Group’s net investment
The difference between fair value of any consideration paid and in a subsidiary operation and is unlikely to be settled in the
the relevant share acquired of the carrying value of net assets of foreseeable future. Non-monetary items carried at historical
the subsidiary is recorded in equity. Gains or losses on disposals cost are translated on the balance sheet at the exchange rate
to non-controlling interests are also recorded in equity. prevailing on the original transaction date. Non-monetary items
measured at fair value are translated using the exchange rate
(b) Associates ruling when the fair value was determined.
Associates are those entities in which the Group has significant
influence but not control over the financial and operating (c) Group companies
policies. Significant influence is generally identified with a The results and financial position of all the Group entities that
shareholding of between 20% and 50% of an entity’s voting have a functional currency different from the presentation
rights. The consolidated financial statements include the currency are translated into the presentation currency
Group’s share of the total recognised gains and losses of as follows:
associates on an equity-accounted basis from the date that A assets and liabilities for each balance sheet presented
significant influence commences until the date that significant are translated at the closing rate at the date of that
influence ceases. balance sheet;
148 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements

| 2 Basis of preparation | Goodwill on acquisition of subsidiaries is included in intangible |
| --- | --- |
| 2.3 Foreign currency translation | assets. Goodwill on acquisition of associates is included in |
| (c) Group companies continued | investments in associates. |

A income and expenses for each income statement are
translated at average exchange rates (unless this average Goodwill is not amortised but is tested at least annually
is not a reasonable approximation of the cumulative effect for impairment and carried at cost less accumulated
of the rates prevailing on the transaction dates, in which impairment losses.
case income and expenses are translated at the date of
the transactions); and Goodwill is allocated to the Group’s cash-generating units
A all resulting exchange differences are recognised as a identified according to the smallest identifiable unit to which
separate component of equity. cash flows are generated.
When a foreign operation is sold, such exchange differences The impairment review process examines whether or not
are recognised in the income statement as part of the gain, the carrying value of the goodwill attributable to individual
or loss, on sale. cash-generating units exceeds its recoverable amount.
Any excess of goodwill over the recoverable amount arising
2.4 Property, plant and equipment from the review process indicates impairment. Any impairment
Property, plant and equipment are stated at historical cost less charges are presented as part of operational expenses.
depreciation and any impairment loss. Historical cost includes Gains and losses on the disposal of an entity include the
expenditure that is directly attributable to the acquisition of the carrying amount of goodwill relating to the entity sold.
items. Subsequent costs are included in the asset’s carrying
amount or recognised as a separate asset, as appropriate, only (b) Other intangible assets
when it is probable that future economic benefits associated Intangible assets acquired separately from a business are
with the item will flow to the Group and the cost of the item can carried initially at cost. An intangible asset acquired as part of
be measured reliably. All other repairs and maintenance items a business combination is recognised outside of goodwill if
are charged to the income statement during the financial period the asset is separable or arises from contractual or other legal
in which they are incurred. rights and its fair value can be measured reliably. Customer
relationships, syndicate capacity and software acquired are
Land is not depreciated as it is deemed to have an indefinite capitalised at cost, being the fair value of the consideration
useful economic life. The cost of leasehold improvements paid. Software is capitalised on the basis of the costs incurred
is amortised over the unexpired term of the underlying to acquire and bring it into use. Intangible assets with indefinite
lease or the estimated useful life of the asset, whichever is lives such as syndicate capacity are subsequently valued at
shorter. Depreciation on other assets is calculated using the cost and are subject to annual impairment assessment.
straight-line method to allocate their cost, less their residual
values, over their estimated useful lives. Intangible assets with finite useful lives are consequently
carried at cost, less accumulated amortisation and impairment.
The rates applied are as follows: The useful life of the asset is reviewed annually. Any changes

| A | buildings 20–50 years | in estimated useful lives are accounted for prospectively with |
| --- | --- | --- |
| A vehicles 3 years |  | the effect of the change being recognised in the current and |
| A leasehold improvements including |  | future periods, if relevant. |

fixtures and fittings 10–15 years
A furniture, fittings and equipment 3–15 years Amortisation is calculated using the straight-line method
The assets’ residual values and useful lives are reviewed at to allocate the cost over the estimated useful lives of the
each balance sheet date and adjusted if appropriate. intangible assets.
An asset’s carrying amount is written down immediately to its Subsequent expenditure on other intangible assets is
recoverable amount if the asset’s carrying amount is greater capitalised only when it increases the future economic
than its estimated recoverable amount. Gains and losses on benefits embodied in the specific asset to which it relates.
disposals are determined by comparing proceeds with the All other expenditure is expensed as incurred.
carrying amount. These are included in the income statement.
Those intangible assets with finite lives are assessed for
2.5 Intangible assets indicators of impairment at each reporting date. Where there
(a) Goodwill is an indication of impairment then a full impairment test is
Goodwill represents amounts arising on acquisition of performed. An impairment loss recognised for an intangible
subsidiaries and associates. In respect of acquisitions that asset in prior years should be reversed if, and only if, there
have occurred since 1January2004, goodwill represents has been a change in the estimates used to determine the
the excess of the fair value of consideration of an acquisition asset’s recoverable amount since the last impairment loss
over the fair value of the Group’s share of the net identifiable was recognised.
assets and contingent liabilities assumed of the acquired
subsidiary or associate at the acquisition date. 2.6 Fair value
Fair value is the price that would be received to sell an
In respect of acquisitions prior to 1January2004, goodwill is asset or paid to transfer a liability in an orderly transaction
included on the basis of its deemed cost, which represents between market participants at the measurement date,
the amount recorded under previous generally accepted regardless of whether that price is directly observable or
accounting principles. estimated using another valuation technique.
149Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
2 Basis of preparation (c) Borrowings
2.6 Fair value continued All borrowings are initially recognised at fair value.
This presumes that the transaction takes place in the Subsequent to initial recognition, borrowings are
principal (or most advantageous) market under current measured at amortised cost. Any difference between
market conditions. Fair value is a market-based measure the value recognised at initial recognition and the ultimate
and in the absence of observable market prices in an active redemption amount is recognised in the income statement
market, it is measured using the assumptions that market over the period to redemption using the effective
participants would use when pricing the asset or liability. interest method.
The fair value of a non-financial asset is determined based 2.8 Cash and cash equivalents
on its highest and best use from a market participant’s The Group has classified cash deposits and short-term
perspective. When using this approach, the Group takes into highly-liquid investments as cash and cash equivalents.
account the asset’s use that is physically possible, legally These assets are readily convertible into known amounts of
permissible and financially feasible. The best evidence of cash and are subject to inconsequential changes in value.
the fair value of a financial instrument at initial recognition Cash equivalents are financial investments with less than
is normally the transaction price, i.e. the fair value of the three months to maturity at the date of acquisition.
consideration given or received.
2.9 Impairment of assets
If an asset or a liability measured at fair value has a bid Assets that have an indefinite useful life are not subject to
price and an ask price, the price within the bid-ask spread amortisation and are tested annually or whenever there is
that is most representative of fair value in the circumstances an indication of impairment. Assets that are subject to
is used to measure fair value. An analysis of fair values of amortisation are reviewed for impairment whenever events
financial instruments and further details as to how they or changes in circumstances indicate that the carrying
are measured are provided in note 20. amount may not be recoverable.
2.7 Financial assets and liabilities including loans (a) Non-financial assets
and receivables Objective factors that are considered when determining
The Group classifies its financial assets as a) financial whether a non-financial asset (such as goodwill, an intangible
assets at fair value through profit or loss, and b) loans asset or item of property, plant and equipment) or group of
and receivables. Management determines the non-financial assets may be impaired include, but are not
classification of its financial assets based on the purpose limited to, the following:
for which the financial assets are held at initial recognition. A adverse economic, regulatory or environmental
The decision by the Group to designate debt and fixed conditions that may restrict future cash flows and
income holdings, equities and investment funds and asset usage and/or recoverability;
deposits with credit institutions, at fair value through A the likelihood of accelerated obsolescence arising from
profit or loss, reflects the fact that the investment portfolios the development of new technologies and products; and
are managed, and their performance evaluated, on a fair A the disintegration of the active market(s) to which the
value basis. asset is related.
Purchases and sales of investments are accounted (b) Financial assets
for at the trade date. Financial assets and liabilities are Objective factors that are considered when determining
initially recognised at fair value. Subsequent to initial whether a financial asset or group of financial assets may
recognition, financial assets and liabilities are measured be impaired include, but are not limited to, the following:
as described below. Financial assets are derecognised A negative rating agency announcements in respect of
when the right to receive cash flows from them expires investment issuers, reinsurers and debtors;
or where they have been transferred and the Group A significant reported financial difficulties of investment
has also transferred substantially all risks and rewards issuers, reinsurers and debtors;
of ownership. A actual breaches of credit terms such as persistent late
payments or actual default;
(a) Financial assets at fair value through profit or loss A the disintegration of the active market(s) in which a
A financial asset is classified into this category at inception particular asset is traded or deployed;
if it is managed and evaluated on a fair value basis in A adverse economic or regulatory conditions that may
accordance with a documented strategy, if acquired restrict future cash flows and asset recoverability; and
principally for the purpose of selling in the short term, A the withdrawal of any guarantee from statutory
or if it forms part of a portfolio of financial assets in which funds or sovereign agencies implicitly supporting
there is evidence of short-term profit taking. the asset.
(b) Loans and receivables (c) Impairment loss
Loans and receivables are non-derivative financial assets An impairment loss is recognised for the amount by which
with fixed or determinable payments that are not quoted the asset’s carrying amount exceeds its recoverable amount.
on an active market. Receivables arising from insurance The recoverable amount is the higher of an asset’s fair value
contracts are included in this category and are reviewed less costs to sell and value in use. For the purpose of assessing
for impairment as part of the impairment review of loans impairment, assets are grouped at the lowest levels for which
and receivables. Loans and receivables are carried at there are separately identifiable cash flows (cash-generating
amortised cost less any provision for impairment in value. units). For financial assets, the amount of the impairment loss
150 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
2 Basis of preparation 2.13 Insurance contracts
2.9 Impairment of assets (a) Classification
(c) Impairment loss continued Insurance contracts are defined as those containing significant
is measured as the difference between the asset’s carrying insurance risk if, and only if, an insured event could cause
amount and the value of the estimated future cash flows an insurer to make significant additional payments in
discounted at the financial asset’s original effective interest any scenario, excluding scenarios that lack commercial
rate. Where an impairment loss subsequently reverses, the substance, at the inception of the contract. Such contracts
carrying amount of the asset is increased to the revised remain insurance contracts until all rights and obligations are
estimate of its recoverable amount, but only to the extent that extinguished or expire. The Group issues short-term casualty
the increased carrying amount does not exceed the carrying and property insurance contracts that transfer significant
amount that would have been determined had no impairment insurance risk.
loss been recognised for the asset in prior periods. A reversal
of an impairment loss is recognised as income immediately. (b) Recognition and measurement
Impairment losses recognised in respect of goodwill are Gross premiums written comprise premiums on business
not subsequently reversed. incepting in the financial year together with adjustments to
estimates of premiums written in prior accounting periods.
2.10 Derivative financial instruments Estimates are included for pipeline premiums and an allowance
Derivatives are initially recognised at fair value on the date is also made for cancellations. Premiums are stated before
on which a derivative contract is entered into and are the deduction of brokerage and commission but net of taxes
subsequently valued at fair value at each balance sheet and duties levied. Premiums are recognised as revenue
date. Fair values are obtained from quoted market values (premiums earned) proportionally over the period of coverage.
and, if these are not available, valuation techniques including The portion of premium received on in-force contracts that
option pricing models are used as appropriate. The method relate to unexpired risks at the balance sheet date is reported
of recognising the resulting gain or loss depends on whether as the unearned premium liability.
the derivative is designated as a hedging instrument and,
if so, the nature of the item being hedged. For derivatives Claims and associated expenses are charged to profit or loss
not formally designated as a hedging instrument, fair as incurred, based on the estimated liability for compensation
value changes are recognised immediately in the income owed to contract holders or third parties damaged by the
statement. Changes in the value of derivatives and other contract holders. They include direct and indirect claims
financial instruments formally designated as hedges of net settlement costs and arise from events that have occurred
investments in foreign operations are recognised in the up to the balance sheet date even if they have not yet been
currency translation reserve to the extent they are effective; reported to the Group.
gains or losses relating to the ineffective portion of the hedging
instruments are recognised immediately in the consolidated The Group does not discount its liabilities for unpaid claims.
income statement. Liabilities for unpaid claims are determined based on the
best estimate of the cost of future claim payments plus an
The Group had no derivative instruments designated for allowance for risk and uncertainty. Any estimate represents
hedge accounting during the current and prior financial year. a determination within a range of possible outcomes using,
as inputs, the assessments for individual cases reported to
2.11 Own shares the Group, statistical analysis for the claims incurred but not
Where any Group company purchases the Parent Company’s reported, an estimate of the expected ultimate cost of more
equity share capital (own shares), the consideration paid, complex claims that may be affected by external factors, for
including any directly attributable incremental costs (net of example, court decisions, and an allowance for quantitative
income taxes) is deducted from equity attributable to the uncertainties not otherwise approved.
Company’s owners on consolidation. Where such shares are
subsequently sold, reissued or otherwise disposed of, any (c) Deferred acquisition costs (DAC)
consideration received is included in equity attributable to the Commissions and other direct and indirect costs that vary
Company’s owners, net of any directly attributable incremental with and are related to securing new contracts and renewing
transaction costs and the related tax effects. existing contracts are capitalised as deferred acquisition costs.
All other costs are recognised as expenses when incurred.
2.12 Revenue DAC are amortised over the terms of the insurance contracts
Revenue comprises insurance and reinsurance premiums as the related premium is earned.
earned on the rendering of insurance protection, net of
reinsurance, together with profit commission, investment (d) Liability adequacy tests
returns, agency fees and other income. The Group’s At each balance sheet date, liability adequacy tests are
share of the results of associates is reported separately. performed by each business unit to ensure the adequacy of
The accounting policies for insurance premiums are set the contract liabilities net of related DAC. In performing these
out in note 2.13. tests, current best estimates of future contractual cash flows
and claims handling and administration expenses, as well as
Other revenue is recognised when, or as, the control of investment income from assets backing such liabilities, are
the goods or services is transferred to a customer, i.e. used. Any deficiency is charged to profit or loss initially by
performance obligations are fulfilled at an amount that reflects writing-off DAC and by subsequently establishing a provision
the consideration to which the Group expects to be entitled for losses arising from liability adequacy tests (‘the unexpired
in exchange for those goods or services. See note 9 for risk reserve’). Any DAC written-off as a result of this test is
further details. not subsequently reinstated.
151Hiscox Ltd Report and Accounts 2021

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| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
2 Basis of preparation evidence that the insurance receivable is impaired, the
2.13 Insurance contracts continued Group reduces the carrying amount of the insurance
(e) Outwards reinsurance contracts held receivable accordingly and recognises the impairment
Contracts entered into by the Group with reinsurers, under loss in the income statement.
which the Group is compensated for losses on one or more
insurance or reinsurance contracts and that meet the (i) Salvage and subrogation reimbursements
classification requirements for insurance contracts, are Some insurance contracts permit the Group to sell property
classified as reinsurance contracts held. Contracts that acquired in settling a claim (i.e. salvage). The Group may
do not meet these classification requirements are classified also have the right to pursue third parties for payment of
as financial assets. some or all costs (i.e. subrogation). Estimates of salvage
recoveries are included as an allowance in the measurement
The benefits to which the Group is entitled under outwards of the insurance liability for claims and salvage property
reinsurance contracts are recognised as reinsurance assets. is recognised in other assets when the liability is settled.
These assets consist of short-term balances due from The allowance is the amount that can reasonably be
reinsurers (classified within loans and receivables) as well recovered from the disposal of the property. Subrogation
as longer-term receivables (classified as reinsurance assets) reimbursements are also considered as an allowance in
that are dependent on the expected claims and benefits the measurement of the insurance liability for claims and
arising under the related reinsured insurance contracts. are recognised in other assets when the liability is settled.
Amounts recoverable from or due to reinsurers are measured The allowance is the assessment of the amount that can
consistently with the amounts associated with the reinsured be recovered from the action against the liable third party.
insurance contracts and in accordance with the terms of
each reinsurance contract. 2.14 Taxation
Current tax, including corporation tax and foreign tax, is
Reinsurance liabilities primarily comprise premiums payable provided at amounts expected to be paid (or recovered) using
for outwards reinsurance contracts. The Group assesses its the tax rates and laws that have been enacted or substantively
reinsurance assets on a regular basis and, if there is objective enacted by the balance sheet date. A provision is recognised
evidence, after initial recognition, of an impairment in value, for those matters for which the tax determination is uncertain
the Group reduces the carrying amount of the reinsurance but it is considered probable that there will be a future outflow
asset to its recoverable amount and recognises the of funds to a tax authority. The provisions are measured at the
impairment loss in the income statement. best estimate of the amount expected to become payable.
The assessment is based on the judgement of tax professionals
(f) Retroactive reinsurance transactions within the Group supported by previous experience in respect
Retroactive insurance contracts that contain significant of such activities and in certain cases based on advice sought
insurance risk and that have an insurance component and from specialist tax advisors.
a deposit component are unbundled providing the deposit
component can be measured separately. The deposit Deferred tax is provided in full, using the liability method,
component is recorded directly into the balance sheet within on temporary differences arising between the tax bases of
reinsurers’ share of insurance liabilities with a corresponding assets and liabilities and their carrying amounts in the financial
amount in creditors arising out of reinsurance operations. statements. However, if the deferred income tax arises from
The reinsurers’ share of insurance liabilities relating to the initial recognition of an asset or liability in a transaction other
contracts is remeasured at each reporting period with than a business combination that at the time of the transaction
movements taken to the reinsurance recoveries in the affects neither accounting nor taxable profit or loss, it is not
income statement. recognised. Deferred tax is determined using tax rates and
laws that have been enacted or substantively enacted by
Reinsurance transactions that transfer risk but are retroactive the balance sheet date and are expected to apply when the
are included in reinsurance assets. The excess of estimated related deferred tax asset is realised or the deferred tax liability
liabilities for claims and claim expenses over the consideration is settled. Deferred tax assets are recognised to the extent that
paid is established as a deferred credit at inception. The it is probable that future taxable profit will be available against
deferred amounts are subsequently amortised using the which the temporary differences can be utilised. Deferred tax
recovery method over the settlement period of the reserves is provided on temporary differences arising on investments in
and reflected through the claims and claim adjustment subsidiaries and associates, except where the Group controls
expenses line. In transactions where the consideration the timing of the reversal of the temporary difference and it is
paid exceeds the estimated liabilities for claims and claim probable that the temporary difference will not reverse in the
adjustment expenses, a loss is recognised immediately. foreseeable future.
(g) Reinsurance commission income 2.15 Employee benefits
Reinsurance commission income represents commission (a) Pension obligations
earned from ceding companies which is earned over the The Group operated both defined contribution and defined
terms of the underlying reinsurance contracts and presented benefit pension schemes during the year under review.
separately in the consolidated income statement. The defined benefit scheme closed to future accrual with
effect from 31December2006 and active members were
(h) Receivables and payables related to insurance contracts offered membership of the defined contribution scheme
Receivables and payables are recognised when due. These from 1January2007. A defined contribution plan is a pension
include amounts due to, and from, agents, brokers and plan under which the Group pays fixed contributions into a
insurance contract holders. If there is objective separate entity and has no further obligation beyond the agreed
152 Hiscox Ltd Report and Accounts 2021

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| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
2 Basis of preparation the corresponding credit being recorded in retained earnings
2.15 Employee benefits within equity. The total amount to be expensed over the vesting
(a) Pension obligations continued period is determined by reference to the fair value of the awards
contribution rate. A defined benefit plan is a pension plan granted, excluding the impact of any non-market vesting
that defines an amount of pension benefit that an employee conditions (for example, profitability or net asset growth targets).
will receive on retirement, usually dependent on one or more Non-market vesting conditions are included in assumptions
factors such as age, years of service and compensation. about the number of awards that are expected to become
exercisable. At each balance sheet date, the Group revises its
For defined contribution plans, the Group pays contributions estimates of the number of awards that are expected to vest.
to publicly or privately administered pension insurance plans
on a contractual basis. The contributions are recognised as The Group recognises the impact of the revision of original
an employee benefit expense when they are due. Prepaid estimates, if any, in the income statement, and a corresponding
contributions are recognised as an asset to the extent that adjustment to equity, in periods in which the estimates are revised.
a cash refund or a reduction in future payments is available.
When the terms and conditions of an equity settled
The amount recognised on the balance sheet in respect of share-based employee compensation plan are modified,
defined benefit pension plans is the present value of the defined and the expense to be recognised increases as a result of the
benefit obligation at the balance sheet date, less the fair modification, then the increase is recognised evenly over the
value of plan assets. The calculation of the defined benefit remaining vesting period. When a modification reduces the
obligation is performed annually by a qualified actuary using expense to be recognised, there is no adjustment recognised
the projected unit method. As the plan is closed to all future and the pre-modification expense continues to be applied.
benefit accrual, each participant’s benefits under the plan are The proceeds received net of any directly attributable
based on their service to the date of closure or earlier leaving, transaction costs are credited to share capital and share
their final pensionable earnings at the measurement date and premium when the options are exercised.
the service cost is the expected administration cost during
the year. Past service costs are recognised immediately in (d) Termination benefits
the income statement. Termination benefits are payable when employment is
terminated before the normal retirement date, or whenever
Remeasurements of the net defined benefit liability, which an employee accepts voluntary redundancy in exchange for
comprise actuarial gains and losses, the return on plan assets these benefits. The Group recognises termination benefits
(excluding interest) and the effect of the asset ceiling (if any, when it is demonstrably committed to either: terminating the
excluding interest), are recognised immediately in other employment of current employees according to a detailed
comprehensive income. The Group determines the net interest formal plan without possibility of withdrawal; or providing
expense (income) on the net defined benefit liability (asset) termination benefits as a result of an offer made to encourage
for the period by applying the discount rate used to measure voluntary redundancy.
the defined benefit obligation at the beginning of the annual
period to the then net defined benefit liability (asset), taking (e) Profit sharing and bonus plans
into account any changes in the net defined benefit liability The Group recognises a liability and an expense for bonuses
(asset) during the period as a result of contributions and benefit and profit sharing, based on a formula that takes into
payments. Net interest expense and other expenses related to consideration the profit attributable to the Company’s
defined benefit plans are recognised in the income statement shareholders after certain adjustments. The Group
through operating expenses. recognises a provision where a contractual obligation to
employees exists or where there is a past practice that
To the extent that a surplus emerges on the defined benefit has created a constructive obligation.
obligation, it is only recognisable as an asset when it is
probable that future economic benefits will be recovered (f) Accumulating compensation benefits
by the Group in the form of refunds. The Group recognises a liability and an expense for
accumulating compensation benefits (for example, holiday
(b) Other long-term employee benefits entitlement), based on the additional amount that the
The Group provides sabbatical leave to employees on Group expects to pay as a result of the unused entitlement
completion of a minimum service period of ten years. accumulated at the balance sheet date.
The present value of the expected costs of these benefits
is accrued over the period of employment. In determining 2.16 Net investment hedge accounting
this liability, consideration is given to future increases in In order to qualify for hedge accounting, the Group is required
salary levels, experience with employee departures and to document in advance the relationship between the item
periods of service. being hedged and the hedging instrument. The Group is
also required to document and demonstrate an assessment
(c) Share-based compensation of the relationship between the hedged item and the hedging
The Group operates a number of equity settled share-based instrument, which shows that the hedge will be highly
employee compensation plans. These include the share option effective on an ongoing basis. This effectiveness testing is
schemes, and the Group’s Performance Share Plans, outlined reperformed at each period end to ensure that the hedge
in the Directors’ remuneration report together with the Group’s remains highly effective. The Group hedged elements of
Save As You Earn (SAYE) schemes. The fair value of the its net investment in certain foreign entities through foreign
employee services received, measured at grant date, in exchange currency borrowings that qualified for hedge accounting
for the grant of the awards is recognised as an expense, with from 3January2007 until their replacement on 6May2008;
153Hiscox Ltd Report and Accounts 2021

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| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
2 Basis of preparation remeasured if there is a modification that is not accounted
2.16 Net investment hedge accounting continued for as a separate lease: future lease payments that are
accordingly gains or losses on retranslation are recognised linked to a rate or index, a change in the lease term, a
in equity to the extent that the hedge relationship was effective change in the in-substance fixed lease payments, a change
during this period. Accumulated gains or losses will be in the assessment to purchase the underlying asset or a
recycled to the income statement only when the foreign change in the amounts expected to be payable under a
operation is disposed of. The ineffective portion of any residual value guarantee.
hedge is recognised immediately in the income statement.
The Group applies the short-term lease recognition
2.17 Finance costs exemption to its short-term leases (i.e. those leases
Finance costs consist of interest charges accruing on the that have a lease term of 12 months or less from the
Group’s borrowings and bank overdrafts together with commencement date and do not contain a purchase option).
commission fees charged in respect of Letters of Credit It also applies the lease of low-value assets recognition
and interest in respect of lease liabilities. Arrangement exemption to leases of office equipment that are considered
fees in respect of financing arrangements are charged of low value. Lease payments on short-term leases and
over the life of the related facilities. leases of low-value assets are recognised as expense
on a straight-line basis over the lease term.
2.18 Provisions
Provisions are recognised where there is a present (b) Hiscox as lessor
obligation (legal or constructive) as a result of a past Rental income from operating leases is recognised
event that can be measured reliably and it is probable on a straight-line basis over the term of the relevant
that an outflow of economic benefits will be required to contractual agreement.
settle that obligation.
2.20 Dividend distribution
2.19 Leases Dividend distribution to the Company’s shareholders is
(a) Hiscox as lessee recognised as a liability in the Group’s financial statements
The Group recognises right-of-use assets at the commencement in the period in which the dividends are approved.
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 2.21 Use of significant judgements, estimates
accumulated depreciation and impairment losses, and and assumptions
adjusted for any remeasurement of lease liabilities. The cost The preparation of financial statements requires the
of right-of-use assets includes the amount of lease liabilities Group to select accounting policies and make judgements,
recognised, initial direct costs incurred, and lease payments estimates and assumptions that affect the reported
made at or before the commencement date less any lease amounts of assets, liabilities, income and expenses
incentives received. Unless the Group is reasonably certain in the consolidated financial statements.
to obtain ownership of the leased asset at the end of the lease
term, the recognised right-of-use assets are depreciated on The Audit Committee reviews the reasonableness of critical
a straight-line basis over the shorter of its estimated useful judgements, estimates and assumptions applied and the
life and the lease term. Right-of-use assets are subject appropriateness of significant accounting policies. The
to impairment. Right-of-use assets are presented on the significant issues considered by the Committee in the year are
balance sheet as ‘property, plant and equipment’. included within the Audit Committee report on pages 89 to 91.
At the commencement date of the lease, the Group recognises Significant accounting judgements
lease liabilities measured at the present value of lease The following accounting policies are those considered to
payments to be made over the lease term. The lease payments have a significant impact on the amounts recognised in the
include fixed payments (including in-substance fixed payments) consolidated financial statements, with those judgements
less any lease incentives receivable, variable lease payments involving estimation summarised thereafter.
that depend on an index or a rate, and amounts expected to A Consolidation: assessment of whether the Group controls
be paid under residual value guarantees. The lease payments an underlying entity, for example, the treatment of
also include the exercise price of a purchase option reasonably insurance-linked securities funds including consideration
certain to be exercised by the Group and payments of penalties of its decision-making authority and its rights to the
for terminating a lease, if the lease term reflects the Group variable returns from the entity;
exercising the option to terminate. The variable lease payments A Insurance contracts: assessment of the significance
that do not depend on an index or a rate are recognised as of insurance risk transferred to/from the Group in
an expense in the period in which the event or condition that determining whether a contract should be accounted
triggers the payment occurs. Lease liabilities are included in for as an insurance contract or as a financial instrument.
‘trade and other payables’ on the balance sheet. This includes assessing the risk transferred on loss
portfolio transfers and the appropriate presentation
In calculating the present value of lease payments, the of retroactive reinsurance transactions;
Group uses the incremental borrowing rate at the lease A Financial investments: classification and measurement of
commencement date if the interest rate implicit in the lease investments including the application of the fair value option.
is not readily determinable. After the commencement date,
the amount of lease liabilities is increased to reflect the Significant accounting estimates
accretion of interest and reduced for the lease payments All estimates are based on management’s knowledge of
made. In addition, the carrying amount of lease liabilities is current facts and circumstances, assumptions based
154 Hiscox Ltd Report and Accounts 2021

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| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
2 Basis of preparation The Group carries its financial investments at fair value
2.21 Use of significant judgements, estimates through profit or loss, with fair values determined using
and assumptions published price quotations in the most active financial markets
Significant accounting estimates continued in which the assets trade, where available. Where quoted
on that knowledge and their predictions of future market prices are not available, valuation techniques are
events. Actual results may differ from those estimates, used to value financial instruments. These include third-party
possibly significantly. valuation reports and models utilising both observable and
unobservable market inputs. Valuation techniques involve
Revisions to accounting estimates are recognised in the judgement, including the use of valuation models and their
period in which the estimate is revised and in any future inputs, which can lead to a range of plausible valuations for
periods affected. financial investments. Note 3.3 discusses the reliability of
the Group’s fair values.
The following describes items considered particularly
susceptible to changes in estimates and assumptions. The employee retirement benefit scheme obligations are
calculated and valued with reference to a number of actuarial
The most critical estimate included within the Group’s assumptions including mortality, inflation rates and discount
balance sheet is the measurement of insurance liabilities and rate, many of which have been subject to specific recent
reinsurance assets on the balance sheet, and in particular volatility. This complex set of economic variables can have
the estimate of losses incurred but not reported (IBNR) a significant impact on the financial statements, as shown
within these balances. The total gross estimate of IBNR as at in note 27.
31December2021 is $4,539.8 million (2020: $4,571.9million).
The total estimate for reinsurers’ share of losses IBNR as at The Group operates in a complex multinational environment,
31 December 2021 is $2,349.5million (2020:$2,227.7 million). and legislation concerning the determination of taxation
assets and liabilities is complex and continually evolving.
Estimates of IBNR are continually evaluated, based on In preparing the financial statements, the Group applies
entity-specific historical experience and contemporaneous significant judgements in identifying uncertainties over
developments observed in the wider industry when relevant, tax treatments and in the measurement of the provision
and are also updated for expectations of prospective future being the best estimate of the amount expected to become
developments. Between the reporting and final settlement payable. The assessment is based on the judgement of
of a claim circumstances may change, which may result in tax professionals within the Group supported by previous
changes to the established liability. The overall reserving risk experience in respect of such activities and based on
is discussed in more detail in note 3.2 and the procedures advice sought from specialist tax advisors.
used in estimating the cost of settling insured losses at
the balance sheet date including losses incurred but not A deferred tax asset can be recognised only to the extent
reported are detailed in note 23. that it is recoverable. The recoverability of deferred tax
assets in respect of carry forward losses requires consideration
The Group tests the adequacy of its unearned premium of the future levels of taxable profit in the Group. In preparing
liability by comparing current estimates of future claims the Group’s financial statements, management estimates
and claims handling expenses attributable to the unexpired taxation assets and liabilities after taking appropriate
periods of policies at the balance sheet date to the unearned professional advice, as shown in note 25. Significant estimates
premium liability net of acquisition costs. As set out in note and assumptions used in the valuation of deferred tax relate
2.13(d), any deficiency is recognised in the income statement. to the forecast taxable profits, taking into account the Group’s
The related deferred acquisition costs are first written down financial and strategic plans. See note 26 for further details
and any additional liability required is then recognised as an of adjustments made to deferred tax during the year.
unexpired risk reserve (URR).
The determination and finalisation of agreed taxation assets
Another key estimate contained within the Group’s and liabilities may not occur until several years after the
consolidated financial statements is an estimate of gross reporting date and consequently the final amounts payable
premiums written during the year. For certain contracts, or receivable may differ from those presented in these
premium is initially recognised based on estimates of ultimate financial statements.
premium. This occurs where pricing is based on variables,
which are not known with certainty at the point of binding the 2.22 Reporting of additional performance measures
policy. In determining the estimated premium, the Group The Directors consider that the combined ratio measures
uses information provided by brokers and coverholders, reported in respect of operating segments and the Group
past underwriting experience, the contractual terms overall in note 4 and net asset value per share and return on
of the policy and prevailing market conditions. Subsequently, equity measures disclosed in notes 5 and 6, provide useful
adjustments to those estimates arise as updated information information regarding the underlying performance of the
relating to those pricing variables becomes available, for Group’s businesses. These measures are widely recognised
example due to declarations obtained on binding authority by the insurance industry and are consistent with the internal
contracts, reinstatement premium on reinsurance contracts performance measures reviewed by senior management
or other policy amendments. Such adjustments are recorded including the chief operating decision-maker. However, these
in the period in which they are determined and impact gross measures are not defined within the accounting standards and
premiums written in the consolidated income statement and interpretations, and therefore may not be directly comparable
premiums receivable from insureds and cedants recorded on with similarly titled additional performance measures reported
the consolidated balance sheet. by other companies.
155Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
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| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
3 Management of risk The Board requires all underwriters to operate within an overall
The Group’s overall appetite for accepting and managing Group appetite for individual events. This defines the maximum
varying classes of risk is defined by the Group’s Board exposure that the Group is prepared to retain on its own
of Directors. The Board has developed a governance account for any one potential catastrophe event or disaster.
framework and has set Group-wide risk management In addition, the Group’s overall underwriting risk appetite
policies and procedures which include risk identification, seeks to ensure that in a 1-in-200 bad year we are within the
risk management and mitigation and risk reporting. The underwriting risk limit. The limit is calibrated each year based
objective of these policies and procedures is to protect on exposure, expected profit and the size of other correlated
the Group’s shareholders, policyholders and other risks to enable us to continue in business and take advantage
stakeholders from negative events that could hinder of market opportunities that arise. This approach is still being
the Group’s delivery of its contractual obligations and refined and is expected to be further updated for 2022.
its achievement of sustainable profitable economic and
social performance. Specific underwriting objectives such as aggregation limits,
reinsurance protection thresholds and geographical disaster
The Board exercises oversight of the development and event risk exposures are prepared and reviewed by the
operational implementation of its risk management policies Group Chief Underwriting Officer in order to translate the Board’s
and procedures through the Risk Committee and ongoing summarised underwriting strategy into specific measurable
compliance therewith, through a dedicated internal audit actions and targets. These actions and targets are reviewed
function, which has operational independence, clear terms and approved by the Board in advance of each underwriting
of reference influenced by the Board’s Non Executive Directors year. The Board continually reviews its underwriting strategy
and aclear upwards reporting structure back into the Board. throughout each underwriting year in light of the evolving market
The Group, in line with the non-life insurance industry generally, pricing and loss conditions and as opportunities present
is fundamentally driven by adesire to originate, retain and themselves. The Group’s underwriters and management
service insurance contracts to maturity. The Group’s cash flows consider underwriting risk at an individual contract level, and also
are funded mainly through advance premium collections and from a portfolio perspective where the risks assumed in similar
the timing of such premium inflows is reasonably predictable. classes of policies are aggregated and the exposure evaluated
In addition, the majority of material cash outflows are typically in light of historical portfolio experience and prospective factors.
triggered by the occurrence of insured events, although the
timing, frequency and severity of claims can fluctuate. To assist with the process of pricing and managing
underwriting risk, the Group routinely performs a wide
The Group continues to monitor and respond to Covid-19 range of activities including the following:
as required, in particular any continued developments and A regularly updating the Group’s risk models;
the impacts related to our operations, insurance claims, A documenting, monitoring and reporting on the Group’s
reinsurance assets and investments on the Group’s capital strategy to manage risk;
and liquidity positions. A developing systems that facilitate the identification of
emerging issues promptly;
The principal sources of risk relevant to the Group’s operations A utilising sophisticated computer modelling tools to
and its financial statements fall into three broad categories: simulate catastrophes and measure the resultant
operational risk, insurance risk and financial risk, which are potential losses before and after reinsurance;
described in notes 3.1, 3.2 and 3.3 below. The Group also A monitoring legal developments and amending the
actively manages its capital risks as detailed in note 3.4 and tax wording of policies when necessary;
risks as detailed in note 3.5. Additional unaudited information is A regularly aggregating risk exposures across individual
also provided in the corporate governance, risk management underwriting portfolios and known accumulations of risk;
and capital sections of this Report and Accounts. A examining the aggregated exposures in advance of
underwriting further large risks; and
3.1 Operational risk A developing processes that continually factor market
The Group demonstrated continued resilience, underscoring intelligence into the pricing process.
the benefits of its business model, disciplined risk management
and ongoing investment in technology and infrastructure. The The delegation of underwriting authority to specific individuals,
measures the Group has implemented to adapt to the Covid-19 both internally and externally, is subject to regular review.
pandemic have proven largely effective in addressing the All underwriting staff and binding agencies are set strict
relevant challenges and operational risks and some of these parameters in relation to the levels and types of business
measures represent an acceleration of longer-term plans. they can underwrite, based on individual levels of experience
and competence. These parameters cover areas such as the
3.2 Insurance risk maximum sums insured per insurance contract, maximum
The predominant risk to which the Group is exposed is insurance gross premiums written and maximum aggregated exposures
risk which is assumed through the underwriting process. per geographical zone and risk class. Regular meetings are held
Insurance risk can be sub-categorised into i) underwriting risk between the Group Chief Underwriting Officer and aspecialist
including the risk of catastrophe and systemic insurance losses team in order to monitor claims development patterns and
and the insurance competition and cycle, and ii) reserving risk. discuss individual underwriting issues as they arise. The Group
compiles estimates of losses arising from extreme loss events
i) Underwriting risk using statistical models alongside input from its underwriters.
The Board sets the Group’s underwriting strategy and risk These require significant management judgement. The extreme
appetite, seeking to exploit identified opportunities in light loss scenarios, shown on page 41, represent hypothetical
of other relevant anticipated market conditions. major events occurring in areas with large insured values.
156 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
3 Management of risk The specific insurance risks accepted by the Group fall
3.2 Insurance risk broadly into the following main categories: reinsurance
i) Underwriting risk continued inwards, marine and major asset property, other property
They also represent areas of potentially significant exposure for risks, casualty professional indemnity and casualty other
Hiscox. In addition to understanding the loss Hiscox may suffer insurance risks. These specific categories are defined for risk
from an event, it is important to ensure that the risk models review purposes only, as each contains risks specific to the
used are calibrated to the risks faced today. This includes nature of the cover provided. They are not exclusively aligned
updating trends in claims payments, and capturing climate to any specific reportable segment in the Group’s operational
change-related impacts. Hiscox has a climate risk framework, structure or to the primary internal reports reviewed by the
which is used to assess where research resources should be chief operating decision-maker. The Group also considers
focused, and models updated, and as a result improves not climate change to be a cross-cutting risk with potential to
only the Group’s understanding of the potential impact of a impact each existing risk type, rather than a standalone
changing climate but also the Group’s ability to respond. risk. By design, the established and embedded Group risk
management framework provides a controlled and consistent
The selection of extreme loss scenario events is adjusted system for the identification, measurement, mitigation,
each year and they are not therefore necessarily directly monitoring and reporting of risks (both current and emerging)
comparable from one year to the next. The events are extreme and so is structured in a way that allows us to continually and
and unprecedented, and as such these estimates may prove consistently manage the various impacts of climate risk on the
inadequate as a result of incorrect assumptions, model risk profile. This is supported by equally robust processes and
deficiencies, or losses from unmodelled risks. This means that policies that address climate-related underwriting risks, such
should an extreme loss event actually occur, the Group’s final as the Group-wide ESG exclusions policy which represents
ultimate losses could materially differ from those estimates a commitment to reduce steadily and eliminate by 2030 both
modelled by management. The Group’s insurance contracts underwriting and investment exposure to coal-fired power
include provisions to contain losses, such as the ability to impose plants and coal mines; Arctic energy exploration, beginning
deductibles and demand reinstatement premiums in certain with the Arctic National Wildlife Refuge; oil sands; and
cases. In addition, in order to manage the Group’s exposure controversial weapons such as landmines. More information
to repeated catastrophic events (both man-made and natural on the strategy and governance structures in place to manage
catastrophes), relevant policies frequently contain payment climate-related risks can be found on pages 44 to 59. The
limits to cap the maximum amount payable from these insured following describes the policies and procedures used to
events over the contract period. In the case of climate-exposed identify and measure the risks associated with each individual
risks specifically, the vast majority of contracts written by the category of business.
Group are annual in nature and thus can be revised frequently.
This flexibility is a key tool for managing the multi-decade Reinsurance inwards
challenge of climate risks holistically. The Group’s reinsurance inwards acceptances are primarily
focused on large commercial property, homeowner and marine
The Group also manages underwriting risk by purchasing and short-tail specialty exposures held by other insurance
reinsurance. Reinsurance protection is purchased at an entity companies predominantly in North America and other
level and is also considered at an overall Group level to mitigate developed economies. This business is characterised more
the effect of catastrophes and unexpected concentrations of by large claims arising from individual events or catastrophes
risk. However, the scope and type of reinsurance protection than the high-frequency, low-severity attritional losses
purchased may change depending on the extent and associated with certain other business written by the Group.
competitiveness of cover available in the market. Below is Multiple insured losses can periodically arise out of asingle
asummary of the gross and net insurance liabilities for each natural or man-made occurrence. The main circumstances
category of business. that result in claims against the reinsurance inwards book are
conventional catastrophes, such as earthquakes or storms,
The estimated liquidity profile to settle the gross claims but also includes other events including fires, explosions and
liabilities is given in note 3.3(e). cyber events. The occurrence and impact of these events
Estimated concentration of gross and net insurance liabilities on the balance sheet as at 31December 2021
Types of insurance risk in the Group
Property – Property – Casualty –
Reinsurance marine and other professional Casualty –
inwards major assets assets indemnity other risks Other* Total
$m $m $m $m $m $m $m
Total Gross 2,349.4 281.9 1,505.7 2,705.3 1,298.9 727. 2 8,868.4
Net 633.2 127.6 926.4 2,172.1 6 0 8.1 493.0 4,960.4
Estimated concentration of gross and net insurance liabilities on the balance sheet as at 31December 2020
Types of insurance risk in the Group
Property – Property – Casualty –
Reinsurance marine and other professional Casualty –
inwards major assets assets indemnity other risks Other* Total
$m $m $m $m $m $m $m
Total Gross 2,592.7 286.7 1,3 0 8.1 2,650.4 1,576.5 699.0 9,113.4
Net 812.8 13 8.1 671.3 2,268.6 1,0 97.0 481.0 5,468.8
*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.
157Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
3 Management of risk of claims under these policies. The Group’s exposure to
3.2 Insurance risk commodity price risk in relation to these types of insurance
i) Underwriting risk contracts is very limited, given the controlled extent of business
Reinsurance inwards continued interruption cover offered in the areas prone to losses of
are very difficult to predict over the short term, which asset production.
complicates attempts to anticipate claims frequencies
on an annual basis. In those years where there is alow Other property risks
incidence of severe catastrophes, claims frequencies on The Group provides home and contents insurance, together
the reinsurance inwards book can be relatively low. with cover for artwork, antiques, classic cars, jewellery,
collectables and other assets. The Group also extends cover
A significant proportion of the reinsurance inwards business to reimburse certain policyholders when named insureds or
provides cover on an excess of loss basis for individual insured assets are seized for kidnap and aransom demand is
events. The Group agrees to reimburse the cedant once subsequently met. Events which can generate claims on these
their losses exceed aminimum level. Consequently the contracts include burglary, kidnap, seizure of assets, acts of
frequency and severity of reinsurance inwards claims are vandalism, fires, flooding and storm damage. Losses on most
related not only to the number of significant insured events classes can be predicted with agreater degree of certainty as
that occur but also to their individual magnitude. If numerous there is arich history of actual loss experience data and the
catastrophes occurred in any one year, but the cedant’s locations of the assets covered, and the individual levels of
individual loss on each was below the minimum stated, security taken by owners, are relatively static from one year to
then the Group would have no liability under such contracts. the next. The losses associated with these contracts tend to
Maximum gross line sizes and aggregate exposures are be of a higher frequency and lower severity than the marine
set for each type of programme. and other major property assets covered above.
The Group writes reinsurance risks for periods of mainly The Group’s home and contents insurance contracts are
one year so that contracts can be assessed for pricing exposed to weather and climate-related risks such as floods
and terms and adjusted to reflect any changes in market and windstorms and their consequences. As outlined earlier,
conditions and the evolving impact of climate change. the frequency and severity of these losses do not lend
themselves to accurate prediction over the short term.
Property risks – marine and major assets Contract periods are therefore not normally more than
The Group directly underwrites a diverse range of one year at a time to enable risks to be regularly repriced.
property risks. The risk profile of the property covered
under marine and major asset policies is different to that Contracts are underwritten by reference to the commercial
typically contained in the other classes of property replacement value of the properties and contents insured.
(such as private households and contents insurance) Claims payment limits are always included to cap the amount
covered by the Group. payable on occurrence of the insured event.
Typical property covered by marine and other major Casualty insurance risks
property contracts includes fixed and moveable assets The casualty underwriting strategy attempts to ensure that
such as ships and other vessels, cargo in transit, energy the underwritten risks are well diversified in terms of type and
platforms and installations, pipelines, other subsea assets, amount of potential hazard, industry and geography. However,
satellites, commercial buildings and industrial plants the Group’s exposure is more focused towards professional,
and machinery. These assets are typically exposed to general, technological and marine liability risks rather than
a blend of catastrophic and other large loss events and human bodily injury risks, which are only accepted under
attritional claims arising from conventional hazards such limited circumstances. Claims typically arise from incidents
as collision, flooding, fire and theft. Climate change may such as errors and omissions attributed to the insured,
give rise to more frequent and severe extreme weather professional negligence and specific losses suffered as
events (for example windstorms and river flooding) and it aresult of electronic or technological failure of software
may be expected that their frequency will increase over time. products and websites.
For this reason, the Group accepts major property insurance The provision of insurance to cover allegations made against
risks for periods of mainly one year so that each contract individuals acting in the course of fiduciary or managerial
can be repriced on renewal to reflect the continually evolving responsibilities, including directors and officers’ insurance,
risk profile. The most significant risks covered for periods is one example of a casualty insurance risk.
exceeding one year are certain specialist lines such as
marine and offshore construction projects which can The Group’s casualty insurance contracts mainly experience
typically have building and assembling periods of between low-severity attritional losses. By nature, some casualty losses
three and four years. These form a small proportion of the may take longer to settle than other categories of business.
Group’s overall portfolio. In addition, there is increased potential for accumulation
in casualty risk due to the growing complexity of business,
Marine and major property contracts are normally underwritten technological advances, and greater interconnectivity and
by reference to the commercial replacement value of the interdependency across the world due to globalisation.
property covered. The cost of repairing or rebuilding assets, The Group’s pricing strategy for casualty insurance policies
of replacement or indemnity for contents and time taken to is typically based on historical claim frequencies and
restart or resume operations to original levels for business average claim severities, adjusted for inflation and
interruption losses are the key factors that influence the level extrapolated forwards to incorporate projected changes
158 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements

| 3 Management of risk | In addressing specific aspects of the impact of Covid-19 on |  |
| --- | --- | --- |
| 3.2 Insurance risk | Hiscox in relation to insurance risk, the Group focuses on: |  |
| i) Underwriting risk | A | handling claims arising from the Covid-19 pandemic |
| Casualty insurance risks continued |  | in a fair, consistent and efficient way. Actively settling |
| in claims patterns. In determining the price of each policy, |  | claims for business interruption, event cancellation |
| an allowance is also made for acquisition and administration |  | and abandonment, media and entertainment and |
| expenses, reinsurance costs, investment returns and the |  | other segments including travel; |
| Group’s cost of capital. | A working with reinsurers to finalise the |  |

reinsurance recoveries.
The market for cyber insurance is still a relatively immature
one, complicated by the fast-moving nature of the threat, as Following the Supreme Court Judgment in January 2021,
the world becomes even more connected. The risks associated the Group began paying claims in line with the judgment.
with cyber insurance are multiplying in both diversity and scale, The Group has increased its claims handling capacity, and the
with associated financial and reputational consequences of process of collecting information from customers who have
failing to prepare for them. The Group has focused its cyber cover and settling their claims progresses well. Settling these
expertise on prevention, in addition to the more traditional claims remains a high priority for the Group. Further, the UK
recovery product. Cyber products are sold through our business interruption book has now been re-underwritten
businesses in the UK, USA and Europe, and the product is under the appropriate pandemic exclusion terms.
sold both direct to consumers and through a more traditional
broker channel. While the Group incurred additional losses early in 2021 due
to additional UK lockdown measures in January, we have also
ii) Reserving risk benefitted from positive prior-year development on first order
The Group’s procedures for estimating the outstanding costs Covid-19-related losses in our events and contingency book.
of settling insured losses at the balance sheet date, including Consequently, there has been no material movement in Covid-19
claims incurred but not yet reported, are detailed in note 23. losses for the year. The ultimate amounts of these claims
The Group’s provision estimates are subject to rigorous remain subject to a higher than normal level of uncertainty in the
review by senior management from all areas of the business. best estimate at this stage of development. Consequentially, in
The managed Syndicates and US business receive a review of measuring the liabilities, the Group has included an allowance
their estimates from independent actuaries. The final provision for risk and uncertainties that is above the best estimate.
is approved by the relevant boards on the recommendation of
dedicated reserving committees. In determining the Covid-19-related net claims, the Group
estimates the reinsurers’ share of the claims by applying
Similar to the underwriting risk detailed above, the Group’s a consistent set of assumptions with those in determining
reserve risks are well diversified. Short-tailed claims are the gross claims, considering the individual wording of the
normally notified and settled within 12 to 24 months of the reinsurance treaties, and assessing the potential for default
insured event occurring. Those claims taking the longest or dispute risks. Changes to this set of assumptions and
time to develop and settle typically relate to casualty risks, estimates could materially affect the amount of reinsurers’
where legal complexities occasionally develop regarding share of the claims.
the insured’s alleged omissions or negligence. The length
of time required to obtain definitive legal judgments and 3.3 Financial risk
make eventual settlements exposes the Group to adegree Overview
of reserving risk in an inflationary environment. The Group is exposed to financial risk through its ownership
of financial instruments including financial liabilities. These
The final quantum for casualty claims may not be established items collectively represent asignificant element of the Group’s
for many years after the event. A significant proportion of the net shareholder funds. The Group invests in financial assets in
casualty insurance amounts reserved on the balance sheet order to fund obligations arising from its insurance contracts
may not be expected to settle within 24 months of the balance and financial liabilities.
sheet date. Consequently, our approach is not to recognise
favourable experience in the early years of development in the The key financial risk for the Group is that the proceeds from
reserving process when setting the best estimate. its financial assets and investment result generated thereon
are not sufficient to fund the Group’s obligations. The most
Certain marine and property insurance contracts, such as important elements and economic variables that could result in
those relating to subsea and other energy assets and the such an outcome relate to the reliability of fair value measures,
related business interruption risks, can also take longer equity price risk, interest rate risk, credit risk, liquidity risk and
than normal to settle. This is because of the length of time currency risk. The Group’s policies and procedures for managing
required for detailed subsea surveys to be carried out and exposure to these specific categories of risk are detailed below.
damage assessments agreed, together with difficulties
in predicting when the assets can be brought back into (a) Reliability of fair values
full production. The Group has elected to carry loans and receivables at
amortised cost and all financial investments at fair value
For the inwards reinsurance lines, there is often a time lag through profit or loss as they are managed and evaluated on
between the establishment and re-estimate of case reserves afair value basis in accordance with adocumented strategy.
and reporting to the Group. The Group works closely with the
reinsured to ensure timely reporting and also centrally analyses With the exception of any unquoted investments shown in
industry loss data to verify the reported reserves. note 20, all of the financial investments held by the Group are
159Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
3 Management of risk The allocation of price risk is not heavily confined to any one
3.3 Financial risk market index so as to reduce the Group’s exposure to individual
(a) Reliability of fair values continued sensitivities. We make allocations to diversifying and less
available to trade in markets and the Group therefore seeks volatile strategies, such as absolute return strategies, so as to
to determine fair value by reference to published prices or as balance our desire to maximise returns with the need to ensure
derived by pricing vendors using observable quotations in the capital is available to support our underwriting throughout any
most active financial markets in which the assets trade. downturn in financial markets.
The fair value of financial assets is measured primarily with (c) Interest rate risk
reference to their closing market prices at the balance sheet Debt and fixed income investments represent asignificant
date. The ability to obtain quoted market prices may be reduced proportion of the Group’s assets and the Board continually
in periods of diminished liquidity. In addition, those quoted prices monitors investment strategy to minimise the risk of afall in
that may be available may represent an unrealistic proportion the portfolio’s market value which could affect the amount
of market holdings or individual trade sizes that could not be of business that the Group is able to underwrite or its ability
readily available to the Group. In such instances, fair values may to settle claims as they fall due. The fair value of the Group’s
be determined or partially supplemented using other observable investment portfolio of debt and fixed income holdings is
market inputs such as prices provided by market makers such normally inversely correlated to movements in market interest
as dealers and brokers, and prices achieved in the most recent rates. If market interest rates rise, the fair value of the Group’s
regular transaction of identical or closely-related instruments debt and fixed income investments would tend to fall and
occurring before the balance sheet date but updated for vice versa if credit spreads remained constant. Debt
relevant perceived changes in market conditions. and fixed income assets are predominantly invested in
high-quality corporate, government and asset-backed bonds.
The Group did not experience any material defaults on The investments typically have relatively short durations and
debt securities during the year. terms to maturity. The portfolio is managed to minimise the
impact of interest rate risk on anticipated Group cash flows.
Valuation of securities will continue to be impacted by external
market factors including default rates, rating agency actions and The Group may also, from time to time, enter into interest
liquidity. The Group will make adjustments to the investment rate future contracts in order to reduce interest rate risk on
portfolio as appropriate as part of its overall portfolio strategy, specific portfolios. The fair value of debt and fixed income
but its ability to mitigate its risk by selling or hedging its assets in the Group’s balance sheet at 31December2021
exposures may be limited by the market environment. was $5,528million (2020*: $5,588million). These may be
analysed below as follows:
The Group’s future results may be impacted, both positively and
negatively, by the valuation adjustments applied to securities. Nature of debt and fixed income holdings
2021 2020*
Note 20 provides an analysis of the measurement
% weighting % weighting
attributes of the Group’s financial instruments.
Government issued 16 20
Agency and government supported 6 5
(b) Price risk
Asset-backed securities 2 –
The Group is exposed to price risk through its holdings of
Mortgage-backed instruments 7 6
equities and investment funds. This is limited to a relatively
Corporate bonds 65 64
small and controlled proportion of the overall investment
Lloyd’s deposits and bond funds 2 3
portfolio and the equities and investment funds involved
Credit funds 2 2
are diversified over a number of companies and industries.
* Certain debt and bond funds have been reallocated from investment funds to
The fair value of equities and investment fund assets in the
debt and fixed income holdings to better reflect the nature of the investments.
Group’s balance sheet at 31December2021 was $461million
(2020:$464million). A 10% downward correction in equities
and investment fund prices at 31December2021 would have One method of assessing interest rate sensitivity is through
been expected to reduce Group equity and profit after tax by the examination of duration-convexity factors in the underlying
approximately $41million (2020:$38 million). portfolio. Using a duration-convexity-based sensitivity analysis,
if market interest rates had increased or decreased by 100
These may be analysed as follows: basis points at the balance sheet date, the Group equity
and profit after tax for the year might have been expected to
Nature of equity and investment fund holdings decrease or increase by approximately $94million respectively
(2020:$90million) assuming that the balance sheet area
2021 2020*
impacted was debt and fixed income financial assets excluding
% weighting % weighting
interest rate futures. Duration is the weighted average length
Directly held equity securities 10 10
of time required for an instrument’s cash flow stream to be
Equity funds 55 60
recovered, where the weightings involved are based on the
Hedge funds 35 30
discounted present values of each cash flow. Aclosely related
Geographic focus
concept, modified duration, measures the sensitivity of the
Specific UK mandates 38 46
instrument’s price to a change in its yield to maturity. Convexity
Global mandates 62 54
measures the sensitivity of modified duration to changes in
the yield to maturity. Using these three concepts, scenario
* Certain debt and bond funds have been reallocated from investment funds to
debt and fixed income holdings to better reflect the nature of the investments. modelling derives the above estimated impact on instruments’
160 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
3 Management of risk There is no significant concentration of credit risk with respect
3.3 Financial risk to loans and receivables, as the Group has alarge number of
(c) Interest rate risk continued internationally dispersed debtors with unrelated operations.
fair values for a 100 basis point change in the term structure Reinsurance is used to contain insurance risk. This does
of market interest rates. not, however, discharge the Group’s liability as primary
insurer. If areinsurer fails to pay a claim for any reason, the
Insurance contract liabilities are not directly sensitive to the Group remains liable for the payment to the policyholder.
level of market interest rates, as they are undiscounted The creditworthiness of reinsurers is therefore continually
and contractually non-interest-bearing. The Group’s debt reviewed throughout the year.
and fixed income assets are further detailed in note 17.
The Group Credit Committee assesses the creditworthiness
At 31December2021, the Group had borrowings of of all reinsurers by reviewing credit grades provided by rating
£550million (2020:£691million). The borrowings agencies and other publicly available financial information
comprised of £nil drawn on the Group’s borrowing facility detailing their financial strength and performance, as well as
(2020:£141million) and £550million (2020:£550million) detailed analysis from the Group’s analysis team. The financial
of long-term debt. The £550million includes two listed analysis of reinsurers produces an assessment categorised
instruments of £275million each, as explained in note 17: by factors including their S&P rating (or equivalent when not
the first being fixed-to-floating rate notes where the available from S&P).
floating rate becomes effective from November2025; the
second being fixed rate notes maturing in December2022. Despite the rigorous nature of this assessment exercise, and
The Group has no other significant borrowings or other the resultant restricted range of reinsurance counterparties
assets or liabilities carrying interest rate risk, other than the with acceptable strength and credit credentials that emerges
facilities and Letters of Credit (LOCs) outlined in note 30. therefrom, some degree of credit risk concentration
remains inevitable.
(d) Credit risk
The Group has exposure to credit risk, which is the risk The Committee considers the reputation of its reinsurance
that acounterparty will suffer adeterioration in actual or partners and also receives details of recent payment history
perceived financial strength and be unable to pay amounts and the status of any ongoing negotiations between Group
in full when due, or that for any other reason they renege companies and these third parties.
on a contract or alter the terms of an agreement. The
concentrations of credit risk exposures held by insurers This information is used to update the reinsurance
may be expected to be greater than those associated with purchasing strategy.
other industries, due to the specific nature of reinsurance
markets and the extent of investments held in financial Individual operating units maintain records of the payment
markets. In both markets, the Group interacts with anumber history for significant brokers and contract holders with
of counterparties who are engaged in similar activities with whom they conduct regular business. The exposure
similar customer profiles, and often in the same geographical to individual counterparties is also managed by other
areas and industry sectors. Consequently, as many of these mechanisms, such as the right of offset, where counterparties
counterparties are themselves exposed to similar economic are both debtors and creditors of the Group, and obtaining
characteristics, one single localised or macroeconomic change collateral from unrated counterparties. Management
could severely disrupt the ability of a significant number of information reports detail provisions for impairment on
counterparties to meet the Group’s agreed contractual terms loans and receivables and subsequent write-off. Exposures
and obligations. to individual intermediaries and groups of intermediaries
are collected within the ongoing monitoring of the controls
Key areas of exposure to credit risk include: associated with regulatory solvency.
A reinsurers’ share of insurance liabilities;
A amounts due from reinsurers in respect of claims The Group also mitigates counterparty credit risk by
already paid; concentrating debt and fixed income investments in a portfolio
A amounts due from insurance contract holders; and of typically high-quality corporate and government bonds.
A counterparty risk with respect to cash and cash
equivalents, and investments including deposits,
derivative transactions and catastrophe bonds.
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.
161Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
3 Management of risk
3.3 Financial risk
(d) Credit risk continued
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:
Other/
AAA AA A BBB non-rated Total
As at 31 December 2021 Note $m $m $m $m $m $m
Debt and fixed income holdings 17 660.5 1,326.7 1,556.2 1,6 0 4.1 380.6 5,528.1
Reinsurance assets 16 959.2 1,029.9 1,760.8 123.4 34.7 3,908.0
Cash and cash equivalents 21 141.4 35.7 1,122.4 0.3 0.9 1,300.7
Total 1,761.1 2,392.3 4,439.4 1,727. 8 416.2 10,736.8
Other/
AAA AA A BBB non-rated Total
As at 31 December 2020 Note $m $m $m $m $m $m
Debt and fixed income holdings* 17 411.3 1,948.2 1,586.7 1,426.8 215.3 5,588.3
Reinsurance assets 16 1,079.7 946.7 1,396.0 188.7 33.5 3,644.6
Cash and cash equivalents 21 134.0 98.9 1,339.6 3.5 1.2 1,577. 2
Total 1,625.0 2,993.8 4,322.3 1,619.0 250.0 10,810.1
*The 2020 figures have been re-presented for the re-allocation of certain equities to debt holdings.
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.
The largest aggregated counterparty exposure related to debt and fixed income holdings at 31December2021 of $712million is
to the US Treasury (2020:$920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2021 is to Munich Re. The recoverable from Munich Re represents 11% (2020: Kiskadee 19%) 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2021 and 2020.
162 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
3 Management of risk
3.3 Financial risk continued
(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 at balance sheet date analysed by contractual maturity

| Less than |  | Between one |  | Between two |  | Over |  | 2021 |  | 2020* |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| one year |  | and two years |  | and five years |  | five years |  | total |  | total |  |
|  | $m |  | $m |  | $m |  | $m |  | $m |  | $m |

Debt and fixed income holdings 1,111.2 1,26 3.1 2,510.7 643.1 5,528.1 5,588.3
Cash and cash equivalents 1,300.7 – – – 1,300.7 1,577. 2
Total 2,411.9 1,26 3.1 2,510.7 643.1 6,828.8 7,16 5.5
*The 2020 figures have been re-presented for the re-allocation of certain debt and bond funds to debt and fixed income holdings.
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.
During the year, the Group has repaid all of the cash borrowings that were drawn as contingency funds during the peak of the
Covid-19 pandemic.
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
2021 2020
years years
US Dollar 4.89 3.04
Sterling 2.66 2.82
Euro 3.05 2.71
Canadian Dollar 2.47 2.02
163Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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

|  | Within |  | Between one |  | Between two |  | Over |  | 2021 |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | one year |  | and two years |  | and five years |  | five years |  | total |  |
| 2021 |  | $m |  | $m |  | $m |  | $m |  | $m |

Reinsurance inwards 1,126.4 471.0 416.9 140.2 2,154.5
Property – marine and major assets 85.8 48.3 50.6 18.1 202.8
Property – other assets 456.0 353.9 153.2 59.8 1,022.9
Casualty – professional indemnity 828.5 517.0 553.7 145.8 2,045.0
Casualty – other risks 553.4 266.3 238.1 75.3 1,133.1
Other* 282.2 92.0 84.9 28.5 487.6
Total 3,332.3 1,748.5 1,497.4 467.7 7,0 4 5. 9

|  | Within |  | Between one |  | Between two |  | Over |  | 2020 |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | one year |  | and two years |  | and five years |  | five years |  | total |  |
| 2020 |  | $m |  | $m |  | $m |  | $m |  | $m |

Reinsurance inwards 1,16 8. 2 561.4 5 07. 5 154.1 2,391.2
Property – marine and major assets 78.3 55.8 46.8 14.8 195.7
Property – other assets 444.0 364.0 151.8 52.6 1,012.4
Casualty – professional indemnity 730.2 490.0 519.2 137.1 1,876.5
Casualty – other risks 650.7 338.7 278.5 74.3 1,342.2
Other* 265.2 95.3 87.4 25.5 473.4
Total 3,336.6 1,905.2 1,591.2 458.4 7, 291. 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.
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 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 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.
164 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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:
US Dollar Sterling Euro Other 2021
As at 31 December 2021 $m $m $m $m $m
Goodwill and intangible assets 141.7 136.0 29.3 6.1 313.1
Property, plant and equipment 20.1 47.9 17.0 5.4 90.4
Investments in associates – 5.5 0.2 – 5.7
Deferred income tax 27. 3 33.6 6.4 – 67. 3
Deferred acquisition costs 243.3 111.3 61.3 21.0 436.9
Financial assets carried at fair value 4,147.8 1,180.9 496.4 216.2 6,041.3
Reinsurance assets 2,982.6 573.9 224.9 126.6 3,908.0
Loans and receivables including insurance receivables 795.6 607.4 154.5 120.7 1,678.2
Current tax assets 4.4 – 0.5 – 4.9
Cash and cash equivalents 612.5 425.0 156.9 106.3 1,300.7
Total assets 8,975.3 3,121.5 1,147.4 602.3 13,846.5
Employee retirement benefit obligations – 35.1 – – 35.1
Deferred tax – – 0.1 – 0.1
Insurance liabilities 6,093.8 1,679.0 833.5 262.1 8,868.4
Financial liabilities – 746.5 – 0.2 746.7
Current tax 2.8 13.6 4.8 0.1 21.3
Trade and other payables 931.3 353.0 239.9 111.4 1,635.6
Total liabilities 7,027.9 2,827.2 1,078.3 373.8 11, 307. 2
Total equity 1,947.4 294.3 69.1 228.5 2,539.3
US Dollar Sterling Euro Other 2020
As at 31 December 2020 $m $m $m $m $m
Goodwill and intangible assets 141.1 146.0 7.7 4.1 298.9
Property, plant and equipment 35.3 49.1 22.4 2.6 109.4
Investments in associates – 4.9 – – 4.9
Deferred income tax 26.4 37.1 7. 2 – 70.7
Deferred acquisition costs 240.0 116.3 63.5 19.4 439.2
Financial assets carried at fair value 4,159.3 1,221.9 6 07. 0 128.6 6,116.8
Reinsurance assets 2,525.4 746.7 221.2 151.3 3,644.6
Loans and receivables including insurance receivables 938.6 5 3 3.1 99.7 84.0 1,655.4
Current tax assets 2.3 – 1.0 – 3.3
Cash and cash equivalents 754.0 493.0 197.7 132.5 1,57 7. 2
Total assets 8,822.4 3,348.1 1,2 27.4 522.5 13,920.4
Employee retirement benefit obligations – 73.5 – – 73.5
Deferred tax – – 2.7 – 2.7
Insurance liabilities 6,133.5 1,771.3 9 07.0 301.6 9,113.4
Financial liabilities 125.0 821.3 0.4 – 946.7
Current tax – 10.0 20.4 – 30.4
Trade and other payables 706.4 456.4 154.3 82.7 1,399.8
Total liabilities 6,964.9 3,132.5 1,084.8 384.3 11,566.5
Total equity 1,857.5 215.6 142.6 138.2 2,353.9
165Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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2021, the Group used closing rates of exchange of $1: £0.74 and $1: €0.88 (2020:$1: £0.73 and $1: €0.82).
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 process of deriving the undernoted estimates takes account of the
linear retranslation movements of foreign currency monetary assets and liabilities together with the impact on the retranslation of
those Group entities with non-US Dollar functional currency financial statements.
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.

|  | December 2021 |  | December 2021 |  | December 2020 |  | December 2020 |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | effect on equity |  | effect on profit |  | effect on equity |  | effect on profit |  |
|  | after tax |  | before tax |  | after tax |  | before tax |  |
| As at 31 December |  | $m |  | $m |  | $m |  | $m |

Strengthening of Sterling 49.0 10.2 83.6 8.9
Weakening of Sterling (40.1) (8.4) (68.4) ( 7.3)
Strengthening of Euro 8.6 (18.5) 27. 2 (0.9)
Weakening of Euro (7.1) 15.2 (22.3) 0.7
(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2021, the available capital under IFRS was $2,599million (2020:$2,431million), comprising net tangible asset
value of $2,226million (2020:$2,055million) and subordinated debt of $373million (2020: $376million).
166 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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 $941million at 31December2021 (2020:$946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 £450 million (under a revolving
credit facility) and utilised as LOC up to $266 million. The facility was renewed during 2020, enabling the Group to utilise
the LOC as Funds at Lloyd’s to support underwriting on the 2020, 2021 and 2022 years of account. The revolving
credit facility is available until the end of 2022. As at 31 December 2021, $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
(2020: $266 million and $193.4 million 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 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 £275million of fixed rate senior notes raised in March2018 and maturing in 2022. 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 £13million for the 2022 year of account (2021 year of account: £23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 loss portfolio transfers – 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:
A.M. Best Fitch S&P
Hiscox Insurance Company Limited A (Excellent) A+ A (Strong)
Hiscox Insurance Company (Bermuda) Limited A (Excellent) A+ A (Strong)
Hiscox Insurance Company (Guernsey) Limited A (Excellent) A+ –
Hiscox Insurance Company Inc. A (Excellent) – –
Hiscox Société Anonyme – – 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.
167Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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 BMA will complete phasing in capital requirements changes at
the 2021 year-end. The Group expects to maintain an appropriate margin of solvency after these changes have taken effect.
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 re-pricing or re-characterisation 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 currently considering implementation of OECD ‘Pillar 2’ rules, which,
if legislation is substantively enacted, 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 $25million and $83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.
168 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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.
In January2021, the Hiscox Special Risks division was restructured, integrating its locally written European and US kidnap and
ransom activities with Hiscox Europe and Hiscox USA, and including its activities in Guernsey, Miami and London in a newly
created Crisis Management division in Hiscox London Market. Comparative figures have been re-presented to reflect this change,
along with the previously reported figures where Special Risks was fully allocated to Hiscox Retail. The legal entity structure is not
impacted by this re-presentation.
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.
In addition, the segment includes elements of business written by Syndicate 3624 being auto physical damage and aviation,
however, these are in run-off.
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 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. The segment includes results from run-off portfolios
where the Group has ceded all insurance risks to a third-party reinsurer.
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.
169Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
4 Operating segments continued
(a) Profit before tax by segment
Year to 31 December 2021 Year to 31 December 2020*
Hiscox Hiscox
Hiscox London Hiscox Corporate Hiscox London Hiscox Corporate
Retail Market Re & ILS Centre Total Retail Market Re & ILS Centre Total
$m $m $m $m $m $m $m $m $m $m
Gross premiums
written 2,290.0 1,171.4 8 07.8 – 4,269.2 2,18 0.0 1,10 9.7 74 3.4 – 4,03 3.1
Net premiums
written 1,969.3 711.5 274.2 – 2,955.0 1, 9 07. 8 649.9 192.7 – 2,750.4
Net premiums
earned 1,958.6 690.3 271.0 – 2,919.9 1,886.5 637.6 228.1 – 2,752.2
Investment result 26.9 15.8 8.8 (0.3) 51.2 103.4 60.5 33.6 – 197.5
Other income 22.8 19.1 11.3 3.6 56.8 20.3 14.9 12.5 2.5 50.2
Total income 2,008.3 725.2 291.1 3.3 3,0 27.9 2,010.2 713.0 274.2 2.5 2,999.9
Claims and claim
adjustment
expenses, net
of reinsurance (985.9) (333.9) (110.6) – (1,430.4) (1,409.2) (280.8) (232.7) – (1,922.7)
Expenses for
the acquisition
of insurance
contracts (524.9) (193.9) (15.9) – (734.7) (50 3.1) (184.3) (26.5) – (713.9)
Operational
expenses (435.7) (92.0) (64.7) (30.3) (622.7) (392.2) (92.6) (49.1) (39.1) (573.0)
Net foreign
exchange
gains/(losses) – – – 0.7 0.7 – – – (14.5) (14.5)
Total expenses (1,946.5) (619.8) (191.2) (29.6) (2,787.1) (2,304.5) ( 5 57.7 ) (308.3) (53.6) (3,224.1)
Results of
operating activities 61.8 105.4 99.9 (26.3) 240.8 (294.3) 155.3 (34.1) (51.1) (224.2)
Finance costs (6.9) (0.6) (1.4) (41.9) (50.8) (1.3) (0.1) (1.0) (41.6) (44.0)
Share of profit/
(loss) of associates
after tax – – – 0.8 0.8 – – – (0.3) (0.3)
Profit/(loss)
before tax 54.9 104.8 98.5 ( 67.4) 190.8 (295.6) 155.2 (3 5.1) (93.0) (268.5)
* See Note 4 on page 169 for further details.
Year to 31 December 2020
Hiscox
Hiscox London Hiscox Corporate
Retail Market Re & ILS Centre Total
As previously reported $m $m $m $m $m
Gross premiums written 2,266.3 1,023.4 74 3.4 – 4,0 3 3.1
Net premiums written 1,986.8 570.9 192.7 – 2,750.4
Net premiums earned 1,975.5 548.6 228.1 – 2,752.2
Investment result 107. 3 56.6 33.6 – 197.5
Other income 21.4 13.8 12.5 2.5 50.2
Total income 2,104.2 619.0 274. 2 2.5 2,999.9
Claims and claim adjustment expenses, net of reinsurance (1,395.6) (294.4) (232.7) – (1,922.7)
Expenses for the acquisition of insurance contracts (539.0) (148.4) (26.5) – (713.9)
Operational expenses (405.9) (78.9) (49.1) (39.1) (573.0)
Net foreign exchange (losses) – – – (14.5) (14.5)
Total expenses (2,340.5) (521.7) (308.3) (53.6) (3, 224.1)
Results of operating activities (236.3) 97. 3 (3 4.1) (51.1) (224.2)
Finance costs (1.3) (0.1) (1.0) (41.6) (44.0)
Share of (loss) of associates after tax – – – (0.3) (0.3)
(Loss)/profit before tax (237.6) 97.2 (35.1) (93.0) (268.5)
170 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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 2021 Year to 31 December 2020
Hiscox Hiscox
Hiscox London Hiscox Corporate Hiscox London Hiscox Corporate
Retail Market Re & ILS Centre Total Retail Market Re & ILS Centre Total
$m $m $m $m $m $m $m $m $m $m
Depreciation 16.1 2.2 2.0 0.5 20.8 16.4 2.6 2.7 0.1 21.8
Amortisation of
intangible assets 32.5 3.7 1.0 – 37. 2 26.4 4.2 1.0 – 31.6
Impairment of
intangible assets 0.3 – – – 0.3 0.2 – – – 0.2
Total 48.9 5.9 3.0 0.5 58.3 43.0 6.8 3.7 0.1 53.6
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 2021 Year to 31 December 2020*
Hiscox Hiscox
Hiscox London Hiscox Corporate Hiscox London Hiscox Corporate
Retail Market Re & ILS Centre Total Retail Market Re & ILS Centre Total
100% ratio analysis
Claims ratio (%) 50.0 49.5 40.0 – 48.9 75.9 47.8 99.0 – 70.0
Expense ratio (%) 48.9 39.6 28.0 – 44.3 47. 5 41.4 32.8 – 44.5
Combined ratio (%) 98.9 89.1 68.0 – 93.2 123.4 89.2 131.8 – 114.5
*See note 4 on page 169 for further details.
Year to 31 December 2020
Hiscox
Hiscox London Hiscox Corporate
As previously reported Retail Market Re & ILS Centre Total
100% ratio analysis
Claims ratio (%) 72.2 54.1 99.0 – 70.0
Expense ratio (%) 47.8 39.6 32.8 – 44.5
Combined ratio (%) 120.0 93.7 131.8 – 114.5
171Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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, 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 and excludes a run-off portfolio, where the Group has
ceded all insurance risks to a third-party reinsurer, included within Corporate Centre.
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.
Year to 31 December 2021 Year to 31 December 2020*
Hiscox Hiscox
Hiscox London Hiscox Hiscox London Hiscox
Retail Market Re & ILS Retail Market Re & ILS
$m $m $m $m $m $m
At 100% level (note 4(b))
1% change in claims or expense ratio 19.9 9.2 3.1 19.1 8.5 2.7
At Group level
1% change in claims or expense ratio 19.6 6.9 2.7 18.9 6.4 2.3
*See note 4 on page 169 for further details.
Year to 31 December 2020
Hiscox
Hiscox London Hiscox
Retail Market Re & ILS
As previously reported $m $m $m
At 100% level (note 4(b))
1% change in claims or expense ratio 20.1 7. 5 2.7
At Group level
1% change in claims or expense ratio 19.8 5.5 2.3
(b) 100% operating result by segment
Year to 31 December 2021 Year to 31 December 2020*
Hiscox Hiscox
Hiscox London Hiscox Corporate Hiscox London Hiscox Corporate
Retail Market Re & ILS Centre Total Retail Market Re & ILS Centre Total
$m $m $m $m $m $m $m $m $m $m
Gross premiums
written 2,323.7 1,583.5 887. 9 – 4,795.1 2,210.9 1,502.9 818.5 – 4,532.3
Net premiums
written 1,995.7 958.8 324.4 – 3,278.9 1,929.9 873.3 224.9 – 3,028.1
Net premiums
earned 1,985.0 924.1 313.3 – 3,222.4 1,910.7 850.0 269.4 – 3,0 3 0.1
Investment result 26.7 15.7 8.7 (0.3) 50.8 109.7 64.2 35.6 – 209.5
Other income 19.1 11.9 10.0 2.4 43.4 16.6 10.3 11.3 2.4 40.6
Claims and claim
adjustment
expenses, net
of reinsurance (991.7) (457.8) (125.2) – (1,574.7) (1,449.8) (406.6) (266.7) – (2,123.1)
Expenses for the
acquisition of
insurance contracts (531.8) (252.5) (16.6) – (800.9) (511.8) (238.8) (32.9) – (783.5)
Operational
expenses (439.1) (114.0) (71.1) (28.6) (652.8) (395.3) (113.0) (55.6) (38.9) (602.8)
Net foreign
exchange
(losses)/gains – – – (1.2) (1.2) – – – (12.6) (12.6)
Results of operating
activities 68.2 127.4 119.1 (27.7 ) 287.0 (319.9) 166.1 (38.9) (49.1) (241.8)
*See note 4 on page 169 for further details.
172 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
4 Operating segments
(b) 100% operating result by segment continued
Year to 31 December 2020
Hiscox
Hiscox London Hiscox Corporate
Retail Market Re & ILS Centre Total
As previously reported $m $m $m $m $m
Gross premiums written 2,303.3 1,410.5 818.5 – 4,532.3
Net premiums written 2,015.1 78 8.1 224.9 – 3,0 28.1
Net premiums earned 2,007.6 753.1 269.4 – 3,030.1
Investment result 113.8 6 0.1 35.6 – 209.5
Other income 16.6 10.3 11.3 2.4 40.6
Claims and claim adjustment expenses, net of reinsurance (1,449.1) (4 07. 3) (266.7) – (2,123.1)
Expenses for the acquisition of insurance contracts (550.6) (200.0) (32.9) – (783.5)
Operational expenses (409.8) (98.5) (55.6) (38.9) (602.8)
Net foreign exchange (losses)/gains – – – (12.6) (12.6)
Results of operating activities (271.5) 117.7 (38.9) (49.1) (241.8)
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.
(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
Year to 31 December 2021 Year to 31 December 2020*
Hiscox Hiscox
Hiscox London Hiscox Corporate Hiscox London Hiscox Corporate
Retail Market Re & ILS Centre Total Retail Market Re & ILS Centre Total
$m $m $m $m $m $m $m $m $m $m
UK 815.7 90.8 31.9 – 938.4 759.2 63.8 28.8 – 851.8
Europe 456.1 70.9 33.6 – 560.6 426.1 6 6.1 24.5 – 516.7
USA 934.3 719.4 4 87. 2 – 2,140.9 903.2 710.6 512.9 – 2,126.7
Rest of world 71.4 271.8 263.8 – 607.0 58.5 280.6 236.9 – 576.0
2,277.5 1,152.9 816.5 – 4,246.9 2,147.0 1,121.1 8 03.1 – 4,071.2
*See note 4 on page 169 for further details.
Year to 31 December 2020
Hiscox
Hiscox London Hiscox Corporate
Retail Market Re & ILS Centre Total
As previously reported $m $m $m $m $m
UK 768.9 54.1 28.8 – 851.8
Europe 438.7 53.5 24.5 – 516.7
USA 918.7 695.1 512.9 – 2,126.7
Rest of world 113.4 225.7 236.9 – 576.0
2,239.7 1,028.4 8 0 3.1 – 4,071.2
173Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
4 Operating segments
(c) Geographical information continued
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:

|  | 2021 |  | 2020 |  |
| --- | --- | --- | --- | --- |
|  | total |  | total |  |
| Non-current assets |  | $m |  | $m |

UK 222.5 250.5
Europe 46.5 12.8
USA 128.7 138.6
Rest of world 11.5 11.3
409.2 413.2
5 Net asset value per share and net tangible asset value per share

| 2021 |  |  | 2021 |  |  | 2020 |  |  | 2020 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| net asset value |  |  | net asset value |  |  | net asset value |  |  | net asset value |
|  | (total equity) |  |  | per share |  |  | (total equity) |  | per share |
|  |  | $m |  |  | cents |  |  | $m | cents |

Net asset value 2,539.3 739.8 2,353.9 689.0
Net tangible asset value 2,226.2 648.6 2,055.0 601.5
The net asset value per share is based on 343,232,855 shares (2020:341,647,634 shares), being the shares in issue at
31December2021, 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
546.2p (2020:503.9p).
6 Return on equity
2021 2020
$m $m
Profit/(loss) for the year (all attributable to owners of the Company) 189.5 (293.7)
Opening total equity 2,353.9 2,18 9.7
Adjusted for the time-weighted impact of capital distributions and issuance of shares (11.3) 307.8
Adjusted opening total equity 2,342.6 2,4 97. 5
Return on equity (%) 8.1 (11.8)
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.
174 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
7 Investment result
The total investment result for the Group comprises:
2021 2020
Note $m $m
Investment income including interest receivable 88.1 107.4
Net realised gains on financial investments at fair value through profit or loss 25.2 45.5
Net fair value (losses)/gains on financial investments at fair value through profit or loss (57.9) 51.2
Investment result – financial assets 8 55.4 204.1
Net fair value gains/(losses) on derivative financial instruments 19 1.7 (2.1)
Investment expenses (5.9) (4.5)
Total result 51.2 197.5
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:
2021 2020
% %
US Dollar 0.4 3.3
Sterling 1.5 2.3
Euro 1.1 0.3
Other 0.0 2.1
(b) Investment return

| 2021 |  | 2021 | 2020* |  | 2020* |  |
| --- | --- | --- | --- | --- | --- | --- |
| return |  | yield | return |  | yield |  |
|  | $m |  | % | $m |  | % |

Debt and fixed income holdings (11.4) (0.2) 154.6 3.0
Equities and investment funds 66.2 11.6 45.1 10.5
Deposits with credit institutions/cash and cash equivalents 0.6 0.0 4.4 0.3
Investment result – financial assets 55.4 0.7 20 4.1 2.8
*Returns from certain debt and bond funds have been reallocated from investment funds to debt and fixed income to better reflect the nature of the investments.
There is no impact on the total investment result.
175Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
9 Other income and operational expenses
2021 2020
$m $m
Agency-related income 27.7 22.1
Profit commission 4.8 1.5
Other underwriting income 0.2 2.5
Other income 24.1 24.1
Other income 56.8 50.2
Wages and salaries 228.9 188.7
Social security costs 30.8 33.1
Pension cost – defined contribution 17.3 13.1
Pension cost – defined benefit 1.0 1.1
Share-based payments 24.0 10.3
Temporary staff costs 39.6 40.2
Travel and entertainment 5.6 6.2
Legal and professional 71.6 63.0
Office costs 13.6 15.7
Computer costs 53.8 58.6
Depreciation, amortisation and impairment 58.3 56.8
Other expenses 78.2 86.2
Operational expenses 622.7 573.0
Agency-related income relates to commission received from a non-Group insurer by an insurance intermediary (‘agency’) for
placement services and in limited cases claims handling services. 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 underwriting income represents results from the insurance-linked securities managed by the Group and other income
includes management fees which are recognised when the investment management services are rendered to the ILS funds.
As a result of the disposal of Crystal Ridge subsidiary for $21.4 million on 1 June 2021, the Group has de-recognised the relevant
assets and liabilities and made a gain on disposal 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
$56.6 million (2020: $59.4 million).
10 Finance costs
2021 2020
Note $m $m
Interest charge associated with borrowings 17 30.7 28.6
Interest and expenses associated with bank borrowing facilities 7.5 10.7
Interest and charges associated with Letters of Credit 30 5.0 2.4
Other interest expenses* 7.6 2.3
Finance costs 50.8 44.0
*Including interest expenses on lease liabilities of $1.2 million (2020: $1.4 million) and interest and charges associated with funds withheld balances.
176 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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:
2021 2020
Group $m $m
Amounts receivable by the auditor and its associates in respect of:
The auditing of the accounts of the Group and its subsidiaries 4.6 3.3
All audit-related assurance services 0.3 0.4
All other non-audit services – 0.1
4.9 3.8
The auditing of the Group and its subsidiaries in 2021 includes audit work relating to the implementation of IFRS 17 Insurance
Contracts of $0.3 million (2020: $nil) and $0.5 million relating to the audit of subsidiaries for the year-end 2020. 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
State Software and
Syndicate authorisation development
Goodwill capacity licences costs Other Total
$m $m $m $m $m $m
At 1 January 2020
Cost 13.4 33.1 8.5 269.3 66.5 390.8
Accumulated amortisation and impairment (5.1) – – ( 67. 2) (40.5) (112.8)
Net book amount 8.3 33.1 8.5 202.1 26.0 278.0
Year ended 31 December 2020
Opening net book amount 8.3 33.1 8.5 202.1 26.0 278.0
Additions – – – 62.5 – 62.5
Disposals – – – – (12.8) (12.8)
Amortisation charges – – – (27. 3 ) (4.3) (31.6)
Impairment charge – – – – (0.2) (0.2)
Foreign exchange movements 0.5 – – 4.6 (2.1) 3.0
Closing net book amount 8.8 33.1 8.5 241.9 6.6 298.9
At 31 December 2020
Cost 13.9 33.1 8.5 336.4 40.4 432.3
Accumulated amortisation and impairment (5.1) – – (94.5) (33.8) (133.4)
Net book amount 8.8 33.1 8.5 241.9 6.6 298.9
Year ended 31 December 2021
Opening net book amount 8.8 33.1 8.5 241.9 6.6 298.9
Additions – – – 53.5 – 53.5
Disposals – – – – – –
Amortisation charges – – – (35.3) (1.9) ( 37. 2)
Impairment charge (0.3) – – – – (0.3)
Foreign exchange movements (0.2) – – (1.3) (0.3) (1.8)
Closing net book amount 8.3 33.1 8.5 258.8 4.4 313.1
At 31 December 2021
Cost 11.5 33.1 8.5 386.4 20.2 459.7
Accumulated amortisation and impairment (3.2) – – (127.6) (15.8) (146.6)
Net book amount 8.3 33.1 8.5 258.8 4.4 313.1
177Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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. $7.2million (2020:$7.6million) is allocated to the Lloyd’s corporate member entity CGU and $1.1million
(2020:$1.2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 2021, there was an impairment charge on goodwill of $0.3 million
(2020: $nil).
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 8.0% to 8.5%, depending on the underlying currency (2020:7.0% to 8.5%), has been applied to the 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 to variances, 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 2021, 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 WACC rate. Key assumptions include new
business growth, retention rates, market cycle and claims inflation. The results of the test show there is no impairment.
178 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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 2021 (2020:$nil).
At 31December2021 there were $27.3 million of assets under development on which amortisation has yet to be charged
(2020:$16.4million).
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 2021 (2020: $0.2 million).
179Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
13 Property, plant and equipment
Furniture
fittings and Right-of-use Right-of-use
Land and Leasehold equipment assets: assets:
buildings improvements and art property other Total
$m $m $m $m $m $m
Year ended 31 December 2020
Opening net book amount 24.9 7.3 29.0 66.2 1.0 128.4
Additions – 0.3 8.8 3.2 1.0 13.3
Disposals (0.5) (3.6) (4.5) (4.1) – (12.7)
Depreciation charge (1.2) (1.3) (5.6) (13.1) (0.6) (21.8)
Foreign exchange movements – (0.1) 1.1 1.2 – 2.2
Closing net book amount 23.2 2.6 28.8 53.4 1.4 109.4
At 31 December 2020
Cost 30.2 13.6 61.1 79.7 2.7 187. 3
Accumulated depreciation ( 7.0 ) (11.0) (32.3) (26.3) (1.3) ( 77.9 )
Net book amount 23.2 2.6 28.8 53.4 1.4 109.4
Year ended 31 December 2021
Opening net book amount 23.2 2.6 28.8 53.4 1.4 109.4
Additions – – 5.4 4.2 0.3 9.9
Disposals – – (0.2) (6.2) 0.1 (6.3)
Depreciation charge (1.3) (0.7) (4.6) (13.5) (0.7) (20.8)
Foreign exchange movements (0.1) – (0.4) (1.0) (0.3) (1.8)
Closing net book amount 21.8 1.9 29.0 36.9 0.8 90.4
At 31 December 2021
Cost 29.9 13.6 65.8 68.2 2.7 180.2
Accumulated depreciation (8.1) (11.7) (36.8) (31.3) (1.9) (89.8)
Net book amount 21.8 1.9 29.0 36.9 0.8 90.4
The Group’s land and buildings assets relate to freehold property in the UK. There was an impairment charge during the year of
$nil (2020:$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 $0.7million (2020:$0.8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2021, HDCM owned 72.6% of Syndicate 33 (2020:72.6%), and 100% of Syndicate 3624 (2020: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 Ltd (formerly known as Kiskadee Investment Managers Ltd) which is a wholly owned
subsidiary of the Group.
180 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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 Ltd 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 Ltd, 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2021, the Group recognised a financial asset at fair value of $50.9million (2020:$63.2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 $593million at 31December2021 (2020:$899million). In addition to the return on the financial
asset, the Group also receives fee income through Hiscox Re Insurance Linked Strategies Ltd 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
2021 2020
Year ended 31 December $m $m
At beginning of year 4.9 8.6
Impairments – (3.2)
Distributions received (0.2) (0.2)
Net profit/(loss) from investments in associates 0.8 (0.3)
Foreign exchange movements 0.2 –
At end of year 5.7 4.9
The Group’s interests in its principal associates, all of which are unlisted, were as follows:
100% results
Assets Liabilities Revenues Profit after tax
% interest held at 31 December $m $m $m $m
2021
Associates incorporated in the UK and USA from 29% to 35% 20.3 17.0 13.6 0.2
Associates incorporated in Europe 26% 5.6 3.5 2.4 1.1
Total at the end of 2021 25.9 20.5 16.0 1.3
2020
Associates incorporated in the UK and USA from 29% to 35% 18.6 15.9 12.2 (2.1)
Associates incorporated in Europe 26% 4.4 2.3 2.5 1.2
Total at the end of 2020 23.0 18.2 14.7 (0.9)
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.
181Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
15 Deferred acquisition costs
2021 2020
Gross Reinsurance Net Gross Reinsurance Net
$m $m $m $m $m $m
Balance deferred at 1 January 439.2 (106.9) 332.3 456.1 (124.7) 331.4
Acquisition costs incurred in relation to insurance
contracts written 1,021.3 (288.2) 733.1 97 7. 3 (269.8) 707. 5
Acquisition costs expensed to the income statement* (1,017.9) 283.2 (734.7) (1,002.9) 289.0 (713.9)
Foreign exchange and other adjustments (5.7) 1.9 (3.8) 8.7 (1.4) 7.3
Balance deferred at 31 December 436.9 (110.0) 326.9 439.2 (106.9) 332.3
* Including unexpired risk reserve write-off of $nil million (2020: $6.6 million).
The deferred amount of insurance contract acquisition costs attributable to reinsurers of $110.0 million (2020:$106.9 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:
2021 2020
$m $m
Within one year 245.6 236.7
After one year 81.3 95.6
326.9 332.3
16 Reinsurance assets
2021 2020
Note $m $m
Reinsurers’ share of insurance liabilities 3,908.5 3,645.0
Provision for non-recovery and impairment (0.5) (0.4)
Reinsurance assets 23 3,908.0 3,644.6
The amounts expected to be recovered before and after one year, based on historical experience, are estimated as follows:
Within one year 1,919.5 1,79 8.1
After one year 1,988.5 1,846.5
3,908.0 3,644.6
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 loss during the year of $0.1 million (2020: gain of $0.4 million) due to movement on
the provision for non-recovery and impairment.
During the year, the Group completed two loss portfolio transfer (LPT) agreements. 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.
2021 2020*
Note $m $m
Debt and fixed income holdings 5,528.1 5,588.3
Equities and investment funds 461.2 464.5
Total investments 5,989.3 6,052.8
Insurance-linked funds 50.9 63.2
Derivative financial instruments 19 1.1 0.8
Total financial assets carried at fair value 6,041.3 6,116.8
* The 2020 figures have been re-presented for the re-allocation of certain debt and bond funds to debt and fixed income holdings.
182 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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:
2021 2020*
$m $m
Within one year 1,111.2 1,673.8
After one year 4,416.9 3,914.5
5,528.1 5,588.3
* The 2020 figures have been re-presented for the re-allocation of certain debt and bond funds to debt and fixed income holdings.
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:
2021 2020
Note $m $m
Derivative financial instruments 19 0.2 0.6
Financial liabilities carried at fair value 0.2 0.6
2021 2020
$m $m
Borrowings 743.7 943.3
Accrued interest on borrowings 2.8 2.8
Financial liabilities carried at amortised cost 746.5 946.1
Total financial liabilities 746.7 946.7
All of the financial liabilities carried at fair value are due within one year. The amounts owed to credit institutions relate to
outstanding investment trades in trust funds that are not available for offset against the same counterparty under cash
and cash equivalents. These positions would be rated A had they have been recorded under cash and cash equivalents.
The long-term debt issued on 14 March 2018 is due within one year, and the remaining long-term debt is 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 will be redeemed on the maturity
date at their principal amount together with accrued interest.
The notes bear interest from, and including, 14March2018 at a fixed rate of 2% per annum annually in arrears starting
14December2018 until maturity on 14December2022.
On 14March2018, 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 $797.3million (2020:$822.6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.
The decrease in the carrying value of the borrowings and accrued interest during the year comprises repayment of short-term
borrowings of $195.7million (2020:addition of $180.6million), the amortisation of the difference between the net proceeds
received and the redemption amounts of $0.8million (2020:$0.8million), the reduction in accrued interest of $0.1million
(2020:increase of $0.1million) less exchange movements of $4.6million (2020:plus exchange movements of $36.4million).
Note 10 includes details of the interest expense for the year included in finance costs.
183Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
17 Financial assets and liabilities continued
Investments at 31December are denominated in the following currencies at their fair value:
2021 2020*
$m $m
Debt and fixed income holdings
US Dollars 3,890.0 3, 887. 8
Sterling 957. 9 990.4
Euro and other currencies 680.2 710.1
5,528.1 5,588.3
Equities and investment funds
US Dollars 206.9 209.5
Sterling 223.0 229.3
Euro and other currencies 31.3 25.7
461.2 464.5
Total investments 5,989.3 6,052.8
* The 2020 figures have been re-presented for the re-allocation of certain debt and bond funds to debt and fixed income holdings.
18 Loans and receivables including insurance receivables
2021 2020
$m $m
Gross receivables arising from insurance and reinsurance contracts 1,568.9 1,453.8
Provision for impairment (7. 3) (5.1)
Net receivables arising from insurance and reinsurance contracts 1,561.6 1,448.7
Due from contract holders, brokers, agents and intermediaries 918.3 880.2
Due from reinsurance operations 643.3 568.5
1,561.6 1,448.7
Prepayments and accrued income 26.0 26.9
Other loans and receivables:
Net profit commission receivable 4.9 8.1
Accrued interest 23.7 26.5
Share of Syndicates’ other debtors’ balances 25.3 43.0
Other debtors including related party amounts 36.7 38.0
Total loans and receivables including insurance receivables 1,678.2 1,591.2
The amounts expected to be recovered before and after one year are estimated as follows:
Within one year 1,500.4 1,517.4
After one year 177. 8 73.8
1,678.2 1,591.2
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 Group has recognised aloss of $2.2million (2020: release of $2.3million) for the impairment
of receivables during the year ended 31December2021. This is recorded under operational expenses in the consolidated income
statement. The carrying amounts disclosed above are reasonably approximate to the fair value at the reporting date.
184 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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 2021.
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2021 all mature within one year of the balance sheet date and are detailed below:

|  | Gross contract |  | Fair value |  | Fair value |  | Net balance |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | notional amount |  | of assets |  | of liabilities |  | sheet position |  |
| 31 December 2021 |  | $m |  | $m |  | $m |  | $m |

Derivative financial instruments included on balance sheet
Foreign exchange forward contracts 24.4 0.4 (0.2) 0.2
Interest rate futures contracts 148.2 0.7 – 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 11.6 14.8 26.4
Gross fair value of liabilities (11.2) (15.0) (26.2)
0.4 (0.2) 0.2

|  | Gross contract |  | Fair value |  | Fair value |  | Net balance |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | notional amount |  | of assets |  | of liabilities |  | sheet position |  |
| 31 December 2020 |  | $m |  | $m |  | $m |  | $m |

Derivative financial instruments included on balance sheet
Foreign exchange forward contracts 56.2 0.8 (0.5) 0.3
Interest rate futures contracts 86.2 – (0.1) (0.1)
The foreign exchange forward contracts are represented by gross fair value of assets and liabilities as detailed below:
Gross fair value of assets 41.4 13.4 54.8
Gross fair value of liabilities (40.6) (13.9) (54.5)
0.8 (0.5) 0.3
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 $0.2 million (2020: loss of $1.7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 $1.5million(2020:loss of $0.4million) as included in the investment result in note 7.
Equity index options
During the year, no equity index futures were purchased.
185Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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.
Level 1 Level 2 Level 3 Total
As at 31 December 2021 $m $m $m $m
Financial assets
Debt and fixed income holdings 858.5 4,639.5 30.1 5,528.1
Equities and investment funds – 416.5 44.7 461.2
Insurance-linked funds – – 50.9 50.9
Derivative financial instruments – 1.1 – 1.1
Total 858.5 5,057.1 125.7 6,041.3
Financial liabilities
Derivative financial instruments – 0.2 – 0.2
Total – 0.2 – 0.2
Level 1 Level 2 Level 3 Total
As at 31 December 2020* $m $m $m $m
Financial assets
Debt and fixed income holdings 1,191.4 4,396.9 – 5,588.3
Equities and investment funds – 419.0 45.5 464.5
Insurance-linked funds – – 63.2 63.2
Derivative financial instruments – 0.8 – 0.8
Total 1,191.4 4,816.7 108.7 6,116.8
Financial liabilities
Derivative financial instruments – 0.6 – 0.6
Total – 0.6 – 0.6
* The 2020 figures have been re-presented for the re-allocation of certain debt and bond funds to debt and fixed income holdings and corporate bond levels, see
detail below.
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.
Management has refined the criteria for financial assets being allocated to Level 1, and certain corporate bonds considered to
have quoted prices in active markets are now included in Level 1. Previously no corporate bonds were included in Level 1. In 2021,
$32.6 million of corporate bonds have been recognised in Level 1 and $72.6 million have been re-presented from Level 2 to
Level 1 for 2020. There is no impact on profit in current or future periods. There were no transfers in or out of Level 3 of the fair
value hierarchy.
Included within Level 1 of the fair value hierarchy are certain government bonds, treasury bills, corporate bonds 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 $797.3million (2020:$822.6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
186 Hiscox Ltd Report and Accounts 2021

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| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
20 Fair value measurements continued
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.
Level 3 contains investments in alimited partnership, 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2021,
the insurance-linked funds of $50.9million represent the Group’s investment in the unconsolidated Kiskadee Funds
(2020:$63.2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 $2.9 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.
The following table sets forth areconciliation of opening and closing balances for financial instruments classified under Level 3
of the fair value hierarchy:
Financial assets

|  | Debt and fixed |  |  | Equities and |  | Insurance- |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | income holdings |  | investment funds |  |  | linked funds |  | Total |
| 31 December 2021 |  | $m |  |  | $m |  | $m | $m |

Balance at 1 January – 45.5 63.2 108.7
Fair value gains or losses through profit or loss* 0.1 (0.3) – (0.2)
Foreign exchange gains/(losses) – (0.4) 0.1 (0.3)
Purchases 30.0 0.2 – 30.2
Settlements – (0.3) (12.4) (12.7)
Closing balance 30.1 44.7 50.9 125.7
Unrealised gains and (losses) in the year on securities held
at the end of the year 0.1 – (0.4) (0.3)
* Fair value gains/(losses) are included within the investment result in the income statement for debt and fixed income holdings, and for equities and investment
funds and through other income for the insurance-linked funds.
Financial assets

|  |  | Equities and |  | Insurance- |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | investment funds |  |  | linked funds |  | Total |
| 31 December 2020 |  |  | $m |  | $m | $m |

Balance at 1 January 18.5 61.2 79.7
Fair value gains or losses through profit or loss* (5.4) 2.7 (2.7)
Foreign exchange gains 1.9 – 1.9
Purchases 30.8 2.6 33.4
Settlements (0.3) (3.3) (3.6)
Closing balance 45.5 63.2 108.7
Unrealised gains and (losses) in the year on securities held at the end of the year (0.4) 2.7 2.3
* Fair value gains/(losses) are included within the investment result in the income statement for equities and investment funds and through other income for the
insurance-linked funds.
187Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
21 Cash and cash equivalents
2021 2020
$m $m
Cash at bank and in hand 1, 287.3 1,448.8
Short-term deposits 13.4 128.4
Total 1,300.7 1, 57 7.2
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
31 December 2021 31 December 2020

|  | Share | Number |  | Share | Number |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | capital | of shares |  | capital | of shares |  |
| Group | $m |  | 000 | $m |  | 000 |

Authorised ordinary share capital of 6.5p (2020: 6.5p) 425.8 3,692,308 425.8 3,692,308
Issued ordinary share capital of 6.5p (2020: 6.5p) 38.7 353,986 38.7 353,955
The amounts presented in the equity section of the Group’s consolidated balance sheet relate to Hiscox Ltd, the legal
parent company.

|  | Ordinary share |  | Share | Contributed |  |
| --- | --- | --- | --- | --- | --- |
|  |  | capital | premium |  | surplus |
| Changes in Group share capital and contributed surplus |  | $000 | $000 |  | $000 |

At 1 January 2020 34,051 70,503 183,969
Equity raise – May 2020 4,595 444,503 –
Employee share option scheme – proceeds from shares issued 13 1,446 –
At 31 December 2020 38,659 516,452 183,969
Employee share option scheme – proceeds from shares issued – 107 –
Scrip Dividends to owners of the Company 2 258 –
At 31 December 2021 38,661 516,817 183,969
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 (2020: 1,958,864 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.

|  |  | Number of |  |  | Number of |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | ordinary shares |  |  | ordinary shares |  |  |
|  |  |  | in issue |  |  | in issue |
|  |  |  | (000) |  |  | (000) |
| Equity structure of Hiscox Ltd Note |  |  | 2021 |  |  | 2020 |

At 1 January 353,955 296,10 8
Equity raise – May 2020 – 5 7, 6 9 3
Employee share option scheme – ordinary shares issued 11 154
Scrip Dividends to owners of the Company 29 20 –
At 31 December 353,986 353,955
All issued shares are fully paid.
188 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
22 Share capital continued
Share options and 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 targeted levels of returns on equity for pre-2018 awards and net asset value targets for awards from 2018 to
2020. Awards granted in 2021 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.
In accordance with IFRS 2, the Group recognises an expense for the fair value of 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 $24.0 million (2020: expense of $10.3 million). This comprises
an expense of $16.6 million (2020: expense of $10.1 million) in respect of Performance Share Plan awards and an expense of
$7.4 million (2020:expense of $0.2 million) in respect of share option 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. In 2021, 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 2021 2020
Annual risk-free rates of return and discount rates (%) 0.18-0.26 (0.12)-0.08
Long-term dividend yield (%) 1.46 2.19
Expected life of options (years) 3.25 3.25
Implied volatility of share price (%) 46.2 41.0
Weighted average share price (p) 865.3 819.7
The weighted average fair value of each share option granted during the year was 317.5p (2020:225.1p). The weighted average
fair value of each Performance Share Plan award granted during the year was 862.3p (2020:836.5p).
Movements in the number of share options and Performance Share Plan awards during the year and details of the balances
outstanding at 31December2021 for the Executive Directors are shown in the annual report on remuneration 2021. The total
number of options and Performance Share Plan awards outstanding is 9,743,754 (2020:9,349,986) of which 1,629,224 are
exercisable (2020:1,979,101). The total number of SAYE options outstanding is 2,414,729 (2020:2,642,893).
The implied volatility assumption is based on historical data for periods of between five and ten years immediately preceding
grant date.
For options issued after 1January2006, the assumptions regarding long-term dividend yield have been aligned to the progressive
dividend policy announced during the 2005 Rights Issue.
189Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
23 Insurance liabilities and reinsurance assets
2021 2020
Note $m $m
Gross
Claims reported and claim adjustment expenses 2,50 6.1 2,688.0
Unexpired risk reserve – 31.5
Claims incurred but not reported 4,539.8 4,571.9
Unearned premiums 1,822.5 1,822.0
Total insurance liabilities, gross 8,868.4 9,113.4
Recoverable from reinsurers
Claims reported and claim adjustment expenses 1,143.3 976.7
Unexpired risk reserve – 8.6
Claims incurred but not reported 2,349.5 2, 2 27.7
Unearned premiums 415.2 431.6
Total reinsurers’ share of insurance liabilities 16 3,908.0 3,644.6
Net
Claims reported and claim adjustment expenses 1,362.8 1,711.3
Unexpired risk reserve – 22.9
Claims incurred but not reported 2,190.3 2,344.2
Unearned premiums 1,407. 3 1,390.4
Total insurance liabilities, net 4,960.4 5,468.8
The net amounts expected to be recovered and settled before and after one year, based on historical experience, are estimated
as follows:
2021 2020
$m $m
Within one year 3,155.1 3,323.8
After one year 1,805.3 2,145.0
4,960.4 5,468.8
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 2021 and 2020
are not material.
190 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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 2021 was 11.7%
above the best estimate (2020: 9.8%). This includes margin for the uncertainty in Covid-19 claims estimates.
(b) Claims development tables
The development of insurance liabilities provides ameasure of the Group’s ability to estimate the ultimate value 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.
191Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total
Accident year $m $m $m $m $m $m $m $m $m $m $m
Estimate of ultimate
claims costs as
adjusted for foreign
exchange* at end
of accident year: 1,656.5 1,328.7 1,451.2 1,560.9 1,942.0 3,390.2 3,139.3 3,36 8.1 3,800.5 3,046.5 24,683.9
one year later 1,711.6 1,211.3 1, 237.7 1,422.1 1,724.0 3,102.9 3,592.1 3,104.5 3,806.6 – 20,912.8
two years later 1,602.6 1,083.3 1,146.0 1,285.4 1,632.2 3,068.2 3,411.2 2,889.8 – – 16,118.7
three years later 1,6 07.1 1,019.4 1,096.7 1,280.7 1,663.3 2,986.4 3,179.4 – – – 12,833.0
four years later 1,593.9 966.3 1,071.8 1,296.8 1,698.9 2,902.9 – – – – 9,530.6
five years later 1,3 37.1 942.6 1,052.9 1,325.4 1,691.6 – – – – – 6,349.6
six years later 1,343.4 9 37.1 1, 0 37.5 1,318.4 – – – – – – 4,636.4
seven years later 1,320.6 938.5 1, 0 37. 3 – – – – – – – 3,296.4
eight years later 1,290.6 936.7 – – – – – – – – 2,227.3
nine years later 1,272.7 – – – – – – – – – 1,272.7
Current estimate of
cumulative claims 1,272.7 936.7 1,0 37. 3 1,318.4 1,691.6 2,902.9 3,179.4 2,889.8 3,806.6 3,046.5 22,081.9
Cumulative
payments to date (1,223.3) (898.9) (955.0) (1,142.4) (1,426.4) (2,338.1) (2,305.6) (1,685.9) (1,656.9) (525.3) (14,157. 8 )
Liability recognised
at 100% level 49.4 37.8 82.3 176.0 265.2 564.8 873.8 1,203.9 2,149.7 2,521.2 7,924.1
Liability recognised
in respect of accident
years before 2012
at 100% level 124.9
Total gross liability to external parties at 100% level 8,049.0
*The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 31 December 2021.
Reconciliation of 100% disclosures above to Group’s share – gross
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total
Accident year $m $m $m $m $m $m $m $m $m $m $m
Current estimate of
cumulative claims 1,272.7 936.7 1,0 37.3 1,318.4 1,691.6 2,902.9 3,179.4 2,889.8 3,806.6 3,046.5 22,081.9
Less: attributable
to external Names (163.4) (97.8) (107.8 ) (138.4) (18 5.1) (399.8) (3 97. 8) (399.2) (445.9) (363.2) (2,698.4)
Group’s share of
current ultimate
claims estimate 1,109.3 838.9 929.5 1,180.0 1,506.5 2,50 3.1 2,781.6 2,490.6 3,360.7 2,683.3 19,383.5
Cumulative
payments to date (1,223.3) (898.9) (955.0) (1,142.4) (1,426.4) (2,338.1) (2,305.6) (1,685.9) (1,656.9) (525.3) (14,157. 8 )
Less: attributable
to external Names 156.3 93.4 10 0.1 118.5 152.6 323.7 284.6 234.5 198.7 65.5 1,727. 9
Group’s share of
cumulative payments (1, 0 67. 0 ) (805.5) (854.9) (1,023.9) (1,273.8) (2,014.4) (2,021.0) (1,451.4) (1,458.2) (459.8)(12,429.9)
Liability recognised
on Group’s
balance sheet 42.3 33.4 74.6 156.1 232.7 488.7 760.6 1,039.2 1,902.5 2,223.5 6,953.6
Liability for accident
years before
2012 recognised
on Group’s
balance sheet 92.3
Total Group liability to external parties included in balance sheet – gross 7,04 5.9
192 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total
Accident year $m $m $m $m $m $m $m $m $m $m $m
Estimate of ultimate
claims costs as
adjusted for foreign
exchange* at end
of accident year: 1,198.2 1,13 3.3 1,176.8 1,255.2 1,471.6 1,852.2 1,799.4 1,786.1 2,204.2 1,754.6 15,631.6
one year later 1,058.3 1,006.3 1,034.8 1,16 0.0 1,334.0 1,654.1 1,814.0 1,725.3 2,058.9 – 12,845.7
two years later 982.3 904.7 939.7 1,064.0 1,262.4 1,633.8 1,777.8 1,518.8 – – 10,083.5
three years later 9 47.0 838.3 884.1 1,056.9 1,285.1 1,621.5 1,593.5 – – – 8,226.4
four years later 9 37.3 834.4 8 57.0 1,056.0 1,324.8 1,4 97.5 – – – – 6,507.0
five years later 957.6 8 07.4 834.3 1,084.4 1,258.0 – – – – – 4,941.7
six years later 946.9 804.7 828.8 1,0 4 3.1 – – – – – – 3,623.5
seven years later 927.0 805.0 816.0 – – – – – – – 2,548.0
eight years later 917.5 789.3 – – – – – – – – 1,706.8
nine years later 910.1 – – – – – – – – – 910.1
Current estimate of
cumulative claims 910.1 789.3 816.0 1,043.1 1,258.0 1,4 97. 5 1,593.5 1,518.8 2,058.9 1,754.6 13,239.8
Cumulative
payments to date (861.2) ( 76 7. 8) (730.0) (889.3) (1,070.7) (1, 317.6 ) (1,256.8) (1,078.7) (975.2) (373.3) (9,320.6)
Liability recognised
at 100% level 48.9 21.5 86.0 153.8 187.3 179.9 336.7 4 40.1 1,083.7 1,381.3 3,919.2
Liability recognised
in respect of accident
years before 2012
at 100% level 103.9
Total net liability to external parties at 100% level 4,023.1
*The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 31 December 2021.
Current estimate of cumulative claims in the table above has been impacted by the loss portfolio transfer arrangements taken out
in 2021, see note 23.2.
Reconciliation of 100% disclosures above to Group’s share – net of reinsurance
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total
Accident year $m $m $m $m $m $m $m $m $m $m $m
Current estimate of
cumulative claims 910.1 789.3 816.0 1,04 3.1 1,258.0 1, 4 97. 5 1,593.5 1,518.8 2,058.9 1,754.6 13,239.8
Less: attributable
to external Names (93.7) (79.5) (81.3) (112.3) (133.0) (15 4.1) (157.0 ) (188.3) (208.9) (183.9) (1,392.0)
Group’s share of
current ultimate
claims estimate 816.4 709.8 734.7 930.8 1,125.0 1,343.4 1,436.5 1,330.5 1,850.0 1,570.7 11,8 47.8
Cumulative
payments to date (861.2) ( 76 7. 8) (730.0) (889.3) (1,070.7) (1, 317.6 ) (1,256.8) (1,078.7) (975.2) (373.3) (9,320.6)
Less: attributable
to external Names 87. 3 75.6 74.8 93.3 105.0 131.2 116.9 128.4 95.9 39.2 947.6
Group’s share of
cumulative payments (773.9) (692.2) (655.2) (796.0) (965.7) (1,186.4) (1,139.9) (950.3) (879.3) (334.1) (8,373.0)
Liability recognised
on Group’s
balance sheet 42.5 17.6 79.5 134.8 159.3 157.0 296.6 380.2 970.7 1,236.6 3,474.8
Liability for accident
years before
2012 recognised
on Group’s
balance sheet 78.3
Total Group liability to external parties included in balance sheet – net* 3,553.1
*This represents the claims element of the Group’s insurance liabilities and reinsurance assets.
193Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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:
2021 2020
Gross Reinsurance Net Gross Reinsurance Net
Year ended 31 December $m $m $m $m $m $m
Total at beginning of year 7, 2 91.4 (3,213.0) 4,078.4 6,276.0 (2,921.0) 3,355.0
Claims and claim adjustment expenses for the year 2,185.5 ( 755.1) 1,430.4 2,966.5 (1,043.8) 1,922.7
Cash (paid)/received for claims settled in the year (2,331.8) 1,082.8 (1,249.0) (2,085.0) 768.8 (1,316.2)
Acquisitions, divestments and transfers – (639.0) (639.0) – – –
Foreign exchange and other adjustments (99.2) 31.5 (67.7 ) 133.9 (17.0 ) 116.9
Total at end of year 7,0 45.9 (3,492.8) 3,553.1 7, 291.4 (3,213.0) 4,078.4
Claims reported and claim adjustment expenses 2,50 6.1 (1,143.3) 1,362.8 2,688.0 (976.7) 1,711.3
Claims incurred but not reported 4,539.8 (2,349.5) 2,190.3 4,571.9 (2, 2 27.7 ) 2,344.2
Unexpired risk reserve – – – 31.5 (8.6) 22.9
Total at end of year 7,0 45.9 (3,492.8) 3,553.1 7, 291.4 (3,213.0) 4,078.4
The insurance claims expense reported in the consolidated income statement is comprised as follows:
2020*

|  |  |  |  | 2021 |  |  |  | (restated) |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Gross | Reinsurance |  | Net | Gross | Reinsurance |  |  | Net |
| Year ended 31 December | $m |  | $m | $m | $m |  | $m |  | $m |

Current year claims and claim adjustment expenses 2,775.0 (1,172.8) 1,602.2 3,448.0 (1,516.2) 1,931.8
Over-provision in respect of prior-year claims and claim
adjustment expenses (558.0) 409.1 (148.9) (513.0) 481.0 (32.0)
Unexpired risk reserve (31.5) 8.6 (22.9) 31.5 (8.6) 22.9
Total at end of year 2,185.5 (755.1) 1,430.4 2,966.5 (1,043.8) 1,922.7
* Restated for incorrect allocation of current year claims and claims adjustment expenses and over-provision in respect of prior-year claims and claim adjustment
expenses. This has no impact on the total insurance claims expense, profit, insurance liabilities or reinsurance assets presented in the comparative period.
A reconciliation of the unearned premium reserves is as follows:
2021 2020
Gross Reinsurance Net Gross Reinsurance Net
$m $m $m $m $m $m
Balance deferred at 1 January 1,822.0 (431.6) 1,390.4 1,818.5 (465.9) 1,352.6
Premiums written 4,269.2 (1,314.2) 2,955.0 4,0 33.1 (1,282.7) 2,750.4
Premiums earned through the income statement (4,246.9) 1,327.0 (2,919.9) (4,071.2) 1,319.0 (2,752.2)
Foreign exchange and other adjustments (21.8) 3.6 (18.2) 41.6 (2.0) 39.6
Balance deferred at 31 December 1,822.5 (415.2) 1,407. 3 1,822.0 (431.6) 1,390.4
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:
2021 2020
$m $m
Gross premiums written 4,269.2 4,0 33.1
Outward reinsurance premiums (1,314.2) (1,282.7)
Net premiums written 2,955.0 2,750.4
Change in gross unearned premium reserves (22.3) 38.1
Change in reinsurers’ share of unearned premium reserves (12.8) (36.3)
Change in net unearned premium reserves (35.1) 1.8
Net premiums earned 2,919.9 2,752.2
194 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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 loss portfolio transfers (LPTs) securing coverage for potential adverse development on
historical liabilities for selected lines of business, including the majority of Hiscox USA’s surplus lines broker business. The Group
concluded that the LPTs transfer 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.
While the Group incurred additional losses early in 2021, due to additional UK lockdown measures in January, we have also
benefitted from positive prior year development on first order Covid-19-related losses in our events and contingency book.
Consequently there has been no material movement in Covid-19 losses for the year.
Lloyd’s Part VII transfer
On 30December2020, the members and former members of the Syndicate, as comprised for each of the relevant years of
account between 1993 and April 2019, transferred all relevant policies (and related liabilities) underwritten by them for those
years of account to Lloyd’s Insurance Company S.A. (‘Lloyd’s Brussels’), in accordance with Part VII of the Financial Services
and Markets Act 2000. On the same date, the members of the Syndicate entered into a 100% quota share reinsurance
agreement whereby Lloyd’s Brussels reinsured all risks on the same policies back to the relevant open years of account of the
Syndicate, which wrote the transferring policies and/or inherited liabilities on transferring policies through reinsurance to close
of earlier years of account.
Following the sanction of the scheme by the High Court on 25November2020, the scheme took effect on 30December2020
and the members and former members of the Syndicate transferred the impacted EEA policies and related liabilities to Lloyd’s
Brussels, together with cash of $154.8million. On the same date, under the reinsurance agreement, Lloyd’s Brussels reinsured the
same risks back, together with an equal amount of cash of $154.8million and non-cash assets relating to the transferred liabilities.
The combined effect of the two transactions had no economic impact for the Syndicate, and accordingly there is no impact on the
Syndicate’s income statement and no net impact on the balance sheet.
No adjustment has been made in the segmental note for transactions that occurred in respect of the transferred business up to
the date of the transfer, which is consistent with the income statement presentation. Outstanding debtor and creditor balances
in respect of the transferred business that were previously classified as arising out of direct reinsurance operations have been
reclassified as arising out of reinsurance operations.
Current year underwriting results are reported under the inwards reinsurance class of business, reflecting the new contractual
arrangement with Lloyd’s Brussels.
195Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
24 Trade and other payables
2021 2020
Note $m $m
Creditors arising out of direct insurance operations 96.3 101.0
Creditors arising out of reinsurance operations 1,152.2 836.0
1,248.5 9 37. 0
Share of Syndicates’ other creditors’ balances 2.6 1.8
Social security and other taxes payable 49.3 51.7
Lease liabilities 46.5 59.7
Other creditors 19.8 3 0.1
118. 2 143.3
Reinsurers’ share of deferred acquisition costs 15 110.0 106.9
Accruals and deferred income 158.9 148.4
Total 1,635.6 1,335.6
Included within accruals and deferred income is $nil (2020:$4.9million) of deferred gain on retroactive reinsurance contracts.
The amounts expected to be settled before and after one year are estimated as follows:
2021 2020
$m $m
Within one year 1,062.3 1,239.2
After one year 573.3 96.4
1,635.6 1,335.6
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:
2021 2020
$m $m
Not later than one year 15.7 16.5
Later than one year and not later than five years 30.2 38.9
Later than five years 7.8 13.6
Total undiscounted lease liabilities at 31 December 53.7 69.0
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2021 (2020: $nil).
There were no leases with residual values guarantees (2020: none). The leases not yet commenced to which the Group is
committed amounted to $60.0 million (2020: $55.2million).
Payments associated with short-term leases amounting to $1.2 million (2020:$1.2million) and leases of low-value assets
amounting to $0.1 million (2020: $nil) are recognised on a straight-line basis as an expense in profit or loss.
196 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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:
2021 2020
$m $m
Current tax
Expense for the year 9.5 11.5
Adjustments in respect of prior years (5.1) 1.7
Total current tax expense 4.4 13.2
Deferred tax
Expense/(credit) for the year 3.6 (12.3)
Adjustments in respect of prior years (3.7) 26.4
Effect of rate change (3.0) (2.1)
Total deferred tax (credit)/expense (3.1) 12.0
Total tax charged to the income statement 1.3 25.2
The standard rate of corporation tax in Bermuda is 0% whereas the effective rate of tax for the Group is 1% (2020: -9%).
A reconciliation of the difference is provided below:
2021 2020
$m $m
Profit/(loss) before tax 190.8 (268.5)
Tax calculated at the standard corporation tax rate applicable in Bermuda: 0% (2020: 0%)
Effects of Group entities subject to overseas tax at different rates 2.3 (20.6)
Impact of overseas tax rates on:
Effect of rate change (3.0) (2.1)
Expenses not deductible for tax purposes 2.5 2.7
Tax losses for which no deferred tax asset is recognised 9.3 8.6
Other (1.5) 8.7
Adjustment for share-based payments 0.5 (0.2)
Prior year tax adjustments (8.8) 28.1
Tax charge for the year 1.3 25.2
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.
197Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
26 Deferred tax
2021 2020
Net deferred tax assets $m $m
Trading losses in overseas entities 29.1 31.8
Deferred tax assets 97.9 140.6
Deferred tax liabilities (59.7) (101.7)
Total deferred tax asset 67.3 70.7
Net deferred tax liabilities
Deferred tax assets (0.1) (2.0)
Deferred tax liabilities 0.2 4.7
Total net deferred tax liability 0.1 2.7
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 |  |  | Recognised |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | statement |  |  |  | in other |  |  |  |  |
|  |  | (charge) |  | comprehensive |  |  |  | Foreign |  |  |
|  | 2020 | /credit |  | income/equity |  |  |  | exchange |  | 2021 |
| At 31 December | $m |  | $m |  |  |  | $m |  | $m | $m |

Tangible assets (1.1) 1.1 – – –
Trade and other payables 1.7 – – – 1.7
Intangible assets – Syndicate capacity 1.5 0.1 – – 1.6
Retirement benefit obligations 16.5 (0.1) (3.4) (0.3) 12.7
Open years of account 80.2 (22.1) – (1.2) 56.9
Unearned premium 9.7 1.5 – – 11. 2
Loss reserve discounting 6.9 1.4 – – 8.3
Insurance contracts – technical reserves – 5.2 – (0.2) 5.0
Other items (4.5) 4.3 – 0.7 0.5
Total deferred tax assets 110.9 (8.6) (3.4) (1.0) 97.9
Tangible assets – (0.5) – 0.1 (0.4)
Financial assets (0.9) (0.3) – – (1.2)
Insurance contracts – equalisation provision (2.2) 2.2 – – –
Reinsurance premiums (47.7 ) 11.7 – 0.7 (35.3)
Deferred acquisition costs (19.3) (3.1) – – (22.4)
Other items (1.9) 1.4 – 0.1 (0.4)
Total deferred tax liabilities (72.0) 11.4 – 0.9 (59.7)
Net total deferred tax assets/(liabilities) 38.9 2.8 (3.4) (0.1) 38.2
Trading losses in overseas entities 31.8 (2.3) – (0.4) 29.1
Net total deferred tax assets/(liabilities) 38.9 2.8 (3.4) (0.1) 38.2
Net deferred tax position asset/(liability) 70.7 0.5 (3.4) (0.5) 67.3
Intangible assets (2.0) 2.0 – – –
Technical reserves (0.8) 0.6 – – (0.2)
Other 0.1 – – – 0.1
Net total deferred tax position (liabilities)/assets (2.7) 2.6 – – (0.1)
Net Group deferred tax asset/(liability) 68.0 3.1 (3.4) (0.5) 67. 2
198 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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 $2.1 million (2020: income of $3.5 million), comprising
$3.4 million deferred tax expense and $1.3 million current tax income (2020: $2.1 million deferred tax income and
$1.4 million current tax income).
Deferred tax assets of $29.1 million (2020: $31.8 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
(2020: $20.6 million) of the tax losses to which these assets relate will expire within ten years; a further $1.4 million
(2020: $11.2 million) will expire after ten years or will be available indefinitely. The Group has not provided for deferred tax assets
totalling $52.9 million (2020: $44.0 million) in relation to losses in overseas companies of $266.3 million (2020: $224.7 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 $67.2 million (2020: $68.0 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
$8.2 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:
2021 2020
$m $m
Present value of scheme obligations 404.1 417. 9
Fair value of scheme assets (369.0) (344.4)
Net amount recognised as adefined benefit obligation 35.1 73.5
As the present value of scheme obligations exceeds the fair value of the scheme assets, the scheme 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.
199Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
27 Employee retirement benefit obligations continued
The scheme assets are invested as follows:
2021 2020
At 31 December $m $m
Investment assets
Pooled investment vehicles 145.3 222.7
Equities 36.3 75.0
Bonds 182.2 12.1
Derivatives 0.2 0.2
Cash 5.0 34.4
369.0 344.4
The amounts recognised in total comprehensive income are as follows:

|  |  | 2021 | 2020 |
| --- | --- | --- | --- |
|  | Note | $m | $m |
| Past service cost – |  |  | – |

Interest cost on defined benefit obligation 5.6 7.6
Interest income on plan assets (4.6) (6.5)
Net interest cost 1.0 1.1
Administrative expenses and taxes – –
Total expense recognised in operational expenses in the income statement 9 1.0 1.1
Remeasurements
Effect of changes in actuarial assumptions (6.5) 52.1
Return on plan assets (excluding interest income) (31.4) (6.5)
Remeasurement of third-party Names’ share of defined benefit obligation 6.3 ( 7.6 )
Total remeasurement included in other comprehensive income (31.6) 38.0
Total defined benefit (credit)/charge recognised in comprehensive income (30.6) 39.1
In October 2018, the High Court in the UK issued a ruling to address inequalities in the calculation of guaranteed minimum
pensions (GMPs) for members of pension schemes. This ruling requires pension funds to increase the benefits of some members
of the pension scheme.
The Group has completed an estimate of the impact of the ruling on the scheme using one of the methods identified by the
High Court (C2) for equalising GMPs and has recognised a charge of £nil ($nil) during the year (2020:£15,000($20,000)).
The movement in liability recognised in the Group’s balance sheet is as follows:
2021 2020
$m $m
Group defined benefit liability at beginning of year 73.5 55.1
Third-party Names’ share of liability (18.8) (10.5)
Net defined benefit liability at beginning of year 54.7 44.6
Defined benefit cost included in net income 1.0 1.1
Contribution by employer – (30.4)
Credit from third-party Names (0.2) (0.2)
Foreign exchange movements (1.1) 1.6
Total remeasurement included in other comprehensive income (31.6) 38.0
Net defined benefit liability at end of year 22.8 54.7
Third-party Names’ share of liability 12.3 18.8
Group defined benefit liability at end of year 35.1 73.5
200 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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:
2021 2020
$m $m
Opening fair value of scheme assets 344.4 311.6
Interest income 4.6 6.5
Cash flows
Contribution by the employer – 30.4
Benefit payments (8.8) (21.4)
Remeasurements
Return on plan assets (excluding interest income) 31.4 6.5
Foreign exchange movements (2.6) 10.8
Closing fair value of scheme assets 369.0 344.4
A reconciliation of the present value of obligations of the scheme is as follows:
2021 2020
$m $m
Opening present value of scheme obligations 417.9 366.7
Past service cost – –
Interest expense 5.6 7.6
Cash flows
Benefit payments (8.8) (21.4)
Remeasurements
Changes in actuarial assumptions (6.5) 52.1
Foreign exchange movements (4.1) 12.9
Closing present value of scheme obligations 404.1 417. 9
Assumptions regarding future mortality experience are set based on the S3PA (2020: S2PA) light tables. Reductions in future
mortality rates are allowed for by using the CMI 2019 (2020: CMI 2107) 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:
2021 2020
Male 28.9 28.0
Female 30.7 29.1
The average life expectancy in years of a pensioner retiring at 60, 15 years after the balance sheet date, is as follows:
2021 2020
Male 29.3 29.1
Female 30.8 30.2
The weighted average duration of the defined benefit obligation at 31 December 2021 was 19.9 years (2020: 20.1 years).
201Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

Notes to the
consolidated
financial statements
27 Employee retirement benefit obligations continued
Other principal actuarial assumptions are as follows:
2021 2020
% %
Discount rate 1.80 1.40
Inflation assumption (RPI) 3.30 2.90
Inflation assumption (CPI) 2.70 2.50
Pension increases 3.10 2.75
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.
The 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 will be six payments of £10.0 million ($13.5 million),
commencing in January 2022 and 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 £12.2million ($16.5million) at 31December2021 (2020:£14.1million ($19.3million)), and
would increase the recorded net deficit 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 net obligation recognised in the consolidated balance sheet to isolated changes
in these assumptions at 31December2021 as follows:
Present value (Increase)
of unfunded Present value /decrease
obligations of unfunded in obligation
before change obligations recognised on
in assumption after change balance sheet
$m $m $m
Effect of a change in discount rate
Use of discount rate of 2.05% 35.1 15.8 19.3
Use of discount rate of 1.55% 35.1 55.8 (20.7)
Effect of a change in inflation
Use of RPI inflation assumption of 3.55% 35.1 42.7 ( 7.6)
Use of RPI inflation assumption of 3.05% 35.1 30.1 5.0
202 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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 2021 2020
Profit/(loss) for the year attributable to the owners of the Company ($m) 189.5 (293.7)
Weighted average number of ordinary shares (thousands) 342,551 320,562
Basic earnings per share (cents per share) 55.3¢ (91.6)¢
Basic earnings per share (pence per share) 40.2p (71.5)p
Diluted
Diluted earnings per share is calculated by adjusting for the assumed conversion of all dilutive potential ordinary shares. The
Company has one category of dilutive potential ordinary shares: share options and awards. For the share options, acalculation
is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market
share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share
options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming
the exercise of the share options.
2021 2020
Profit/(loss) for the year attributable to the owners of the Company ($m) 189.5 (293.7)
Weighted average number of ordinary shares in issue (thousands) 342,551 320,562
Adjustments for share options (thousands) 3,740 3,498
Weighted average number of ordinary shares for diluted earnings/(loss) per share (thousands) 346,291 324,060
Diluted earnings per share (cents per share) 54.7¢ (90.6)¢
Diluted earnings per share (pence per share) 39.8p (70.7)p
Diluted earnings per share has been calculated after taking account of 3,611,707 (2020:3,431,623) Performance Share Plan
awards and 128,080 (2020:66,010) options under SAYE schemes.
29 Dividends paid to owners of the Company
2021 2020
$m $m
Interim dividend for the year ended:
31 December 2021 of 11.5¢ (net) per share 39.4 –
39.4 –
There was no interim or final dividend declared for the year ended 31 December 2020.
The interim 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 Board has recommended a final dividend of 23.0¢ per share to be paid, subject to shareholder approval, on 13 June 2022
to shareholders registered on 6 May 2022, taking the ordinary dividend per share for the year to 34.5¢ (2020: nil). The dividends
will be paid in Sterling unless shareholders elect to be paid in US Dollars. The foreign exchange rates at which future dividends
declared in US Dollars will be calculated is 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 2022 and 27 May 2022 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.
203Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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2021, HDCM held $245.3million of investments (2020:$316.1million),
$1.8million of cash (2020:$8.8million) and a $241.0 million LOC (2020:$241.0million) in favour of Lloyd’s of London under
this arrangement. At 31December2021, Hiscox Bermuda held $695.5million of investments (2020:$884.6million),
$26.4million of cash (2020:$25.9million) and a $25.0 million LOC (2020:$25.0million) in favour of Lloyd’s of London
under this arrangement.
(b) In 2020, HDCM entered into a $65million FAL 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 the full $65million was utilised.
(c) Hiscox plc continued with its LOC and revolving credit facility with Lloyds Banking Group, as agent for a syndicate of banks,
which may be drawn in cash up to £450million under a revolving credit facility (2020:£450 million) or LOC up to $266 million
(2020: $266 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2021, $266.0million (2020:$266.0million) was utilised by way of LOC to support
the Funds at Lloyd’s requirement and $nil cash drawings were outstanding (2020:$193.4million).
(d) Hiscox Insurance Company Limited has arranged a LOC of £50,000 (2020:£50,000) with NatWest Bank plc to support its
consortium activities with Lloyd’s; the arrangement is collateralised with cash of £50,000 (2020:£50,000).
(e) The Council of Lloyd’s has the discretion to call a contribution of up to 3% (increasing to 5% from 2022) 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 LOC facility in favour of USA ceding
companies and other jurisdictions, and also LOC facility agreements with National Australia Bank and Commerzbank AG.
The agreements combined are a three-year secured facility that allowed Hiscox Bermuda to request the issuance of up
to $470.0million in LOCs (2020:$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 $183.1million were issued with an effective date of 31December2021
(2020:$140.1million on a $470million facility) and these were collateralised by US government and corporate securities
with a fair value of $201.7 million (2020:$169.5million). In addition, Hiscox Bermuda maintained assets in trust accounts
to collateralise obligations under various reinsurance agreements. At 31December2021, total cash and marketable
securities with a carrying value of approximately $23.6 million (2020:$18.4million) were held in external trusts. Cash
and marketable securities with an approximate market value of $554.3 million (2020:$598.7million) were held in trust
in respect of internal quota share arrangements.
(g) Hiscox SA has arranged bank guarantees with respect to their various office deposits for a total of €266,624 (2020: €266,336).
These guarantees are held with ING Bank (Belgium) €23,460 (2020: €23,000), ABN Amro (Holland) €44,749 (2020: €45,000),
HypoVereinsbank – UniCredit (Germany) €156,435 (2020: €156,336) and ING Bank (Luxembourg) €41,980 (2020: €42,000).
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.
204 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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 $12.9 million (2020: $9.9 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:
2021 2020
$m $m
No later than one year 2.0 0.4
Later than one year and no later than five years 4.8 –
6.8 0.4
32 Principal subsidiary companies of Hiscox Ltd at 31 December 2021
Company Nature of business Country
Hiscox plc* Holding company Great Britain
Hiscox Insurance Company Limited General insurance Great Britain
Hiscox Insurance Company (Guernsey) Limited* General insurance Guernsey
Hiscox Holdings Inc. Holding company USA (Delaware)
ALTOHA, Inc. Insurance holding company USA (Delaware)
Hiscox Insurance Company Inc. General insurance USA (Illinois)
Hiscox Inc. Insurance intermediary USA (Delaware)
Hiscox Insurance Company (Bermuda) Limited* General insurance and reinsurance Bermuda
Hiscox Dedicated Corporate Member Limited Lloyd’s corporate Name Great Britain
Hiscox Holdings Limited** Insurance holding company Great Britain
Hiscox Syndicates Limited Lloyd’s managing agent Great Britain
Hiscox ASM Ltd. Insurance intermediary Great Britain
Hiscox Underwriting Group Services Limited Service company Great Britain
Hiscox Underwriting Ltd Underwriting agent Great Britain
Hiscox Société Anonyme* General insurance Luxembourg
Hiscox Assure SAS Insurance intermediary France
Direct Asia Insurance (Holdings) Pte Ltd Holding company Singapore
Direct Asia Insurance (Singapore) Pte Limited General insurance Singapore
*Held directly.
**Hiscox Holdings Limited held nil shares in Hiscox Ltd at 31 December 2021 (2020: 38,030).
All principal subsidiaries are wholly owned. The proportion of voting rights of subsidiaries held is the same as the proportion of
equity shares held.
205Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | 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
2021 on pages 100 to 107. 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 (2020: 27.4%) that the Group does
not own, and are as follows.

|  |  |  | Transactions in |  |  |  |  | Balances |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | the income statement |  |  | outstanding |  |  |  |  |
|  |  |  | forthe year ended |  |  |  | (payable) at |  |  |
| 31 December |  |  | 31 December |  | 31 December |  | 31 December |  |  |
|  | 2021 |  |  | 2020 |  | 2021 |  |  | 2020 |
|  | $m |  |  | $m |  | $m |  |  | $m |

Hiscox Syndicates Limited 5.8 5.1 2.3 1.2
Hiscox Group insurance carriers 8.7 15.6 (74.8) (114.8)
Hiscox Group insurance intermediaries 4.2 (1.5) (9.2) (14.4)
Other Hiscox Group companies 35.4 32.8 11.7 22.6
54.1 52.0 (70.0) (105.4)
(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.
2021 2020
$m $m
Gross premium income achieved through associates 17.5 12.1
Commission expense charged by associates 4.3 3.0
There were no material outstanding balance sheet amounts with associates.
Details of the Group’s associates are given in note 14.
(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
In February 2022, a military conflict arose in Ukraine. The Group has some limited direct insurance exposure through certain lines
including terrorism, political violence, war and marine. Management are actively monitoring the situation and assisting Hiscox
policyholders. The Group has negligible exposure to investments in Ukrainian and Russian assets.
206 Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Additional performance measures (APMs)
The Group uses, throughout its financial publications, A Net asset value (NAV) per share and net tangible asset
additional performance measures (APMs) in addition to value per share
the figures that are prepared in accordance with UK-adopted The Group uses NAV per share as one of its key
International Accounting Standards. The Group believes performance metrics, including using the movement of
that these measures provide useful information to enhance NAV per share in the calculation of the options vesting of
the understanding of its financial performance. These APMs awards granted under Performance Share Plans (PSP)
are: combined, claims and expense ratios, return on equity, from 2018 onwards. This is a widely used key measure
net asset value per share and net tangible asset value per share for management and also for users of the financial
and prior-year developments. These are common measures statements to provide comparability across peers in the
used across the industry, and allow the reader of our Annual market. Net tangible asset value comprises total equity
Report and Accounts to compare across peer companies. excluding intangible assets. NAV per share and net
The APMs should be viewed as complementary to, rather tangible asset value per share are shown in note 5,
than a substitute for, the figures prepared in accordance along with an explanation of the calculation.
with accounting standards.
A Prior-year developments
A Combined, claims and expense ratios Prior-year developments are a measure of favourable or
The combined, claims and expense ratios are common adverse development on claims reserves that existed at
measures enabling comparability across the insurance the prior balance sheet date. It enables the users of the
industry that measure the relevant underwriting profitability financial statements to compare and contrast the Group’s
of the business by reference to its costs as a proportion performance relative to peer companies. The Group
of its net earned premium. The Group calculates the maintains a prudent approach to reserving, to help
combined ratio as if the Group owned all of the business, mitigate the uncertainty within the reserve estimates.
including the proportion of Syndicate 33 that the Group The prior-year development is calculated as the positive
does not own (Group controlled income). The Group or negative movement in ultimate losses on prior accident
does this to enable comparability from period to period years between the current and prior-year balance sheet
as the business mix may change in a segment between date, as shown in note 23.
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 shared-based
payment structures. The ROE is shown in note 6, along
with an explanation of the calculation.
207Hiscox Ltd Report and Accounts 2021

| Chapter 1 4 | Chapter 2 16 | Chapter 3 62 | Chapter 4 94 | Chapter 5 128 | Chapter 6 134 |
| --- | --- | --- | --- | --- | --- |
| Performance | A closer look | Governance | Remuneration | Shareholder | Financial |
| and purpose |  |  |  | information | summary |

## Five-year summary
2021 2020 2019 2018 2017
$m $m $m $m $m
Results
Gross premiums written 4,269.2 4,0 3 3.1 4,030.7 3,778.3 3,286.0
Net premiums written 2,955.0 2,750.4 2,678.8 2,581.5 2,403.0
Net premiums earned 2,919.9 2,752.2 2,635.6 2,573.6 2,416.2
Profit/(loss) before tax 190.8 (268.5) 53.1 135.6 37.8
Profit/(loss) for the year after tax 189.5 (293.7) 48.9 117.9 22.7
Assets employed
Intangible assets 313.1 298.9 278.0 204.6 186.0
Financial assets carried at fair value 6,041.3 6,116.8 5,539.0 5,029.7 5,139.6
Cash and cash equivalents 1,300.7 1, 5 7 7.2 1,115.9 1,288.8 8 67.8
Insurance liabilities and reinsurance assets (4,960.4) (5,468.8) (4,707.6 ) (4,244.9) (4,174.4)
Other net assets (155.4) (170.2) (35.6) (19.2) 298.2
Net assets 2,539.3 2,353.9 2,18 9.7 2,259.0 2, 317. 2
Net asset value per share (¢) 739.8 689.0 768.2 798.6 817.1
Key statistics
Basic earnings/(loss) per share (¢) 55.3 (91.6) 17. 2 41.6 8.1
Basic earnings/(loss) per share (p) 40.2 (71.5) 13.5 31.2 9.3
Diluted earnings/(loss) per share (¢) 54.7 (90.6) 16.9 40.8 11.6
Diluted earnings/(loss) per share (p) 39.8 (70.7) 13.3 30.6 9.0
Combined ratio (%) 93.2 114.5 106.8 94.4 98.8
Return on equity (%) 8.1 (11.8) 2.2 5.3 1.0
Dividends per share (¢) 34.5 – 13.8 41.9 39.8
Dividends per share (p) 25.3 – 11.1 32.8 29.0
†
Share price – high (p) 1,004.0 1,431.0 1,777.0 1,711.0 1,470.0
†
Share price – low (p) 770.0 666.4 1,213.0 1,332.0 9 97.5
†
Closing mid-market prices.
The five-year summary is unaudited.
208 Hiscox Ltd Report and Accounts 2021

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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
21700 03/22